<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-91599
Prospectus Supplement
dated November 29, 2000
(To the Prospectus dated April 28, 2000)
________________________________
IKON Receivables, LLC
Issuer $634,431,000
IOS Capital, Inc. Lease-Backed Notes, Series 2000-2
Originator and Servicer
________________________________
--------------------------------------------------------------------------------
[IOS LOGO]
You should read the section entitled "Risk Factors" starting on page S-8 of this
prospectus supplement and page 7 of the prospectus and consider these factors
before making a decision to invest in the notes.
This prospectus supplement may be used to offer and sell the notes only if
accompanied by the prospectus.
Offers of the notes will be made through the underwriters on a firm commitment
basis.
--------------------------------------------------------------------------------
The issuer will issue the four classes of notes shown in the table below.
The notes --
. Are backed by a pledge of assets of the issuer, primarily a pool of
equipment leases or contracts and related assets;
. Receive distributions beginning on December 15, 2000; and
. Currently have no trading market.
Credit enhancement for the notes will consist of --
. A reserve account that can be used to pay shortfalls in payments on
the notes;
. Overcollateralization resulting from the excess of the principal value
of the initial leases over the aggregate initial principal amount of
the notes; and
. A financial guaranty insurance policy issued by Ambac Assurance
Corporation unconditionally guaranteeing timely payment of interest
and ultimate payment of principal, as described in this prospectus
supplement.
[AMBAC LOGO]
<TABLE>
<CAPTION>
==========================================================================================================================
Underwriting
Initial Public Discount and
Issuance Amount Interest Rate Offering Price Commissions Net Proceeds
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A-1 Notes.. $193,532,000 6.66125% 100.00000% 0.150% $193,241,702.00
--------------------------------------------------------------------------------------------------------------------------
Class A-2 Notes.. $ 70,193,000 6.60% 99.99776% 0.180% $ 70,065,080.28
--------------------------------------------------------------------------------------------------------------------------
Class A-3 Notes.. $290,800,000 Variable/1/ 100.00000% 0.245% $290,087,540.00
--------------------------------------------------------------------------------------------------------------------------
Class A-4 Notes.. $ 79,906,000 Variable/2/ 100.00000% 0.375% $ 79,606,352.50
--------------------------------------------------------------------------------------------------------------------------
Total............ $634,431,000 $634,429,427.68 $1,428,752.90 $633,000,674.78
==========================================================================================================================
</TABLE>
1. The Class A-3 Notes are variable rate notes paying interest at a rate of
one month LIBOR plus 0.23%.
2. The Class A-4 Notes are variable rate notes paying interest at a rate of
one month LIBOR plus 0.27%.
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.
Chase Securities Inc.
Banc of America Securities LLC
Deutsche Banc Alex. Brown
Lehman Brothers
PNC Capital Markets
<PAGE>
No dealer, salesman or any other person has been authorized to give
any information or to make any representations other than those contained in
this prospectus supplement and the accompanying prospectus. If given or made,
the information or representations must not be relied upon. We are stating this
information as of the date of this prospectus supplement.
Table of Contents
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................................. S-4
Risk Factors............................................................................ S-8
The Issuer.............................................................................. S-9
The Servicer and the Originator......................................................... S-9
The Insurer and the Policy.............................................................. S-11
The Swap Agreement...................................................................... S-14
The Asset Pool.......................................................................... S-15
Description of the Notes................................................................ S-23
Prepayment and Yield Considerations..................................................... S-31
The Trustee............................................................................. S-37
Material Federal Income Tax Consequences................................................ S-37
ERISA Considerations.................................................................... S-38
Use of Proceeds......................................................................... S-39
Ratings of the Notes.................................................................... S-39
Underwriting............................................................................ S-39
Experts................................................................................. S-41
Legal Matters........................................................................... S-41
Prospectus
<CAPTION>
Page
----
<S> <C>
Important Information about this Prospectus and the Accompanying Prospectus Supplement.. 3
Prospectus Summary...................................................................... 4
Risk Factors............................................................................ 7
Where You Can Find More Information..................................................... 11
The Issuer.............................................................................. 12
The Asset Pools......................................................................... 12
Management's Discussion and Analysis of Financial Condition............................. 13
Directors and Executive Officers of the Manager of the Issuer........................... 13
Eligible Leases......................................................................... 14
Pool Factors............................................................................ 17
Use of Proceeds......................................................................... 17
The Originator's Leasing Business....................................................... 17
The Trustee............................................................................. 20
Description of the Notes................................................................ 21
Description of the Transaction Documents................................................ 27
Legal Aspects of the Lease Receivables.................................................. 33
Material Federal Income Tax Consequences................................................ 35
Ratings................................................................................. 40
ERISA Considerations.................................................................... 40
Plan of Distribution.................................................................... 40
Legal Opinions.......................................................................... 40
Experts................................................................................. 40
Index Of Terms.......................................................................... 42
</TABLE>
S-2
<PAGE>
Important Notice About the Information Presented in This Prospectus
Supplement and the Accompanying Prospectus
We provide information to you about the notes in two separate
documents that progressively provide more detail: (1) the accompanying
prospectus, which provides general information, some of which may not apply to
your series of notes, and (2) this prospectus supplement, which describes the
specific terms of your series of notes.
This prospectus supplement does not contain complete information about
the offering of the notes. Additional information is contained in the
prospectus. You are urged to read both this prospectus supplement and the
prospectus in full. We cannot sell the notes to you unless you have received
both this prospectus supplement and the prospectus .
If the prospectus contemplates multiple options, you should rely on
the information in this prospectus supplement as to the applicable option.
The issuer has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 with respect to the
notes offered by this prospectus supplement. This prospectus supplement and the
prospectus, which form a part of the registration statement, omit information
contained in the registration statement pursuant to the rules and regulations of
the Securities and Exchange Commission. You may inspect and copy the
registration statement at the Public Reference Room at the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C., and the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You can obtain copies of these materials at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, the Securities and
Exchange Commission maintains a site on the World Wide Web containing reports,
proxy materials, information statements and other items. The address is
http://www.sec.gov.
We include cross-references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The table of contents in this prospectus supplement
and the table of contents included in the accompanying prospectus provide the
pages on which these captions are located.
S-3
<PAGE>
Summary
. This summary highlights selected information from this prospectus
supplement and does not contain all of the information that you need to
consider in making your investment decision. To understand all of the terms
of the offering of the notes, read carefully this entire prospectus
supplement and the accompanying prospectus.
. This summary provides an overview of calculations, cash flows and other
information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
Lease-Backed Notes
Series 2000-2
Issuer
IKON Receivables, LLC, a Delaware special purpose limited liability company.
Originator
IOS Capital, Inc., a Delaware corporation formerly known as IKON Capital, Inc.
Seller
IKON Receivables-1, LLC, a Delaware special purpose limited liability company.
Servicer
. IOS Capital, Inc.
. The servicer's principal executive offices are located at 1738 Bass Road,
P.O. Box 9115, Macon, Georgia 31208.
Trustee
. The Chase Manhattan Bank, a New York banking corporation.
. The trustee's offices are located at 450 West 33/rd/ Street, New York, New
York 10001-2697.
Insurer
Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance corporation.
The Asset Pool
The issuer will pledge property to secure payments on the notes. The pledged
assets will include:
. a pool of office equipment leases or contracts, including installment sale
contracts, and related assets;
. cash on deposit in the reserve account and the collection account;
. rights under the swap agreement described below; and
. other assets as described in detail elsewhere in this prospectus
supplement.
The Leases
. On or prior to the issuance date, IOS Capital, Inc. will contribute to IKON
Receivables-1, LLC, a pool of office equipment leases, including conditional
sale and other contracts, and IKON Receivables-1, LLC will transfer them to the
issuer. Payments on the notes will be made from payments on these leases.
. The leases will relate to various items or types of office equipment.
Initially, a substantial portion relates to copiers.
. The leases are triple-net leases, which means that the lessee is required
to pay all taxes, maintenance and insurance associated with the equipment. The
leases are noncancellable by the lessees. All payments under the leases are
absolute, unconditional obligations of the lessees. The leases provide that the
payments are not subject to set-off or reduction without the lessor's consent.
. The aggregate principal value of the pool of leases at any time will be
calculated by discounting their remaining payments (except for certain minor
charges and delinquent payments) at a rate equal to 7.68%.
. The issuer will pay amounts due on the notes from payments on the leases.
Noteholders should not rely on the sale of leased equipment for payments on the
notes.
S-4
<PAGE>
Issuance Date
On or about December 7, 2000.
Cut-Off Date
The opening of business on November 1, 2000.
Payment Date
The 15th day of each month if the 15th is a business day. If the 15th is not a
business day, the payment date will be the following day that is a business day.
The first payment date will be December 15, 2000.
Determination Date
Five business days before the payment date. The trustee will calculate the
amounts to be paid on the notes on this date.
Due Period
Payments made on each payment date will relate to the collections received in
respect of the prior calendar month.
Record Date
The last business day preceding a payment date unless the notes are no longer
book-entry notes. If the notes are definitive notes, the record date is the last
business day of the month preceding a payment date.
Stated Maturity Dates
If the notes have not already been paid in full, the issuer will pay the
outstanding principal amount of the notes in full on the payment dates in the
following months:
Class A-1 December 2001
Class A-2 September 2002
Class A-3 October 2004
Class A-4 July 2007
Final payment on the notes will probably be earlier than the stated maturity
dates listed above for the related class of notes.
Optional Redemption
. The issuer may, on any payment date, redeem the notes when the total
discounted lease balance is less than or equal to 10% of the total discounted
lease balance of the leases as of November 1, 2000.
. If a redemption occurs, you will receive a final distribution equaling the
entire unpaid principal balance of the notes plus any accrued and unpaid
interest.
Denominations
. The issuer will issue the notes in minimum denominations of $1,000 and
integral multiples of $1,000.
. One note in each class may be issued in another denomination.
Payments on the Notes
Each month, the issuer will distribute the amounts received on the leases and
any other amounts available for these purposes as follows:
. Interest Distributions. On each payment date, the issuer will pay interest
at the applicable interest rate that accrued during the prior interest accrual
period.
. Principal Distributions. On each payment date, the issuer will pay
principal in reduction of the outstanding principal balance of the notes.
. Principal payments will be an amount usually based on the decrease in the
principal value of the leases between determination dates. The issuer will pay
principal in the following priority:
. to the Class A-1 noteholders only, until the principal amount on the Class
A-1 Notes has been reduced to zero an amount equal to the decrease in the
principal value of the leases;
. when the Class A-1 Notes have been paid in full to the Class A-2
noteholders only, until the principal amount on the Class A-2 Notes has
been reduced to zero, an amount generally equal to approximately 86.21542%
of the decrease in the principal value of the leases;
. when the Class A-2 Notes have been paid in full, to the Class A-3
noteholders only, until the principal amount on the Class A-3 Notes has
been reduced to zero, an amount generally equal to approximately 86.21542%
of the decrease in the principal value of the leases;
. when the Class A-3 Notes have been paid in full, to the Class A-4
noteholders, until the principal amount on the Class A-4 Notes has been
reduced
S-5
<PAGE>
to zero, an amount generally equal to approximately 86.21542% of the
decrease in the principal value of the leases.
This general description of distributions of principal on the notes is subject
to targets and floors which may result in additional principal payments. We
refer you to "Descriptions of the Notes--Distributions" in this prospectus
supplement for further information regarding the payment of interest and
principal on the notes.
Credit Enhancement
The credit enhancement available to you will consist of the following:
. Reserve Account. A reserve account will be set up in the name of the
trustee for the benefit of the noteholders. Funds in the reserve account will be
used to pay shortfalls in amounts due to noteholders. The issuer will initially
deposit 1% of the initial principal value of the leases into the reserve
account.
. Overcollateralization. Additional credit enhancement is provided because
the initial principal amount of the notes is less than the initial principal
value of the leases in the asset pool.
. Insurance Policy. The issuer will obtain a noncancellable insurance policy
from Ambac Assurance Corporation with respect to the notes. This insurance
policy will unconditionally and irrevocably guarantee payments to you of
interest and principal, but subject to specific terms and conditions set forth
under the heading "The Insurer and the Policy" in this prospectus supplement.
We refer you to "The Insurer and the Policy" and "Description of the Notes--
Principal Payments" and "--Reserve Account" in this prospectus supplement for
more detail.
Swap Agreement
. The issuer will enter into a swap agreement with a counterparty for the
benefit of the noteholders. Under the swap agreement, the counterparty's
payments will be calculated at LIBOR and the issuer's payments will be
calculated at the assumed fixed swap rate of 6.475%.
. To the extent that interest on any payment date at LIBOR exceeds interest
calculated at the assumed fixed swap rate:
. the counterparty will be obligated to pay an amount equal to the excess to
the issuer; and
. that payment will constitute a portion of available funds.
. Likewise under the swap agreement, to the extent that interest calculated
at the assumed fixed swap rate exceeds interest calculated at LIBOR, the
issuer will be obligated to pay an amount equal to the excess to the
counterparty.
. Lehman Brothers Special Financing Inc., a Delaware corporation, will be the
counterparty to the issuer under the swap agreement. The obligations of the
counterparty under the swap agreement will be fully and unconditionally
guaranteed by Lehman Brothers Holdings Inc., a Delaware corporation. Lehman
Brothers Holdings Inc. currently has a "A" long-term unsecured senior debt
credit rating from Standard & Poor's and a "A2" long-term unsecured senior
debt credit rating from Moody's.
Material Federal Income Tax Consequences
For federal income tax purposes:
. Dewey Ballantine LLP, special tax counsel to issuer, is of the opinion that
the notes will be treated as indebtedness and the issuer will not be treated as
an association (or a publicly traded partnership) taxable as a corporation. By
your acceptance of a note, you agree to treat the notes as indebtedness.
. Interest on the notes will be taxable as ordinary income when actually or
constructively received by a holder on the cash method of accounting and when
accrued by a holder on the accrual method of accounting.
. Dewey Ballantine LLP has prepared the discussion under "Material Federal
Income Tax Consequences" in the prospectus and this prospectus supplement and is
of the opinion that this discussion is correct in all material respects.
Legal Investment
The Class A-1 Notes will be eligible securities for purchase by money market
funds under rule 2a-7 under the Investment Company Act of 1940, as amended.
S-6
<PAGE>
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in the prospectus and this prospectus supplement, pension,
profit-sharing and other employee benefit plans, as well as individual
retirement accounts, may purchase notes. Investors should consult with their
counsel regarding the applicability of the Employee Retirement Income Security
Act of 1974, as amended, before purchasing a note.
Ratings
. The issuer will not issue the notes unless they have been assigned the
following ratings:
Initial Ratings
-----------------------
Moody's S&P
Class A-1 P-1 A-1+
Class A-2 Aaa AAA
Class A-3 Aaa AAA
Class A-4 Aaa AAA
. You must not assume that the ratings will not be lowered, qualified or
withdrawn by the rating agencies.
S-7
<PAGE>
Risk Factors
In addition to the risk factors discussed in the prospectus, prospective
investors should consider, among other things, the following additional factors
in connection with the purchase of the notes:
<TABLE>
<S> <C>
Geographic Concentrations of Leases Adverse economic conditions or other factors affecting any state or
May Adversely Affect the Leases and region where a high concentration of lessees under the leases are
Payments on the Notes located could adversely affect the performance of the leases. As of
the opening of business on November 1, 2000, lessees with respect to
approximately 16.16%, 9.15%, 8.53%, and 5.99% of the leases (based
on the statistical discounted present value of the leases) were
located in Texas, Pennsylvania, California and Georgia, respectively.
No other state accounts for more than 5% of the leases.
If adverse events or economic conditions were particularly severe in
those geographic regions or in the event a lessee or group of lessees
in those geographic regions experienced financial difficulties, the
lessees may be unable to pay or may not make timely payments. If these
events or conditions occur, you may experience delays in receiving
payments on the notes and suffer loss of your investment. The issuer
is unable to determine and has no basis to predict, for any state or
region, whether any events like these have occurred or may occur, or to
what extent any events like these may affect the leases or the
repayment of amounts due under the notes.
Ratings of the Notes are Dependent The ratings of the notes will depend primarily on the creditworthiness
upon Creditworthiness of Insurer of the insurer as the provider of the financial guarantee insurance
policy relating to the notes. There is a risk that any reduction in
any of the insurer's financial strength ratings would result in a
reduction in the ratings of the notes.
Any Failure by the Counterparty to The notes will be dependent upon payments to be made by the
Pay Amounts Owed Under the Swap counterparty under the swap agreement for receipt of the full amount of
Agreement Would Reduce the Funds interest on the notes. Any shortfall in the payment of interest on the
Available to Pay Interest on the notes due entirely to the failure of the counterparty to make a
Notes required payment under the swap agreement will be funded by the insurer
as an insured payment. To the extent the insurer fails to make such
payment, the noteholders would bear any resulting deficiency in
proportion to the amount of interest payable on each class of notes on
such payment date.
The obligations of the counterparty under the swap agreement will be
fully and unconditionally guaranteed by Lehman Brothers Holdings Inc.
and will be secured in a manner satisfactory to the rating agencies
and the insurer. In the event that Lehman Brothers Holdings Inc.'s
long-term unsecured senior debt ceases to be rated at a level
acceptable to the insurer, the counterparty will be obligated either to
(a) post additional collateral or establish other arrangements to more
adequately secure its obligations under the swap agreement or (b)
arrange for a substitute counterparty to assume the rights and
obligations of the counterparty under the swap agreement, in either
case (i) to the satisfaction of the insurer and (ii) so that the
ratings of the notes are maintained or, if applicable, restored to
their level immediately prior to the downgrading or withdrawal of
Lehman Brothers Holdings Inc.'s debt rating. If the counterparty fails
to take either of these actions, the issuer, with the consent of the
insurer, will be entitled to terminate the swap agreement and to claim
from the counterparty the fair market value of a replacement swap from
a counterparty satisfactory to the insurer. The insurer will bear the
risk of any failure by the counterparty to take the actions required of
it and the risk of any inability of the issuer to obtain a replacement
swap agreement. However upon the occurrence of a default by the
insurer under the insurance policy, the noteholders would bear such
risk.
</TABLE>
S-8
<PAGE>
The Issuer
The Issuer, IKON Receivables, LLC, is a special purpose Delaware
limited liability company all of the membership interests in which are held by
the Seller, IKON Receivables-1, LLC, also a special purpose Delaware limited
liability company. All of the membership interests in the Seller are, in turn,
owned by the Originator and Servicer, IOS Capital, Inc.
The Notes will be secured solely by the Asset Pool (as defined
herein). The Issuer does not have, nor is it expected in the future to have, any
significant assets other than the Asset Pool (and similar asset pools securing
other series of notes) and the sole sources of funds available for payment of
the Notes are the Asset Pool, including the Reserve Account and proceeds of the
financial guaranty insurance policy described herein (the "Policy").
The Issuer has a limited operating history and will not engage in any
business other than activities incidental to the acquisition of the Asset Pool
(and asset pools relating to other series of notes) and the issuance of the
Notes (and other series of notes). The financial statements of the Issuer for
its fiscal year ended September 30, 2000 are hereby incorporated by reference to
the Issuer's Form 10-K filed on November 22, 2000.
The Issuer will pledge its interest in the Asset Pool to The Chase
Manhattan Bank, as Trustee for the benefit of holders of the Notes and issue the
Notes pursuant to an indenture between the Issuer and the Trustee.
The Servicer and the Originator
General. The Lease Receivables (as defined below) will be acquired by
the Seller from IOS Capital and by the Issuer from the Seller. IOS Capital, a
Delaware corporation headquartered in Macon, Georgia will serve as the Servicer
of the Leases. IOS Capital is a wholly-owned subsidiary of IKON Office
Solutions, Inc. ("IKON Office Solutions"). Additional information about IOS
Capital is contained in the Prospectus. See "The Originator's Leasing Business"
in the Prospectus.
As of September 30, 2000, on an unaudited basis, IOS Capital had
approximately $3,064,090,000 in assets, approximately $2,652,244,000 in
liabilities and approximately $411,846,000 in shareholders' equity.
Historical Delinquency and Loss Information. General delinquency
information for leases in IOS Capital's servicing portfolio (including and
excluding funded leases) not charged-off, and general charge-off information for
leases in IOS Capital's servicing portfolio (including and excluding funded
leases), are set forth in the tables below. Lease receivables in the Servicer's
servicing portfolio are charged-off between 121 and 181 days past due depending
upon credit quality and the reasons for delinquency in accordance with the IKON
risk management policy. Any account more than 181 days past due requires IKON
corporate authorization to waive charge-off. Any subsequent recoveries offset
gross losses.
As described under "The Originator's Leasing Business - Types of
Leases" in the Prospectus, the lease portfolio of IOS Capital consists of direct
financing leases and funded leases, although the Leases included in the Asset
Pool consist solely of direct financing leases. Funded leases are contractual
obligations between IKON Office Solutions and IKON Office Solutions' operational
units which have been financed by IOS Capital. Direct financing leases are
contractual obligations between IOS Capital and the customer and represent the
majority of IOS Capital's lease portfolio. The tables below separately set forth
historical delinquency and loss information for IOS Capital's lease portfolio
including funded leases and excluding funded leases for the respective periods
or dates indicated.
S-9
<PAGE>
Summary Historical Delinquency Data (Entire Portfolio)
IOS Capital Portfolio
<TABLE>
<CAPTION>
As at:
-----------------------------------------------------------------------------------------------------------
September 30, 2000 September 30, 1999 September 30, 1998 September 30, 1997 September 30, 1996
-------------------- -------------------- -------------------- -------------------- -------------------
($ millions) %* ($ millions) %* ($ millions) %* ($ millions) %* ($ millions) %*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current $2,446.5 87.1% $2,397.6 89.6% $2,292.2 90.8% $1,882.1 89.4% $1,299.7 86.5%
31-60 Days 213.4 7.6 157.9 5.9 136.3 5.4 113.7 5.4 106.7 7.1
61-90 Days 92.7 3.3 74.9 2.8 63.1 2.5 65.3 3.1 54.1 3.6
Over 90 Days 55.6 2.0 45.5 1.7 32.8 1.3 44.2 2.1 42.1 2.8
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $2,808.2 100.0% $2,675.9 100.0% $2,524.4 100.0% $2,105.3 100.0% $1,502.6 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance.
Summary Historical Loss Data (Entire Portfolio)
IOS Capital Portfolio
<TABLE>
<CAPTION>
For the Fiscal Year Ended:
------------------------------------------------------------------------------------------------------
September 30, September 30, September 30, September 30, September 30,
2000 1999 1998 1997 1996
--------------- -------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Average Portfolio Balance
for the Period
($ millions)* $2,705 $2,621 $2,394 $1,891 $1,275
Gross Charge-offs**
($ millions) $ 72.5 $ 79.2 $ 98.8 $ 51.6 $ 29.9
Gross Charge-offs as a %
of the Average Portfolio
Balance for the Period** 2.7% 3.0% 4.1% 2.7% 2.3%
</TABLE>
* Average Portfolio Balance at September 30 in each of fiscal years 1996
through 2000 was calculated by adding the ending servicing portfolio
balance for each of the four quarters of such fiscal year and dividing by
four.
** Information with respect to net charge-offs is not available. Lease
receivables in the Servicer's servicing portfolio are charged-off between
121 and 181 days past due depending upon credit quality and the reasons for
delinquency in accordance with the IKON risk management policy.
Summary Historical Delinquency Data (Without Funded Leases)
IOS Capital Portfolio
<TABLE>
<CAPTION>
As at:
----------------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 1998 1997
----------------- ----------------- ------------------ ----------------
($ million) *% ($ million) *% ($ millions) *% ($ millions) *%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current $2,076.9 85.6% $1,903.0 87.0% $1,656.0 87.4% $1,363.3 85.7%
31-60 Days 205.7 8.5 161.9 7.4 138.3 7.3 116.1 7.3
61-90 Days 89.2 3.7 76.6 3.5 64.4 3.4 65.2 4.1
91-120 Days 33.2 1.4 37.2 1.7 30.3 1.6 27.0 1.7
Over 120 Days 20.1 0.8 8.7 0.4 5.7 0.3 19.1 1.2
-------- ----- -------- ----- -------- ----- -------- -----
Total $2,425.1 100.0% $2,187.4 100.0% $1,894.7 100.0% $1,590.7 100.0%
</TABLE>
* Represents lease portfolio receivables as a percentage of the total
portfolio balance.
S-10
<PAGE>
Summary Historical Loss Data (Without Funded Leases)
IOS Capital Portfolio
<TABLE>
<CAPTION>
For the Fiscal Year Ended:
--------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
2000 1999 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Average Portfolio Balance
for the Period ($ millions)* $2,307 $2,062 $1,797 $1,447
Gross Charge-offs
($ millions)** $ 70.0 $ 67.2 $ 80.5 $ 47.4
Gross Charge-offs as a % of
the Average Portfolio
Balance for the Period** 3.0% 3.3% 4.5% 3.3%
</TABLE>
* Average Portfolio Balance at September 30 in fiscal years 1997,
1998, 1999 and 2000 was calculated by adding the ending servicing
portfolio balance for each of the four quarters of such fiscal
year and dividing by four.
** Information with respect to net charge-offs is not available.
Lease receivables in the Servicer's servicing portfolio are
charged-off between 121 and 181 days past due depending upon
credit quality and the reasons for delinquency in accordance with
the IKON risk management policy.
Gross charge-offs for IOS Capital's portfolio excluding funded leases
increased to $70 million, or 3.0% of the average portfolio balance excluding
funded leases, for the year ended September 30, 2000 from $67.2 million, or
3.3%, for the year ended September 30, 1999. Of the remaining incremental
increase in gross charge-offs over fiscal year 1997, approximately $15.7 million
resulted from a change in IOS Capital's charge-off policy in mid-1998. This new
policy increased charge-offs, reflecting previously unrecognized charge-offs and
new restrictions on exceptions to the charge-off policy. Prior to the
implementation of the revised charge-off policy, the individual IKON Office
Solutions operational units had the authority to make exceptions to the charge-
off policy on leases over 120 days past due for customers that the operational
units judged were likely to pay. The revised policy defines specific exceptions
to the charge-off policy based on company-wide standardized credit risk
management criteria and requires specific evidence of a customer's ability to
bring the lease to a current status. Exceptions for leases that are between 121
and 180 days past due require approval by the credit review team at IOS Capital
to avoid charge-off. Exceptions for leases beyond 181 days past due require
approval by members of a senior executive management team at IKON Office
Solutions. The revised policy promotes the constant and timely recognition of
losses.
There can be no assurance that the levels of delinquency and loss
reflected in the tables above are or will be indicative of the performance of
the Leases in the future.
The Insurer and the Policy
General. The information set forth in this section has been provided
by Ambac Assurance Corporation ("Ambac" or the "Insurer") for inclusion in this
Prospectus Supplement. No representation is made by any of the Underwriters (as
defined herein), the Issuer, IOS Capital, or any of their affiliates as to the
accuracy or completeness of the information.
