1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998
REGISTRATION STATEMENT NO. 333-38575-01 AND 333-38575-02
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 4
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ADVANTA LEASING RECEIVABLES CORP. IV
(ISSUER OF THE SECURITIES DESCRIBED HEREIN)
NEVADA 1325 AIRMOTIVE WAY PENDING
(JURISDICTION) RENO, NEVADA 89502 (I.R.S. EMPLOYER IDENTIFICATION
NO.)
ADVANTA LEASING RECEIVABLES CORP. V
(ISSUER OF THE SECURITIES DESCRIBED HEREIN)
NEVADA 1325 AIRMOTIVE WAY PENDING
(JURISDICTION) RENO, NEVADA 89502 (I.R.S. EMPLOYER IDENTIFICATION
NO.)
COPY TO:
COLE B. SILVER, ESQ.
ADVANTA BUSINESS SERVICES CORP.
1020 LAUREL OAK ROAD
VOORHEES, NEW JERSEY 08043
609-782-7300
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
CHRIS DIANGELO, ESQ.
DEWEY BALLANTINE, LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES BEING AMOUNT TO BE AGGREGATE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE(2)
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Advanta Equipment Receivables
Asset-Backed Notes.............. $360,000,000 100% $360,000,000 $109,090.80
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) In accordance with Rule 429 under the Securities Act of 1933, the Prospectus
included herein is a combined prospectus which also relates to Registration
Statement on Form S-3, File No. 333-05433 (the "Prior Registration
Statement"). $360,000,000 of the amount of securities eligible to be sold
under the Prior Registration Statement shall be carried forward to this
Registration Statement. A filing fee of $109,090.80 attributable to the
amount being carried forward was paid with the Prior Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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CROSS REFERENCE SHEET
TO FORM S-1
CAPTION OR LOCATION
ITEM AND CAPTION IN FORM S-1 IN PROSPECTUS
--------------------------------------------------- -----------------------------------------
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Forepart of Registration Statement;
Outside Front Cover Page; Cross Reference
Sheet
2. Inside Front and Outside Back Cover Page of
Prospectus....................................... Inside Front Cover Page and Outside Back
Cover Pages of the Prospectus; Terms of
the Notes; Available Information; Table
of Contents
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Summary of Prospectus; Material Risks;
Certain Legal Matters Affecting the
Receivables; Prepayments and Yield
Considerations
4. Use of Proceeds.................................... Use of Proceeds
5. Determination of Offering Price.................... *
6. Dilution........................................... *
7. Selling Security Holders........................... *
8. Plan of Distribution............................... Underwriting
9. Description of Securities to be Registered......... Outside Front Cover Page; Summary of
Prospectus; Material Description of the
Notes; Federal Income Tax Considerations
10. Interests of Named Experts and Counsel............. Experts
11. Material Changes................................... *
Information with Respect to the Registrants
(a) Description of Business....................... The Issuers
(b) Description of Property....................... *
(c) Legal Proceedings............................. *
(d) Market Price of and Dividends on Registrants'
Common Equity and Related Stockholder
Stocks........................................ *
(e) Financial Statements.......................... Index to Appendices
(f) Selected Financial Data....................... *
(g) Supplementary Financial Information........... *
(h) Management's Discussion and Analysis of
Financial Condition........................... Management's Discussion and Analysis of
Financial Condition
(i) Changes in and Disagreements with Accountants
and Financial Disclosure..................... *
(j) Directors and Executive Officers............. Directors and Executive Officers of the
Issuers
(k) Executive Compensation........................ *
(l) Security Ownership of Certain Beneficial
Owners and Management............................ The Issuers
(m) Certain Relationships and Related
Transactions................................... The Issuers
12. Incorporation of Certain Information by
Reference........................................ Inside Front Cover Page; Incorporation of
Certain Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... See page II-2
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* Not applicable or answer is negative.
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P R O S P E C T U S
$
ADVANTA BUSINESS SERVICES CORP.,
ORIGINATOR AND SERVICER
EQUIPMENT RECEIVABLES ASSET-BACKED NOTES, SERIES 1998-1
$ % CLASS A-1 NOTES
$ % CLASS A-2 NOTES
$ % CLASS A-3 NOTES
$ % CLASS A-4 NOTES
$ % CLASS B NOTES
$ % CLASS C NOTES
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The Advanta Equipment Receivables Asset-Backed Notes, Series 1998-1 will
consist of the following classes (each, a "Class"): (i) the Class A-1 Notes (the
"Class A-1 Notes"), the Class A-2 Notes (the "Class A-2 Notes"), the Class A-3
Notes (the "Class A-3 Notes") and the Class A-4 Notes (the "Class A-4 Notes"
together with the Class A-1 Notes, Class A-2 Notes and the Class A-3 Notes, the
"Class A Notes"), (ii) the Class B Notes (the "Class B Notes"), (iii) the Class
C Notes (the "Class C Notes"); and (iv) the Class D Notes (the "Class D Notes"
together with the Class A Notes and the Class B Notes, and the Class C Notes,
the "Notes"). The Class B Notes, the Class C Notes and the Class D Notes are
subordinate to the Class A Notes; the Class D Notes and the Class C Notes are
subordinate to the Class B Notes and the Class D Notes are subordinate to the
Class C Notes. The Class A Notes, the Class B Notes and the Class C Notes are
sometimes referred to collectively as the "Offered Notes". The Class D Notes are
not being offered hereby.