The Insurer. Ambac is a Wisconsin-domiciled stock insurance
corporation regulated by the Office of the Commissioner of Insurance of the
State of Wisconsin and licensed to do business in 50 states, the District of
Columbia, the Commonwealth of Puerto Rico and the Territory of Guam. Ambac
primarily insures newly issued municipal and structured finance obligations.
Ambac is a wholly-owned subsidiary of Ambac Financial Group, Inc. (formerly
AMBAC Inc.), a 100% publicly-held company. Moody's Investors Service Inc.
("Moody's"), Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and Fitch IBCA, Inc. ("Fitch IBCA") have each assigned
a triple-A financial strength rating to Ambac.
The consolidated financial statements of Ambac and its subsidiaries as
of December 31, 1999 and 1998, and for each of the years in the three-year
period ended December 31, 1999, prepared in accordance with
S-11
<PAGE>
generally accepted accounting principles, included in the Annual Report on Form
10-K of Ambac Financial Group, Inc. (which was filed with the Commission on
March 30, 2000, Commission File No. 1-10777), and the unaudited consolidated
financial statements of Ambac and its subsidiaries as of September 30, 2000 and
for the periods ending September 30, 2000 and September 30, 1999, included in
the Quarterly Report on Form 10-Q of Ambac Financial Group, Inc. for the period
ended September 30, 2000 (which was filed with the Commission on November 13,
2000), are hereby incorporated by reference into this Prospectus Supplement and
shall be deemed to be a part hereof. Any statement contained in a document
incorporated herein by reference shall be modified or superseded for the
purposes of this Prospectus Supplement to the extent that a statement contained
herein by reference herein also modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus Supplement.
All financial statements of Ambac and its subsidiaries included in
documents filed by Ambac Financial Group, Inc. with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes shall be deemed to be incorporated by
reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of those documents.
The following table sets forth the capitalization of Ambac as of
December 31, 1998, December 31, 1999, and September 30, 2000, respectively, in
conformity with generally accepted accounting principles.
Ambac Assurance Corporation
Consolidated Capitalization Table
(Dollars in Millions)
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1998 1999 2000
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Unearned premiums................... $1,303 $1,442 $1,508
Other liabilities................... 548 524 479
------ ------ ------
Total liabilities................... $1,851 $ 1966 $1,987
------ ------ ------
Stockholder's equity:
Common stock..................... 82 82 82
Additional paid-in capital....... 541 752 757
Accumulated other
comprehensive income (loss)... 138 (92) (17)
Retained earnings................ 1,405 1,674 1,915
------ ------ ------
Total stockholder's equity.......... $2,166 $2,416 $2,737
------ ------ ------
Total liabilities and
stockholder's equity............ $4,017 $4,382 $4,724
====== ====== ======
</TABLE>
For additional financial information concerning Ambac and its
subsidiaries, see the audited and unaudited financial statements of Ambac and
subsidiaries incorporated by reference herein. Copies of the financial
statements of Ambac incorporated herein by reference and copies of Ambac's
annual statement for the year ended December 31, 1999 prepared in accordance
with statutory accounting standards are available, without charge, from Ambac.
The address of Ambac's administrative offices and its telephone number are One
State Street Plaza, New York, New York, 10004 and (212) 668-0340.
Ambac makes no representation regarding the Notes or the advisability
of investing in the Notes and makes no representation regarding, nor has it
participated in the preparation of, this Prospectus Supplement other than the
information supplied by Ambac and presented under the heading "The Insurer and
the Policy" and in the financial statements incorporated herein by reference.
S-12
<PAGE>
The Policy. The following summary of the terms of the Policy does not
purport to be complete and is qualified in its entirety by reference to the
Policy.
The Insurer will issue a financial guaranty insurance policy (the
"Policy") with respect to the Notes in favor of the Trustee for the benefit of
the Noteholders. The Policy unconditionally guarantees the payment of Insured
Payments (as defined herein) on the Notes. The Insurer will make each required
Insured Payment, other than with respect to Preference Amounts, to the Trustee
on the later of (i) the Payment Date (as defined herein) on which the Insured
Payment is distributable to the Noteholders pursuant to the Indenture; and (ii)
the third Business Day following the Business Day on which the Insurer shall
have received telephonic or telegraphic notice, subsequently confirmed in
writing, or written notice by registered or certified mail, from the Trustee,
specifying that an Insured Payment is due in accordance with the terms of the
Policy. The Insurer will pay any Insured Payment that is a Preference Amount on
the third Business Day following the Business Day on which the Insurer has
received a certified copy of a final non-appealable order requiring the return
of the Preference Amount, and other documentation as is reasonably required by
the Insurer, in a form satisfactory to the Insurer, provided that if this
documentation is received after 12:00 noon (New York City time) on that Business
Day, it will be deemed to have been received on the following Business Day.
The Insurer's obligation under the Policy will be discharged to the
extent that funds are received by the Trustee for distribution to the
Noteholders, whether or not the funds are properly distributed by the Trustee.
The Insurer will be subrogated to all of the Noteholders' rights to
payment on the Notes to the extent of the payments made under the Policy and
shall be deemed to the extent of payments so made to be a registered Noteholder
for purposes of payment. Payments under the Policy will be made only at the
time set forth in the Policy and no accelerated payments shall be made
regardless of any acceleration of any of the Notes, unless the acceleration is
at the sole option of the Insurer.
The Policy does not cover shortfalls, if any, attributable to the
liability of the Issuer or the Trustee for withholding taxes, if any (including
interest and penalties in respect of that liability), any prepayment penalty or
other accelerated payment, which at any time may become due on or with respect
to any Note, including as a result of any Acceleration Event (as defined
herein), nor against any risk other than nonpayment, including failure of the
Trustee to make any payment due to the Noteholders. The Policy does not cover,
and Insured Payments do not include, any shortfalls due to the application of
the Soldiers' and Sailors' Relief Act.
For purposes of the Policy, "Noteholders" does not and may not include
the Issuer, the Seller or the Servicer.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which commercial banking institutions in the cities in which the
principal office of the Trustee, the Insurer and the Servicer are located are
authorized or obligated by law or executive order to remain closed.
"Insured Payment" means (a) on any Payment Date, the excess, if any,
of (i) the related Interest Payments (as defined herein) over (ii) the related
Available Funds (as defined herein), (b) on any Business Day, any Preference
Amount (without duplication), (c) on the Payment Date in December, 2001, the
outstanding Note Principal Balance of the Class A-1 Notes then outstanding to
the extent Available Funds are not sufficient to make the payment on that
Payment Date, (d) on the Payment Date in September, 2002, the outstanding Note
Principal Balance of the Class A-2 Notes then outstanding to the extent
Available Funds are not sufficient to make the payment on that Payment Date, (e)
on the Payment Date in October, 2004, the outstanding Note Principal of the
Class A-3 Notes then outstanding to the extent Available Funds are not
sufficient to make the payment on that Payment Date, and (f) on the Payment Date
in July, 2007, the outstanding Note Principal Balance of the Class A-4 Notes
then outstanding to the extent Available Funds are not sufficient to make the
payment on that Payment Date.
"Note Principal Balance" means, as of any date of determination and
with respect to each Class of Notes, the principal balance of the related class
of Notes on or about December 7, 2000 (the "Issuance Date") less any amounts
actually distributed as principal thereon.
S-13
<PAGE>
"Preference Amount" means any payment of principal or interest on a
Note to a Noteholder by or on behalf of the Trustee which has been deemed to be
a preferential transfer and theretofore recovered from the Noteholder by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code (11 U.S.C.)
as amended from time to time, in accordance with a final non-appealable order of
a court having competent jurisdiction.
The Policy is noncancellable. The Policy expires and terminates
without any action on the part of the Insurer or any other person on the date
that is one year and one day following the date on which the Notes have been
paid in full.
The Policy is issued under and pursuant to and shall be construed
under, the laws of the State of New York, without giving effect to the conflict
of laws principles thereof.
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY
FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
Drawings Under the Policy. On each Determination Date, the Trustee
will determine, based on the servicing report with respect to such Determination
Date, whether an Insured Payment is required to be paid for the Notes for the
related Payment Date. If the Trustee determines that an Insured Payment is
required to be paid for the related Payment Date, the Trustee will complete a
Notice in the form of Exhibit A to the Policy and submit it to the Insurer no
later than 12:00 noon New York City time on the third Business Day preceding
that Payment Date as a claim for an Insured Payment. If the Trustee receives a
certified copy of an order of the appropriate court that any amount previously
distributed to a Noteholder has been avoided in whole or in part as a Preference
Amount, the Trustee shall so notify the Insurer and shall comply with the
provisions of the Policy to obtain payment by the Insurer of such Preference
Amount.
Under the Indenture, the Insurer has the option to deliver funds to
the Trustee to provide for payment of fees or expenses of any provider of
services to the Issuer or to be added to Available Funds to the extent that a
drawing under the Policy otherwise would be required.
The Swap Agreement
The Issuer will enter into a swap agreement (the "Swap Agreement")
with Lehman Brothers Special Financing Inc., a Delaware corporation, as
counterparty (the "Counterparty") for the benefit of the Noteholders and the
Insurer. The obligations of the Counterparty under the Swap Agreement will be
fully and unconditionally guaranteed by Lehman Brothers Holdings Inc., a
Delaware corporation ("Holdings"). Holdings currently has a long-term unsecured
senior debt credit rating of "A" from S&P and a long-term unsecured senior debt
credit rating of "A2" from Moody's.
With respect to the Swap Agreement relating to the Class A-3 Notes and
the Class A-4 Notes, the Counterparty shall have the right to assign its rights
and obligations under such Swap Agreement to a replacement counterparty subject
to the consent of the Insurer and the requirement that each Rating Agency rating
the Notes confirms that such assignment will not cause such Rating Agency to
lower or withdraw its then current rating on the Notes.
Under the Swap Agreement, the Counterparty's payments will be
calculated at LIBOR and the Issuer's payments will be calculated at the assumed
fixed swap rate of 6.475%. To the extent that on any payment date interest
calculated at LIBOR exceeds interest calculated at the assumed fixed swap rate:
. the Counterparty will be obligated to pay an amount equal to the
excess to the Issuer; and
. the payment will constitute a portion of the Available Funds.
Likewise, under the swap agreement to the extent that interest calculated at the
assumed fixed swap rate exceeds interest calculated at LIBOR, the Issuer will be
obligated to pay an amount equal to the excess to the Counterparty.
S-14
<PAGE>
The obligations of the Counterparty and Holdings under the Swap
Agreement will be secured in a manner satisfactory to the Insurer and the Rating
Agencies. In the event that Holdings' long-term unsecured senior debt ceases to
be rated at a level acceptable to the Insurer, the Counterparty will be
obligated either to (a) post additional collateral or establish other
arrangements to more adequately secure its obligations under the Swap Agreement
or (b) arrange for a substitute Counterparty to assume the rights and
obligations of the Counterparty under the Swap Agreement, in either case (i) to
the satisfaction of Insurer and (ii) so that the ratings of the notes are
maintained or, if applicable, restored to their level immediately prior to the
downgrading or withdrawal of Holdings' debt rating. If the Counterparty fails
to take either of these actions, the Issuer, with the consent of the Insurer,
will be entitled to terminate the Swap Agreement and to claim from the
Counterparty the cost of obtaining a replacement swap agreement from a
Counterparty satisfactory to the Insurer. The Insurer will bear the risk of any
failure by the Counterparty to take the actions required of it and the risk of
any inability of the Issuer to obtain a replacement swap agreement. However,
upon the occurrence of default by the insurer under the insurance policy, the
Noteholders would bear such risk.
The Asset Pool
Lease Receivables. The Notes will be secured by a segregated pool of
assets (the "Asset Pool") that includes a portfolio of chattel paper composed of
leases, leases intended as security agreements and installment sales contracts
acquired or originated by IOS Capital (the "Leases"), together with the
equipment financing portion of each periodic rental payment due under the Leases
on or after the opening of business on November 1, 2000 (the "Cut-Off Date") and
all related Casualty Payments, Retainable Deposits, and Termination Payments
(each as defined herein). The Leases, including the Issuer's security interest
in the underlying equipment and other property relating to the Leases (such
equipment and property, the "Equipment"), are referred to as the "Lease
Receivables."
The Issuer will not have and the Asset Pool will not include any
ownership interest in any Equipment, including any residual interest in any
Equipment after the related Lease has been paid in full.
The Leases and Equipment will be acquired by the Seller from the
Originator pursuant to an Assignment and Servicing Agreement among the Seller,
the Originator and the Issuer (the "Assignment and Servicing Agreement").
Contemporaneously, the Lease Receivables will be transferred from the Seller to
the Issuer pursuant to the Assignment and Servicing Agreement and pledged by the
Issuer to the Trustee for the benefit of the Noteholders.
The Leases were originated by the Originator or acquired by the
Originator from sellers or other originators in accordance with the Originator's
specified underwriting criteria. The underwriting criteria applicable to the
Leases included in the Asset Pool are described in all material respects under
the heading "The Originator's Leasing Business" in the Prospectus.
The Leases are triple-net leases which means that the terms of the
leases require the lessees to pay all taxes, maintenance and insurance
associated with the related Equipment and provide that they are noncancellable
by the businesses and individual business owners who lease the Equipment (each,
a "Lessee"). Under some conditions, IOS Capital may consent to prepayment of
the Leases. Generally, IOS Capital will consent to a prepayment of a Lease
where the Lessee is upgrading the related Equipment. All payments under the
Leases are absolute, unconditional obligations of the related Lessees. The
Leases provide that payments under the Leases are not subject to setoff or
reduction without the consent of the related lessor (each a "Lessor"). Payments
on the Leases will be made by the Lessees to IOS Capital, as servicer, for the
account of IKON Receivables, LLC.
Each Lessee entered into its Lease for specified Equipment which may
be designated in schedules incorporated into the Lease. To the extent not set
forth in the Lease, the schedules, among other things, establish the periodic
payments and the term of the Lease with respect to the Equipment. The Leases
follow one of several different forms of lease agreement, with occasional
modifications which do not materially affect the basic terms of the Leases. As
of the Cut-Off Date, the weighted average remaining term of the Leases in the
Asset Pool is 41.6 months. The Originator will represent and warrant that, as
of the Cut-Off Date, all Leases will be current or less than 61 days delinquent
and, as of the initial Determination Date, all Lessees will have made the first
scheduled payment.
S-15
<PAGE>
IOS Capital offers a cost per copy program, pursuant to which Lessees
pay a fixed monthly payment for which they are allowed a minimum monthly copy
usage. The monthly fixed payment represents equipment financing and a monthly
maintenance charge (the "Maintenance Charge"). The Maintenance Charge is
remitted to IKON Office Solutions monthly upon collection by IOS Capital. IOS
Capital calculates usage monthly using copier meter readings. To the extent that
the usage has exceeded the monthly copy allowance, IOS Capital bills the Lessee
incremental charges for the excess copy usage ("Excess Copy Charge"). This
Excess Copy Charge is remitted to IKON Office Solutions upon collection by IOS
Capital.
Lessees covenant to maintain the Equipment and install it at a place
of business agreed upon with IOS Capital. Delivery, transportation, repairs and
maintenance are the obligation of the Lessees, and all Lessees are required to
carry, at their respective expense, liability and replacement cost insurance
under terms acceptable to IOS Capital. Proceeds of this insurance will
constitute Casualty Payments (as defined herein). Any defaults under a Lease
permit a declaration, as immediately due and payable, of all remaining Lease
Payments under the Lease and the immediate return of the Equipment. Generally,
any payments received ten days or more after the scheduled payment date are
subject to late charges. Late charges will be retained by the Servicer to the
extent Servicer Advances (as defined below) are made by the Servicer.
"Non-Performing Leases" are (a) Leases that have become more than 120
days delinquent, (b) Leases that have been accelerated by the Servicer or (c)
Leases that the Servicer has determined to be uncollectible in accordance with
the Servicer's customary practices. IOS Capital will represent and warrant
that, as of the Cut-Off Date, none of the Leases are Non-Performing Leases and
the Seller will represent in the Assignment and Servicing Agreement that at the
time of transfer of any Lease to the Issuer, the Lease was not a Non-Performing
Lease.
The Servicer's customary practices with respect to Non-Performing
Leases include any action necessary to cause, or attempt to cause, the Lessee
thereunder to cure its non-performance or to terminate the Lease and recover the
outstanding amount owed under the Lease and all damages resulting from any
default on the Non-Performing Leases. The Servicer will take action that is
consistent with the customary practices of servicers in the equipment leasing
industry. In addition, the Servicer will use its best efforts to sell or lease
any Equipment that is subject to a Non-Performing Lease in a timely manner and
upon the most favorable terms and conditions available at the time in order to
recoup any amounts still due on the Lease.
Certain Information with Respect to the Leases and the Lessees. The
following tables present information about the Leases and the Lessees as of the
Cut-Off Date. The Issuer is not aware of any trends or changes relating to the
data in the following tables that would be expected to impact the future
performance of the pool of Leases. As used in these tables, the "Statistical
Discounted Present Value of the Leases" means an amount equal to the future
remaining scheduled Lease Payments (as defined herein) from the Leases as of the
Cut-Off Date, discounted at a rate equal to 7.85%. The aggregate Statistical
Discounted Present Value of the Leases as of the Cut-Off Date is
$702,984,744.02. Certain leases may be removed from the Asset Pool prior to the
Issuance Date in an amount no more than 5% of the Asset Pool. This removal would
result in a decrease in the Initial Principal Amount of the Notes issued on the
Issuance Date. However, this removal would not materially affect the
distribution of the Leases detailed below. Figures in the tables may not add up
to the stated totals due to rounding. See "Description of the Notes--Discounted
Present Value of the Leases."
S-16
<PAGE>
Composition of the Initial Leases
Aggregate Statistical Discounted Present Value of the Leases: $702,984,744.02
Number of Leases: 47,687
Average Statistical Discounted Present Value of the Leases: $14,741.64
Weighted Average Original Term: 51.9 months
Weighted Average Remaining Term: 41.6 months
Weighted Average Seasoning: 10.2 months
S-17
<PAGE>
Distribution of Leases by State/(1)/
Percentage of
Percentage Statistical Statistical
of Discounted Discounted
Number of Number of Present Present Value
State Leases Leases Value of Leases of Leases
-------------------- --------- ---------- --------------- -------------
Alabama 571 1.20% $ 7,835,250.11 1.11%
Alaska 64 0.13 1,515,451.93 0.22
Arizona 822 1.72 14,715,244.85 2.09
Arkansas 158 0.33 3,786,564.01 0.54
California 3,029 6.35 59,998,047.48 8.53
Colorado 608 1.27 10,391,580.79 1.48
Connecticut 1,109 2.33 19,061,519.82 2.71
Delaware 24 0.05 266,211.40 0.04
District of Columbia 176 0.37 4,168,504.30 0.59
Florida 2,384 5.00 31,235,776.94 4.44
Georgia 2,705 5.67 42,078,265.33 5.99
Hawaii 50 0.10 954,574.46 0.14
Idaho 231 0.48 3,018,164.03 0.43
Illinois 1,043 2.19 17,258,786.46 2.46
Indiana 860 1.80 16,517,541.08 2.35
Iowa 424 0.89 5,015,513.72 0.71
Kansas 339 0.71 4,724,725.76 0.67
Kentucky 445 0.93 6,932,636.79 0.99
Louisiana 29 0.06 215,754.06 0.03
Maine 219 0.46 4,742,426.31 0.67
Maryland 518 1.09 9,473,734.15 1.35
Massachusetts 1,742 3.65 32,104,072.24 4.57
Michigan 1,454 3.05 17,736,920.67 2.52
Minnesota 1,298 2.72 17,029,983.68 2.42
Mississippi 322 0.68 3,328,519.33 0.47
Missouri 1,441 3.02 22,738,438.27 3.23
Montana 42 0.09 397,511.78 0.06
Nebraska 217 0.46 3,218,155.00 0.46
Nevada 622 1.30 8,086,250.36 1.15
New Hampshire 249 0.52 4,749,160.83 0.68
New Jersey 438 0.92 8,969,040.20 1.28
New Mexico 218 0.46 3,932,478.98 0.56
New York 1,323 2.77 21,621,478.45 3.08
North Carolina 1,367 2.87 19,773,288.03 2.81
North Dakota 2 0.00 10,598.98 0.00
Ohio 893 1.87 17,705,021.28 2.52
Oklahoma 239 0.50 5,272,599.08 0.75
Oregon 764 1.60 7,792,905.32 1.11
Pennsylvania 4,058 8.51 64,303,852.76 9.15
Rhode Island 335 0.70 5,388,241.94 0.77
South Carolina 662 1.39 13,801,591.07 1.96
South Dakota 59 0.12 541,675.63 0.08
Tennessee 291 0.61 4,739,847.54 0.67
Texas 10,842 22.74 113,625,232.96 16.16
Utah 281 0.59 4,666,548.54 0.66
Vermont 123 0.26 1,538,382.26 0.22
Virginia 876 1.84 13,973,827.06 1.99
Washington 1,276 2.68 15,713,876.11 2.24
West Virginia 48 0.10 522,487.74 0.07
Wisconsin 297 0.62 4,704,662.88 0.67
Wyoming 100 0.21 1,091,821.25 0.16
============================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
============================================================================
(1) Based on the location of the lessees.
S-18
<PAGE>
Distribution of Leases by Lease Balance
<TABLE>
<CAPTION>
Percentage of
Statistical
Statistical Discounted
Statistical Discounted Percentage of Discounted Present
Present Value of the Number of Number of Present Value of Value of
Leases Leases Leases Leases Leases
-------------------------- --------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
0.01 - 5,000.00 17,931 37.60% $ 44,798,756.22 6.37%
5,000.01 - 10,000.00 11,816 24.78 85,881,200.16 12.22
10,000.01 - 15,000.00 5,976 12.53 73,080,265.61 10.40
15,000.01 - 20,000.00 3,370 7.07 58,299,359.57 8.29
20,000.01 - 25,000.00 2,113 4.43 47,281,344.13 6.73
25,000.01 - 30,000.00 1,412 2.96 38,554,286.81 5.48
30,000.01 - 40,000.00 1,641 3.44 56,840,894.30 8.09
40,000.01 - 50,000.00 1,032 2.16 45,973,848.85 6.54
50,000.01 - 60,000.00 609 1.28 33,357,753.84 4.75
60,000.01 - 70,000.00 397 0.83 25,617,143.01 3.64
70,000.01 - 80,000.00 297 0.62 22,208,655.36 3.16
80,000.01 - 90,000.00 226 0.47 19,140,704.80 2.72
90,000.01 - 100,000.00 162 0.34 15,326,115.84 2.18
100,000.01 - 150,000.00 370 0.78 44,662,155.08 6.35
150,000.01 - 200,000.00 144 0.30 24,551,103.76 3.49
200,000.01 - 300,000.00 102 0.21 24,852,597.22 3.54
300,000.01 - 400,000.00 43 0.09 14,893,715.30 2.12
400,000.01 - 500,000.00 23 0.05 10,112,852.25 1.44
500,000.01 - 600,000.00 9 0.02 4,887,353.59 0.70
600,000.01 - 700,000.00 4 0.01 2,509,157.46 0.36
700,000.01 - 800,000.00 2 0.00 1,494,467.37 0.21
800,000.01 - 900,000.00 3 0.01 2,470,253.32 0.35
900,000.01 - 1,000,000.00 1 0.00 961,809.87 0.14
1,000,000.01 - 1,500,000.00 3 0.01 3,674,429.86 0.52
1,500,000.01 - 2,000,000.00 1 0.00 1,554,520.44 0.22
================================================================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
================================================================================================================
</TABLE>
Distribution of Leases by Remaining Term to Maturity
<TABLE>
<CAPTION>
Percentage of
Statistical
Statistical Discounted
Percentage of Discounted Present
Number of Number of Present Value of Value of
Remaining Term (months) Leases Leases Leases Leases
--------------------------- ---------- ------------- ---------------- -------------
<S> <C> <C> <C> <C>
1 - 12 4,428 9.29% $ 15,262,253.95 2.17%
13 - 24 8,684 18.21 62,845,137.26 8.94
25 - 36 15,569 32.65 190,353,354.83 27.08
37 - 48 8,043 16.87 143,776,441.62 20.45
49 - 60 10,945 22.95 287,104,284.67 40.84
61 - 72 18 0.04 3,643,271.69 0.52
================================================================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
================================================================================================================
</TABLE>
S-19
<PAGE>
Distribution of Leases by Original Term to Maturity
<TABLE>
<CAPTION>
Percentage of
Statistical
Statistical Discounted
Percentage of Discounted Present
Number of Number of Present Value of Value of
Original Term (months) Leases Leases Leases Leases
---------------------------- -------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
1 - 12 530 1.11% $ 1,663,053.84 0.24%
13 - 24 1,589 3.33 9,334,664.06 1.33
25 - 36 15,595 32.70 141,820,058.64 20.17
37 - 48 10,974 23.01 134,666,638.60 19.16
49 - 60 18,410 38.61 395,750,924.72 56.30
61 - 72 533 1.12 18,706,135.32 2.66
73 - 84 37 0.08 757,438.35 0.11
85 - 96 15 0.03 251,475.48 0.04
97 - 108 3 0.01 32,945.03 0.00
109 - 120 1 0.00 1,409.98 0.00
=====================================================================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
=====================================================================================================================
</TABLE>
Distribution of Leases by Purchase Option
<TABLE>
<CAPTION>
Percentage of
Statistical
Statistical Discounted
Percentage of Discounted Present
Number of Number of Present Value of Value of
Purchase Option Leases Leases Leases Leases
---------------------------- -------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Fair Market Value 45,062 94.50% $678,593,563.00 96.53%
Nominal Buyout 2,625 5.50 24,391,181.02 3.47
=====================================================================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
=====================================================================================================================
</TABLE>
Distribution of Leases by Delinquencies
<TABLE>
<CAPTION>
Percentage of
Statistical
Statistical Discounted
Percentage of Discounted Present
Number of Number of Present Value of Value of
Days Delinquent Leases Leases Leases Leases
---------------------------- -------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
0 - 30 44,081 92.44% $643,576,615.39 91.55%
31 - 60 3,606 7.56 59,408,128.63 8.45
=====================================================================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
=====================================================================================================================
</TABLE>
Distribution of Leases by Equipment Type
<TABLE>
<CAPTION>
Percentage of
Statistical
Statistical Discounted
Percentage of Discounted Present
Number of Number of Present Value of Value of
Equipment Type Leases Leases Leases Leases
---------------------------- -------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Digital/Multi-purpose Copier 21,593 45.28% $411,237,689.23 58.50%
Analog Copier 15,689 32.90 148,943,221.98 21.19
Color Copier 3,004 6.30 102,043,944.93 14.52
Fax Machine 5,380 11.28 18,779,397.66 2.67
Printer 479 1.00 12,858,617.13 1.83
Miscellaneous 1,542 3.23 9,121,873.08 1.30
=====================================================================================================================
Total: 47,687 100.00% $702,984,744.02 100.00%
=====================================================================================================================
</TABLE>
S-20
<PAGE>
Additions, Substitutions and Adjustments. Although the Leases provide
that they cannot be cancelled by the Lessees, IOS Capital has, from time to
time, permitted early termination by Lessees ("Early Lease Termination") or
other modifications of the Lease terms in circumstances more fully specified in
the Assignment and Servicing Agreement, including, without limitation, in
connection with a full or partial buy-out or equipment upgrade.
In the event of an Early Lease Termination which has been prepaid in
full or in part, the Issuer will have the option to reinvest the proceeds of the
related Lease ("Early Termination Lease") in one or more Leases having similar
characteristics as the terminated Lease (each, an "Additional Lease").
In addition, IOS Capital will have the option to substitute one or
more leases having similar characteristics (each, a "Substitute Lease") for (a)
Non-Performing Leases, (b) Leases subject to repurchase as a result of a breach
of representation and warranty (each a "Warranty Lease") and (c) Leases
following a modification or adjustment to its terms (each, an "Adjusted Lease").
The aggregate Discounted Present Value of the Non-Performing Leases for which
IOS Capital may substitute Substitute Leases is limited to an amount not in
excess of 10% of the aggregate Discounted Present Value of the Leases as of the
Cut-Off Date. The aggregate Discounted Present Value of Adjusted Leases and
Warranty Leases for which IOS Capital may substitute Substitute Leases is
limited to an amount not in excess of 10% of the aggregate Discounted Present
Value of the Leases as of the Cut-Off Date.
The terms of a Lease may be modified or adjusted for administrative
reasons or at the request of the Lessee or Lessor in a variety of circumstances,
including changes to the delivery date of equipment, the cost of equipment, the
components of leased equipment or to correct information when a Lease is entered
into IOS Capital's servicing system. These modifications may result in
adjustments to the lease commencement date, the monthly payment date, the amount
of the monthly payment or the equipment subject to a Lease.
Additional Leases and Substitute Leases will be originated using the
same credit criteria as the initial Leases. To the extent material, information
with respect to Additional or Substitute Leases will be included in periodic
reports filed with the Commission as are required under the Securities Exchange
Act of 1934. Each Substitute Lease and Additional Lease will be required to be
an Eligible Lease.
In no event will the aggregate scheduled Lease Payments, after the
inclusion of the Substitute Leases and Additional Leases, be less than the
aggregate scheduled Lease Payments prior to the substitution or reinvestment.
Additionally, the scheduled final Lease Payment for the Substitute Lease or
Additional Lease will be on or prior to the Payment Date in October, 2006, or,
to the extent the final scheduled Lease Payment for the Lease is due subsequent
to the Payment Date in October, 2006, only scheduled Lease Payments due on or
prior to that date will be included in the Discounted Present Value of the Lease
for the purpose of making any calculation under the Indenture.
In the event that an Early Lease Termination is allowed by IOS Capital
and an Additional Lease is not provided, the amount prepaid will be equal to at
least the Discounted Present Value of the terminated Lease, plus any delinquent
payments. See "The Asset Pool--The Leases."
Assignment and Servicing Agreement. In the Assignment and Servicing
Agreement, IOS Capital will make certain representations and warranties
regarding the Leases and the related Equipment. In the event that (a) any of
these representations and warranties proves at any time to have been inaccurate
in any material respect as of the Issuance Date or (b) any Lease is terminated
in whole or in part by a Lessee, or (c) any amounts due with respect to any
Lease are reduced or impaired, as a result of (i) any action or inaction by IOS
Capital (other than any action or inaction of IOS Capital, when acting as
Servicer, in connection with the enforcement of any Lease other than those
leases IOS Capital permitted to be terminated early in a manner consistent with
the provisions of the Assignment and Servicing Agreement) or (ii) any claim by
any Lessee against IOS Capital, and, in any such case, the event or condition
causing the inaccuracy, termination, reduction, impairment or claim has not been
cured or corrected within 30 days after the earlier of the date on which IOS
Capital is given notice thereof by the Issuer or the Trustee or the date on
which IOS Capital otherwise first has notice thereof, IOS Capital will purchase
the Lease and the related Equipment interests by paying to the Trustee for
deposit into the Collection Account, not later than the Determination Date next
following the expiration of the 30-day period, an amount at least equal to the
Discounted
S-21
<PAGE>
Present Value of the Lease plus any amounts previously due and unpaid thereon.
In the alternative, subject to the satisfaction of certain requirements set
forth in the Assignment and Servicing Agreement, IOS Capital will have the
option to substitute one or more Substitute Leases for a Warranty Lease. Any
inaccuracy in any representation or warranty with respect to (i) the priority of
the lien of the Indenture with respect to any Lease or (ii) the amount (if less
than represented) of the Lease Payments, Casualty Payments or Termination
Payments under any Lease will be deemed to be material.
The Servicer. The Servicer will service the Lease Receivables
pursuant to the Assignment and Servicing Agreement. The Servicer may delegate
its servicing responsibilities to one or more sub-servicers, but will not be
relieved of its liabilities with respect thereto.
Pursuant to the Assignment and Servicing Agreement, the Servicer will
forward Excess Copy Charges and Maintenance Charges to IKON Office Solutions and
may make Servicer Advances (as defined herein).
The Servicer will retain possession of the Leases and Lease files;
provided, however, that, the Servicer may be required, upon the written request
-------- -------
of the Insurer, to deliver the Leases and Lease files to the Trustee or other
custodian if the long-term debt rating assigned to the Servicer is downgraded
below BBB- by S&P or Baa3 by Moody's.
The Servicer will make representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
Assignment and Servicing Agreement. An uncured breach of any of these
representations or warranties that in any respect materially and adversely
affects the interests of the Noteholders will constitute a Servicer Event of
Default. See "Description of the Transaction Documents--Assignment and
Servicing Agreement--Servicer Events of Default" and "--Rights upon Servicer
Events of Default" in the Prospectus.
Remittance and Other Servicing Procedures. All payments on Leases
will be made by the Lessees to the order of the Servicer to the national lock
box account of the Servicer. The Servicer must deposit these payments (net of
amounts that the Servicer is entitled to retain or use to reimburse itself, or
must remit to third parties, such as IKON Office Solutions) in the Collection
Account within two Business Days of the receipt thereof. See "Description of
the Notes--Collection Account".
Servicing Compensation and Payment of Expenses. A servicing fee (the
"Servicing Fee") will be paid monthly to the Servicer on each Payment Date from
amounts in the Collection Account and will be calculated by multiplying one-
twelfth (or, in the case of the Initial Payment Date, a fraction of which the
number of days from the Issuance Date to the Initial Payment Date is the
numerator and 360 is the denominator) of 0.75% times the lesser of (i) the
Outstanding Principal Amount of the Notes or (ii) the Discounted Present Value
of the Performing Leases, each at the Determination Date for that Payment Date
before application of payments with respect thereto.
The Servicing Fee will be paid to the Servicer for servicing the Lease
Receivables and to pay certain administrative expenses in connection with the
Notes, including Trustee fees and certain Trustee expenses.
Reports to Noteholders. The Servicer or the Trustee, as applicable,
will forward or cause to be forwarded to each holder of record of each Class of
Notes statements or information with respect to the Asset Pool setting forth the
information specifically described in the Assignment and Servicing Agreement and
the Indenture, (as defined herein) which will include the statements and
information described under "Description of the Notes--Reports to Noteholders"
in the Prospectus.
Certain Rights of Insurer. Under the Transaction Documents, so long
as the Policy is outstanding and there is no Insurer Default, the Insurer will
be entitled to exercise substantially all of the rights of Noteholders and the
Noteholders will be precluded from exercising those rights without the prior
written consent of the Insurer. These rights include: (i) the right to remove
the Servicer or Trustee and to appoint or approve successors to the Servicer or
Trustee, (ii) the right to declare defaults or to waive defaults, (iii) the
right to institute
S-22
<PAGE>
proceedings in respect of the Transaction Documents or the Notes, and (iv) the
right to consent to or approve amendments or modifications to the Transaction
Documents.
An "Insurer Default" is a failure by the Insurer to make a payment
required under the Policy in accordance with the terms thereof.
Description of the Notes
General. The 6.66125% Class A-1 Lease-Backed Notes (the "Class A-1
Notes"), 6.60% Class A-2 Lease-Backed Notes (the "Class A-2 Notes"), Variable
Rate Class A-3 Lease-Backed Notes (the "Class A-3 Notes") and Variable Rate
Class A-4 Lease-Backed Notes (the "Class A-4 Notes" and, together with the Class
A-1 Notes, Class A-2 Notes and Class A-3 Notes, the "Notes") will be issued
pursuant to the Indenture. The following statements with respect to the Notes
is a summary of all material terms relating to the Notes. However, investors in
the Notes should review the Indenture, the form of which is filed as an exhibit
to the registration statement of which this Prospectus forms a part. Whenever
any particular section of the Indenture or any term used therein is referred to,
the section in the Indenture or the term used therein should be reviewed by you
in order to fully understand this offering.
The Issuer will agree in the Indenture and in the Notes to pay to the
Noteholders (i) the Initial Principal Amount and (ii) monthly interest at the
times, from the sources and on the terms and conditions set forth in the
Indenture and in the Notes. The Notes are debt obligations of the Issuer
secured by the Asset Pool. The Notes do not represent any interest in or a
recourse obligation of IOS Capital, the Insurer (except as provided in the
Policy), the Trustee or any of their affiliates other than the Issuer. The
Issuer is a special purpose company with limited assets. Consequently,
Noteholders must rely solely upon the Asset Pool and the Policy for payment of
principal of and interest on the Notes.
The initial principal amount of the Notes of each class will be
$193,532,000 for the Class A-1 Notes (the "Class A-1 Initial Principal Amount"),
$70,193,000 for the Class A-2 Notes (the "Class A-2 Initial Principal Amount"),
$290,800,000 for the Class A-3 Notes (the "Class A-3 Initial Principal Amount")
and $79,906,000 for the Class A-4 Notes (the "Class A-4 Initial Principal
Amount" and, together with the Class A-1 Initial Principal Amount, the Class A-2
Initial Principal Amount and the Class A-3 Initial Principal Amount, the "Class
A Initial Principal Amount").
The initial aggregate principal amount of the Notes will comprise the
initial principal amount (the "Initial Principal Amount") of the Notes. The
aggregate unpaid principal amount of the Notes outstanding at any time will
comprise the outstanding principal amount (the "Outstanding Principal Amount")
of the Notes as of that time.
Interest on the Notes will be payable as set forth under "Interest
Payments." Principal will be payable as set forth under "Principal Payments."
Notes may be presented to the corporate trust office of the Trustee for
registration of transfer or exchange. Notes may be exchanged without a service
charge, but the Trustee may require payment to cover taxes, other governmental
charges or any amounts necessary to indemnify the Trustee in accordance with the
terms of the Indenture.
Book-Entry Registration. The Noteholders may hold their notes through
The Depository Trust Company ("DTC") (in the United States) or Clearstream
Banking, societe anonyme ("Clearstream") and the Euroclear System ("Euroclear")
(in Europe) if they are participants of those systems, or indirectly through
organizations which are participants in those systems. See "Description of the
Notes--Book Entry Registration" in the Prospectus.
Discounted Present Value of the Leases. The discounted present value
of the Leases (the "Discounted Present Value of the Leases"), at any given time,
shall equal the future remaining scheduled Lease Payments on the Leases
(including Non-Performing Leases), discounted at a rate equal to 7.68% (the
"Discount Rate"). The discounted present value of the Performing Leases (the
"Discounted Present Value of the Performing Leases") equals the Discounted
Present Value of the Leases, reduced by all future remaining scheduled Lease
S-23
<PAGE>
Payments on the Non-Performing Leases, discounted at the Discount Rate. The
aggregate Discounted Present Value of the Leases as of the Cut-Off Date,
calculated at the Discount Rate, is $704,924,250.06. Certain of the information
set forth in this Prospectus Supplement is based on the Statistical Discounted
Present Value of the Leases as of the Cut-Off Date rather than on the basis of
the Discounted Present Value of the Leases as of the Cut-Off Date. However, the
Statistical Discounted Present Value of the Leases as of the Cut-Off Date does
not vary materially from the Discounted Present Value of the Leases as of the
Cut-Off Date. See "The Asset Pool--Certain Information with Respect to the
Leases and the Lessees."
Expected Maturity; Stated Maturity. The expected maturity dates of
the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes are
the Payment Dates in October, 2001, March, 2002, April, 2004 and May, 2005,
respectively. The stated maturity date with respect to the Class A-1 Notes is
the Payment Date in December, 2001, the stated maturity date with respect to the
Class A-2 Notes is the Payment Date in September, 2002, the stated maturity date
with respect to the Class A-3 Notes is the Payment Date in October, 2004, and
the stated maturity date with respect to the Class A-4 Notes is the Payment Date
in July, 2007. However, if all payments on the Leases are made as scheduled,
final payment with respect to the Notes would occur prior to stated maturity.
Determination Date. The determination date ("Determination Date")
with respect to each Payment Date is the fifth Business Day prior to that
Payment Date. On each Determination Date, the Servicer will determine the
amount of payments received on the Leases in respect of the immediately
preceding calendar month (each such period, a "Due Period") which will be
available for distribution on the Payment Date. See "Description of the Notes--
Distributions on Notes."
Payment Date. Payments on the Notes will be made on the fifteenth day
of each month (or if that day is not a Business Day, the next succeeding
Business Day), commencing on December 15, 2000, to holders of record on the last
Business Day preceding a Payment Date, or, if the notes are definitive notes,
the last Business Day of the month preceding a Payment Date (each, a "Record
Date"). See "Description of the Notes--Distributions on Notes."
Interest Payments. The Notes will bear interest from the Issuance
Date at the applicable interest rate for the respective class as set forth
below. The Interest Rate on the Class A-1 Notes, the Class A-3 Notes and the
Class A-4 Notes will be calculated on the basis of a year of 360 days and the
actual number of days in the interest accrual period payable on the Payment Date
to the person in whose name the Note was registered at the close of business on
the preceding Record Date. The Interest Rate on the Class A-2 Notes will be
calculated on the basis of a year of 360 days comprised of twelve 30-day months
payable on the Payment Date to the person in whose name the Note was registered
at the close of business on the preceding Record Date. The interest rate for
the Notes is as follows: 6.66125% per annum on the Class A-1 Notes and 6.60% per
annum on the Class A-2 Notes. The Class A-3 Notes and the Class A-4 Notes will
be variable rate notes and will receive interest at a rate equal to LIBOR plus
0.23% and LIBOR plus 0.27%, respectively. With respect to any particular class
of Notes, the "Interest Rate" refers to the applicable rate indicated in the two
preceding sentences. "LIBOR" means the London interbank offered rate for one-
month Eurodollar deposits appearing on the Telerate Screen Page 3750.
Calculation of the LIBOR Rate for the Class A-3 Notes and the Class A-
4 Notes. With respect to each Payment Date, LIBOR for the Class A-3 Notes and
Class A-4 Notes shall be established by the Trustee and as to any Interest
Accrual Period, LIBOR will equal the London interbank offered rate for
Eurodollar deposits for one month which appears on the Telerate Screen page 3750
as of 11:00 A.M., London time, on the second LIBOR Business Day prior to the
first day of such Interest Accrual Period. "Telerate Screen Page 3750" means
the display designated as page 3750 on the Telerate Service (or such other page
as may replace page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks). If such rate does not appear on such
page (or such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying LIBOR or
comparable rates as may be selected by the Trustee), the rate will be the
Reference Bank Rate. The "Reference Bank Rate" will be determined on the basis
of the rates at which deposits in U.S. Dollars are offered by the reference
banks (which shall be three major banks that are engaged in transactions in the
London interbank market, selected by the Trustee) as of 11:00 A.M., London time,
on the day that is two LIBOR Business Days prior to the immediately preceding
Payment Date to prime banks in the London interbank market for a period of one
month in amounts approximately equal to the principal amount of the Class A-3
S-24
<PAGE>
Notes and the Class A-4 Notes, then outstanding. The Trustee will request the
principal London office of each of the reference banks to provide a quotation of
its rate. If at least two such quotations are provided, the rate will be the
arithmetic mean of the quotations. If on such date fewer than two quotations
are provided as requested, the rate will be the arithmetic mean of the rates
quoted by one or more major banks in New York City, selected by the Trustee, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the principal amount of the Class A-3 Notes and the Class A-4 Notes, then
outstanding. If no such quotations can be obtained, the rate will be LIBOR for
the prior Payment Date. "LIBOR Business Day" means any day other than (i) a
Saturday or a Sunday or (ii) a day on which banking institutions in the State of
New York or in the city of London, England are required or authorized by law to
be closed.
On each Payment Date, the interest due (the "Interest Payments") with
respect to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes will be the interest that has accrued on those Notes since the
last Payment Date (or in the case of the first Payment Date, since the Issuance
Date) (each such period, an "Interest Accrual Period") at the applicable
Interest Rate applied to the then Outstanding Principal Amounts of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes,
respectively, after giving effect to payments of principal to the Class A-1
Noteholders, the Class A-2 Noteholders, the Class A-3 Noteholders and the Class
A-4 Noteholders, respectively, on the preceding Payment Date (or, in the case of
the first Payment Date, the Issuance Date), plus all previously accrued and
unpaid interest on the Notes. See "Description of the Notes--General" and
"Distributions on Notes."
Principal Payments. For each Payment Date, the Noteholders will be
entitled to receive payments of principal ("Principal Payments"), to the extent
funds are available therefor, in the priorities set forth in the Indenture and
described below and under "Description of the Notes--Distributions on Notes."
On each Payment Date, to the extent funds are available therefor, the Principal
Payment will be paid to the Noteholders in the following priority: (a) (i) to
the Class A-1 Noteholders only, until the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the Class A Principal Payment, then
(ii) to the Class A-2 Noteholders only, until the Outstanding Principal Amount
on the Class A-2 Notes has been reduced to zero, the Class A Principal Payment,
then (iii) to the Class A-3 Noteholders only, until the Outstanding Principal
Amount on the Class A-3 Notes has been reduced to zero, the Class A Principal
Payment, and then (iv) to the Class A-4 Noteholders, until the Outstanding
Principal Amount on the Class A-4 Notes has been reduced to zero, the Class A
Principal Payment; and (b) if an Acceleration Event has occurred, Additional
Principal will be distributed, as an additional principal payment, sequentially,
to the Class A-1 Noteholders, the Class A-2 Noteholders, the Class A-3
Noteholders and the Class A-4 Noteholders until the Outstanding Principal Amount
of each class has been reduced to zero.
"Additional Principal" with respect to each Payment Date equals the
excess, if any, of (i)(A) the Outstanding Principal Amount of the Notes plus the
Overcollateralization Balance as of the immediately preceding Payment Date after
giving effect to payments on that Payment Date, minus (B) the Discounted Present
Value of the Performing Leases as of the related Determination Date, over (ii)
the Class A Principal Payment to be paid on that Payment Date.
The "Class A Principal Payment" will equal (a) while the Class A-1
Notes are outstanding, (i) on all Payment Dates prior to the December 2001
Payment Date, the lesser of (1) the amount necessary to reduce the Outstanding
Principal Amount on the Class A-1 Notes to zero and (2) the difference between
(A) the Discounted Present Value of the Performing Leases as of the
Determination Date for the preceding Payment Date and (B) the Discounted Present
Value of the Performing Leases as of the related Determination Date, and (ii) on
and after the December 2001 Payment Date, the entire Outstanding Principal
Amount of the Class A-1 Notes and (b) after the Class A-1 Notes have been paid
in full, the amount necessary to reduce the aggregate Outstanding Principal
Amount of the Notes to the Class A Target Investor Principal Amount.
The "Class A Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the lesser of (a) the product of (i) the
Class A Percentage and (ii) the Discounted Present Value of the Performing
Leases as of the related Determination Date, and (b) the Discounted Present
Value of the Performing Leases as of the related Determination Date minus the
Overcollateralization Floor.
The "Class A Percentage" will be equal to approximately 86.21542%.
S-25
<PAGE>
An "Acceleration Event" will occur if: (i) a Servicer Event of Default
has occurred and is continuing (regardless of whether the rights and obligations
of the Servicer are terminated as a result of that Servicer Event of Default);
(ii) with respect to any Payment Date, the Overcollateralization Balance is less
than or equal to the Overcollateralization Floor, (iii) for any three
consecutive Due Periods, the average of the Annualized Default Rates for those
Due Periods is greater than 6.25%; or (iv) for any three consecutive Due
Periods, the average of the Delinquency Rates for those Due Periods is greater
than 8.0%.
The "Overcollateralization Balance" with respect to each Payment Date
is an amount equal to the excess, if any, of (a) the Discounted Present Value of
Performing Leases as of the related Determination Date over (b) the Outstanding
Principal Amount of the Notes as of that Payment Date after giving effect to all
principal payments made on that day.
The "Overcollateralization Floor" with respect to each Payment Date
means (a) 2.5% of the Discounted Present Value of the Leases as of the Cut-Off
Date, plus (b) the Cumulative Loss Amount with respect to that Payment Date,
minus (c) the amount on deposit in the Reserve Account (as defined herein) after
giving effect to withdrawals to be made on account of that Payment Date.
The "Cumulative Loss Amount" with respect to each Payment Date is an
amount equal to the excess, if any, of (a) the total of (i) the Outstanding
Principal Amount of the Notes as of the immediately preceding Payment Date after
giving effect to all principal payments made on that day, plus (ii) the
Overcollateralization Balance as of the immediately preceding Payment Date,
minus (iii) the lesser of (A) the Discounted Present Value of the Performing
Leases as of the Determination Date relating to the immediately preceding
Payment Date minus the Discounted Present Value of the Performing Leases as of
the related Determination Date and (B) Available Funds remaining after the
payment of the Policy premium, amounts owing the Servicer and in respect of
interest on the Notes on that Payment Date, over (b) the Discounted Present
Value of the Performing Leases as of the related Determination Date.
The "Annualized Default Rate" means for any Due Period, the sum as of
the related Determination Date of the Discounted Present Value of the Leases
that became Non-Performing Leases during that Due Period minus the sum of the
recoveries on Non-Performing Leases received during that Due Period, divided by
the Discounted Present Value of the Leases on the Determination Date immediately
preceding that Determination Date, multiplied by twelve.
The "Delinquency Rate" means for any Due Period, the sum as of the
related Determination Date of the Discounted Present Value of the Leases that
are 61 or more days delinquent, as of that Determination Date, divided by the
Discounted Present Value of the Leases on that Determination Date.
Collection Account. The Trustee will establish and maintain an
Eligible Account (as defined herein) (the "Collection Account") into which the
Servicer must deposit, as described in the Prospectus, all Lease Payments,
Casualty Payments, Retainable Deposits, Termination Payments, certain proceeds
from purchases by IOS Capital of Leases as a result of breaches of
representations and warranties and recoveries from Non-Performing Leases to the
extent IOS Capital has not substituted a Substitute Lease (except to the extent
required to reimburse unreimbursed Servicer Advances) (each as defined herein)
on or in respect of each Lease included in the Asset Pool within two Business
Days of receipt thereof. See "Description of the Notes--Collections" in the
Prospectus.
An "Eligible Account" is either (a) an account maintained with a
depository institution or trust company acceptable to each of the Rating
Agencies and, so long as no Insurer Default (as defined herein) shall have
occurred and be continuing, the Insurer, or (b) a trust account or similar
account acceptable to each of the Rating Agencies that is maintained with a
federal or state chartered depository institution, which may be an account
maintained with the Trustee.
A "Lease Payment" is the equipment financing portion of each fixed
periodic rental payment payable by a Lessee under a Lease. Casualty Payments,
Retainable Deposits, Termination Payments, prepayments of rent required pursuant
to the terms of a Lease at or before the commencement of the Lease, security
deposits, payments becoming due before the applicable Cut-Off Date and
supplemental or additional payments required by the terms of a Lease with
respect to taxes, insurance, maintenance (including, without limitation, any
Maintenance
S-26
<PAGE>
Charges) or other specific charges (including, without limitation, any Excess
Copy Charges), will not be Lease Payments.
A "Casualty Payment" is any payment pursuant to a Lease on account of
the loss, theft, condemnation, governmental taking, destruction, or damage
beyond repair (each, a "Casualty") of any item of Equipment subject thereto
which results, in accordance with the terms of the Lease, in a reduction in the
number or amount of any future Lease Payments due thereunder or in the
termination of the Lessee's obligation to make future Lease Payments thereunder.
A "Retainable Deposit" is any security or other similar deposit which
the Servicer has determined in accordance with its customary servicing practices
is not refundable to the related Lessee.
A "Termination Payment" is a payment payable by a Lessee under a Lease
upon the early termination of the Lease (but not on account of a casualty or a
Lease default) which may be agreed upon by the Servicer, acting in the name of
the Issuer, and the Lessee.
The following funds will be deposited into the Collection Account:
(a) Lease Payments;
(b) recoveries from Non-Performing Leases to the extent IOS Capital
has not substituted Substitute Leases for the Non-Performing
Leases;
(c) late charges received on delinquent Lease Payments not advanced
by the Servicer;
(d) proceeds from purchases by IOS Capital of Leases as a result of
breaches of representations and warranties to the extent IOS
Capital has not substituted Substitute Leases for those Leases;
(e) proceeds from investment of funds in the Collection Account and
the Reserve Account, if any;
(f) Casualty Payments;
(g) Retainable Deposits;
(h) Servicer Advances (as defined herein), if any, in respect of the
related Due Period;
(i) any amounts paid by the Counterparty to the Issuer pursuant to
the swap agreement;
(j) Termination Payments to the extent the Issuer does not reinvest
the Termination Payments in Additional Leases (as defined
herein); and
(k) proceeds, if any, received to redeem the Notes.
The foregoing funds on deposit in the Collection Account on each
Determination Date (excluding any Lease Payments not due during the related or
any prior Due Period), together with any funds deposited into the Collection
Account from the Reserve Account, will constitute "Available Funds".
The Servicer will not be required to deposit in the Collection
Account, and Available Funds will not include, cash flows realized from the sale
or release of the Equipment following the expiration dates of the Leases, other
than Equipment subject to Non-Performing Leases that have not been replaced.
The Servicer must deposit the funds referred to in clauses (a) through
(d), (f) and (j) above into the Collection Account within two Business Days of
receipt thereof by the Servicer. The funds referred to in clauses
S-27
<PAGE>
(e), (g), (h), (i) and (k) above are to be deposited into the Collection Account
on or prior to the related Payment Date.
Reserve Account. Prior to each Payment Date, the Trustee will
transfer from the Reserve Account to the Collection Account the amount specified
by the Servicer in the related Servicing Report representing investment earnings
on amounts held in the Reserve Account as of the related Determination Date.
The Trustee will establish and maintain an Eligible Account (the "Reserve
Account"). On the Issuance Date, the Issuer will make an initial deposit to the
Reserve Account in an amount equal to 1.00% of the Discounted Present Value of
the Leases as of the Cut-Off Date. In the event that Available Funds (exclusive
of amounts on deposit in the Reserve Account) are insufficient to pay the
Servicing Fee, unreimbursed Servicer Advances, the premium on the Policy,
Interest Payments on the Notes and the Class A Principal Payment (such payments,
the "Required Payments" and such shortfall, an "Available Funds Shortfall") on
any Payment Date, the Trustee will transfer from the Reserve Account to the
Collection Account an amount equal to the lesser of the funds on deposit in the
Reserve Account (the "Available Reserve Amount") and the amount of the
deficiency.