The Notes will represent asset-backed debt obligations of Advanta Leasing
Receivables Corp. IV ("ALRC IV") and Advanta Leasing Receivables Corp. V ("ALRC
V"), as joint and several obligors (the "Issuers"). The Contracts were
originated or acquired by Advanta Business Services Corp. ("ABS" or the
"Originator"). The Issuers will establish a trust estate with respect to the
Notes (the "Trust Estate") with The Chase Manhattan Bank, as trustee (the
"Trustee"). The Trust Estate will consist primarily of (x) a combination of
leases (including, but not limited to, finance leases, true leases and full
(cover continued on next page)
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. AN INVESTMENT IN THE NOTES INVOLVES CERTAIN RISKS. SEE "MATERIAL RISKS"
COMMENCING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THE NOTES WILL NOT REPRESENT AN INTEREST IN OR AN OBLIGATION OF ADVANTA BUSINESS
SERVICES CORP., ADVANTA CORP. OR ANY OF THEIR AFFILIATES, OTHER THAN THE
ISSUERS, NOR WILL THE NOTES BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR BY ANY OTHER PERSON.
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INITIAL PUBLIC PROCEEDS TO
OFFERING PRICE UNDERWRITING(1) ISSUERS(2)
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Per Class A-1 Equipment Receivables Asset-Backed
Note
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Per Class A-2 Equipment Receivables Asset-Backed
Note
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Per Class A-3 Equipment Receivables Asset-Backed
Note
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Per Class A-4 Equipment Receivables Asset-Backed
Note
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Per Class B Equipment Receivables Asset-Backed Note
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Per Class C Equipment Receivables Asset-Backed Note
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Total
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(1) The Originator has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting expenses estimated to be $ .
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The Offered Notes are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel, or modify any order without notice.
It is expected that delivery of the Offered Notes will be made in book-entry
form through the facilities of The Depository Trust Company, Cedel Bank, S.A. or
the Euroclear System on or about March , 1998.
------------------
SALOMON SMITH BARNEY
The date of this Prospectus is February , 1998.
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(cover page continued)
payout leases), loans, contracts and promissory notes financing the purchase or
lease of a variety of commercial assets, commercial products or personal
property used exclusively for commercial purposes, which will primarily consist
of "small-ticket" office equipment items for businesses, including, without
limitation, computers, copy machines, facsimile machines, telephones, alarm
systems, and similar items, certain monies relating thereto received after the
Cut-Off Date (the "Contracts"), certain interests in the underlying equipment,
items, intangibles or property relating to the Contracts (the "Equipment," and
together with the Contracts, and including certain other property appurtenant
thereto, the "Receivables") and (y) a Reserve Account. Residual Receipts will be
included in the Trust Estate subject to a maximum level described herein.
Payments of principal and interest to the holders of the Class A Notes (the
"Class A Noteholders") will have the benefit of limited credit support
consisting of the subordination of the Class B Notes, the subordination of the
Class C Notes, the subordination of the Class D Notes, the Residual Interest,
funds on deposit in the Reserve Account, and amounts on deposit in certain other
accounts, if any. The holders of the Class B Notes (the "Class B Noteholders")
will have the benefit of limited credit support consisting of the subordination
of the Class C Notes, the Class D Notes and the Residual Interest, together with
funds on deposit in the Reserve Account, and amounts on deposit in certain other
accounts, if any. The holders of the Class C Notes (the "Class C Noteholders"
together with the Class A Noteholders and the Class B Noteholders, the
"Noteholders") will have the benefit of limited credit support in the form of
the subordination of the Class D Notes, the Residual Interest, funds on deposit
in the Reserve Account, and amounts on deposit in certain other accounts, if
any. Capitalized terms used herein will have the meanings ascribed to such terms
herein. The pages on which terms are defined are set forth on the Index of Terms
contained herein.
Principal and interest will be paid to the Noteholders monthly on the 15th
day (or the next succeeding Business Day if such 15th day is not a Business Day)
of each month (each, a "Payment Date"), commencing, with respect to interest, on
March 15, 1998, and commencing, with respect to principal, on the Amortization
Date (as defined herein), as further described herein.
Pursuant to the terms of the Contribution Agreement the Originator will
agree to use its best efforts to transfer to the Issuers additional qualifying
Contracts and the related Equipment, and the Issuers will agree to add such
Contracts and interests certain in the related Equipment to the Trust Estate,
during the period from and including the Closing Date to and including the
December 1998 Payment Date (the first Payment Date on which principal is
scheduled to be paid, thus being the December 1998 Payment Date, hereinafter the
"Stated Amortization Date"), or, if a Required Amortization Event (as defined
herein) occurs with respect to a Payment Date prior to the Stated Amortization
Date, such earlier Payment Date (the earlier to occur of the Stated Amortization
Date or such earlier date, the "Amortization Date") (such period being the
"Interest-Only Period").
The stated maturity date with respect to the Notes is the Payment Date in
, (the "Stated Maturity Date"). However, if all payments on the
Contracts are made as scheduled, final payment with respect to the Notes would
occur prior to the Stated Maturity Date and it is expected that the Notes will
mature prior to the Stated Maturity Date. See "Summary of Terms--Expected
Maturity; Stated Maturity Date" herein.
The Issuers will have the option, subject to certain conditions, to redeem
all, but not less than all of the Notes of all Classes and thereby cause early
repayment of the Notes as of any Payment Date on which the Aggregate Contract
Principal Balance is less than or equal to 10% of the Original Aggregate
Contract Principal Balance (as defined herein). In addition, the Issuers will
have the option, subject to certain conditions, to redeem the Class A-3 Notes on
any Payment Date. The Issuers will give notice of any such redemption to the
Trustee at least 30 days before the Payment Date fixed for such redemption. Upon
deposit of funds necessary to effect such redemption, the Trustee shall pay the
remaining unpaid principal amount on the Notes so called for redemption and all
accrued and unpaid interest thereon, and, in the event of a Class A-3 Special
Redemption, the Class A-3 Special Redemption Premium. See "Description of the
Notes -- Redemption."
The Offered Notes are being offered pursuant to this Prospectus. Sales of
the Offered Notes may not be consummated unless the purchaser has received this
Prospectus.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF
THE OFFERED NOTES, INCLUDING PURCHASES OF OFFERED NOTES TO STABILIZE THE MARKET
PRICE AND THE IMPOSITION OF BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES SEE
"UNDERWRITING" HEREIN.