On each Payment Date, Available Funds remaining after the payment of
the Required Payments will be deposited into the Reserve Account to the extent
that the Required Reserve Amount exceeds the Available Reserve Amount. The
"Required Reserve Amount" equals the lesser of (a) 1.00% of the Discounted
Present Value of the Leases as of the Cut-Off Date and (b) the then Outstanding
Principal Amount of the Notes. Any amounts on deposit in the Reserve Account in
excess of the Required Reserve Amount will be released to the Issuer.
Distributions on Notes. The first Payment Date is December 15, 2000.
On each Determination Date, the Servicer will determine the Available Funds and
the Required Payments in respect of the related Payment Date.
For each Payment Date, the interest due with respect to the Notes will
be the interest that has accrued since the last Payment Date (or, in the case of
the first Payment Date, since the Issuance Date), at the applicable Interest
Rates applied to the Outstanding Principal Amount of each class, after giving
effect to payments of principal to Noteholders on the preceding Payment Date,
plus all previously accrued and unpaid interest on the Notes.
For each Payment Date, Principal Payments due with respect to the
Notes will be the Class A Principal Payment. In addition, if an Acceleration
Event occurs with respect to any Payment Date, Additional Principal will be
distributed, sequentially, as an additional principal payment on the Notes of
each class until the Outstanding Principal Amount of each class has been reduced
to zero.
On each Payment Date, the Trustee will make required payments of
principal and interest on the Notes from Available Funds.
Unless an Event of Default (as defined herein) and acceleration of the
Notes has occurred, on or before each Payment Date, the Servicer will instruct
the Trustee to apply or cause to be applied the Available Funds to make the
following payments in the following priority:
(a) to pay the Insurer the premium due under the Policy;
(b) to pay the Counterparty any amount due pursuant to the Swap
Agreement;
(c) to pay the Servicing Fee;
(d) to reimburse unreimbursed Servicer Advances (as defined herein)
in respect of a prior Payment Date;
(e) to make Interest Payments owing on the Class A Notes concurrently
to the Class A-1 Noteholders, Class A-2 Noteholders, Class A-3
Noteholders and Class A-4 Noteholders;
S-28
<PAGE>
(f) to pay the Insurer any unreimbursed Insured Payments and any
unreimbursed optional payments together with interest thereon at
a per annum rate equal to the greater of the Citibank, N.A. base
rate from time to time plus 2% or the then highest applicable
rate of interest on the Notes (the "Late Payment Rate");
(g) to make the Class A Principal Payment to (i) the Class A-1
Noteholders only, until the Outstanding Principal Amount on the
Class A-1 Notes is reduced to zero, then (ii) to the Class A-2
Noteholders only, until the Outstanding Principal Amount on the
Class A-2 Notes is reduced to zero, then (iii) to the Class A-3
Noteholders only, their respective pro rata shares, until the
Outstanding Principal Amount on the Class A-3 Notes is reduced to
zero, and finally (iv) to the Class A-4 Noteholders, until the
Outstanding Principal Amount on the Class A-4 Notes is reduced to
zero;
(h) if an Acceleration Event has occurred, to pay the Additional
Principal, if any, as an additional reduction of principal to the
Noteholders, in the order established in clause (f) above, until
the Outstanding Principal Amount on all of the Class A Notes has
been reduced to zero;
(i) to make a deposit to the Reserve Account in an amount equal to
the excess of the Required Reserve Amount over the Available
Reserve Amount; and
(j) to pay the Issuer the balance, if any.
Advances by the Servicer. Prior to any Payment Date, the Servicer
may, but will not be required to, advance (each, a "Servicer Advance") to the
Trustee an amount sufficient to cover delinquencies on some or all Leases with
respect to prior Due Periods. In the absence of any Servicer Event of Default,
the Servicer will be reimbursed for Servicer Advances from Available Funds on
the following Payment Date. See "Distributions on Notes" above.
Redemption. The Issuer may, at its option, redeem the Notes, as a
whole, at their principal amount, without premium, together with interest at the
applicable rate accrued to the date fixed for redemption if on any payment date
the Discounted Present Value of the Performing Leases is less than or equal to
10% of the Discounted Present Value of the Leases as of the Cut-Off Date. The
Issuer will give written notice of redemption to each Noteholder and the Trustee
at least 30 days before the Payment Date fixed for redemption. Upon deposit of
funds necessary to effect the redemption, the Trustee shall pay the remaining
unpaid principal amount on the Notes and all accrued and unpaid interest as of
the date fixed for redemption.
Events of Default and Notice Thereof. The following events, among
others, will be "Events of Default" with respect to the Notes:
(a) default in making Interest Payments on any Note when due and
payable;
(b) default in making Principal Payments at Stated Maturity;
(c) certain defaults in the performance of covenants or agreements or
breaches of representations or warranties by the Issuer;
(d) the occurrence of a Servicer Event of Default; or
(e) insolvency or bankruptcy events relating to the Issuer.
The Indenture will provide that the Trustee will give the Insurer and
the Noteholders notice of all uncured defaults actually known to it (the term
"default" to include the events specified above without applicable grace
periods).
S-29
<PAGE>
If an Event of Default occurs, the Trustee shall, at the written
direction of the Insurer (if no Insurer Default has occurred and is continuing)
or of holders of not less than 66-2/3% of the Outstanding Principal Amount of
the Notes (if an Insurer Default has occurred and is continuing), and, if an
Insurer Default has occurred and is continuing, may, declare the unpaid
principal amount of the Notes to be immediately due and payable together with
all accrued and unpaid interest thereon. However, if the Event of Default
involves other than non-payment of principal or interest on the Notes, the
Trustee may not sell the related Leases or any Equipment unless the sale is for
an amount greater than or equal to the Outstanding Principal Amount of the Notes
unless directed to do so in writing by the Insurer (if no Insurer Default has
occurred and is continuing) or the holders of 66-2/3% of the then Outstanding
Principal Amount of the Notes (if an Insurer Default has occurred and is
continuing).
Subsequent to an Event of Default and following any acceleration of
the Notes pursuant to the Indenture, any monies that may then be held or
thereafter received by the Trustee will be applied in the following order of
priority, on the date or dates fixed by the Trustee and, in case of the
distribution of the entire amount due on account of principal or interest, upon
presentation and surrender of the Notes:
First to the payment of all costs and expenses of collection incurred
-----
by the Trustee, the Insurer and the Noteholders (including the reasonable
fees and expenses of any counsel to the Trustee, the Insurer and the
Noteholders) and all fees and expenses (including legal fees and expenses)
owed to the Trustee under the Indenture;
Second to pay the Counterparty any amount due pursuant to the Swap
------
Agreement;
Third to the Servicer under the Assignment and Servicing Agreement
-----
(irrespective of whether IOS Capital or an affiliate of IOS Capital is then
acting as servicer), to the payment of all Servicing Fees and unreimbursed
Servicer Advances then due to that person;
Fourth first, to the payment of all accrued and unpaid interest on
------
the Outstanding Principal Amount of the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes pro rata to the date of payment
thereof, including (to the extent permitted by applicable law) interest on
any overdue installment of interest and principal from the maturity of that
installment to the date of payment thereof at the rate per annum equal to
the Class A-1 Interest Rate, Class A-2 Interest Rate, Class A-3 Interest
Rate and Class A-4 Interest Rate, respectively, second to the payment of
the Outstanding Principal Amount of the Class A-1 Notes, third, to the
payment of the Outstanding Principal Amount of the Class A-2 Notes, fourth,
to the payment of the Outstanding Principal Amount of the Class A-3 Notes,
and fifth, to the payment of the Outstanding Principal Amount of the Class
A-4 Notes; provided, that the Noteholders may allocate payments for
--------
interest, principal and premium at their own discretion, except that no
allocation shall affect the allocation of amounts or future payments
received by any other Noteholder;
Fifth to the payment of amounts then due the Insurer under the
-----
Indenture, including Policy premiums owed to the Insurer (other than
amounts referred to in clause Sixth);
Sixth to the payment to the Insurer of any unreimbursed Insured
-----
Payments and any unreimbursed optional payments made by the Insurer
together with interest thereon at the Late Payment Rate; and
Seventh to the payment of the remainder, if any, to the Issuer or any
-------
other person legally entitled thereto.
The Issuer will be required to furnish annually to the Trustee a
written statement of officers of the Issuer to the effect that to the best of
their knowledge the Issuer is not in default in the performance and observance
of the terms of the Indenture or, if the Issuer is in default, specifying the
default.
The Indenture will provide that the Trustee, at the written direction
of the Insurer (if no Insurer Default has occurred and is continuing) or the
holders of 66-2/3% in aggregate principal amount of the Notes then outstanding
(if an Insurer Default has occurred and is continuing), will have the right to
waive certain defaults and, subject to certain limitations, to direct the time,
method and place of conducting any proceeding for any remedy
S-30
<PAGE>
available to the Trustee or exercising any trust power conferred on the Trustee.
The Indenture will provide that in case an Event of Default occurs of which the
Trustee is actually aware (which shall not have been cured or waived), the
Trustee will be required to exercise its rights and powers under the Indenture
and to use the degree of care and skill in their exercise that a prudent man
would exercise or use in the circumstances in the conduct of his own affairs.
Subject to these provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of the Insurer or
the Noteholders unless such request is in writing and they have offered the
Trustee security or indemnity reasonably satisfactory to the Trustee. Upon
request of a Noteholder, the Trustee will provide information as to the
outstanding principal amount of each Class of Notes.
Modification of the Indenture. The Indenture may be modified and
amended as described under "Description of the Transaction Documents--
Modification of the Indenture" in the Prospectus. The consent of the Insurer (if
no Insurer Default has occurred and is continuing) or of the holders of 66-2/3%
of the aggregate principal amount of the Notes (if an Insurer Default has
occurred and is continuing) is required for any modification or amendment.
Servicer Events of Default. The events and conditions constituting
"Servicer Events of Default" under the Assignment and Servicing Agreement and
the rights of the Trustee on behalf of the Insurer or the Noteholders in the
event of a Servicer Event of Default are described in "Description of the
Transaction Documents--Servicer Events of Default" and "--Rights upon Servicer
Events of Default" in the Prospectus.
Servicer Events of Default shall include: (i) so long as IOS Capital
is the Servicer, if there shall be a downgrading of the long-term debt rating
assigned by Moody's or S&P to IOS Capital to "BB" or below or "Ba2" or below, as
the case may be; (ii) if for any three consecutive Due Periods, the average of
the Annualized Default Rates for these Due Periods is greater than 8.0%; and
(iii) if for any three consecutive Due Periods, the average of the Delinquency
Rates for these Due Periods is greater than 10.0%.
Security for the Notes. Repayment of the Notes will be secured by (a)
a first priority security interest in the Leases perfected by filing UCC
financing statements against the Issuer, the Seller and IOS Capital, (b) a first
priority security interest in the Issuer's security interest in the Equipment
perfected by filing UCC financing statements against the Issuer and the Seller
and (c) a first priority security interest in all funds in the Collection
Account and the Reserve Account.
Prepayment and Yield Considerations
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the Leases may be in the form of scheduled payments, prepayments or
liquidations due to default, casualty and other events, which cannot be
specified at present. Any payments may result in distributions to Noteholders of
amounts which would otherwise have been distributed over the remaining term of
the Leases. In general, the rate of payments may be influenced by a number of
other factors, including general economic conditions. The rate of principal
payments with respect to any class may also be affected by any purchase of the
underlying Leases by IOS Capital pursuant to the Assignment and Servicing
Agreement. In this event, the purchase price will decrease the Discounted
Present Value of the Performing Leases, causing the corresponding weighted
average life of the Notes to decrease. See "Risk Factors--Prepayments and
Related Reinvestment May Reduce Your Yield" in the Prospectus.
In the event a Lease becomes a Non-Performing Lease, a Warranty Lease
or an Adjusted Lease, IOS Capital will have the option to substitute a
Substitute Lease; provided that any substitution will be limited to (i) an
--------
aggregate amount not to exceed 10% of the Discounted Present Value of the Leases
as of the Cut-Off Date with respect to Non-Performing Leases and (ii) an
aggregate amount not to exceed 10% of the Discounted Present Value of the Leases
as of the Cut-Off Date with respect to Adjusted Leases and Warranty Leases. In
addition, in the event of an Early Lease Termination resulting in a Lease having
been prepaid in full, IOS Capital will have the option to transfer an Additional
Lease. The Substitute Leases and Additional Leases will have a Discounted
Present Value equal to or greater than that of the Leases being replaced and the
monthly payments on the Substitute Leases or Additional Leases will be at least
equal to those of the terminated Leases through the term of the terminated
Leases.
S-31
<PAGE>
In the event that an Early Lease Termination is allowed by IOS Capital and a
Substitute Lease is not provided, the amount prepaid will be equal to at least
the Discounted Present Value of the Early Termination Lease, plus any delinquent
payments.
The effective yield to holders of the Notes will depend upon, among
other things, the amount of and rate at which principal is paid to Noteholders.
The after-tax yield to Noteholders may be affected by lags between the time
interest income accrues to Noteholders and the time the related interest income
is received by the Noteholders.
The following charts set forth the percentage of the Initial Principal
Amount of the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4
Notes which would be outstanding on the Payment Dates set forth below assuming a
Conditional Prepayment Rate ("CPR") of 0%, 7%, 10% and 12%, respectively, which
in each case was calculated using a discount rate of 7.68%. The Initial
Statistical Principal Amounts of the Class A-1 Notes, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes are $193,532,000, $70,193,000, $290,800,000 and
$79,906,000, respectively. The "Statistical Class A Percentage" for the Class A
Notes is equal to 86.21542%. This information is hypothetical and is set forth
for illustrative purposes only. The CPR assumes that a fraction of the
outstanding Leases in the Asset Pool is prepaid on each Payment Date, which
implies that each Lease in the Asset Pool is equally likely to prepay. This
fraction, expressed as a percentage, is annualized to arrive at the Conditional
Payment Rate for the Leases in the Asset Pool. The CPR measures prepayments
based on the outstanding discounted present value of the Leases discounted at
7.68%, after the payment of all scheduled payments on the Leases during the
related Due Period. The CPR further assumes that all Leases are the same size
and amortize at the same rate and that each Lease will be either paid as
scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of scheduled monthly Lease Payments as of the Cut-Off Date,
assume that the Issuer does not exercise its option to redeem the Notes (except
as indicated), assume that no Acceleration Event has occurred, assume that the
amount on deposit in the Reserve Account on each Payment Date is equal to the
Required Reserve Amount, assume that payments on the Notes are made on each
Payment Date (and each such date is assumed to be the fifteenth day of each
applicable month) and assume the Issuance Date is December 7, 2000 and the first
Payment Date is December 15, 2000.
S-32
<PAGE>
<TABLE>
<CAPTION>
Percentage of the Initial Principal Amounts at the Respective CPR Set Forth
Below
================================================================================
0%
---------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
15-Dec-00 89 100 100 100
15-Jan-01 80 100 100 100
15-Feb-01 70 100 100 100
15-Mar-01 61 100 100 100
15-Apr-01 52 100 100 100
15-May-01 42 100 100 100
15-Jun-01 33 100 100 100
15-Jul-01 23 100 100 100
15-Aug-01 14 100 100 100
15-Sep-01 5 100 100 100
15-Oct-01 0 89 100 100
15-Nov-01 0 68 100 100
15-Dec-01 0 46 100 100
15-Jan-02 0 25 100 100
15-Feb-02 0 4 100 100
15-Mar-02 0 0 96 100
15-Apr-02 0 0 91 100
15-May-02 0 0 86 100
15-Jun-02 0 0 81 100
15-Jul-02 0 0 76 100
15-Aug-02 0 0 71 100
15-Sep-02 0 0 67 100
15-Oct-02 0 0 62 100
15-Nov-02 0 0 57 100
15-Dec-02 0 0 53 100
15-Jan-03 0 0 49 100
15-Feb-03 0 0 44 100
15-Mar-03 0 0 40 100
15-Apr-03 0 0 36 100
15-May-03 0 0 32 100
15-Jun-03 0 0 28 100
15-Jul-03 0 0 25 100
15-Aug-03 0 0 21 100
15-Sep-03 0 0 18 100
15-Oct-03 0 0 15 100
15-Nov-03 0 0 12 100
15-Dec-03 0 0 10 100
15-Jan-04 0 0 7 100
15-Feb-04 0 0 4 100
15-Mar-04 0 0 2 100
15-Apr-04 0 0 0 97
15-May-04 0 0 0 88
15-Jun-04 0 0 0 79
15-Jul-04 0 0 0 70
15-Aug-04 0 0 0 62
15-Sep-04 0 0 0 53
15-Oct-04 0 0 0 45
15-Nov-04 0 0 0 38
15-Dec-04 0 0 0 30
15-Jan-05 0 0 0 23
15-Feb-05 0 0 0 16
15-Mar-05 0 0 0 9
15-Apr-05 0 0 0 3
15-May-05 0 0 0 0
Weighted Average Life/(1)/
(years) 0.41 1.05 2.17 3.87
First Principal Date Dec-00 Oct-01 Mar-02 Apr-04
Expected Final Maturity Oct-01 Mar-02 Apr-04 May-05
Weighted Avg. Life to 3.58
Call (years)
Optional Clean-Up Call N/A N/A N/A Jul-04
Date
</TABLE>
/(1)/ The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note and Class A-4 Note is determined by (a) multiplying the amount of
cash distributions in reduction of the Outstanding Principal Amount of
the respective Note by the number of years from the Issuance Date to the
relevant Payment Date, (b) adding the results, and (c) dividing the sum
by the Initial Principal Amount of the applicable class.
S-33
<PAGE>
<TABLE>
<CAPTION>
Percentage of the Initial Principal Amounts at the Respective CPR Set Forth
Below
================================================================================
7% CPR
---------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
15-Dec-00 87 100 100 100
15-Jan-01 76 100 100 100
15-Feb-01 64 100 100 100
15-Mar-01 53 100 100 100
15-Apr-01 42 100 100 100
15-May-01 31 100 100 100
15-Jun-01 20 100 100 100
15-Jul-01 10 100 100 100
15-Aug-01 0 98 100 100
15-Sep-01 0 74 100 100
15-Oct-01 0 50 100 100
15-Nov-01 0 26 100 100
15-Dec-01 0 3 100 100
15-Jan-02 0 0 95 100
15-Feb-02 0 0 90 100
15-Mar-02 0 0 84 100
15-Apr-02 0 0 79 100
15-May-02 0 0 74 100
15-Jun-02 0 0 69 100
15-Jul-02 0 0 64 100
15-Aug-02 0 0 60 100
15-Sep-02 0 0 55 100
15-Oct-02 0 0 50 100
15-Nov-02 0 0 46 100
15-Dec-02 0 0 42 100
15-Jan-03 0 0 37 100
15-Feb-03 0 0 33 100
15-Mar-03 0 0 29 100
15-Apr-03 0 0 26 100
15-May-03 0 0 22 100
15-Jun-03 0 0 19 100
15-Jul-03 0 0 15 100
15-Aug-03 0 0 12 100
15-Sep-03 0 0 10 100
15-Oct-03 0 0 7 100
15-Nov-03 0 0 5 100
15-Dec-03 0 0 2 100
15-Jan-04 0 0 0 100
15-Feb-04 0 0 0 91
15-Mar-04 0 0 0 83
15-Apr-04 0 0 0 75
15-May-04 0 0 0 66
15-Jun-04 0 0 0 58
15-Jul-04 0 0 0 51
15-Aug-04 0 0 0 44
15-Sep-04 0 0 0 37
15-Oct-04 0 0 0 31
15-Nov-04 0 0 0 25
15-Dec-04 0 0 0 19
15-Jan-05 0 0 0 13
15-Feb-05 0 0 0 8
15-Mar-05 0 0 0 3
15-Apr-05 0 0 0 0
15-May-05 0 0 0 0
Weighted Average Life/(1)/
(years) 0.34 0.90 1.96 3.69
First Principal Date Dec-00 Aug-01 Jan-02 Jan-04
Expected Final Maturity Aug-01 Jan-02 Jan-04 Apr-05
Weighted Avg. Life to 3.33
Call (years)
Optional Clean-Up Call N/A N/A N/A Apr-04
Date
</TABLE>
/(1)/ The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note and Class A-4 Note is determined by (a) multiplying the amount of
cash distributions in reduction of the Outstanding Principal Amount of
the respective Note by the number of years from the Issuance Date to the
relevant Payment Date, (b) adding the results, and (c) dividing the sum
by the Initial Principal Amount of the applicable class.
S-34
<PAGE>
<TABLE>
<CAPTION>
Percentage of the Initial Principal Amounts at the Respective CPR Set Forth
Below
================================================================================
10% CPR
---------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
15-Dec-00 86 100 100 100
15-Jan-01 74 100 100 100
15-Feb-01 62 100 100 100
15-Mar-01 50 100 100 100
15-Apr-01 38 100 100 100
15-May-01 26 100 100 100
15-Jun-01 15 100 100 100
15-Jul-01 4 100 100 100
15-Aug-01 0 83 100 100
15-Sep-01 0 57 100 100
15-Oct-01 0 33 100 100
15-Nov-01 0 8 100 100
15-Dec-01 0 0 96 100
15-Jan-02 0 0 91 100
15-Feb-02 0 0 85 100
15-Mar-02 0 0 80 100
15-Apr-02 0 0 74 100
15-May-02 0 0 69 100
15-Jun-02 0 0 64 100
15-Jul-02 0 0 59 100
15-Aug-02 0 0 55 100
15-Sep-02 0 0 50 100
15-Oct-02 0 0 46 100
15-Nov-02 0 0 41 100
15-Dec-02 0 0 37 100
15-Jan-03 0 0 33 100
15-Feb-03 0 0 29 100
15-Mar-03 0 0 25 100
15-Apr-03 0 0 21 100
15-May-03 0 0 18 100
15-Jun-03 0 0 15 100
15-Jul-03 0 0 12 100
15-Aug-03 0 0 9 100
15-Sep-03 0 0 6 100
15-Oct-03 0 0 4 100
15-Nov-03 0 0 2 100
15-Dec-03 0 0 0 98
15-Jan-04 0 0 0 90
15-Feb-04 0 0 0 82
15-Mar-04 0 0 0 74
15-Apr-04 0 0 0 65
15-May-04 0 0 0 58
15-Jun-04 0 0 0 50
15-Jul-04 0 0 0 44
15-Aug-04 0 0 0 37
15-Sep-04 0 0 0 31
15-Oct-04 0 0 0 26
15-Nov-04 0 0 0 20
15-Dec-04 0 0 0 15
15-Jan-05 0 0 0 10
15-Feb-05 0 0 0 5
15-Mar-05 0 0 0 1
15-Apr-05 0 0 0 0
15-May-05 0 0 0 0
Weighted Average Life/(1)/
(years) 0.32 0.84 1.87 3.61
First Principal Date Dec-00 Aug-01 Dec-01 Dec-03
Expected Final Maturity Aug-01 Dec-01 Dec-03 Apr-05
Weighted Avg. Life to Call 3.25
(years)
Optional Clean-Up Call Date N/A N/A N/A Mar-04
</TABLE>
/(1)/ The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note and Class A-4 Note is determined by (a) multiplying the amount of
cash distributions in reduction of the Outstanding Principal Amount of
the respective Note by the number of years from the Issuance Date to the
relevant Payment Date, (b) adding the results, and (c) dividing the sum
by the Initial Principal Amount of the applicable class.
S-35
<PAGE>
<TABLE>
<CAPTION>
Percentage of the Initial Principal Amounts at the Respective CPR Set Forth
Below
================================================================================
12% CPR
---------------------------------------------------------
Payment Date Class A-1 Class A-2 Class A-3 Class A-4
------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance Date 100 100 100 100
15-Dec-00 85 100 100 100
15-Jan-01 73 100 100 100
15-Feb-01 60 100 100 100
15-Mar-01 48 100 100 100
15-Apr-01 35 100 100 100
15-May-01 23 100 100 100
15-Jun-01 11 100 100 100
15-Jul-01 0 100 100 100
15-Aug-01 0 73 100 100
15-Sep-01 0 47 100 100
15-Oct-01 0 21 100 100
15-Nov-01 0 0 99 100
15-Dec-01 0 0 93 100
15-Jan-02 0 0 88 100
15-Feb-02 0 0 82 100
15-Mar-02 0 0 77 100
15-Apr-02 0 0 71 100
15-May-02 0 0 66 100
15-Jun-02 0 0 61 100
15-Jul-02 0 0 56 100
15-Aug-02 0 0 52 100
15-Sep-02 0 0 47 100
15-Oct-02 0 0 43 100
15-Nov-02 0 0 38 100
15-Dec-02 0 0 34 100
15-Jan-03 0 0 30 100
15-Feb-03 0 0 26 100
15-Mar-03 0 0 22 100
15-Apr-03 0 0 19 100
15-May-03 0 0 16 100
15-Jun-03 0 0 12 100
15-Jul-03 0 0 10 100
15-Aug-03 0 0 7 100
15-Sep-03 0 0 4 100
15-Oct-03 0 0 2 100
15-Nov-03 0 0 0 99
15-Dec-03 0 0 0 91
15-Jan-04 0 0 0 84
15-Feb-04 0 0 0 75
15-Mar-04 0 0 0 67
15-Apr-04 0 0 0 60
15-May-04 0 0 0 52
15-Jun-04 0 0 0 45
15-Jul-04 0 0 0 39
15-Aug-04 0 0 0 33
15-Sep-04 0 0 0 28
15-Oct-04 0 0 0 22
15-Nov-04 0 0 0 17
15-Dec-04 0 0 0 13
15-Jan-05 0 0 0 8
15-Feb-05 0 0 0 4
15-Mar-05 0 0 0 0
15-Apr-05 0 0 0 0
15-May-05 0 0 0 0
Weighted Average Life/(1)/
(years) 0.30 0.81 1.82 3.55
First Principal Date Dec-00 Jul-01 Nov-01 Nov-03
Expected Final Maturity Jul-01 Nov-01 Nov-03 Mar-05
Weighted Avg. Life to 3.23
Call (years)
Optional Clean-Up Call N/A N/A N/A Mar-04
Date
</TABLE>
/(1)/ The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note and Class A-4 Note is determined by (a) multiplying the amount of
cash distributions in reduction of the Outstanding Principal Amount of
the respective Note by the number of years from the Issuance Date to the
relevant Payment Date, (b) adding the results, and (c) dividing the sum
by the Initial Principal Amount of the applicable class.
S-36
<PAGE>
The Trustee
The Trustee, The Chase Manhattan Bank, is a New York banking
corporation. The Prospectus describes the conditions under which the Trustee may
resign and the appointment of a successor trustee. See "The Trustee" in the
Prospectus. The Trustee is subject to the requirements of Section 310(b) of the
Trust Indenture Act, as amended, regarding the disqualification of a trustee
upon acquiring any conflicting interest. If an Event of Default occurs
(exclusive of any period of grace or requirement of notice), the Trustee, as an
affiliate of Chase Securities Inc., the lead Underwriter, would have such a
conflicting interest and therefore would be required to resign in accordance
with such requirements.
Material Federal Income Tax Consequences
General. The following paragraphs together with the description of
federal income tax consequences detailed in the Prospectus under the heading
"Material Federal Income Tax Consequences" set forth the material federal income
tax consequences to the original purchasers of the Notes of the purchase,
ownership and disposition of the Notes. Tax Counsel's opinion does not purport
to deal with all federal income tax considerations applicable to all categories
of investors. The tax consequences to holders subject to special rules,
including insurance companies, tax exempt organizations, regulated investment
companies, financial institutions or broker deals, taxpayers subject to the
alternative minimum tax, and holders that will hold the Notes as other than
capital assets, are not discussed below or in the Prospectus. In particular,
this discussion applies only to investors that purchase Notes directly from the
Issuer and hold the Notes as capital assets.
The discussion that follows, and the opinion set forth below of Dewey
Ballantine LLP, special tax counsel 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 asset-backed notes such as the
Notes that are intended to be treated for federal income tax purposes as
indebtedness secured by the underlying Asset Pool. Tax counsel has prepared the
following discussion and is of the opinion that it is correct in all material
respects.
Tax Characterization of the Issuer. Tax Counsel is of the opinion that
the Issuer will not be treated as an association (or a publicly traded
partnership) taxable as a corporation for federal income tax purposes.
Tax Characterization of the Notes. In the opinion of Tax Counsel,
although no transaction closely comparable to that contemplated herein has been
the subject of any treasury regulation, revenue ruling or judicial decision,
based on the application of existing law to the facts as set forth in the
applicable agreement, the Notes will be treated as indebtedness for federal
income tax purposes. Although it is the opinion of Tax Counsel that the Notes
are properly characterized as indebtedness for federal income tax purposes, no
assurance can be given that this characterization of the Notes will prevail.
The IRS could recharacterize the Notes under several alternative theories. See
"Material Federal Income Tax Consequences--Tax Characterization of the Notes" in
the Prospectus.
Discount and Premium. It is anticipated that the Notes will not be
issued with any original issue discount. See "Material Federal Income Tax
Consequences--Discount and Premium--Original Issue Discount" in the Prospectus.
In addition, a subsequent purchaser who buys a Note for less than its principal
amount may be subject to the "market discount" rules of the Code. See "Material
Federal Income Tax Consequences--Discount and Premium--Market Discount" in the
Prospectus. A subsequent purchaser who buys a Note for more than its principal
amount may be subject to the "market premium" rules of the Code. See "Material
Federal Income Tax Consequences--Discount and Premium--Premium" in the
Prospectus.
S-37
<PAGE>
Sale or Exchange of the Notes. If a Note is sold or exchanged, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale and its adjusted basis in the Note. See "Material Federal
Income Tax Consequences--Sale or Exchange" in the Prospectus.
Backup Withholding and Foreign Investors. Payments of interest and
principal, together with payments of proceeds from the sale of the Notes, may be
subject to certain withholding, backup withholding and information reporting
rules. The IRS has issued regulations (the "Withholding Regulations"), which
modify these rules. The effective date of the Withholding Regulations has been
extended to payments made after December 31, 2000, although taxpayers may begin
compliance with the Withholding Regulations immediately. Prospective investors
are urged to consult their own tax advisors regarding the Withholding
Regulations.
For further discussion of backup withholding and taxation of foreign
investors in the Notes, see "Material Federal Income Tax Consequences--Backup
Withholding" and "--Foreign Investors" in the Prospectus.
ERISA Considerations
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan from engaging in certain
transactions involving "plan assets" with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to the plan. A
violation of these "prohibited transaction" rules may generate excise tax and
other liabilities under ERISA and the Code for those persons. ERISA also imposes
certain duties on persons who are fiduciaries of plans subject to ERISA,
including the duty to make investments that are prudent, diversified (except if
prudent not to do so) and in accordance with governing plan documents. Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a plan is considered to be a
fiduciary of the plan (subject to certain exceptions not here relevant).
Employee benefit plans that are government plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(33) of ERISA), are not
subject to ERISA or Section 4975 of the Code; however, those plans may be
subject to comparable federal, state or local law restrictions.
Some transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be "plan assets" of an employee benefit plan subject to ERISA or the
Code, or an individual retirement account (an "IRA"), or any entity whose
underlying assets are deemed to be assets of an employee benefit plan or an IRA
by reason of the employee benefit plan's or the IRA's investment in that entity
(each a "Benefit Plan"). Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of the Issuer
would be treated as plan assets of a Benefit Plan for the purposes of ERISA and
the Code only if the Benefit Plan acquired an "equity interest" in the Issuer
and none of the exceptions contained in the Plan Assets Regulation were
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are treated as an
equity interest for these purposes, the acquisition or holding of Notes by or on
behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuer or any of its Affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In this case,
certain exemptions from the prohibited transaction rules could be applicable
depending on the type and circumstances of the plan fiduciary making the
decision to acquire a Note. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38, regarding investments by banks,
collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions by "in-house asset
managers"; and PTCE 84-14, regarding transactions by "qualified professional
assets managers". Each investor using the assets of a Benefit Plan which
acquires the Notes, or to whom the Notes are transferred, will be deemed to have
represented that the acquisition and continued holding of the Notes will be
covered by a Department of Labor class exemption.
S-38
<PAGE>
Due to the complexity of the applicable rules and the penalties that
may be imposed upon persons involved in non-exempt prohibited transactions, any
Benefit Plan fiduciary considering the purchase of a Note with plan assets
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to the investment. Moreover, each Benefit Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Notes is appropriate for the
Benefit Plan, taking into account the overall investment policy of the Benefit
Plan and the composition of the Benefit Plan's investment portfolio.
The sale of Notes to a Benefit Plan is in no respect a representation
by the Issuer or the Underwriters that this investment meets all relevant legal
requirements with respect to investments by Benefit Plans generally or by a
particular Benefit Plan, or that this investment is appropriate for Benefit
Plans generally or any particular Benefit Plan.
Use of Proceeds
The net proceeds from the sale of the Notes will be used to fund the
Reserve Account and to make distributions by the Issuer to the Seller and by the
Seller to the Originator. See "Use of Proceeds" in the Prospectus. The
Originator will apply a portion of the net proceeds distributed to it to satisfy
(or partially satisfy) obligations of it or its subsidiaries under warehouse
facilities, including (i) a warehouse facility with Market Street Funding
Corporation, for which PNC Bank, National Association is agent and (ii) a
warehouse facility with Park Avenue Receivables Corporation, for which The Chase
Manhattan Bank is agent. PNC Bank, National Association is an affiliate of PNC
Capital Markets, Inc., one of the Underwriters and The Chase Manhattan Bank is
an affiliate of Chase Securities Inc., the lead Underwriter.
Ratings of the Notes
It is a condition to the issuance of the Notes that the Class A-1
Notes be rated at least "P-1" and "A-1+" and that the Class A-2, A-3 and A-4
Notes be rated at least "Aaa" and "AAA" by Moody's and S&P, respectively (each a
"Rating Agency"). The ratings are dependent upon the financial strength ratings
of the Insurer as described in "Risk Factors--Ratings of the Notes are Dependent
upon Creditworthiness of the Insurer."
The ratings are not a recommendation to purchase, hold or sell the
Notes, inasmuch as the ratings do not comment as to market price or suitability
for a particular investor. There is no assurance that any rating will continue
for any period of time or that it will not be lowered or withdrawn entirely by a
Rating Agency if, in its judgment, circumstances so warrant. A revision or
withdrawal of a rating may have an adverse affect on the market price of the
Notes. The rating of the Notes addresses the likelihood of the timely payment of
interest and the ultimate payment of principal on the Notes by the Stated
Maturity Date. The rating does not address the rate of prepayments that may be
experienced on the Leases and, therefore, does not address the effect of the
rate of Lease prepayments on the return of principal to the Noteholders.
Underwriting
Under the terms and subject to the conditions set forth in the
underwriting agreement for the sale of the Notes, the Issuer has agreed to sell,
and each of the Underwriters, Chase Securities Inc., Banc of America Securities
LLC, Deutsche Bank Securities Inc., Lehman Brothers Inc. and PNC Capital
Markets, Inc., has severally agreed to purchase, the principal amount of the
Notes set forth below:
S-39
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
--------------------------------------------------------------------------------------------------------------
Chase Securities Banc of America Deutsche Bank Lehman Brothers Inc. PNC Capital
Inc. Securities LLC Securities Inc. Inc. Markets, Inc. Totals
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A-1 Notes $ 38,706,400 $ 38,706,400 $ 38,706,400 $ 38,706,400 $ 38,706,400 $193,532,000
Class A-2 Notes $ 14,038,600 $ 14,038,600 $ 14,038,600 $ 14,038,600 $ 14,038,600 $ 70,193,000
Class A-3 Notes $ 58,160,000 $ 58,160,000 $ 58,160,000 $ 58,160,000 $ 58,160,000 $290,800,000
Class A-4 Notes $ 16,263,600 $ 15,910,600 $ 15,910,600 $ 15,910,600 $ 15,910,600 $ 79,906,000
------------ ------------ ------------ ------------ ------------ ------------
Totals $127,168,600 $126,815,600 $126,815,600 $126,815,600 $126,815,600 $634,431,000
</TABLE>
The Issuer has been advised by the Underwriters that the several
Underwriters propose initially to offer the Notes to the public at the
respective prices set forth on the cover page of this Prospectus, and to certain
dealers at these prices, less a selling concession not in excess of 0.090% per
Class A-1 Note, 0.108% per Class A-2 Note, 0.147% per Class A-3 Note, and 0.225%
per Class A-4 Note. The Underwriters may allow, and dealers may reallow to other
dealers, a discount not in excess of 0.075% per Class A-1 Note, 0.075% per Class
A-2 Note, 0.075% per Class A-3 Note, and 0.125% per Class A-4 Note.
The Underwriters will each represent and agree that:
(a) it has not offered or sold, and, prior to the expiration of six
months from the Issuance Date, will not offer or sell, any Notes
to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for purposes
of their business, or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(b) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by
it in relation to the Notes in, from or otherwise involving the
United Kingdom; and
(c) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with
the issue of the Notes to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or persons to whom the
document may otherwise lawfully be issued, distributed or passed
on.
The Issuer and IOS Capital, Inc. have agreed to jointly and severally
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
The Issuer has been advised by the Underwriters that the Underwriters
presently intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Underwriters are not obligated, however, to make a market
in the Notes and any market making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Notes.
The Underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Notes in accordance with Regulation M under the Securities
Exchange Act of 1934, as amended. Over-allotment transactions involve syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the Notes so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transaction involve purchase of the Notes in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Underwriters to reclaim a selling concession from a
syndicate member when the Notes originally sold by the syndicate member are
purchased in a syndicate covering transaction. Such over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Notes to be higher than they would otherwise be in the
absence of these transactions. The Issuer and the
S-40
<PAGE>
Underwriters do not represent that the Underwriters will engage in any of these
transactions. These transactions, once commenced, may be discontinued without
notice at any time.
From time to time the Underwriters or their affiliates may perform
investment banking and advisory services for, and may provide general financing
and banking services to, the Originator or its affiliates.
For further information regarding any offer or sale of the Notes
pursuant to this Prospectus Supplement and the Prospectus, see "Plan of
Distribution" in the Prospectus.
Experts
The consolidated financial statements of Ambac Assurance Corporation
and subsidiaries as of December 31, 1999 and 1998 and for each of the years in
the three-year period ended December 31, 1999 are incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of that firm as experts in accounting and auditing.
Legal Matters
Certain legal matters relating to the Notes will be passed upon for
the Issuer by Don H. Liu, Esq., General Counsel of the Originator and IKON
Office Solutions, the parent company of the Originator, and for the Underwriters
by Dewey Ballantine LLP, New York, New York. As of the date of this Prospectus
Supplement, Mr. Liu is a full-time employee and an officer of IKON Office
Solutions and a beneficial owner of shares of common stock of IKON Office
Solutions and options to purchase shares of common stock of IKON Office
Solutions.
S-41
<PAGE>
Index Of Principal Defined Terms
<TABLE>
<S> <C>
Acceleration Event........................................................ S-26
Additional Lease.......................................................... S-21
Additional Principal...................................................... S-25
Adjusted Lease............................................................ S-21
Ambac..................................................................... S-11
Annualized Default Rate................................................... S-26
Asset Pool................................................................ S-15
Assignment and Servicing Agreement........................................ S-15
Available Funds........................................................... S-27
Available Funds Shortfall................................................. S-28
Available Reserve Amount.................................................. S-28
Benefit Plan.............................................................. S-38
Business Day.............................................................. S-13
Casualty.................................................................. S-27
Casualty Payment.......................................................... S-27
Class A Initial Principal Amount.......................................... S-23
Class A Percentage........................................................ S-25
Class A Principal Payment................................................. S-25
Class A Target Investor Principal Amount.................................. S-25
Class A-1 Initial Principal Amount........................................ S-23
Class A-1 Notes........................................................... S-23
Class A-2 Initial Principal Amount........................................ S-23
Class A-2 Notes........................................................... S-23
Class A-3 Initial Principal Amount........................................ S-23
Class A-3 Notes........................................................... S-23
Class A-4 Initial Principal Amount........................................ S-23
Class A-4 Notes........................................................... S-23
Clearstream............................................................... S-23
Code...................................................................... S-37
Collection Account........................................................ S-26
Counterparty.............................................................. S-14
CPR....................................................................... S-32
Cumulative Loss Amount.................................................... S-26
Cut-Off Date.............................................................. S-15
Default................................................................... S-29
Delinquency Rate.......................................................... S-26
Determination Date........................................................ S-24
Discount Rate............................................................. S-23
Discounted Present Value of the Leases.................................... S-23
Discounted Present Value of the Performing Leases......................... S-23
DTC....................................................................... S-23
Due Period................................................................ S-24
Early Lease Termination................................................... S-21
Early Termination Lease................................................... S-21
Eligible Account.......................................................... S-26
Equipment................................................................. S-15
Euroclear................................................................. S-23
Events of Default......................................................... S-29
Excess Copy Charge........................................................ S-16
Fitch IBCA................................................................ S-11
Holdings.................................................................. S-14
IKON Office Solutions..................................................... S-9
Initial Principal Amount.................................................. S-23
Insured Payment........................................................... S-13
Insurer................................................................... S-11
Insurer Default........................................................... S-23
Interest Accrual Period................................................... S-25
Interest Payments......................................................... S-25
Interest Rate............................................................. S-24
IRA....................................................................... S-38
IRS....................................................................... S-37
Issuance Date............................................................. S-13
Late Payment Rate......................................................... S-29
Lease Payment............................................................. S-26
Lease Receivables......................................................... S-15
Leases.................................................................... S-15
Lessee.................................................................... S-15
Lessor.................................................................... S-15
LIBOR..................................................................... S-24
LIBOR Business Day........................................................ S-25
Maintenance Charge........................................................ S-16
Moody's................................................................... S-11
Non-Performing Leases..................................................... S-16
Note Principal Balance.................................................... S-13
Noteholders............................................................... S-13
Notes..................................................................... S-23
Outstanding Principal Amount.............................................. S-23
Overcollateralization Balance............................................. S-26
Overcollateralization Floor............................................... S-26
Plan Assets Regulation.................................................... S-38
Policy.................................................................... S-9
Preference Amount......................................................... S-14
Principal Payments........................................................ S-25
PTCE...................................................................... S-38
Rating Agency............................................................. S-39
Record Date............................................................... S-24
Reference Bank Rate....................................................... S-24
Required Payments......................................................... S-28
Required Reserve Amount................................................... S-28
Reserve Account........................................................... S-28
Retainable Deposit........................................................ S-26
S&P....................................................................... S-11
Servicer Advance.......................................................... S-29
Servicer Events of Default................................................ S-31
Servicing Fee............................................................. S-22
Statistical Class A Percentage............................................ S-32
Statistical Discounted Present Value...................................... S-16
Substitute Lease.......................................................... S-21
Swap Agreement............................................................ S-14
Tax Counsel............................................................... S-37
Telerate Screen Page 3750................................................. S-24
Termination Payment....................................................... S-27
Warranty Lease............................................................ S-21
Withholding Regulations................................................... S-38
</TABLE>
S-42
<PAGE>
Prospectus
================================================================================
$ 2,000,000,000
IKON Receivables, LLC Lease-Backed Notes
Issuer Issuable in Series
================================================================================
You should read the section entitled "Risk Factors" starting on page 7 of this
prospectus and consider these factors before making a decision to invest in the
notes.
The notes of each series will be debt solely of the issuer and will be payable
only from the pledged assets of the issuer and any credit enhancement for such
series.
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.
From time to time the issuer may sell a series of its notes that --
. will represent debt obligations solely of the issuer; and
. will consist of one or more classes on terms to be determined at the time of
sale.
. The assets backing the notes may consist of any combination of --
. leases;
. installment sale contracts;
. rental stream obligations;
. monies received relating to the leases, agreements, contracts and
obligations;
. funds on deposit in one or more accounts; and
. one or more forms of credit enhancement.
The terms of your series of notes are described in this prospectus and the
accompanying prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is April 28, 2000.
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Important Information about this Prospectus and the Accompanying Prospectus Supplement... 3
Prospectus Summary....................................................................... 4
Risk Factors............................................................................. 7
Where You Can Find More Information...................................................... 11
The Issuer............................................................................... 12
The Asset Pools.......................................................................... 12
Management's Discussion and Analysis of Financial Condition.............................. 13
Directors and Executive Officers of the Manager of the Issuer............................ 13
Pool Factors............................................................................. 17
Use of Proceeds.......................................................................... 17
The Originator's Leasing Business........................................................ 17
The Trustee.............................................................................. 20
Description of the Notes................................................................. 21
Description of the Transaction Documents................................................. 27
Legal Aspects of the Lease Receivables................................................... 33
Material Federal Income Tax Consequences................................................. 35
Ratings.................................................................................. 40
ERISA Considerations..................................................................... 40
Plan of Distribution..................................................................... 40
Legal Opinions........................................................................... 40
Experts.................................................................................. 40
Index Of Terms........................................................................... 42
</TABLE>
2
<PAGE>
Important Information about this
Prospectus and the Accompanying 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 series of notes will state among
other things:
. the aggregate principal amount, interest rate and authorized
denominations of the notes;
. specific information concerning the characteristics of the lease
receivables;
. the terms of any credit enhancement with respect to the notes;
. information concerning any other assets backing the notes,
including any reserve fund;
. the final scheduled payment date of the notes;
. how and when principal is to be paid on the notes on each payment
date, the timing of the application of principal and the order of
priority of the applications of the principal to the respective
classes of such notes;
. the federal income tax characterization of the notes;
. the terms of any subordination relating to the notes;
. the terms of any cross-collateralization relating to the notes;
. the terms of any redemptions and the related redemption prices
relating to the notes;
. servicing terms relating to the notes;
. the presence of any prefunding feature relating to the notes;
. the length and terms of any revolving period relating to the notes;
and
. additional information on the plan of distribution of the notes.
3
<PAGE>
Prospectus Summary
. This summary highlights select information from this prospectus and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
notes, read carefully this entire prospectus and the accompanying
prospectus supplement.
. This summary provides an overview of calculations, cash flows and other
information to aid your understanding. To understand all of the terms of
the offering, carefully read this entire document and, in particular, the
full description of these calculations, cash flows and other information in
this prospectus.
Lease-Backed Notes
Issuable in Series
Issuer
IKON Receivables, LLC, a Delaware limited liability company.
Originator
IOS Capital, Inc., a Delaware corporation formerly known as IKON Capital Inc.
and a wholly-owned subsidiary of IKON Office Solutions, Inc.
Seller
IKON Receivables-1, LLC, a Delaware special purpose limited liability company.
Servicer
The servicer will be IOS Capital unless otherwise specified in the related
prospectus supplement.
Trustee
For any series of notes, the trustee named in the related prospectus supplement.
The Notes
. The notes of each series will be secured solely by office equipment leases or
contracts and related assets. The assets will be pledged by the issuer to a
trustee under an indenture for the benefit of noteholders of that series.
. The transaction documents relating to each series of notes will describe the
rights of each of the related classes of notes to the funds derived from the
related asset pool.
. The notes are fixed income securities, having a principal balance and a
specified interest rate.
. Each class of notes may have a different interest rate, which may be a fixed
or floating interest rate. The related prospectus supplement will specify the
interest rate for each series or class of notes, or the initial interest rate
and the method for determining subsequent changes to the interest rate.
. A series may include one or more classes of notes which are:
. stripped of regular interest payments and entitled only to principal
distributions, with disproportionate, nominal or no interest
distributions; or
. stripped of regular principal payments and entitled only to interest
distributions, with disproportionate, nominal or no principal
distributions.
. A series of notes may include two or more classes of notes with different
terms including different interest rates and different timing, sequential order
or priority of payments, amount of principal or interest or both.
. A series may provide that distributions of principal or interest or both on
any class may be made:
. upon the occurrence of specified events;
. in accordance with a schedule or formula; or
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. on the basis of collections from designated portions of the related asset
pool.
. Any series may include one or more classes of notes which will not distribute
accrued interest but rather will add the accrued interest to the note principal
balance, or nominal balance, in the manner described in the related prospectus
supplement.
. A series may include one or more other classes of notes that are senior to
one or more other classes of notes in respect of distributions of principal and
interest and allocations of losses on the related asset pool.
The Asset Pools
. As specified in the related prospectus supplement, the pledged pool of assets
securing a series of notes may consist of:
. leases which may include any combination of leases, leases intended as
security agreements, installment sale contracts or rental stream
obligations, together with certain monies due on these leases and
agreements and related guarantees;
. interests other than ownership interests in the underlying equipment and
related property, together with the proceeds from disposal of the
equipment, if any;
. amounts held in any collection, reserve, prefunding or other accounts
established pursuant to the transaction documents;
. proceeds and recoveries on insurance policies and the disposition of
repossessed equipment;
. credit enhancement for an asset pool or any class of notes; and
. interest earned on certain short-term investments.
. If the related prospectus supplement specifies, the trustee may acquire
additional leases and equipment during a specified pre-funding period following
the issuance of the notes from monies in a pre-funding account.
. If the related prospectus supplement specifies, the notes may have a
revolving period. During a revolving period, the issuer may acquire additional
leases and interests in equipment from the proceeds of payments on existing
lease payments. The notes may not pay principal during this period.
Payment Date
As described in the related prospectus supplement, the notes will pay principal
and/or interest on specified dates. Payment dates will occur monthly, quarterly,
or semi-annually.
Due Period
The calendar month preceding the month in which a payment date occurs is the due
period. As the related prospectus supplement will more fully describe, the
servicer will remit collections received in respect of the due period to the
trustee prior to the related payment date. The collections may be used to fund
payments to noteholders on 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.
Registration of Notes
The issuer will initially issue the notes as global notes registered in the name
of Cede & Co. as nominee of The Depository Trust Company, or another nominee.
Noteholders will not receive definitive notes representing their interests,
except in certain limited circumstances described in the related prospectus
supplement.
Credit Enhancement
. As described in the related prospectus supplement, credit enhancement for an
asset pool or any class of notes may include any one or more of the following:
. a policy issued by an insurer specified in the related prospectus
supplement;
. overcollateralization;
. subordination of certain classes of notes;
. a reserve account;
. letters of credit;
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. credit or liquidity facilities;
. third party payments or other support; and
. cash deposits or other similar arrangements.
. The prospectus supplement will describe any limitations and exclusions from
coverage.
Optional or Mandatory Termination
. Under the circumstances described in this prospectus and the related
prospectus supplement, the servicer, the seller, the issuer or other entities
may, at their respective options, cause the early retirement of a series of
notes at the price or prices indicated in the related prospectus supplement.
. The related prospectus supplement may describe circumstances under which the
issuer, servicer or other entities will be required to retire early all or any
portion of a series of notes. An indenture may require these parties to solicit
competitive bids for the purchase of the related asset pool or otherwise.
Tax Considerations
For federal income tax purposes, Dewey Ballantine LLP, special tax counsel to
the issuer, will render an opinion upon issuance of a series of notes that the
notes will be treated as debt and the issuer will not be treated as an
association (or publicly traded partnership) taxable as a corporation. You
should consult your tax advisors.
ERISA Considerations
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus and the related prospectus supplement,
pension, profit-sharing or other employee benefit plans, as well as individual
retirement accounts and 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
. The issuer will not issue the notes unless a rating agency rates them in one
of the four highest rating categories.
. You must not assume that the rating agency will not lower, qualify or
withdraw its rating.
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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 the
Notes 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 market will be
created or, if created, will continue.
Prepayments and Related In the case of notes purchased at a discount,
Reinvestment May Reduce Your you should consider the risk that slower
Yield than anticipated rates of prepayments on the
leases could result in an actual yield that
is less than the anticipated yield.
Conversely, you should consider the risk that
in the case of notes purchased at a premium,
a faster than the anticipated rate of
prepayments could result in an actual yield
that is less than the anticipated yield. Be
aware that you bear the risk of reinvesting
unscheduled distributions resulting from
prepayments of the notes. The rate of payment
of principal is unpredictable because the
rate on the notes will depend on, among other
things, the rate of payment on the underlying
leases. In addition to the normally scheduled
payments on the leases, payments may come
from a number of different sources, including
the following:
. prepayments permitted by the servicer;
. payments as a result of leases which are
defaulted;
. payments as a result of leases accelerated
by the servicer;
. payments due to loss, theft, destruction
or other casualty; and
. payments upon repurchases by IOS Capital
on account of a breach of representations
and warranties.
Subject to limitations, IOS Capital may elect
to reinvest the proceeds of a lease which has
been partially or fully repaid or upgraded in
one or more additional leases and to
substitute leases for defaulted, repurchased
or modified or adjusted leases. Reinvestments
and substitutions may affect the rate or
amount of payments on the leases as a whole,
the rate at which funds are distributed on
the notes and the yield to noteholders.
The rate of early terminations of leases due
to prepayments and various non-payments may
be influenced by a variety of economic and
other factors. For example, adverse economic
conditions and natural disasters such as
floods, hurricanes, earthquakes and tornadoes
may affect prepayments.
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No Ownership Interest in the Neither the issuer nor the trustee for the
Equipment; Certain Security of benefit noteholders will have any ownership
Interests are Not Perfected and interest in any equipment, including any
Other Creditors May Have Rights residual interest in the equipment at the
to the Equipment end of the related lease term. Also, IOS
Capital has not filed and will not file
financing statements to perfect any security
interest it may have in any of the equipment.