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AVAILABLE INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Offered Notes. For
further information, reference is made to the Registration Statement which may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains a Web site at http://www.sec.gov pursuant to
Item 502(a)under Regulation S-K as recently amended in SEC Release No. 33-7289
(May 9,1996). The Issuers will file with the Commission such periodic reports
with respect to the Notes as are required under the Securities Exchange Act of
1934,as amended (the "Exchange Act") and the rules and regulations of the
Commission thereunder.
REPORTS TO NOTEHOLDERS
During such time as the Offered Notes remain in book-entry form, any
quarterly and annual reports containing information concerning the Offered Notes
and required to be filed with the Commission will be sent to Cede & Co.
("Cede"), as nominee of The Depository-Trust Company ("DTC"), the Euroclear
System ("Euroclear") or Cedel Bank, S.A. ("CEDEL") as registered holders of the
Offered Notes pursuant to the Indenture. Such reports will be made available by
DTC, Euroclear or CEDEL and its participants to holders of interests in the
Offered Notes in accordance with the rules, regulations and procedures creating
and affecting DTC, Euroclear and CEDEL, respectively. See "Appendix I -- Book
Entry Registration." However, such reports will not be sent directly to each
beneficial owner while the Offered Notes are in book-entry form. Upon the
issuance of fully registered, certificated Offered Notes, such reports will be
sent directly to each Offered Noteholder. Such reports will be prepared in
accordance with generally accepted accounting principles.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein. Certain capitalized terms used
herein are defined elsewhere in this Prospectus on the pages indicated in the
"index of terms."
Issuers....................... Advanta Leasing Receivables Corp. IV ("ALRC
IV") and Advanta Leasing Receivables Corp. V
("ALRC V") will be joint and several obligors
with respect to the Notes.
Originator and Servicer....... Advanta Business Services Corp ("ABS" or the
"Originator," or, in its capacity as servicer,
the "Servicer"), a Delaware corporation.
Trustee....................... The Chase Manhattan Bank (the "Trustee"). The
Trustee's offices are located at 450 West 33rd
Street, New York, New York 10001.
Securities Offered............ $ aggregate principal amount of %
Class A-1 Equipment Receivables Asset-Backed
Notes, Series 1998-1, (the "Class A-1 Notes"),
$ aggregate principal amount of %
Class A-2 Equipment Receivables Asset-Backed
Notes, Series 1998-1 (the "Class A-2 Notes"),
$ aggregate principal amount of %
Class A-3 Equipment Receivables Asset-Backed
Notes, Series 1998-1 (the "Class A-3 Notes");
$ aggregate principal amount of %
Class A-4 Equipment Receivables Asset-Backed
Notes, Series 1998-1 (the "Class A-4 Notes"
together with the Class A-1 Notes, Class A-2
Notes and the Class A-3 Notes, the "Class A
Notes"); $ aggregate principal amount
of % Class B Equipment Receivables Asset-
Backed Notes, Series 1998-1 (the "Class B
Notes") and $ aggregate principal
amount of % Class C Equipment Receivables
Asset-Backed Notes, Series 1998-1 (the "Class C
Notes"; together with the Class A Notes and the
Class B Notes, the "Offered Notes") and
$ aggregate principal amount of %
Class D Equipment Receivables Assets-Backed
Notes, Series 1998-1 (the "Class D Notes", and
together with the Offered Notes, the "Notes").
The Class D Notes are not being offered hereby.
The combined aggregate principal amount of the
Offered Notes will represent [96.00]% of the
Original Aggregate Contract Principal Balance.
The original principal balance of the Class D
Notes represents [4.00]% of the Original
Aggregate Contract Principal Balance. Except as
otherwise noted herein, the Contract Principal
Balances set forth herein are based upon the
Statistical Discount Rate (defined herein).
"Senior-Subordinate"
Nature of the Notes........... The Notes are being issued in accordance with a
"senior-subordinate" structure, such that the
Class B Notes, Class C Notes and Class D Notes
are subordinate in payment priority to the
Class A Notes, the Class C Notes and Class D
Notes are subordinate in priority to the Class
A Notes and the Class B Notes and the Class D
Notes are subordinate to the Class A Notes, the
Class B Notes and the Class C Notes. The
Residual Interest is subordinate to all Classes
of Notes. Losses and delinquencies experienced
by the Receivables will first, impact the
Residual
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Interest; second, the Class D Noteholders;
third, the Class C Noteholders; fourth, the
Class B Noteholders; and fifth, impact the
Class A Noteholders. See "Description of the
Notes" herein.
In addition to the subordination provisions of
the Notes, the Reserve Account and the Residual
Account will provide additional protection for
the Offered Notes, as described below.
Closing Date.................. On or about March , 1998 (the "Closing
Date").
Cut-Off Date.................. The opening of business on February 1, 1998
(the "Cut-Off Date").
Calculation Date.............. With respect to any Collection Period, the
close of business on the last day of such
Collection Period is the "Calculation Date".
Contract Principal Balances with respect to a
Payment Date shall be calculated on the
Calculation Date.
Business Day.................. Any day other than a Saturday or a Sunday, or
other day on which banks in the State of New
Jersey, City of New York or Delaware are
required, or authorized by law, to close (each
such day, a "Business Day").
Denominations................. The Offered Notes will be issued in minimum
denominations of $1,000 and integral multiples
of $1,000 in excess thereof, except that one
Note of each Class may be issued in another
denomination.
Interest Rates................ % per annum on the Class A-1 Notes (the
"Class A-1 Interest Rate"), % per annum on
the Class A-2 Notes (the "Class A-2 Interest
Rate"), % per annum on the Class A-3 Notes
(the "Class A-3 Interest Rate"), % per
annum on the Class A-4 Notes (the "Class A-4
Interest Rate"), % per annum on the Class B
Notes (the "Class B Interest Rate") % per
annum on the Class C Notes (the "Class C
Interest Rate") calculated in each case on the
basis of a year of 360 days comprised of twelve
30-day months. With respect to any particular
Class, the "Interest Rate" refers to the
applicable rate indicated in the immediately
preceding sentence. The Class D Notes are a
subordinated "principal-only" Class of Notes
which do not bear interest.
Initial Principal Balances.... $ for the Class A-1 Notes (the "Class
A-1 Initial Principal Balance"), $ for
the Class A-2 Notes (the "Class A-2 Initial
Principal Balance"), $ for the Class
A-3 Notes (the "Class A-3 Initial Principal
Balance"), $ for the Class A-4 Notes,
(the "Class A-4 Initial Principal Balance",
together with the Class A-1 Initial Principal
Balance, the Class A-2 Initial Principal
Balance and the Class A-3 Initial Principal
Balance, the "Class A Initial Principal
Balance"), $ for the Class B Notes
(the "Class B Initial Principal Balance"),
$ for the Class C Notes (the "Class C
Initial Principal Balance"), and $ for
the Class D Principal Balance (the "Class D
Initial Principal Balance"). See "Description
of the Notes."
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Discounted Present
Value of the Contracts........ On any date of calculation with respect to a
Contract, the present value of the Scheduled
Payments to become due with respect to such
Contract on and after such date of calculation
(but in any event prior to ),
together with all Scheduled Payments previously
due and unpaid which were not the subject of a
Servicer Advance as of such date, discounted
monthly to the Calculation Date immediately
prior to such date of calculation (or to such
date of calculation if such date of calculation
is a Calculation Date) at one-twelfth of the
Actual Discount Rate is the "Contract Principal
Balance" of such Contract, except that a
Defaulted Contract has a Contract Principal
Balance of $0.
The "Actual Discount Rate" is the sum of (i)
the weighted average (as of the Closing Date)
of the Class A-4 Interest Rate, the Class B
Interest Rate and the Class C Interest Rate and
(ii) the Servicer Fee Percentage (as defined
herein).
The "Scheduled Payments" with respect to any
Contract are the stated periodic rental
payments (exclusive of any amounts in respect
of insurance or taxes) set forth in such
Contract due from the related obligor (such
obligor, a "User"), together with any Final
Contract Payment applicable thereto.
"Aggregate Contract Principal Balance" means,
with respect to any Payment Date, the aggregate
Contract Principal Balance of all Contracts in
the Trust Estate as of the related Calculation
Date.
Expected Maturity Dates;
Stated Maturity Date.......... The expected maturity dates with respect to the
Class A-1 Notes, Class A-2 Notes, Class A-3
Notes, the Class A-4 Notes, Class B Notes and
the Class C Notes are the Payment Dates in
, , , , and
respectively. The stated maturity date with
respect to the Notes will be the Payment Date
in (the "Stated Maturity Date"). However,
if all payments on the Contracts are made as
scheduled, final payment with respect to the
Notes would occur prior to the Stated Maturity
Date.
Limited Obligations;
Asset-Backed Debt............. The Notes will represent obligations solely of
the Issuers and are secured solely by the Trust
Estate To the extent that the Issuers own other
property, neither such other property nor any
proceeds thereof will be available to fund
payments on the Notes.
Trust Estate.................. The assets pledged to the Trustee to secure the
Notes will consist of, initially, (i) all
Scheduled Payments due on or after the Cut-Off
Date with respect to a pool consisting of a
combination of leases (including, but not
limited to, finance leases, true leases and
full payout leases), loans, contracts and
promissory notes financing the purchase or
lease of a variety of commercial assets,
commercial products or personal property used
exclusively for commercial purposes
(collectively, the "Initial Contracts"),
together with such Initial Contracts themselves
and, certain other property appurtenant
thereto, (ii) certain interests in the
Equipment (and certain proceeds (including net
insurance proceeds) thereof) relating to the
Initial Contracts (the "Initial Property"),
(iii) funds on
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9
deposit in the Reserve Account and certain
other accounts held by the Trustee and (iv) the
rights of the Originator under any applicable
agreements (such as broker, vendor or purchase
agreements) pursuant to which the Originator
acquired the Contracts. Thereafter, in
accordance with the "Interest-Only" feature of
the Notes, Additional Property may be pledged
to the Trustee to secure the Notes. The Initial
Contracts, together with any Additional
Contracts are referred to as the "Contracts"
and the Initial Equipment, together with any
Additional Equipment is referred to as the
"Equipment." The Contracts, together with
certain interests in the related Equipment and
other property appurtenant thereto, are
collectively referred to as the "Receivables."
To facilitate servicing, the Servicer will
retain possession of the Contracts and the
related Contract Files and will hold such
Contract Files in accordance with the
provisions of the Indenture, subject to the
interests of the Trustee and the Noteholders.
"Contract Files" shall mean, with respect to
each Contract, the following documents: (i) the
executed original counterparts of the Contract
that constitute "chattel paper" for purposes of
Sections 9-105(1)(b) and 9-305 of the Uniform
Commercial Code (the "UCC"); (ii) copies of all
documents, if any, that the Originator or the
Servicer keeps on file in accordance with the
Originator's or Servicer's customary
procedures; and (iii) copies (together with all
amendments, assignments and continuations
thereof) of all UCC financing statements filed
with respect to the Contracts, identifying the
User as debtor and the Originator as secured
party, if any.
On each Payment Date prior to the Amortization
Date, to the extent necessary, (i) all amounts
remaining on deposit in the Collection Account
after making certain payments as described
herein and (ii) all amounts on deposit in the
Additional Property Funding Account, if any,
will be disbursed by the Trustee to the
Issuers, to the extent described in "Flow of
Funds" herein, in consideration of the Issuers'
pledge to the Trustee of Additional Property
relating to Additional Contracts having an
aggregate Contract Principal Balance on the
related Cut-Off Date equal as nearly as
practicable to such amounts. On each Payment
Date commencing with the Amortization Date,
principal is required to be paid to the
Noteholders, as described herein.