Although any security interest of IOS Capital
in the equipment will be assigned by IOS
Capital to the seller and by the seller to
the issuer, none of IOS Capital, the seller,
the issuer nor the trustee will have a
perfected security interest in the equipment
against lessees. This lack of a perfected
security interest in the equipment may result
in other creditors of the related lessees
acquiring rights in the equipment superior to
those of the issuer or the trustee and may
adversely affect the ability of the issuer or
the trustee on behalf of noteholders to
recover any monies on the equipment following
a lease default. This could reduce the funds
available to pay the notes. Accordingly,
noteholders should not rely on the sale,
release or other disposition of any leased
equipment for payment on the notes.
State Laws and Other Factors May State laws impose requirements and
Impede Recovery Efforts and Affect restrictions on foreclosure sales and
the Ability of the Issuer to obtaining deficiency judgments and may
Recoup the Full Amount Due prohibit, limit or delay repossession and
on the Leases 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:
. the issuer's lack of any ownership
interest in any of the equipment;
. the issuer's failure to file
financing statements to perfect its
security interest in equipment
against a lessee;
. depreciation;
. obsolescence;
. damage or loss of any item of
equipment; and
. the application of federal and state
bankruptcy and insolvency laws.
As a result, the noteholders may be subject
to delays in receiving payments and losses.
Possession of the Leases by and Any insolvency by the issuer, the servicer,
the Insolvency of the Issuer, the originator or the seller, while in
Originator, Seller or Servicer possession of the leases may result in
May Result in Reduced or Delayed competing claims to ownership or security
Payments to Noteholders 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 proceedings
Capital May Result in Reduced or commenced with respect to the servicer, any
Delayed Payments to Noteholders are 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 or IKON In some circumstances, a bankruptcy of IOS
Receivables-1, LLC May Reduce Capital or IKON Receivables-1, LLC may
Payments to Noteholders 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 or IKON Receivables-1, LLC, a court
or bankruptcy trustee could attempt to:
. recharacterize the contribution of
the related leases by IOS Capital to
IKON Receivables-1, LLC as a loan
from IKON Receivables-1, LLC to IOS
Capital secured by a pledge of the
leases; or
. recharacterize the contribution of
the related leases by IKON
Receivables-1, LLC to the issuer as a
loan from the issuer to IKON
Receivables-1, LLC secured by a
pledge of the leases; or
. consolidate the assets of the issuer
with those of IOS Capital because IOS
Capital will indirectly own all of
the membership interests in the
issuer; or
. consolidate the assets of the issuer
with those of IKON Receivables-1, LLC
because IKON Receivables-1, LLC will
own all of the membership interests
in the issuer.
If either recharacterization or consolidation
were successful, the bankruptcy trustee could
repudiate any leases that are considered to
be operating leases for bankruptcy law
purposes and all obligations relating to such
operating leases. An attempt to
recharacterize the transactions, even if
unsuccessful, could result in delays in
payments to you. If either attempt were
successful, the notes would be accelerated,
and the trustee's recovery on your behalf
could be limited to the then current value of
the leases or the underlying equipment.
Consequently, you could lose the right to
future payments and you may not receive your
anticipated principal and interest on the
notes.
Although IOS Capital and IKON Receivables-1,
LLC both believe that the contribution of the
leases should be treated as an absolute and
unconditional assignment, for accounting
purposes the leases will be treated as assets
of IOS Capital on the tax return of its
consolidated group and for tax purposes, no
such assignment will be recognized. This
treatment of the assets might increase the
risk of recharacterization of the transfer to
the issuer as a financing.
Transfer of Servicing May Delay If IOS Capital were to cease servicing the
Payments to Noteholders leases, delays in processing payments on the
leases and information regarding lease
payments could occur. This could delay
payments to the noteholders.
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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.
No Recourse Against Affiliates of There is no recourse against any affiliates
the Issuer of the issuer. The notes represent debt of
the issuer payable solely from the related
asset pool and any applicable credit
enhancement. If the lease payments, any other
assets pledged to secure the notes and any
applicable credit enhancement are
insufficient to pay the notes in full, you
have no rights to obtain payment from IOS
Capital or any of its affiliates other than
the issuer. The issuer is a limited liability
company with limited assets.
Losses and Delinquencies on the We cannot guarantee that the delinquency and
Leases May Differ From the loss levels of leases in the asset pools will
Originator's Historical Loss correspond to the historical levels the
and Delinquency Levels originator experienced on its equipment lease
portfolio. There is a risk that delinquencies
and losses could increase or decline
significantly for various reasons including:
. changes in the federal income tax
laws; or
. changes in the local, regional or
national economies.
The Addition and Substitution of If a significant number of leases are added
Leases May Adversely Affect or replaced, this could affect the rate at
Cashflow and May Decrease the which funds are distributed on the notes
Yield on the Notes and decrease the yield to noteholders. The
transaction documents will permit IOS Capital
under certain circumstances, to substitute or
add qualifying leases. The addition or
substitution of leases may include leases
that have different payment due dates,
installment amounts and maturity dates than
the existing or substituted leases.
IOS Capital may only add or substitute leases
that meet qualifying characteristics and
conditions. The ability of IOS Capital 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,
equipment or other concentrations of the
related asset pool. Consequently, any adverse
economic or social factors that particularly
affect a particular geographic area, certain
types of equipment or other concentrations of
leases in the related asset pool may
adversely affect the performance of the asset
pool, which, in turn, could affect the rating
of the notes.
Technological Obsolescence of If technological advances relating to office
Equipment May Reduce Value of equipment cause leased equipment to become
Collateral obsolete, the value of the 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 your
notes.
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Where You Can Find More Information
The issuer or the servicer will file with the SEC all required annual,
quarterly and special reports, proxy statements and other information about the
notes. You can read and copy these documents at the public reference facility
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, NW, Room 1024,
Washington, DC 20549. You can also copy and inspect 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.
Attn: Harry Kozee
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 42 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 Delaware limited liability company (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 1738 Bass Road, Macon, Georgia
31208.
The Issuer will from time to time sell a series of Notes consisting of
one or more classes on terms to be determined at the time of sale and described
in a related Prospectus Supplement. The Notes of each series will be secured
solely by the related Asset Pool (as defined herein). The Issuer does not have,
nor is it expected in the future to have, any significant assets other than the
Asset Pools. The servicer 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 an Asset Pool to a Trustee in
respect of the related series of Notes pursuant to an Indenture between the
Issuer and such Trustee.
The financial statements of the Issuer for its fiscal year ended
September 30, 1999 are hereby incorporated by reference to the Issuer's Form 10-
K filed on December 28, 1999. The unaudited financial statements for the
quarter ended December 31, 1999 are hereby incorporated by reference to the
Issuer's Form 10-Q-A filed on February 22, 2000.
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)
certain monies due under the Leases on or after a specified date (the "Cut-off
Date"), (iii) monies held from time to time in one or more accounts established
and maintained pursuant to the related Transaction Documents (as defined
herein), (iv) a security interest in the Seller's interests in the underlying
equipment and related property relating to such pool of Leases (such equipment
and related property, the "Equipment"), (v) the rights of the Issuer under the
Assignment and Servicing Agreement (as defined herein) relating to the Asset
Pool, and (vi) investment earnings on certain accounts created under the related
Indenture. The Leases, including the Issuer's security interest in the
underlying equipment and other property relating to the Leases, in an Asset Pool
are referred to as the "Lease Receivables."
The Issuer will not have and the Asset Pools will not include any
residual interest in any Equipment after the related Lease has been paid in
full.
The Equipment generally will be limited to personal property which is
leased or financed by the Originator to lessees (each a "Lessee" and,
collectively, "Lessees") pursuant to Leases which either are "chattel paper" (as
defined in the Uniform Commercial Code) or are Leases that are not treated
materially differently from "chattel paper" for purposes of title transfer,
security interests or remedies on default.
The Lease Receivables will be acquired by the Seller from the
Originator under an Assignment and Servicing Agreement among the Seller, the
Originator and the Issuer (the "Assignment and Servicing Agreement").
Contemporaneously, the Lease Receivables will be transferred by the Seller to
the Issuer pursuant to the Assignment and Servicing Agreement. The Leases
included in an Asset Pool will be selected from Leases held by the Originator
based on the criteria described under "The Leases--Eligible Leases."
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On or prior to the date of issuance of the Notes of any series to the
holders of Notes, the Issuer will form an Asset Pool by (i) acquiring Lease
Receivables pursuant to the related Assignment and Servicing Agreement and (ii)
entering into an Indenture with the Trustee, relating to the issuance of the
Notes.
The Leases in each Asset Pool will have been originated by the
Originator or acquired by the Originator in accordance with the Originator's
specified underwriting criteria. The material underwriting criteria applicable
to the Leases are described under "Originator's Leasing Business."
Management's Discussion and Analysis of Financial Condition
As of the date of this Prospectus, the Issuer has limited operating
history. The net proceeds of the sale of the Notes of each series will be used
to fund any applicable reserve or other accounts and to make distributions to
the owner of the Issuer. See "Use of Proceeds." The Issuer is prohibited by
its Limited Liability Company Agreement from engaging in business other than (i)
the purchase of equipment leases and Lease Receivables from IOS Capital and its
affiliates, (ii) the issuance of notes collateralized by its assets and (iii)
engaging in acts incidental, necessary or convenient to the foregoing and
permitted under Delaware law. The Issuer's ability to incur, assume or guaranty
indebtedness for borrowed money is also restricted by its Limited Liability
Company Agreement to only such activities that relate to the Lease Receivables.
Directors and Executive Officers of the Manager of the Issuer
The following table sets forth the executive officers and directors of
IKON Receivables Funding Inc., the manager of the Issuer ("Manager"), and their
ages and positions as of April 25, 2000. Because the Issuer is organized as a
special purpose company and will be largely passive, it is expected that the
officers and directors of the Manager will participate in the management of the
Issuer only to a limited extent. Most of the actions related to maintaining and
servicing the assets will be performed by the Servicer.
--------------------------------------------------------------------------------
Name Age Position
--------------------------------------------------------------------------------
Russell Slack 42 President & Director
Harry Kozee 44 Chief Financial Officer, Vice President & Director
J. F. Quinn 44 Vice President, Treasurer & Director
Michael H. Dudek 44 Vice President - Finance
Robert C. Campbell 42 Director
Robert W. Grier 41 Director
Don H. Liu 38 Secretary
Dominic Liberatore 37 Assistant Secretary
Russell S. Slack has served as President and Director of IKON
Receivables Funding, Inc. since being elected on January 1, 2000. Mr. Slack has
served as the President of IOS Capital, Inc. since 1999. Mr. Slack joined IOS
Capital in 1996. Prior to Mr. Slack's appointment as President of IOS Capital,
Mr. Slack served as the Director of Portfolio Quality. Prior to joining IOS
Capital, Mr. Slack was an Assistant Vice President for Citicorp from 1993
through 1996. Prior to joining Citicorp, Mr. Slack spent approximately 11 years
in the leasing and financial services industry.
Harry Kozee has served as Chief Financial Officer, Vice President and
Director of IKON Receivables Funding, Inc. since being elected on January 1,
2000. Mr. Kozee has served as Vice President-Finance of IOS Capital, Inc. since
1993. Mr. Kozee joined IOS Capital in 1991 and was promoted to Controller in
1992. Prior to joining IOS Capital, Mr. Kozee spent 15 years in auditing and in
the financial services industry.
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J.F. Quinn has served as Vice President, Treasurer and Director of
IKON Receivables Funding, Inc. since being elected on January 1, 2000. Mr.
Quinn has served as Treasurer of IKON Office Solutions, Inc. from November 1997
to the present. Prior to assuming his current position, Mr. Quinn served as
Assistant Treasurer from January 1996 through November 1997 and Manager, Foreign
Exchange and Cash Management from June 1994 through January 1996. Before
joining IKON Office Solutions, Mr. Quinn served as Manager, Foreign Exchange for
ARCO Chemical Company, Manager, Financial Services for the Columbia Gas System,
Inc. and Supervising Senior Auditor for Peat, Marwick, Mitchell & Co.
Michael H. Dudek has served as Vice President-Finance of IKON
Receivables Funding, Inc. since being elected on January 1, 2000. Mr. Dudek has
served as Vice-President - Finance for IKON Office Solutions, Inc. from August
1998 to the present. Prior to assuming his current position, Mr. Dudek held the
following positions with IKON Office Solutions (and its predecessor, Alco
Standard Corporation): Vice-President - Acquisition from 1993 to July 1998,
Director of Financial Operations from 1991 to 1993, and Manager - Internal Audit
from 1994 to 1991. Prior to joining IKON Office Solutions, Mr. Dudek spent five
years with the Internal Revenue Service.
Robert C. Campbell has served as an Independent Director of IKON
Receivables Funding, Inc. since being elected on April 9, 1999. Mr. Campbell,
the Co-founder and Managing Director of Entity Services Group, L.L.C., advises
corporations on structural and tax ramifications arising from their holding
companies.
Mr. Campbell, a Certified Public Accountant, has also served as a Tax
Manager at KPMG LLP where he advised corporate clients on tax planning and
compliance issues. Prior to joining KPMG LLP, Mr. Campbell worked at the
captive-finance subsidiary of Sears Roebuck & Co.
Robert W. Grier has served as an Independent Director of IKON
Receivables Funding, Inc. since being elected on April 9, 1999. Presently, Mr.
Grier is Executive Vice President of Entity Services Group, L.L.C. Mr. Grier
has previously served as a Senior Tax Manager at KPMG LLP, where he advised
companies, ranging from closely-held to multi-national corporations, on
compliance and tax planning issues. Prior to joining KPMG LLP, Mr. Grier was
employed by Simon, Master & Sidlow, P.A., a Wilmington accounting firm.
Don H. Liu has served as Secretary of IKON Receivables Funding, Inc.
since being elected on January 1, 2000. Mr. Liu serves as Senior Vice
President, General Counsel, Secretary and Chair of the Diversity Council at IKON
Office Solutions, Inc. Prior to joining IKON Office Solutions in March of 1999,
he was Vice President and Deputy Chief Legal Officer at Aetna U. S. Healthcare
from 1992-1999. Before joining Aetna U.S. Healthcare, Mr. Liu practiced law in
New York City in the areas of mergers and acquisitions and general corporate
law.
Dominic A. Liberatore has served as Assistant Secretary of IKON
Receivables Funding, Inc. since being elected on January 1, 2000. Mr.
Liberatore serves as Counsel to IOS Capital, Inc. Mr. Liberatore joined IKON
Office Solutions, Inc. in September of 1999. Prior to joining IKON Office
Solutions, Mr. Liberatore was Counsel to Copelco Financial Services Group, Inc.
from 1995 through 1999. Before joining Copelco Financial Services Group, Inc.,
Mr. Liberatore spent 9 years practicing law in the areas of finance, leasing and
general corporate law.
The Lease 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 Discounted Present Value of
the Leases (as defined herein) as of the applicable Cut-Off Date. As of the
date of issuance of the Notes of any series, no more than 5% of the Lease
Receivables in the related Asset Pool (as measured by Discounted Present Value
of the Leases) will deviate from the characteristics of the Lease Receivables
described in the related Prospectus Supplement.
Eligible Leases
All Leases have been originated or acquired in the ordinary course of
the Originator's business and comply with the Originator's credit and
collections policies. In addition, the following eligibility requirements apply
or will apply to all Leases on or prior to the related Cut-Off Date
(collectively, "Eligible Leases"):
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(i) The Leases are valid and enforceable, and unconditionally
obligate the Lessee to make periodic Lease Payments (as defined herein)
(including taxes);
(ii) The Leases are noncancellable by the Lessee and do not
contain early termination options (except for Leases which contain early
termination or prepayment clauses that require the Lessee to pay all
remaining scheduled payments under such Lease upon early termination or
prepayment);
(iii) All payments payable under the Leases are absolute,
unconditional obligations of the Lessees;
(iv) All of the Leases require the Lessee or a third party to
maintain the Equipment in good working order, to bear all the costs of
operating the Equipment, including taxes and insurance relating thereto;
(v) The Leases do not materially violate any U.S. or state laws;
(vi) In the event of a Casualty (as defined herein), the Lessee is
required to pay at a minimum the outstanding principal or net book value of
the Leases and any applicable make-whole premium;
(vii) The Leases have been transferred to the Issuer free and clear
of any liens and are assignable without prior written consent of the
Lessee;
(viii) The Leases are U.S. dollar-denominated and the lessor and
each Lessee are located in the United States;
(ix) The Lease is not a consumer lease;
(x) No more than three percent (3%) of the Leases in any Asset
Pool will consist of Leases with government entities as the obligor;
(xi) The Lease is not subject to any guaranty by the Lessor or
Originator but may be subject to the guaranty of others;
(xii) No adverse selection was used in selecting the Lease for
transfer to the Issuer;
(xiii) The Lessee has represented to the Originator that it has
accepted the Equipment;
(xiv) The Lessee is not a subject of an insolvency or bankruptcy
proceeding at the time of the transfer;
(xv) The Leases are not Non-Performing Leases (as defined herein);
and
(xvi) Each Lease is not more than 61 days past due at time of
transfer to the Issuer.
Accounting Characteristics
The Leases consist of finance leases for accounting purposes. In a
finance lease, the lessor transfers substantially all benefits and risks of
ownership of the underlying equipment to the lessee. In accordance with
Statement of Financial Accounting Standards No. 13, a lease is classified as a
finance lease if the collectibility of lease payments are reasonably certain and
it meets one of the following criteria: (1) the lease transfers title and
ownership of the equipment to the lessee by the end of the lease term; (2) the
lease contains a bargain purchase option; (3) the lease term at inception is at
least 75% of the estimated life of the equipment; or (4) the present value of
the minimum lease payments is at least 90% of the fair market value of the
equipment at inception of the lease.
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Although the Leases are finance leases for accounting purposes, some
or all of the Leases may be considered operating or non-finance leases for tax,
bankruptcy law or other purposes.
Discounted Present Value
The discounted present value of the Leases (the "Discounted Present
Value of the Leases"), at any given time, will equal the future remaining
scheduled payments (not including delinquent amounts, excess copy charges and
maintenance charges) from the Leases (including Non-Performing Leases),
discounted at the rate specified in the related Prospectus Supplement (the
"Discount Rate"). The discounted present value of the Performing Leases (the
"Discounted Present Value of the Performing Leases") equals the Discounted
Present Value of the Leases, reduced by all future remaining scheduled payments
on the Non-Performing Leases (not including delinquent amounts and maintenance
charges), discounted at the Discount Rate. The Discounted Present Value of the
Leases in respect of each Asset Pool as of the initial Cut-Off Date, calculated
at the Discount Rate, will be specified in the related Prospectus Supplement.
In connection with all calculations required to be made pursuant to an
Indenture or an Assignment and Servicing Agreement with respect to the
determination of the Discounted Present Value of the Leases at any given time,
it will be assumed that:
(i) Lease Payments are due on the last day of the period from and
including the first day of each calendar month to and including the last
day of the calendar month immediately preceding the related Payment Date;
(ii) Lease Payments are discounted on a monthly basis using a 30-day
month and a 360-day year; and
(iii) Lease Payments are discounted to the last day of the calendar
month prior to the relevant calculation date.
In addition, each Indenture and Assignment and Servicing Agreement
will provide that any calculation of future remaining scheduled payments made on
or with respect to any date will be calculated after giving effect to any
payments received prior to the date of that calculation to the extent such
payments relate to scheduled payments due and payable with respect to the
related Due Period (as defined herein) and all prior Due Periods.
Delinquencies and Gross Losses
Information relating to the Originator's delinquency and gross loss
experience with respect to leases it has originated or acquired will be set
forth in the related Prospectus Supplement. This information may include, among
other things, the experience with respect to all leases in the Originator's
portfolio during specified periods, including leases not included in any Asset
Pool and leases which may not meet the criteria for selection as a Lease
Receivable for an Asset Pool. There can be no assurance that the delinquency,
repossession and net loss experience on any Asset Pool will be comparable to the
Originator's prior experience.
Maturity and Prepayment Considerations
If a Lease permits a prepayment, the amount of the prepayment,
together with accelerated payments resulting from defaults, will, subject to the
use of those monies to acquire additional or substituted leases pursuant to the
terms of the applicable Transaction Documents, shorten the weighted average life
of the pool of Lease Receivables and the weighted average life of the Notes.
The rate of prepayments on the Lease Receivables may be influenced by a variety
of economic, financial and other factors. In addition, under certain
circumstances, the Originator will be obligated to reacquire Lease Receivables
from the Issuer pursuant to the applicable Transaction Documents as a result of
breaches of representations and warranties. Any reinvestment risks resulting
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from a faster or slower amortization of the Notes, which results from
prepayments, will be borne entirely by the Noteholders.
Acquisition of Lease Receivables
The Lease Receivables underlying the Notes will be acquired pursuant
to an Assignment and Servicing Agreement (i) by the Seller from the Originator
and (ii) by the Issuer from the Seller.
The Issuer expects that each Lease Receivable so acquired will have
been originated or acquired by the Originator in accordance with the
underwriting criteria specified herein and sold to the Seller. See "The
Originator's Leasing Business - Credit Policies and Loss Experience" herein.
Pursuant to the Assignment and Servicing Agreement, the Originator will make
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 on each determination date 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 Leases in the Asset Pool, the Pool Factor and various other items of
information. In addition, Noteholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law.
Use of Proceeds
The net proceeds from the sale of the Notes of each series will be
used to fund any applicable reserve or other accounts and to make distributions
by the Issuer to the Seller and by the Seller to the Originator.
The Originator's Leasing Business
The Originator, formerly known as IKON Capital, Inc., was formed in
1987 to provide lease financing to customers of IKON Office Solutions, Inc.
("IKON Office Solutions"). The Originator is a wholly-owned subsidiary of IKON
Office Solutions. The Originator's corporate headquarters are located at 1738
Bass Road, Macon, Georgia 31210. The Originator's securities are registered
under the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
Originator is subject to the reporting requirements of the 1934 Act and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). The Originator filed an Annual
Report on Form 10-K for the fiscal year ended September 30, 1999. 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, P.O. Box 9115, Macon,
Georgia 31210, Attn: Harry Kozee.
IKON Office Solutions is a public company headquartered in Malvern,
Pennsylvania operating a large network of independent copier and office
equipment marketplaces in North America and the United Kingdom.
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IKON Office Solutions has over 900 locations in the United States, Canada, the
United Kingdom, Germany, France, Denmark and Mexico. IKON Office Solutions also
provides equipment services and supplies, outsourcing and imaging services, such
as mailroom and copy center management, specialized document copying services
and electronic imaging and file conversion. IKON Office Solutions also offers
network consulting and design, hardware and software product interfaces,
computer networking, technology training and software solutions for the
networked office environment. IKON Office Solutions' fiscal 1999 gross revenues
were $5.5 billion.
The Originator is engaged in the business of arranging lease financing
exclusively for office equipment marketed by members of IKON Office Solutions'
independent dealer network ("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 Office Solutions to its customer base. During the
1999 fiscal year, 67% of new equipment sold by IKON marketplaces was financed
through the Originator. The Originator and IKON Office Solutions will seek to
increase this percentage in the future, as leasing enhances the overall profit
margin on equipment and is considered an important customer retention strategy.
For the fiscal years ended September 30, 1998 and 1997, the Originator's
operating revenues totaled approximately $289 million and $214 million,
respectively, with net income of approximately $63 million and $43 million,
respectively. For the fiscal year ended September 30, 1999, total operating
revenue equaled $299 million with net income of approximately $88 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 62% of the equipment financed by the Originator represents copiers,
17% facsimile machines, and 21% other equipment. Although equipment models vary,
IKON Office Solutions is increasingly focusing its marketing efforts on the sale
of higher segment equipment, such as copiers which produce 50 or more
impressions per minute.
The Originator's customer base (which consists of the end users of the
equipment) is widely dispersed, with the ten largest customers representing less
than 7.5% of the Originator's total lease portfolio as of September 30, 1999.
The typical new lease financed by the Originator during fiscal year 1999
averaged $17,739 in amount and 47 months in duration. Although 94% of the
leases in the Originator's total lease portfolio as of September 30, 1999 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 as a monthly report of marketplace increases in leasing
activity and related statistics.
Types of Leases
The lease portfolio of the Originator consists of direct financing
leases and funded leases, although the Leases to be included in any Asset Pool
will consist solely of direct financing leases. Funded leases are contractual
obligations between IKON Office Solutions and IKON Marketplaces which have been
financed by the Originator. Direct financing leases are contractual obligations
between the Originator and the IKON Office Solutions customer and represent the
majority of the Originator's lease portfolio.
Funded leases and direct financing leases are structured as either tax
leases (from the Originator's perspective) or conditional sales contracts,
depending on the customer's needs. The customer decides which of the two
structures it desires. Under either structure, the total cost of the equipment
to the customer is substantially the same (assuming the exercise of the purchase
option).
Tax leases represented 96% of the Originator's total lease portfolio
as of September 30, 1999. 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.
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Each tax lease has an assumed equipment residual value generally
ranging from 0% to 25% of original retail price, depending on model and term.
Although an Asset Pool may include tax leases with residual values, such
residual values will not be available for the benefit of the Noteholders of such
Asset Pool.
Conditional sale contracts account for the remaining 4% of the total
leases in the Originator's portfolio. Under these arrangements, the customer is
considered to be the owner of the equipment for tax purposes and is entitled to
receive any tax benefit associated with equipment depreciation. Each
conditional sales contract has an assumed residual value of 0%. Conditional
sales contracts are customarily structured with higher monthly lease payments
than the tax leases and have a $1 purchase option for the equipment at the end
of the lease term. Although the customer has the option of returning or
continuing to rent the equipment at lease-end, the customer almost always
exercises the $1 purchase option at the end of the lease term.
Credit Policies and Loss Experience
General. Prior to January 1998, IKON Office Solutions 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 Office Solutions centralized its
credit policy. IKON Office Solutions' National Risk Management Policy
established minimum standards for all IKON Office Solutions leasing transactions
and vested all credit authority with the Originator. The policy uses a tiered
approach incorporating analyst reviews and credit scoring based on customer
exposure.
Origination. Lease packages are assembled by an IKON Office Solutions
sales representative and submitted to its respective IKON 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 by the
Originator's contract and documentation review specialists. Each application is
checked for credit approval based on a comprehensive risk management policy.
When the transaction has completed final review the CLAS application is updated
and uploaded to the mainframe for activation, funding and invoicing.
Credit Processing. The Originator's credit process is segmented by
transaction size and approval authority. The "High Risk Review List" lists
industries or customers which are considered volatile and require special
attention. Guidelines are also established for automatic approvals which
require minimal information.
The IKON Office Solutions approval process is tiered based upon
customer exposure. Requests less than $50,000 use the CLAS credit scorecard for
approval. Credit scoring for smaller balance exposures provides the Originator
with the ability to adjust risk scores system-wide and monitor performance.
Exposures of $50,000 to $250,000 rely on the expertise of the Originator's
credit staff in analyzing and verifying information regarding bank
relationships, trade references, D&B Business Information Reports, and financial
statements and/or tax returns. Exposures of more than $250,000 benefit from the
combined resources of the districts and the Originator, while maintaining local
ownership of the customer. Ideally, the process will be transparent to the
customer yet provide the necessary and timely information required to understand
the risk factors of the exposure and those in the portfolio.