The Issuers' reversionary rights to the Trust
Estate, to the extent that the proceeds thereof
are not required to be applied to the payment
of the Notes, is the "Residual Interest." As of
any date of determination, the "Principal
Balance" of the Residual Interest is equal to
the excess of (x) the Aggregate Contract
Principal Balance over (y) the Outstanding
Principal Balances of all Classes of the Notes.
Pursuant to the Master Contribution Agreement,
dated as of May 1, 1997, together with various
supplements thereto (together, the
"Contribution Agreement"). The Issuers will
acquire their rights on the Contracts and the
Equipment either from the Originator directly
(pursuant to the Contribution Agreement) or
pursuant to one or more Sale Agreements between
an Issuer and one or more affiliates of the
Originator (such Sale Agreements and the
Contribution Agreement, together, the
"Receivables Transfer
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Agreement"). The Originator, as an originator,
will make certain representations and
warranties with respect to, among other things,
the Equipment and the Contracts, which
representations and warranties will be assigned
to the Trustee under the Indenture.
Required Amortization Event... The earliest to occur of any of the following:
(i) the occurrence of an Events of Servicer
Termination" or an Events of Default (as
defined herein), (ii) the amount on deposit in
the Additional Property Funding Account exceeds
$3,000,000, (iii) the bankruptcy of the
Servicer or either of the Issuers, (iv) as of
any Calculation Date, the ratio of the
Aggregate Contract Balance of Delinquent
Contracts which are 31 days or more delinquent
to the aggregate Contract Balance, exceeds
11.50%, (v) as of any Calculation Date, the 3
month average ratio of the aggregate Contract
Principal Balance of all Contracts which become
Defaulted Contracts to the Aggregate Contract
Principal Balance, exceeds 3.75%, (vi) the
amount on deposit in the Reserve Account falls
below the level of the Reserve Account Initial
Deposit or (vii) the percentage equivalent of a
fraction, the numerator of which is the
Outstanding Principal Balance of the Offered
Notes (after taking into account all payments
of principal to be made on such Payment Date,
but prior to taking into account any allocation
of the Senior Allocated Loss Amount, if any,
for such Payment Date) and the denominator of
which is the sum of the Aggregate Contract
Principal Balances as of the related
Calculation Date, plus the amount on deposit in
the Reserve Account and on the Additional
Property Funding Account at the end of such
Payment Date exceeds 96.00% (a "Required
Amortization Event"). As used in clause (iv)
above, and elsewhere herein, the term "Contract
Balance" means, with respect to a Contract, as
of any date, the aggregate un-discounted amount
of all remaining Scheduled Payments. The
"Aggregate Contract Balance" is, as of any
date, the sum of the Contract Balances as of
the prior Calculation Date.
Determination Date............ The third Business Day prior to each Payment
Date. On such date (each, a "Determination
Date"), the Servicer will determine the amount
of payments received on the Contracts in
respect of the immediately preceding calendar
month (each such period, a "Collection Period")
which will be available for distribution on the
Payment Date. See generally "Description of the
Notes."
Payment Dates................. Payments on the Notes will be made on the 15th
day of each month (or if such day is not a
Business Day, the next succeeding Business
Day), commencing on March 16, 1998 (each, a
"Payment Date"), to holders of record on the
last day of the immediately preceding calendar
month (or, in the case of the initial Payment
Date, as of the Closing Date) (each, a "Record
Date"). See "Description of the
Notes -- Payment Date."
Interest Payments............. On each Payment Date, the interest due (the
"Interest Payments") with respect to each Class
of Notes since the last Payment Date, or in the
case of the first Payment Date, since the
Closing Date will be the interest that has
accrued on such Notes since the last Payment
Date, (each such period, an "Interest Accrual
Period") at the applicable Interest Rate
applied to the
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then unpaid principal amounts (the "Outstanding
Principal Balance") of the Notes of each Class,
after giving effect to payments of principal on
the preceding Payment Date (such amount for the
Class A Notes, the "Class A Note Interest," for
the Class B Notes, the "Class B Note Interest",
and for the Class C Notes, the "Class C Note
Interest"). In addition, on each Payment Date,
any Interest Payment shortfalls for any prior
Payment Date shall accrue and be due to
Noteholders (such Interest Payment shortfalls
on the Class A Notes, the "Class A Overdue
Interest," the Class B Notes, the "Class B
Overdue Interest" and the Class C Notes, "Class
C Overdue Interest"). See "Description of the
Notes -- General" and "Distributions on Notes."
Interest-Only Period.......... As described above under "The Trust Estate" and
as described below under "Flow of Funds," from
time to time the Issuers may pledge Additional
Property to the Trustee. The Indenture provides
that until the Amortization Date, amounts which
would otherwise be paid as principal to the
holders of the Notes will be released to the
Issuers in consideration of the Issuers' pledge
to the Trustee, for the benefit of the
Noteholders, of Additional Property, with the
result that the Noteholders will receive
payments of interest only, and no payments of
principal, on each Payment Date prior to and
including the November 1998 Payment Date. See
"Description of the Notes" and "Prepayment and
Yield Considerations" herein.
Principal Payments............ Unless a Required Amortization Event occurs
earlier, the Noteholders will receive no
principal payments until the December 1998
Payment Date. For each Payment Date during the
Amortization Period, the Notes of each Class
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 herein
below and under "-- Flow of Funds."
On each Payment Date during the Amortization
Period, to the extent funds are available
therefor, the principal will be paid to the
Noteholders in the following priority: (a) to
the Class A Noteholders only (in
"sequential-pay" fashion to the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes, in that order), until
the Outstanding Principal Balance on the Class
A Notes has been reduced to zero, the Class A
Principal Payment, (b) to the Class B
Noteholders, until the Outstanding Principal
Balance on the Class B Notes has been reduced
to zero, the Class B Principal Payment, (c) to
the Class C Noteholders, the Class C Principal
Payment and, following the funding to the
Reserve Account to its required level and (d)
to the Class D Noteholders, the Class D
Principal Payment until the Outstanding
Principal Balance on the Class D Notes has been
reduced to zero.
The Indenture provides that if the Class A-3
Notes are redeemed pursuant to a Class A-3
Special Redemption the Class A-3 Notes will be
deemed to have been repurchased by the Issuers.
In such event, the Issuers will be entitled to
receive payments of principal and interest on
the Class A-3 Notes, and the Class A-3
Outstanding Principal Balance will thereafter
continue to amortize in the
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"sequential-pay" structure described herein. As
a result of such provisions, if the Class A-3
Notes had previously been redeemed, the Class
A-4 Notes will begin receiving Principal
Payments on the same Payment Date as they would
have had the Class A-3 Notes not previously
been redeemed.
In addition, on each Payment Date, any
Principal Payment shortfalls for any prior
Payment Date shall accrue and be due to the
related Noteholders (such Principal Payment
shortfalls on the Class A-1 Notes, the "Class
A-1 Overdue Principal," the Class A-2 Notes,
the "Class A-2 Overdue Principal," the Class
A-3 Notes, the "Class A-3 Overdue Principal,"
the Class A-4 Notes, the "Class A-4 Overdue
Principal," the Class B Notes, the "Class B
Overdue Principal," the Class C Notes, the
"Class C Overdue Principal" and the Class D
Notes, the "Class D Overdue Principal") on
subsequent Payment Dates.
The "Class A Principal Payment" is, with
respect to any Payment Date, the excess of (x)
the aggregate Outstanding Principal Balance of
the Class A Notes immediately prior to such
Payment Date over (y) the lesser of (A) the
Class A Target Investor Principal Amount and
(B) the excess of (1) the Aggregate Contract
Principal Balance as of the last day of the
related Collection Period over (2) the Class D
Floor.
The "Class A Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class A
Percentage and (b) the Aggregate Contract
Principal Balance as of the related Calculation
Date.
The "Class B Principal Payment" is, with
respect to any Payment Date, the excess of (x)
the aggregate Outstanding Principal Balance of
the Class B Notes immediately prior to such
Payment Date over (y) the lesser of (A) the
Class B Target Investor Principal Amount and
(B) the excess of (1) the Aggregate Contract
Principal Balance as of the last day of the
related Collection Period over (2) the Class D
Floor.
The "Class B Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class B
Percentage and (b) the Aggregate Contract
Principal Balance as of the related Calculation
Date.
The "Class C Principal Payment" is, with
respect to any Payment Date, the excess of (x)
the aggregate Outstanding Principal Balance of
the Class C Notes immediately prior to such
Payment Date over (y) the lesser of (A) the
Class C Target Investor Principal Amount and
(B) the excess of (1) the Aggregate Contract
Principal Balance as of the last day of the
related Collection Period over (2) the Class D
Floor.
The "Class C Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class C
Percentage and (b) the Aggregate Contract
Principal Balance as of the related Calculation
Date.
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The "Class D Floor" with respect to each
Payment Date means (a) 3.50% of the Aggregate
Contract Principal Balance, plus, (b) the
Cumulative Loss Amount on the immediately
preceding Payment Date, minus (c) the lesser of
(1) the Reserve Account Floor and (2) the
amount on deposit in the Reserve Account at the
opening of business on such Payment Date.
The "Class D Principal Payment" is the amount
necessary to reduce the Outstanding Principal
balance of the Class D Notes to the greater of
the Class D Target Investor Principal Amount
and the Class D Floor, provided, however, that
upon the payment of the aggregate Outstanding
Principal Balance of the Offered Notes has been
reduced to zero, the Class D Principal Payment
shall equal to excess of (x) the Aggregate
Contract Principal Balance as of the second
preceding Calculation Date over (y) the sum of
(A) the Aggregate Contract Principal Balance as
of the preceding Calculation Date, plus, (B)
the sum of the Class A Principal Payment, the
Class B Principal Payment and the Class C
Principal Payment on such Payment Date.
The "Class D Target Investor Principal Amount"
with respect to each Payment Date is an amount
equal to the product of (a) the Class D
Percentage and (b) the Aggregate Contract
Principal Balance as of the related Calculation
Date.
The "Class A Percentage" is 88.32%; the "Class
B Percentage" is 5.05%, the "Class C
Percentage" is 2.03% and the "Class D
Percentage" is 4.00%.
The "Cumulative Loss Amount" means, with
respect to each Payment Date, an amount equal
to the excess, if any, of (a) the Outstanding
Principal Balance of the Offered Notes after
giving effect to all payments on such Payment
Date, over (b) the Aggregate Contract Principal
Balance as of the related Calculation Date.
The Contracts and the
Equipment..................... The statistical information presented in this
Prospectus concerning the Initial Contracts as
of the Cut-Off Date has been calculated using
an assumed discount rate of 6.95% per annum
(the "Statistical Discount Rate"). The
Aggregate Contract Principal Balance of the
Initial Contracts as of the Cut-Off Date is
$368,577,602.40 using the Statistical Discount
Rate. The Aggregate Contract Principal Balance
of the Initial Contracts as of the Cut-Off Date
is $ using the Actual Discount Rate
(the "Original Aggregate Contract Principal
Balance"). The statistical distribution of such
characteristics of the Initial Contract as of
the Cut-Off Date using the Actual Discount Rate
may vary somewhat from the statistical
distribution of such characteristics of the
Initial Contracts as of the Cut-Off Date using
the Statistical Discount Rate as presented in
this Prospectus, although such variance will
not be material. In addition, certain Initial
Contracts included in the statistical
information included herein may be determined
not to meet the eligibility requirements for
the final pool. As a result, the statistical
distribution of characteristics as of the
Closing Date for the final Contract pool may
vary somewhat from the statistical
8
14
distribution of such characteristics as
presented in this Prospectus, although such
variance will not be material.
Unless otherwise noted, all statistical
percentages in this Prospectus are measured by
the Aggregate Contract Principal Balance of the
Initial Contracts as of the Cut-Off Date using
the Statistical Discount Rate.