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Based upon the segmented approach, the following approval authorities
have been established:
. Customer Service Professional and/or Customer Service
Professional Manager
Dun & Bradstreet rated according to a decision matrix; up to
$50,000; no override authority.
. Business Credit Analysts
Up to high risk transactions.
. Senior Credit Analysts
Single signature for exposure up to $1 million; dual signature
for exposure up to $2 million.
. Director of Portfolio Quality & National Credit Coordinator
Single signature for exposure up to $2 million; dual signature
for exposure up to $5 million.
. Corporate
Exposure in excess of $5 million.
Challenges to the recommendations of the Originator's credit analysts
will be the responsibility of the IKON Office Solutions district presidents. In
the event the analyst does not agree with the actions recommended by the IKON
Office Solutions district, the Originator senior management will be requested to
intervene. Sole credit authority remains with the Originator, not IKON Office
Solutions. The requirements for the above approval categories for exposures
under $250,000 may be overridden with approval of a Senior Credit Analyst,
National Credit Coordinator, Director of Portfolio Quality or President of the
Originator. Justifications will be entered into CLAS.
Collections. The following minimum standards for collection activity
and contact are established for the organization. At 31 days past due, the
initial collection call or letter is sent, dependent on account balance, to
inquire as to payment status, determine reason for delinquency, and attempt to
obtain payment date. At 45 days past due, the first or second collection call
is made, depending on account balance. At 61 days past due, the second or third
collection call is made and the contract is reviewed for guarantors or
additional avenues of collection. At this point the approach is to be firm and
the collector must obtain a full understanding of any dispute that may exist. A
Collection Manager is notified of any problems at 61 days past due. At 75 days
past due, a third or fourth collection call is made and if payment arrangement
is not agreed upon, possibility of contract cancellation, supply or equipment
retrieval or foreclosure is raised. At 90 days past due, the customer is
advised that the equipment/supplies will be picked up and contract canceled if
payment is not received immediately. An acceleration letter is generally sent
within 10 days if payment is not received. A notice of repossession letter is
sent out at day 105 to the customer and the originating marketplace. Accounts
are generally scheduled for charge off at 120 days past due unless extenuating
circumstances (approved by a Collection Manager) warrants delay and additional
collection efforts. These actions are required during the indicated time frame,
and may be accelerated to an earlier time as deemed appropriate. All collection
activities are documented.
Delinquency and Loss Experience. Historical delinquency information
for leases not charged off and loss information for leases owned and included in
IOS Capital's servicing portfolio will be set forth in each Prospectus
Supplement. See "The Leases--Delinquencies and Gross Losses".
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
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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 will become effective until the acceptance of appointment by
the successor Trustee. The Trustee may resign at any time by giving written
notice thereof to the Issuer and the Servicer and by mailing notice of
resignation by first-class mail, postage prepaid, to the Noteholders of 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
Servicer Events of Default (as defined herein) have occurred, then the Trustee
will be required to perform only those duties specifically required of it under
the Assignment and Servicing Agreement. However, upon receipt of the various
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments required to be furnished to it, the Trustee will be required
to examine them to determine whether they conform as to form to the requirements
of the Assignment and Servicing Agreement.
No recourse is available based on any provision of the Assignment and
Servicing Agreement, the Notes or any Lease Receivable or assignment thereof
against the Trustee, in its individual capacity, and the Trustee will not have
any personal obligation, liability or duty whatsoever to any Noteholder or any
other person with respect to any 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 gross negligence or willful
misconduct.
The Trustee will be entitled to receive (a) reasonable compensation
for its services, (b) reimbursement for its reasonable expenses and (c)
indemnification for loss, liability or expense incurred without gross negligence
or bad faith on its part, arising out of performance of its duties thereunder.
Description of the Notes
General
Each series of the Notes will be issued pursuant to an Indenture. The
following summaries (together with additional summaries under "Description of
the Transaction Documents" below) describe all material terms and provisions of
the Notes. The summaries do not contain all the terms of the Notes and are
subject to, and are qualified in their entirety by reference to, all of the
provisions of the Transaction Documents and the Notes.
All of the Notes offered by this Prospectus will be rated in one of
the four highest rating categories by one or more nationally recognized
statistical rating organizations (each a "Rating Agency" and, collectively, the
"Rating Agencies").
The Notes will generally be styled as debt instruments, having a
principal balance and a specified floating or fixed interest rate. The Notes of
each series will represent debt secured by an Asset Pool comprised primarily of
the Lease Receivables described in the related Prospectus Supplement.
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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 (and, if applicable, any credit
enhancement provider) are located are authorized or obligated by law or
executive order to be closed (each a "Business Day").
Neither the Notes nor the underlying Lease Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Issuer, the Servicer, the Seller, any Trustee or any of their respective
affiliates.
Collections
The following funds will be deposited into the Collection Account (as
defined below):
(a) Lease Payments;
(b) recoveries from Non-Performing Leases (as defined below) to the
extent the Originator has not substituted Substitute Leases (as defined
below) for such Non-Performing Leases;
(c) late charges received on delinquent Lease Payments not advanced
by the Servicer;
(d) proceeds from purchases of Leases by the Originator as a result
of breaches of representations and warranties to the extent the Originator
has not substituted Substitute Leases for such Leases;
(e) proceeds from investment of funds in the Collection Account and
any other applicable Transaction Account (as defined below);
(f) Casualty Payments;
(g) Retainable Deposits (each as defined below);
(h) Servicer Advances (as defined below, if any);
(i) Termination Payments (as defined below), to the extent the Issuer
does not reinvest such Termination Payments in Additional Leases; and
(j) proceeds received to effect a redemption of the Notes pursuant to
the Indenture.
The foregoing funds on deposit in the Collection Account on each
determination date relating to a Payment Date, excluding Lease Payments not due
during the preceding calendar month (a "Due Period") or any prior Due Period,
together with any funds deposited into the Collection Account from any Reserve
Account as described below under "Distributions," will constitute available
funds ("Available Funds"). Available Funds do not include cash flows realized
from the sale or release of Equipment following the expiration date of the
related Lease other than Equipment subject to Non-Performing Leases (as defined
below) that have not been replaced.
The Servicer must deposit the funds referred to in clauses (a) through
(d), (f) and (i) above into the Collection Account within two Business Days of
receipt thereof by the Servicer. The funds referred to in clauses (e), (g), (h)
and (j) above are to be deposited into the Collection Account on or prior to the
related Payment Date.
A "Lease Payment" is the equipment financing portion of each fixed
periodic rental payment payable by a Lessee under a Lease. Casualty Payments,
Retainable Deposits, Termination Payments, prepayments of rent required pursuant
to the terms of a Lease at or before the commencement of the term of such Lease,
security deposits, payments becoming due before each Cut-Off Date and
supplemental or additional payments required by
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the terms of a Lease with respect to taxes, insurance, maintenance or other
specific charges such as excess copy charges are not Lease Payments.
A "Casualty Payment" is any payment pursuant to a Lease on account of
the loss, theft, condemnation, governmental taking, destruction, or damage
beyond repair (each, a "Casualty") of any item of Equipment subject thereto
which results, in accordance with the terms of the Lease, in a reduction in the
number or amount of any future Lease Payments or in the termination of the
Lessee's obligation to make future Lease Payments.
A "Retainable Deposit" is any security or other similar deposit which
the Servicer has determined in accordance with its customary servicing practices
is not refundable to the related Lessee.
A "Termination Payment" is a payment payable by a Lessee under a Lease
upon the early termination of 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.
"Non-Performing Leases" are (i) Leases that have become more than 120
days delinquent, (ii) Leases that have been accelerated by the Servicer or (iii)
Leases that the Servicer has determined to be uncollectible in accordance with
the Servicer's customary practices.
Distributions
On each Payment Date, Available Funds will be applied to make payments
of principal and interest due on the Notes, amounts owed to the Servicer,
Trustee (to the extent not payable by the Servicer) and other parties and for
other purposes as described and in the priority set forth in the related
Prospectus Supplement. If a Reserve Account is established for a series of
Notes, the related Prospectus Supplement will describe how much in that account
will be transferred to the Collection Account when there is a deficiency in
Available Funds otherwise available to make any payment due on each Payment
Date. Similarly, the related Prospectus Supplement will describe the extent to
which the proceeds of any applicable credit enhancement will be applied to make
up any such deficiency.
Prepayment and Yield Considerations
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Leases. The payments
on the Leases may be in the form of scheduled payments, prepayments or
liquidations due to default, casualty and other events, which cannot be
specified at present. Any prepayments or liquidations will result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Leases. The rate of such prepayments
and liquidations may be influenced by a number of other factors, including
general economic conditions. The rate of principal payments may also be
affected by any repurchase of the underlying Leases by the Originator or Seller
pursuant to the Assignment and Servicing Agreement. In such event, the
application of the repurchase price will decrease the Discounted Present Value
of the Performing Leases, causing the corresponding weighted average life of the
Notes to decrease.
Subject to certain limitations, the Originator will have the option to
substitute Eligible Leases having similar characteristics (each a "Substitute
Lease") for (i) Non-Performing Leases, (ii) Leases subject to repurchase as a
result of a breach of a representation and warranty by the Originator under the
Transaction Documents which breach has not been cured following discovery/notice
of 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 Substitute Leases for Non-Performing
Leases, Adjusted Leases or Warranty Leases in amounts not to exceed specified
percentages (to be stated in the related prospectus supplement) of the
Discounted Present Value of the Leases as of the original Cut-Off Date. In
addition, in the event of a Lease that terminates early or which has been
prepaid in full (each, an "Early Termination Lease"), the Originator will have
the option to transfer an additional lease of similar characteristics (each, an
"Additional Lease"). The Substitute Leases and Additional Leases must have a
Discounted Present Value of not less than the Discounted Present Value of the
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Leases being replaced and the monthly payments on the Substitute Leases or
Additional Leases must be at least equal to those of the replaced Leases through
the term of such replaced Leases. In the event that a Substitute Lease is not
provided for a Non-Performing Lease, the Discounted Present Value of the Leases
in the related Asset Pool will be reduced in an amount at least equal to the
Discounted Present Value of the Non-Performing Lease, plus any delinquent
payments.
The effective yield to holders of the Notes will depend upon, among
other things, the rate at which principal is paid to 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
Noteholders of a given series may hold their Notes through the
Depository Trust Company ("DTC") (in the United States) or Clearstream (defined
below) or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede & Co. ("Cede"), as nominee for DTC, will hold the global Notes in
respect of given series. Clearstream and Euroclear will hold omnibus positions
on behalf of the Clearstream Participants (as defined below) and the Euroclear
Participants (as defined below) (collectively, the "Participants"),
respectively, through customers' securities accounts in Clearstream's and
Euroclear's names on the books of their respective depositories (collectively,
the "Depositories") which in turn will hold those positions in customers'
securities accounts in the Depositories' names on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of securities. Participants
include brokers and dealers, banks, trust companies and clearing corporations.
Indirect access to the DTC system also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between Clearstream 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 Clearstream
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in 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. Clearstream Participants and
Euroclear Participants may not deliver instructions directly to the
Depositories.
Because of time-zone differences, credits of Notes in Clearstream or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent Notes settlement processing, dated the Business Day
following the DTC settlement date, and those credits or any transactions in
those subsequent Notes will be reported to the relevant Clearstream Participant
or Euroclear Participant on that Business Day. Cash received in Clearstream or
Euroclear as a result of sales of Notes by or through a Clearstream 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 Clearstream or
Euroclear cash account only as of the Business Day following settlement in DTC.
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Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Notes may do so only through Participants and Indirect Participants. In
addition, Noteholders will receive all distributions of principal and interest
through the Participants who in turn will receive them from DTC. Under a book-
entry format, Noteholders may experience some delay in their receipt of
payments, since the payments will be forwarded by the Issuer or note paying
agent to Cede, as nominee for DTC. DTC will forward the payments to its
Participants, which thereafter will forward them to Indirect Participants or the
Noteholders. It is anticipated that the only "Noteholder" in respect of any
series will be Cede, as nominee of DTC. Noteholders will not be recognized as
Noteholders, and the Noteholders will be permitted to exercise the rights of
Noteholders only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Notes among Participants on whose behalf it acts with respect to the Notes
and to receive and transmit distributions of principal of, and interest on, the
Notes. Participants and Indirect Participants with which the Noteholders have
accounts with respect to the Notes similarly are required to make book-entry
transfers and receive and transmit 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.
Clearstream Banking, societe anonyme ("Clearstream") is a limited
liability company (a societe anonyme) organized under the laws of Luxembourg as
a professional trust depository ("Trust Depository"). Clearstream holds notes
for its participating organizations ("Clearstream Participants") and facilitates
the clearance and settlement of notes transactions between Clearstream
Participants through electronic book-entry changes in accounts of Clearstream
Participants, thereby eliminating the need for physical movement of notes.
Transactions may be settled in Clearstream in any of 38 currencies, including
United States dollars. Clearstream provides to its Clearstream Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities lending and borrowing.
Clearstream interfaces with domestic markets in several countries. As a
professional Trust Depository, Clearstream is subject to regulation by the
Luxembourg Monetary Institute. Clearstream 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 Clearstream is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Clearstream Participant, either
directly or indirectly.
Euroclear was created in 1968 to hold notes for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
notes and any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 37 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear System is also available
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to other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of notes and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to Notes in the Euroclear System. All Notes in the Euroclear System are
held on a fungible basis without attribution of specific Notes to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants and has no record of
relationship with persons holding through Euroclear Participants.
DTC management is aware that some computer applications, systems and
the like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter Year 2000
problems. DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and interest payments) to Noteholders, book-entry
deliveries, and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to properly perform its services is also
dependent upon other parties, including, but not limited to, issuers and their
agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information and the
provision of services, including telecommunications and electrical utility
service providers, among others. DTC has informed the Industry that it is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
additional, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
Except as required by law, neither the Issuer nor any paying agent
will have any liability for any aspect of the records relating to or payments
made or account of beneficial ownership interests of the related Notes held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
Definitive Notes
The Notes of any series will be issued in fully registered,
certificated form ("Definitive Notes") to the Noteholders or their nominees,
rather than to DTC or its nominee, only if (i) the Servicer advises in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Trust Depository with respect to such Notes and such Issuer is unable to
locate a qualified successor, (ii) the Servicer, at its option, elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
"Event of Default" under the Indenture or a default by the Servicer under the
Assignment and Servicing Agreement. Noteholders representing at least a
majority of the outstanding principal amount of the Notes of that series advise
the Issuer through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in such Noteholders' best
interest.
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Upon the occurrence of any event described in the immediately
preceding paragraph, the Trustee will be required to notify all affected
Noteholders through Participants of the availability of Definitive Notes. Upon
surrender by DTC of its Notes and receipt of instructions for reregistration,
the Issuer will reissue DTC's Notes as Definitive Notes to the Noteholders in
the amounts specified in the reregistration instructions.
Distributions of principal of, and interest on, Definitive Notes will
thereafter be made by the Issuer in accordance with the procedures set forth in
the Indenture directly to holders of Definitive Notes in whose names the
Definitive Notes were registered at the close of business on the applicable
Record Date. Distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the Trustee. The final
payment on any Definitive Note, however, will be made only upon presentation and
surrender of the Note at the office or agency specified in the notice of final
distribution to the applicable Noteholders.
Definitive Notes will be transferable and exchangeable at the offices
of the Issuer or Trustee or of a certificate registrar named in a notice
delivered to holders of the Definitive Notes. No service charge will be imposed
for any registration of transfer or exchange, but the Issuer or the Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
Reports to Noteholders
On or prior to each Payment Date, the Servicer or the Trustee will
forward or cause to be forwarded to each holder of record of a Class of Notes a
statement or statements with respect to the related Asset Pool setting forth the
information specifically described in the Transaction Document which generally
will include the following information:
(i) the amount of the distribution with respect to that class of
Notes;
(ii) the amount of the distribution allocable to principal;
(iii) the amount of the distribution allocable to interest;
(iv) the Discounted Present Value of the Leases in the related Asset
Pool;
(v) the Asset Pool balance;
(vi) the aggregate outstanding principal balance and the Pool Factor
for such Class of Notes after giving effect to all payments reported under
(ii) above on such Payment Date;
(vii) the amount paid to or retained by the Servicer, if any, with
respect to the related Due Period; and
(viii) the aggregate purchase amounts for Lease Receivables that have
been reacquired, if any, for the related Due Period.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the Issuer or the Servicer will provide to the
Noteholders a statement containing the amounts described in (ii) and (iii) above
for that calendar year and any other information required by applicable tax
laws, for the purpose of the Noteholders' preparation of federal income tax
returns.
Description of the Transaction Documents
The following summary describes the material terms of each transaction
document pursuant to which an Asset Pool will be created and a series of Notes
will be issued. For purposes of this Prospectus, the term "Transaction
Documents" as used with respect to a series of Notes means the Indenture and
Assignment and Servicing Agreement relating to a series of Notes. Forms of the
Transaction Documents have been filed as exhibits
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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 Issuance Date, the
Seller will acquire the related Lease Receivables from the Originator pursuant
to an Assignment and Servicing Agreement in which the Originator will make
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 the
Lease Receivables to the Trustee for the benefit of Noteholders under the
Indenture. The rights and benefits of the Issuer under the Assignment and
Servicing Agreement will be assigned to the Trustee on behalf of Noteholders as
collateral for the Notes by the Issuer under the Indenture.
Additions, Substitutions and Adjustments. The Originator will be
obligated to purchase from the Issuer its interest in any Lease in the Asset
Pool that has become a Warranty Lease unless an Eligible Lease is substituted
therefor in accordance with the related Assignment and Servicing Agreement.
Pursuant to the Assignment and Servicing Agreement, the Originator
will have the option to substitute Eligible Leases for Non-Performing Leases,
Adjusted Leases and Warranty Leases and to add Additional Leases. The
percentage of Leases in any Asset Pool that can be substituted for Non-
Performing Leases, Adjusted Leases and Warranty Leases will be limited, as
described in the related Prospectus Supplement, to a percentage of the aggregate
Discounted Present Value of the Leases in the Asset Pool as of the related Cut-
Off Date. See "Description of the Notes -- Prepayment and Yield
Considerations."
Servicing. The Servicer will service the Lease Receivables in an
Asset Pool pursuant to an Assignment and Servicing Agreement. The Servicer may
delegate its servicing responsibilities to one or more sub-servicers, but will
not be relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Assignment and Servicing Agreement. An uncured breach of
such a representation or warranty that in any respect materially and adversely
affects the interests of the Noteholders will constitute a Servicer Event of
Default by the Servicer.
The Assignment and Servicing Agreement will provide that the Servicer
will take or cause to be taken all actions as are necessary or advisable to
service, administer and collect each Lease in accordance with customary and
prudent servicing procedures for leases of a similar type, and in accordance
with applicable laws, rules and regulations and, in any event, according to a
standard of care not less than that which it applies to leases it services for
its own account.
Advances by the Servicer. Prior to any Payment Date, with respect to
any series, the Servicer may, but will not be required to, advance (each, a
"Servicer Advance") to the Trustee an amount sufficient to cover delinquencies
on Leases with respect to the prior Due Period. The Servicer will be entitled
to reimbursement for Servicer Advances.
Servicing Compensation. The Servicer will be entitled to receive a
servicing fee for each Due Period (the "Servicing Fee") in an amount equal to a
specified percentage per annum of the Discounted Present Value of the Performing
Leases or the Outstanding Principal Amount of the Notes, as of the first day of
such Due Period. The Indenture will specify the priority of the Servicing Fee
in relation to payments to Noteholders and other persons. The Servicing Fee may
be paid prior to any distribution to the Noteholders.
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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 for a
series of Notes, the Servicer will provide to the Trustee as of the close of
business on the last day of the preceding related Due Period, a statement
setting forth substantially the same information as is required to be provided
in the periodic reports provided to Noteholders described under "Description of
the Notes--Reports to Noteholders."
Evidence as to Compliance. The Assignment and Servicing Agreement
will provide that a firm of independent public accountants will furnish to the
Issuer and the Trustee, annually, a 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 Issuance Date) with certain
standards relating to the servicing of the Lease Receivables.
The Assignment and Servicing Agreement will also provide for the
annual delivery to the Issuer and/or the Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under the Assignment and Servicing Agreement in all material
respects throughout the preceding 12 months (or, in the case of the first
certificate, the period from the applicable Issuance Date) or, if there has been
a default in the fulfillment of any obligation in any material respect,
describing each default. The Servicer also will agree to give the Trustee
notice of certain Servicer Events of Defaults (as defined below) under the
related Assignment and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders owning at least 25% of the outstanding principal amount of the Notes
of the relevant series upon request in writing addressed to the Trustee or the
Servicer.
Certain Matters Regarding the Servicer. The Assignment and Servicing
Agreement will provide that the Servicer may not resign from its obligations and
duties as Servicer thereunder, except upon determination that the performance by
the Servicer of such duties is no longer permissible under applicable law. No
resignation by the Servicer will become effective until the Trustee or a
successor servicer has assumed the Servicer's servicing obligations and duties
under the Assignment and Servicing Agreement.
The Assignment and Servicing Agreement will further provide that
neither the Servicer nor any of its directors, officers, employees, or agents
will be under any liability to the Issuer or the Noteholders for taking any
action or for refraining from taking any action pursuant to the Assignment and
Servicing Agreement; provided, however, that neither the Servicer nor any of
-------- -------
those other persons will be protected against any liability that would otherwise
be imposed based on any breach of the warranties, representations or warranties
made by the Servicer in the Assignment and Servicing Agreement or by reason of
willful misfeasance, bad faith or negligence in the performance or non-
performance of duties.
Under the circumstances specified in the Assignment and Servicing
Agreement, any entity into which the Servicer may be merged or consolidated, or
any entity resulting from any merger or consolidation to which the Servicer is a
party, or any entity succeeding to the business of the Servicer or, with respect
to its
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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, and
any additional events and conditions that are described in the related
Prospectus Supplement, will be defined in the Assignment and Servicing
Agreement as "Servicer Events of Default":
(a) failure on the part of the Servicer to remit to the Trustee within
three Business Days following the receipt thereof any monies
received by the Servicer required to be remitted to the Trustee
under the Assignment and Servicing Agreement;
(b) failure on the part of the Servicer to pay to the Trustee on the
date when due, any payment required to be made by the Servicer
pursuant to the Assignment and Servicing Agreement;
(c) default on the part of either the Servicer or (so long as IOS
Capital is the Servicer) IOS Capital in its observance or
performance in any material respect of 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 Noteholder;
(d) if any representation or warranty of IOS Capital made in the
Assignment and Servicing Agreement proves to be incorrect in any
material respect as of the time made; provided, however, that the
-------- -------
breach of any representation or warranty made by IOS Capital in
such Assignment and Servicing Agreement will be deemed to be
"material" only if it affects the Noteholders or the
enforceability of the related Indenture or of the related Notes;
and provided, further, that a material breach of any
-------- -------
representation or warranty made by IOS Capital in an Assignment
and Servicing Agreement with respect to any of the Lease
Receivables subject thereto will not constitute a Servicer Event
of Default if IOS Capital purchases 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 not waived by
the person or persons entitled to performance; or
(g) a final judgment or judgments (or decrees or orders) for the
payment of money aggregating in excess of $5,000,000 and any one
of such judgments (or decrees or orders) has remained unsatisfied
and in effect for any period of 60 consecutive days without a stay
of execution.
Rights upon Servicer Events of Default. As long as a Servicer Event
of Default under the Assignment and Servicing Agreement remains unremedied, the
Trustee may, and upon the instruction of holders of Notes evidencing not less
than 66-2/3% in principal amount of the Notes of the relevant series or, if and
to the extent described in the related Prospectus Supplement, any credit
enhancement provider, shall, terminate all the rights and obligations of the
Servicer, if any, under the related Assignment and Servicing Agreement,
whereupon a successor servicer appointed by 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 Event of Default other than the
appointment of a successor servicer has occurred, the bankruptcy trustee or
official may have the power to
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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 servicer. The Trustee may make arrangements
for compensation to be paid to the successor, which in no event may be greater
than the servicing compensation payable to the Servicer under the Assignment and
Servicing Agreement or such other amount indicated in the related Prospectus
Supplement.
Indenture
Accounts. The Trustee will establish and maintain one or more
accounts in the name of such Trustee on behalf of the Noteholders into which
payments made on or with respect to the related Lease Receivables shall be
deposited as provided in the related Transaction Documents (the "Collection
Account"). In addition, the Trustee may establish one or more other separate
accounts in the name of the Trustee for the benefit of the Noteholders, (i) for
the deposit of funds for distribution to the Noteholders (a "Distribution
Account"), (ii) to provide reserves to cover shortfalls in Available Funds (a
"Reserve Account"), (iii) to provide funds for the purchase of additional Lease
Receivables during any applicable pre-funding period (a "Pre-Funding Account"),
or (iv) for any other purpose (an "Additional Account").
Funds in the Collection Account and any Distribution Account, Reserve
Account, Pre-Funding Account or Additional Account (collectively, the
"Transaction Accounts") will be invested as provided in the related Indenture in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the Notes. Eligible Investments generally are limited to obligations
that mature not later than the Business Day immediately preceding the next
succeeding Payment Date.
The Transaction Accounts will be maintained as Eligible Accounts.
"Eligible Account" means either (a) an account maintained with a depository
institution or trust company acceptable to each of the Rating Agencies and any
credit enhancement provider, or (b) a trust account or similar account
maintained with a federal or state chartered depository institution, which may
be an account maintained with the Trustee.
Distributions. Beginning on the first Payment Date, distributions of
principal and interest (or, where applicable, of principal only or interest
only) on each Class of Notes entitled thereto will be made to the Noteholders.
The timing, calculation, allocation, order, source, priorities of, distribution
of, and requirements for each Class of Notes will be set forth in the related
Prospectus Supplement.
Credit Enhancements. The amounts and types of credit enhancement
arrangements, if any, and the provider thereof, if applicable, with respect to
each Class of Notes of a given series will be set forth in the related
Prospectus Supplement. If and to the extent provided in the related Prospectus
Supplement, credit enhancement may be in the form of an insurance policy,
subordination of one or more classes of Notes, reserve accounts,
overcollateralization, letters of credit, credit or liquidity facilities, third
party payments or other support, surety bonds, guaranteed cash deposits or 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 of 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 Class of Notes or
more than one series of Notes, Noteholders of any such Class or series will be
subject to the risk that such credit enhancement will be exhausted by the claims
of Noteholders of other series.
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If the protection provided to the Noteholders of a given Class of
Notes by any applicable credit enhancement or by the subordination of another
Class of Notes is insufficient, the Issuer must rely solely on the Asset Pool.