The Initial Contracts consist or, in the case
of the Additional Contracts, will consist, of
(i) transactions originated by the Originator,
agents of the Originator, vendors or brokers in
the name of the Originator and (ii)
transactions acquired by the Originator from
third parties and underwritten by the
Originator in the same manner as Contracts
originated by the Originator. Generally, a User
does not have the right to prepay its
obligations under its Contract if such Contract
is a lease in form; Contracts which are loans
in form generally are prepayable. However,
pursuant to the terms of the Indenture, the
Servicer may only allow prepayment by a User
with respect to a Contract of an amount not
less than the Prepayment Amount related
thereto. The "Prepayment Amount" is defined to
mean, with respect to a Contract, as of any
date, the sum of (a) the Contract Principal
Balance of such Contract (without deduction for
any security deposit paid by the related User,
unless such security deposit has been applied
to the Contract Principal Balance pursuant to
the Servicer's credit and collection policy and
deposited into the Collection Account) plus (b)
the product of the Contract Principal Balance
and one-twelfth of the Actual Discount Rate
plus (c), provided that the Residual Cap Amount
has not yet been reached, the residual value,
if any, of the related Equipment, as reflected
on the Servicer's servicing system. Prepayment
Amounts will be deposited in the Collection
Account as Available Funds.
Generally, the Contracts in the form of a lease
are on a "net" basis (i.e., the User assumes
all responsibility with respect to the related
Equipment, including the obligation to pay all
costs relating to its operation, maintenance,
repair and insurance). Generally, the Contracts
that are in the form of a lease also contain
provisions which unconditionally obligate the
User to make all Scheduled Payments and any
Final Contract Payment thereunder.
The Initial Contracts and related Equipment
have been selected from the Originator's
portfolio of leases, loans and other contracts
based on the criteria specified in the
Receivables Transfer Agreement and any
Additional Equipment and Additional Contracts
must conform to such criteria at the time of
the pledge of such Additional Equipment and
Additional Contracts to the Trustee, for the
benefit of the Noteholders.
Affirmative Covenants......... The Originator will covenant and agree in the
Contribution Agreement, among other things,
that during the Interest-Only Period, (i) the
Originator will remain in the business of
originating and purchasing equipment and
related leases, loans, and other contracts
substantially similar to the Initial Equipment
and Initial Contracts, (ii) the Originator will
use its best efforts to originate and purchase
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such equipment and related leases, loans and
other contracts in a quantity no less than the
cumulative amount during the Interest-Only
Period of (a) amounts remaining on deposit in
the Collection Account after making certain
payments as described herein and (b) amounts on
deposit in the Additional Property Funding
Account, and (iii) the Originator will not
sell, or enter into agreements to sell, such
equipment or related leases, loans and other
contracts to others in a manner which would
materially and adversely affect the
Originator's ability to perform its obligations
under the Contribution Agreement, to make
available Additional Contracts for conveyance
to the Issuers and further pledge by the
Issuers to the Trustee.
The Indenture................. The Notes are to be issued pursuant to, and are
to be in such form, bear interest and be
payable on such terms as are prescribed in the
Master Business Receivables Asset-Backed
Financing Facility, dated as of May 1, 1997, by
and among the Servicer, Advanta Leasing
Receivables Corp. III and the Trustee, and a
Supplement thereto dated as of February 1, 1998
(the "Indenture").
"Clean-Up Call" Redemption.... The Issuers will have the option, subject to
certain conditions, to redeem all, but not less
than all, of the Notes of all Classes as of any
Payment Date on which the Aggregate Contract
Principal Balance (after giving effect to the
payment of principal on such Payment Date) is
less than or equal to 10% of the Original
Aggregate Contract Principal Balance. The
Issuers will give notice of such redemption to
the Trustee at least 30 days before the Payment
Date fixed for such prepayment. Upon deposit of
funds necessary to effect such redemption, the
Trustee shall pay the remaining unpaid
principal amount of the Notes so called for
redemption and all accrued and unpaid interest
as of the Payment Date fixed for redemption.
See "Description of the Notes -- Redemption."
Class A-3 Special
Redemption.................... The Class A-3 Notes may be redeemed (a "Class
A-3 Special Redemption") on any Payment Date,
at a price equal to the sum of (i) the then
Class A-3 Principal Balance, accrued and unpaid
interest thereon, and (ii) the Class A-3
Special Redemption Premium. The Class A-3
Special Redemption-Premium is payable only in
the event that the Issuers exercise the Class
A-3 Special Redemption and not in the event of
a "clean-up call" redemption.
The "Class A-3 Special Redemption Premium"
shall equal the excess, if any, discounted as
described below, of (a) the amount of interest
that would accrue on the aggregate Outstanding
Principal Balance of the Class A-3 Notes at the
Class A-3 Interest Rate during the period
commencing on and including the Payment Date on
which such Class A-3 Special Redemption Premium
is required to be paid to the Class A-3
Noteholders to but excluding the [insert Class
A-3 expected maturity date], over (b) the
amount of interest that would have accrued on
the aggregate Outstanding Principal Balance of
the Class A-3 Notes over the same period at a
rate per annum of interest equal to the bond
equivalent yield to maturity on the
Determination Date preceding such Payment Date
on the [insert benchmark Treasury for Class A-3
Note]. Such
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excess shall be discounted to the present value
to such Payment Date at the applicable yield
described in clause (b) above.
The Indenture provides that if the Class A-3
Notes are redeemed pursuant to a Class A-3
Special Redemption the Class A-3 Notes will be
deemed to have been repurchased by the Issuers.
In such event, the Issuers will be entitled to
receive payments of principal and interest on
the Class A-3 Notes and the Class A-3
Outstanding Principal Balance will thereafter
continue to amortize in the "sequential-pay"
structure described herein. As a result of such
provisions, if the Class A-3 Notes had
previously been redeemed, the Class A-4 Notes
will begin receiving Principal Payments on the
same Payment Date as they would have had the
Class A-3 Notes not previously been redeemed.