Modification of the Indenture. Under an Indenture, the rights and
obligations of the Issuer and the rights of the Noteholders may be modified by
the Issuer with the consent of the holders of not less than 66-2/3% in aggregate
principal amount of the Notes then outstanding under the Indenture or, if and to
the extent described in the related Prospectus Supplement, the consent of any
credit enhancement provider; but no such modification may be made if it would
result in the reduction or withdrawal of the then current ratings of the
outstanding related Notes and no 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 suit for the enforcement of any 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 that
Indenture or (c) modify the provisions of the Indenture restricting
modifications or waivers of the provisions of the Indenture except to increase
any percentage or fraction set forth therein or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the holder of each outstanding note affected thereby; or (d) modify or alter the
provisions of the Indenture treating Notes held by the Issuer or any affiliate
of the Issuer as not being "Outstanding" for certain purposes under the
Indenture; or (e) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any part of any Asset Pool
or, except as provided in the Indenture, terminate the lien of the Indenture on
any part of an Asset Pool at any time subject to the Indenture or deprive any
Noteholder of the security afforded by the lien of the Indenture.
Events of Default. "Events of Default" under an Indenture will
include, in addition to any other events or conditions described in the related
Prospectus Supplement: (i) a default for five days or more in the payment of any
interest on any Note issued under that Indenture; (ii) a default in the payment
of the principal of or any installment of the principal of any Note at the
stated maturity or when the same becomes due and payable; (iii) a default in the
observance or performance in any material respect of any covenant or agreement
regarding the contemplated transaction made in the related Transaction
Documents, or any representation or warranty made by the Issuer in the
Transaction Documents or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect as of the time made, and the
continuation of any default or the failure to cure a breach of a representation
or warranty for a period of 30 days (or in certain circumstances 90 days) after
notice thereof is given to the Issuer by the Trustee or the Issuer and the
Trustee by the holders of at least 25% in principal amount of the Notes then
outstanding; or (iv) certain events of bankruptcy, insolvency, receivership or
liquidation relating to the Issuer.
If an Event of Default occurs, the Trustee or, to the extent described
in the related Prospectus Supplement, any credit enhancement provider may, and
if so directed by holders of not less than 66-2/3% of the then outstanding
principal amount of the Notes, shall, declare the unpaid principal amount of the
related Notes to be immediately due and payable together with all accrued and
unpaid interest thereon. If the Event of Default involves other than non-
payment of principal or interest on the Notes, the Trustee may not sell the
related Lease Receivables unless the sale is for an amount greater than or equal
to the outstanding principal amount of the Notes unless directed to do so by the
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 monies that may then be held or
thereafter received by the Trustee will be applied in the order of priority set
forth in the related Prospectus Supplement at the date or dates fixed by the
Trustee and, in case of the distribution of the entire amount due on account of
principal or interest, upon presentation and surrender of the Notes.
Each Indenture will provide that the holders of 66-2/3% in aggregate
principal amount of the Notes then outstanding or, if and to the extent
described in the related Prospectus Supplement, any credit enhancement provider
will have the right to waive certain defaults and, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust power conferred
on the Trustee. The Indenture will provide that in case an Event of Default
shall occur (which shall
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not have been cured or waived), the Trustee will be required to exercise 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 these provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the Noteholders unless they shall have offered to the Trustee
security or indemnity satisfactory to the Trustee. Upon request of a Noteholder,
the Trustee will provide information as to the outstanding principal amount of
each Class of Notes.
Redemption. The Issuer may, at its option, redeem the Notes, as a
whole, at their principal amount, without premium, together with interest
accrued to the date fixed for redemption if on any payment date the Discounted
Present Value the Leases is less than or equal to 10% of the Discounted Present
Value of the Leases in the related Asset Pool as of the original Cut-Off Date.
The Issuer will give notice of redemption to each Noteholder and the Trustee at
least 30 days before the Payment Date fixed for prepayment. Upon deposit of
funds necessary to effect redemption, the Trustee shall pay the remaining unpaid
principal amount on the Notes and all accrued and unpaid interest as of the
Payment Date fixed for redemption.
Legal Aspects of the Lease Receivables
General
The Leases will either be "chattel paper" as defined in the Uniform
Commercial Code or Leases that are not treated materially differently from
"chattel paper" for purposes of title transfer, security interests or remedies
on default. Pursuant to the UCC for most purposes, a sale of chattel paper is
treated in a manner similar to a transaction creating a security interest in
chattel paper. In connection with the creation of an Asset Pool, the Issuer,
the Originator, the Servicer and/or the Seller will cause the filing of
appropriate UCC-1 financing statements with respect to the Leases to be made
with the appropriate governmental authorities. Under the Assignment and
Servicing Agreement, the Servicer will be obligated from time to time to take
any actions necessary to protect, perfect and preserve the Issuer's or the
Trustee's interests in the Leases and their proceeds, as the case may be.
The Leases are triple-net leases, requiring the Lessees to pay all
taxes, maintenance and insurance associated with the Equipment, and provide that
they are noncancellable by the Lessees.
The Leases are full payoff leases, under which the obligations of the
Lessee are absolute and unconditional, regardless of any defense, setoff or
abatement which the Lessee may have against IOS Capital, as Originator or
Servicer, the Issuer, or any other person or entity whatsoever.
Defaults under the Leases are generally the result of failure to pay
amounts when due, failure to observe other covenants in the Lease,
misrepresentations by, or insolvency, bankruptcy or appointment of a trustee or
receiver for, the Lessee under a Lease. The remedies of the lessor (and the
Issuer as assignee) following any applicable notice and cure period are
generally to enforce the performance by the Lessee of the terms and covenants of
the Lease (including the Lessee's obligations to make scheduled payments) or
recover damages of the breach thereof, to accelerate the balance of the
remaining scheduled payments paid or to terminate the rights of the Lessee under
such Lease. Although the Leases permit the lessor to repossess and dispose of
the related Equipment in the event of a lease default, and to credit the
proceeds against the Lessee's liabilities thereunder, these remedies may be
limited where the Lessee thereunder is subject to bankruptcy, or other
insolvency proceedings.
UCC and Bankruptcy Considerations
The Originator will transfer all the Originator's interest in the
Equipment to the Seller. The Seller will assign its interest as secured party
in the Equipment relating to the Leases to the Issuer, which in turn will pledge
that interest to the Trustee for the benefit of the Noteholders. The Seller
will not transfer any of its ownership interests in any of the Equipment.
Because of this, the Trustee, on behalf of the Noteholders, will have no
interest in or recourse to any of the Equipment other than by virtue of the
security interest granted to the Issuer in the Seller's interest in the
Equipment and the Issuer's pledge of that interest to the Trustee. As a result,
the Trustee may be unable to foreclose on the Equipment in the event of a
default by a Lessee on any Lease and Noteholders may experience delays in
receiving payments and suffer a loss of their investment in the Notes. UCC
financing
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statements will not be filed to perfect any security interest in the Equipment.
Moreover, Equipment may be subject to a superior lien. In this case, the senior
lienholder may be entitled to be paid the full amount of the indebtedness owed
to it out of the sale proceeds before the proceeds could be applied to the
payment of claims on behalf of the Issuer or Noteholders. In addition, in the
event of bankruptcy of the Originator or the Seller, the security interest in
the Equipment of the Issuer or Trustee may be subject to avoidance under the
Bankruptcy Code of 1978, as amended (the "Bankruptcy Code").
In the event of a default by the Lessee under a finance lease, the
Servicer may take action to enforce the Non-Performing Lease by repossession and
resale of the Equipment. Under the UCC in most states, a creditor can, without
prior notice to the debtor, repossess assets securing a defaulted contract by
the Lessee's voluntary surrender of 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.
Under most state laws, a Lessee has the right to redeem collateral for
its obligations prior to actual sale by paying to the secured party the unpaid
balance of the obligation plus reasonable expenses for repossession, holding and
preparing the collateral for disposition and arranging for its sale, plus, to
the extent provided for in the written agreement of the parties, reasonable
attorneys' fees.
In addition, because the market value of the equipment of the type
subject to the Leases generally declines with age and because of obsolescence,
the net disposition proceeds of Equipment at any time during the term of a Lease
may be less than the outstanding balance of the Lease Payments. Because of
this, and because other creditors may have rights in the related Equipment
superior to those of the Issuer, the Servicer may not be able to recover the
entire amount due on a Non-Performing Lease in the event that the Servicer
elects to repossess and sell the Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a Lessee for any deficiency on
repossession and resale of the asset securing the unpaid balance of the Lessee's
contract. However, some states impose prohibitions or limitations on deficiency
judgments. In most jurisdictions, the courts, in interpreting the UCC, would
impose upon a creditor an obligation to repossess the equipment in a
commercially reasonable manner and to "mitigate damages" in the event of a
Lessee's failure to cure a default. The creditor would be required to exercise
reasonable judgment and follow acceptable commercial practice in seizing and
disposing of the equipment and to offset the net proceeds of such disposition
against its claim. In addition, a Lessee may successfully invoke an election of
remedies defense to a deficiency claim in the event that the Servicer's
repossession and sale of the Equipment is found to be a retention discharging
the Lessee from all further obligations under UCC Section 9-505(2). If a
deficiency judgment were granted, the judgment would be a personal judgment
against the Lessee for the shortfall, but a defaulting Lessee may have very
little capital or sources of income available following repossession.
Therefore, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount or be uncollectible.
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 the Lessee or exercising any remedies
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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 this type of
lease or contract constitutes a breach of the lease or contract, entitling the
nonbreaching party to a claim for damages for breach of contract. The net
proceeds from any resulting judgment would be deposited by the Servicer into the
Collection Account and allocated to the Noteholders as more fully described
herein and in the related Prospectus Supplement. Upon the bankruptcy of a
Lessee, if the bankruptcy trustee or debtor-in-possession elected to reject a
Lease, the flow of scheduled payments to Noteholders would cease. In the event
that, as a result of the bankruptcy of a Lessee, the Leases become Non-
Performing Leases, no recourse would be available against the Originator (except
for misrepresentation or breach of warranty) and the Noteholders could suffer a
loss. Similarly, upon the bankruptcy of the Issuer, if the bankruptcy trustee
or debtor-in-possession elected to reject a Lease, the flow of Lease Payments to
the Issuer and the Noteholders would cease. As noted above, however, the Issuer
has been structured so that the filing of a bankruptcy petition with respect to
it is unlikely. See "The Issuer."
In addition, 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 these Leases may be contingent upon legislative
approval. Further, the assignment of their payment obligations may be void or
voidable if not done in compliance with applicable government rules and
regulations. Accordingly, payment delays and collection difficulties may limit
collections with respect to certain governmental Leases.
These UCC and bankruptcy provisions, in addition to the possible
decrease in value of a repossessed item of Equipment, may limit the amount
realized on the sale of the Equipment to less than the amount due on the related
Lease.
Material Federal Income Tax Consequences
General
The following discussion sets forth the material federal income tax
consequences to the original purchasers of the Notes of the purchase, ownership
and disposition of the Notes. The opinion of Dewey Ballantine LLP, special tax
counsel to the Issuer ("Tax Counsel"), does not purport to deal with all federal
tax considerations applicable to all categories of investors. Certain holders,
including insurance companies, tax-exempt organizations, financial institutions
or broker dealers, taxpayers subject to the alternative minimum tax, and holders
that will hold the Notes as other than capital assets, may be subject to special
rules that are not discussed below. In particular, this discussion applies only
to institutional investors that purchase the Notes directly from the Issuer and
hold the Notes as capital assets.
The discussion that follows, and the opinion of Tax Counsel set forth
below are based upon provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), treasury regulations promulgated thereunder as in effect on the
date hereof, and 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.
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Tax Characterization of the Issuer
Tax counsel is of the opinion that the Issuer will not be treated as
an association (or a publicly traded partnership) taxable as a corporation for
federal income tax purposes.
Tax Characterization of the Notes
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, Tax Counsel is of the opinion that the Notes will be
treated as indebtedness for federal income tax purposes. If characterized as
indebtedness, interest on the Notes will be taxable as ordinary income for
federal income tax purposes when received by Noteholders using the cash method
of accounting ,and when accrued by Noteholders using the accrual method of
accounting. Noteholders using the accrual method of accounting may be required
to report income for tax purposes in advance of receiving a corresponding cash
distribution with which to pay the related tax. Interest received on the Notes
also may constitute "investment income" for purposes of certain limitations of
the Code concerning the deductibility of investment interest expense.
Although it is the opinion of Tax Counsel that the Notes are properly
characterized as indebtedness for federal income tax purposes, no assurance can
be given that such characterization of the Notes will prevail. If the Notes
were treated as an ownership interest in the Leases, all income on the Leases
would be income to the holders of the Notes, and related fees and expenses would
generally be deductible (subject to certain limitations on the deductibility of
miscellaneous itemized deductions by individuals) and certain market discount
and premium provisions of the Code might apply to a purchase of the Notes.
If, alternatively, the Notes were treated as an equity interest in the
Issuer, the Issuer might be classified as a partnership, or as an association
(or a publicly traded partnership) taxable as a corporation. If the Notes were
treated as interests in a partnership, each item of income, gain, loss,
deduction and credit generated through the ownership of the Equipment and the
Lease Receivables by the partnership would be passed through to the Noteholders,
as partners in a partnership according to their respective interests therein.
The timing, amount and character of the income or expenses reportable by the
Noteholders as partners in such a partnership could differ from the income or
expenses reportable by the Noteholders as holders of debt. If the Noteholders
were treated as partners, a cash basis Noteholder might be required to report
income when it accrues to the partnership rather than when it is received by the
Noteholder. Moreover, if Notes were treated as interests in a partnership, an
individual Noteholder's share of expenses of the partnership (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
Noteholder's adjusted gross income, meaning that the individual Noteholder might
be taxed on a greater amount of income than the stated interest on his or her
Notes. Finally, if a Note were treated as a partnership interest, any taxable
income allocated to a Holder that is a pension, profit sharing or employee
benefit plan or otherwise tax-exempt, could constitute "unrelated business
taxable income."
If the Notes were treated as interests in an association (or a
publicly traded partnership) taxable as a corporation, the resulting entity
would be subject to federal income tax at corporate tax rates on its taxable
income generated by ownership of the Lease Receivables. Moreover, distributions
by the entity on the Notes probably would not be deductible in computing the
entity's taxable income and all or part of any distributions to Noteholders
would probably be treated as dividend income to such Noteholders. 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 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 Noteholders. Investors are urged to consult their own tax advisors with
regard to the potential application of those provisions.
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Discount and Premium
A Note purchased for an amount other than its outstanding principal
amount will be subject to the rules governing original issue discount, market
discount or premium. In very general terms, (i) original issue discount is
treated as a form of interest and must be included in a beneficial owner's
income as it accrues (regardless of the beneficial owner's regular method of
accounting) using a constant yield method; (ii) market discount is treated as
ordinary income and must be included in a beneficial owner's income as principal
payments are made on the Note (or upon a sale of a Note); and (iii) if a
beneficial owner so elects, premium may be amortized over the life of the Note
and offset against inclusions of interest income. These tax consequences are
discussed in greater detail below. Beneficial owners who are required to
include the interest income as it accrues may be required to report income for
tax purposes in advance of receiving a corresponding cash contribution with
which to pay the related tax.
Original Issue Discount. In general, a Note will be considered to be
issued with original issue discount equal to the excess, if any, of its "stated
redemption price at maturity" over its "issue price." The issue price of a Note
is the initial offering price to the public (excluding bond houses and brokers)
at which a substantial amount of the Notes is sold. The issue price also
includes any accrued interest attributable to the period between the beginning
of the Due Period and the closing date relating to such series of Notes (the
"Issuance Date"). The stated redemption price at maturity of a Note that has a
notional principal amount or receives principal only or that is or may provide
for accruals of interest is equal to the sum of all distributions to be made
under that Note. The stated redemption price at maturity of any other Note is
its stated principal amount, plus an amount equal to the excess (if any) of the
interest payable on the first Payment Date over the interest that accrues for
the period from the Issuance Date to the first Payment Date. The Trustee will
supply, at the time and in the manner required by the IRS, to beneficial owners,
brokers and middlemen information with respect to the original issue discount
accruing on the Notes.
Notwithstanding the general definition, original issue discount will
be treated as zero if the discount is less than 0.25 percent of the stated
redemption price at maturity of the Note multiplied by its weighted average
life. The weighted average life of a Note is apparently computed for this
purpose as the sum, for all distributions included in the stated redemption
price at maturity, of the amounts determined by multiplying (i) the number of
complete years (rounding down for partial years) from the Issuance Date until
the date on which each of those distributions is expected to be made by (ii) a
fraction, the numerator of which is the amount of the distribution and the
denominator of which is the Note's stated redemption price at maturity. Even if
original issue discount is treated as zero under this rule, the actual amount of
original issue discount must be allocated to the principal distributions on the
Note and, when each such distribution is received, gain equal to the discount
allocated to the distribution will be recognized.
The adjusted issue price of a Note at any time will equal the issue
price of such Note, increased by the aggregate amount of previously accrued
original issue discount with respect to that Note, and reduced by the amount of
any distributions made on that Note as of that time of amounts included in the
stated redemption price at maturity. The original issue discount accruing
during any accrual period will then be allocated ratably to each day during the
period to determine the daily portion of original issue discount.
A subsequent purchaser of a Note that purchases it at a cost less than
its remaining stated redemption price at maturity also will be required to
include in gross income for each day on which it holds the Note, the daily
portion of original issue discount with respect to the Note (but reduced, if the
cost of the Note to the purchaser exceeds its adjusted issue price, by an amount
equal to the product of (i) that daily portion and (ii) a constant fraction, the
numerator of which is that excess and the denominator of which is the sum of the
daily portions of original issue discount on the Note for all days on or after
the day of purchase).
Market Discount. A beneficial owner that purchases a Note at a market
discount, that is, at a purchase price less than the remaining stated redemption
price at maturity of 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
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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 percent 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 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 a Note by using a constant yield method.
For purposes of the election, the term "interest" includes stated interest,
acquisition discount, original issue discount, de minimis original issue
discount, market discount, de minimis market discount and unstated interest as
adjusted by any amortizable bond premium or acquisition premium. A beneficial
owner should consult its own tax advisor regarding the time and manner of making
and the scope of the election and the implementation of the constant yield
method.
Sale or Exchange of Notes
If a Note is sold or exchanged, the seller of the Note will recognize
gain or loss equal to the difference between the amount realized on the sale or
exchange and the adjusted basis of the Note. The adjusted basis of a Note will
generally equal its cost, increased by any OID or market discount includible in
income with respect to the Note through the date of sale and reduced by any
principal payments previously received with respect to the Note, any payments
allocable to previously accrued OID or market discount and any amortized market
premium. Subject to the market discount rules, gain or loss will generally be
capital gain or loss if the Note was held as a capital asset. Capital losses
generally may be used only to offset capital gains.
Backup Withholding
Distributions of interest and principal, as well as distributions of
proceeds from the sale of Notes, may be subject to the "backup withholding tax"
under section 3406 of the Code at a rate of 31 percent if recipients of those
distributions fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from that tax. Any amounts deducted and withheld from a distribution to
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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 IRS has issued withholding regulations (the "Withholding
Regulations"), which make certain modifications to withholding, backup
withholding and information reporting rules. The Withholding Regulations attempt
to unify certification requirements and modify certain reliance standards. The
Withholding Regulations will generally be effective for payments made after
December 31, 2000, although taxpayers may begin compliance with the Withholding
Regulations immediately. Prospective investors are urged to consult their own
tax advisors regarding the Withholding Regulations.
Foreign Investors
Distributions made on a Note to, or on behalf of, a beneficial owner
that is not a U.S. Person generally will be exempt from U.S. federal income and
withholding taxes. The term "U.S. Person " means a citizen or resident of the
United States, a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
an estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States person has
the authority to control all substantial decisions of the trust. This exemption
is applicable provided (a) the beneficial owner is not subject to U.S. tax as a
result of a connection to the United States other than ownership of the Note,
(b) the beneficial owner signs a statement under penalties of perjury that
certifies that 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 Code.
If income or gain with respect to a Note is effectively connected with
a U.S. trade or business carried on by a Noteholder who or which is not a U.S.
person, the 30 percent withholding tax will not apply but such Noteholder will
be subject to U.S. federal income tax at graduated rates applicable to U.S.
persons.
The Withholding Regulations would require, in the case of Notes held
by a foreign partnership, that (x) the certification described above be provided
by the partners rather than by the foreign partnership and (y) the partnership
provide certain information, including a United States taxpayer identification
number. See "Backup Withholding" above. A look-through rule would apply in the
case of tiered partnerships. Non-U.S. Persons should consult their own tax
advisors regarding the application to them of the Withholding Regulations.
State and Local Tax Consequences
Investors should consult their own tax advisors regarding whether the
purchase of the Notes, either alone or in conjunction with an investor's other
activities, may subject an investor to any state or local taxes based on an
assertion that the investor is either "doing business" in, or deriving income
from a source located in, any state or local jurisdiction. Additionally,
potential investors should consider the state, local and other tax consequences
of purchasing, owning or disposing of a Note. State and local tax laws may
differ substantially from the corresponding federal tax law, and the foregoing
discussion does not purport to describe any aspect of the tax laws of any state
or other jurisdiction. Accordingly, potential investors should consult their
own tax advisors with regard to 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 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.
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<PAGE>
Ratings
Each Class of Notes offered by this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies. These ratings will address, in the opinion of
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. These ratings will neither address any prepayment or yield
considerations applicable to any Notes nor constitute a recommendation to buy,
sell or hold any Notes.
ERISA Considerations
The Prospectus Supplement for each series of Notes will summarize
considerations under ERISA relevant to the purchase of Notes of that series by
employee benefit plans and individual retirement accounts.
Plan of Distribution
The Notes will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices to
be determined at the time of sale or at the time of commitment therefor.
In connection with the sale of the Notes, underwriters may receive
compensation from the Issuer or from purchasers of the Notes in the form of
discounts, concessions or commissions. The underwriters and dealers
participating in the distribution of the Notes may be deemed to be underwriters
in connection with the Notes, and any discounts or commissions received by them
from the Issuer and any profit on the resale of Notes by them may be deemed to
be underwriting discounts and commissions under the Securities Act.
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market prices of the offered
notes at levels above those which might otherwise prevail in the open market.
Any stabilizing, if commenced, may be discontinued at any time.
The underwriting agreement pertaining to the sale of the Notes will
provide that the obligations of the underwriters will be subject to certain
conditions precedent, that the underwriters will be obligated to purchase all
the Notes subject to that agreement if any are purchased and that, in limited
circumstances, the Issuer will indemnify the underwriters and the underwriters
will indemnify the Issuer against certain civil liabilities, including
liabilities under the Securities Act, or will contribute to payments required to
be made in respect thereof.
Purchasers of Notes, including dealers, may, depending on the facts
and circumstances of their purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Notes. Noteholders should consult with their legal advisors in this regard
prior to any such reoffer or sale.
Legal Opinions
Certain legal matters will be passed upon for the Issuer by Don H.
Liu, Esq., General Counsel of the Originator and IKON Office Solutions, the
parent company of the Originator, and for the Underwriters by Dewey Ballantine
LLP, New York, New York. As of the date of this Prospectus, Mr. Liu is a full-
time employee and an officer of IKON Office Solutions and a beneficial owner of
shares of common stock of IKON Office Solutions and options to purchase shares
of common stock of IKON Office Solutions.
Experts
The financial statements of IKON Receivables, LLC appearing in IKON
Receivables, LLC's Annual Report (Form 10-K) for the period ended September 30,
1999 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their report thereon included therein and incorporated herein by reference.
Such
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financial statements are incorporated herein in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
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Index Of Terms
Set forth below is a list of the defined terms used in this Prospectus
and the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
1934 Act................................................................ 17
Additional Account...................................................... 31
Additional Lease........................................................ 23
Adjusted Lease.......................................................... 23
Asset Pool.............................................................. 12
Assignment and Servicing Agreement...................................... 12
Available Funds......................................................... 22
Bankruptcy Code......................................................... 34
Business Day............................................................ 22
Casualty................................................................ 23
Casualty Payment........................................................ 23
Cede.................................................................... 24
CLAS.................................................................... 19
Clearstream Participants................................................ 25
Code.................................................................... 35
Collection Account...................................................... 31
Commission.............................................................. 17
Cooperative............................................................. 25
Cut-off Date............................................................ 12
Definitive Notes........................................................ 26
Depositories............................................................ 24
Discount Rate........................................................... 16
Discounted Present Value of the Leases.................................. 16
Discounted Present Value of the Performing Leases....................... 16
Distribution Account.................................................... 31
DTC..................................................................... 24
Due Period.............................................................. 22
Early Termination Lease................................................. 23
Eligible Account........................................................ 31
Eligible Investments.................................................... 31
Eligible Leases......................................................... 14
Equipment............................................................... 12
Euroclear Operator...................................................... 26
Euroclear Participants.................................................. 25
Events of Default....................................................... 32
High Risk Review List................................................... 19
IKON marketplaces....................................................... 18
IKON Office Solutions................................................... 17
Indirect Participants................................................... 24
Industry................................................................ 26
IOS Capital............................................................. 12
IRS..................................................................... 35
Issuer.................................................................. 12
Lease................................................................... 12
Lease Payment........................................................... 22
Lease Receivables....................................................... 12
Lessee.................................................................. 12
Lessees................................................................. 12
Manager................................................................. 13
Non-Performing Leases................................................... 23
Originator.............................................................. 12
</TABLE>
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<TABLE>
<S> <C>
Originator's Leasing Business............................................. 13
Participants.............................................................. 24
Payment Date.............................................................. 17
Pool Factor............................................................... 17
Pre-Funding Account....................................................... 31
Premium Note.............................................................. 38
Rating Agencies........................................................... 21
Rating Agency............................................................. 21
Reserve Account........................................................... 31
Retainable Deposit........................................................ 23
Rules..................................................................... 25
Seller.................................................................... 12
Servicer.................................................................. 12
Servicer Advance.......................................................... 28
Servicer Events of Default................................................ 30
Servicing Fee............................................................. 28
Substitute Lease.......................................................... 23
Systems................................................................... 26
Tax Counsel............................................................... 35
Termination Payment....................................................... 23
Terms and Conditions...................................................... 26
Transaction Accounts...................................................... 31
Transaction Documents..................................................... 27
Trust Depository.......................................................... 25
U.S. Person............................................................... 39
Warranty Lease............................................................ 23
</TABLE>
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================================================================================
$634,431,000
IKON Receivables, LLC $193,532,000
6.66125% Class A-1
---------------------------- Lease-Backed Notes
P R O S P E C T U S
S U P P L E M E N T
----------------------------
$70,193,000
6.60% Class A-2
Chase Securities Inc. Lease-Backed Notes
Banc of America Securities LLC
Deutsche Banc Alex. Brown
$ 290,800,000
Variable Rate Class A-3
Lease-Backed Notes
Lehman Brothers
PNC Capital Markets
$79,906,000
Dated November 29, 2000 Variable Rate Class A-4
Lease-Backed Notes
Until 90 days after the date of this prospectus
supplement, all dealers that effect transactions
in the Notes, whether or not participating in
this offering, may be required to deliver a
prospectus supplement and prospectus. This is in
addition to the dealers' obligation to deliver a
prospectus supplement and prospectus when acting
as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