As a result of such provisions, if the Class
A-3 Notes had previously been redeemed, the
Class A-4 Notes will begin receiving Principal
Payments on the same Payment Date as they would
have had the Class A-3 Notes not previously
been redeemed.
Flow of Funds................. The Indenture will require that the Trustee
establish an account (the "Collection Account")
and that the Servicer deposit to the Collection
Account (or the Advance Payment Account, as
described herein), all collections or receipts
received by the Servicer on the Contracts no
later than two Business Days following the
Servicer's determination that such amounts
relate to the Contracts or the Equipment. The
following discussion makes use of a number of
terms defined below under "Description of the
Notes -- Flow of Funds."
On each Payment Date prior to the Amortization
Date, the Trustee will be required to make the
following payments from the Available Funds
(including amounts transferred from the Reserve
Account on such Payment Date) then on deposit
in the Collection Account and, with respect to
paragraph (vi), from amounts on deposit in the
Additional Property Funding Account, in the
following order of priority:
(i) from the Available Funds, to the
Servicer, any unrecoverable Servicer Advances;
(ii) from the Available Funds then remaining
in the Collection Account, to the Servicer, if
ABS is not then the Servicer, the Servicing Fee
then due, together with certain miscellaneous
amounts;
(iii) from the Available Funds then remaining
in the Collection Account, to the Class A
Noteholders, the Class A Note Interest and
Class A Overdue Interest for the related
Interest Accrual Period; pari passu with
respect to each Class of Class A Notes;
(iv) from the Available Funds then remaining
in the Collection Account, to the Class B
Noteholders, the Class B Note Interest and the
Class B Overdue Interest for the related
Interest Period;
(v) from the Available Funds then remaining
in the Collection Account, to the Class C
Noteholders, the Class C Note Interest and the
Class C Overdue Interest for the related
Interest Accrual Period;
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(vi) from the sum of (x) the Available Funds
then remaining in the Collection Account, and
(y) the amount then on deposit in the
Additional Property Funding Account (such sum,
the "Available Additional Property Funding
Amount"), as follows:
(A) to the Issuers, an amount equal to the
least of:
(i) the Available Additional Property
Funding Amount;
(ii) the sum of (a) the excess of (x)
the Aggregate Contract Principal Balance as of
the second preceding Calculation Date over the
Aggregate Contract Principal Balance as of the
preceding Calculation Date plus (b) the amount
on deposit in the Additional Property Funding
Account at the opening of business on such
Payment Date (such sum, the "Additional
Property Funding Requirement" for such Payment
Date); and
(iii) the Aggregate Contract Principal
Balances of all Additional Contracts actually
pledged to the Trustee on such Payment Date;
and
(B) to the Additional Property Funding
Account, the lesser of:
(i) the excess, if any, (x) the
Additional Property Funding Requirement for
such Payment Date over (y) the amount described
in clause (A)(iii) above; and
(ii) the remaining Available Additional
Property Funding Amount;
(vii) On and after each Payment Date
after the Reserve Account Funding Date, from
the Available Funds then remaining in the
Collection Account, to the Servicer, if ABS is
the Servicer, the Servicing Fee then due,
together with certain miscellaneous amounts;
(viii) from the Available Funds then
remaining in the Collection Account to the
Reserve Account, to the extent necessary to
increase the amount on deposit in the Reserve
Account to the Required Reserve Amount for such
Payment Date;
(ix) upon the occurrence and continuance
of a Residual Event (as defined in the
Indenture), the lesser of (A) the remaining
Available Funds and (B) the aggregate amount of
Residual Receipts originally included in the
Available Funds for such Payment Date will be
deposited to the Residual Account;
(x) from the Closing Date until the
Reserve Account Funding Date, the Servicing Fee
otherwise payable to ABS shall be deposited to
the Reserve Account;
(xi) to ABS, the amount of any Servicing
Fee previously due to it but deposited to the
Reserve Account; and
(xii) to the Issuers, as the holders of
the Residual Interest, any remaining Available
Funds on deposit in the Collection Account.
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On the Payment Date which is also the
Amortization Date and on each Payment Date
thereafter (such period being the "Amortization
Period"), the Trustee will be required to make
the following payments from the Available Funds
(including amounts transferred from the Reserve
Account on such Payment Date) then on deposit
in the Collection Account, in the following
order of priority:
(i) from the Available Funds, to the
Servicer, any unrecoverable Servicer Advances;
(ii) from the Available Funds then remaining
in the Collection Account, to the Servicer, if
ABS is not then the Servicer, the Servicing Fee
then due, together with certain miscellaneous
amounts;
(iii) from the Available Funds then remaining
in the Collection Account, to the Class A
Noteholders, the Class A Note Interest and
Class A Overdue Interest for the related
Interest Accrual Period, pari passu with
respect to each Class of Class A Notes;
(iv) from the Available Funds then remaining
in the Collection Account, to the Class B
Noteholders, the Class B Note Interest and the
Class B Overdue Interest for the related
Interest Period;
(v) from the Available Funds then remaining
in the Collection Account, to the Class C
Noteholders, the Class C Note Interest and the
Class C Overdue Interest for the related
Interest Accrual Period;
(vi) until the Class A Principal Amount has
been reduced to zero, from the Available Funds
then remaining in the Collection Account, the
Class A Principal Payment and the Class A
Overdue Principal;
(vii) until the Class B Principal Balance has
been reduced to zero, to the Class B
Noteholders, from the Available Funds then
remaining in the Collection Account, the Class
B Principal Payment and the Class B Overdue
Principal;
(viii) until the Class C Principal Balance
has been reduced to zero, to the Class C
Noteholders, from the Available Funds then
remaining in the Collection Account, the Class
C Principal Payment and the Class C Overdue
Principal;
(ix) on each Payment Date after the Reserve
Account Funding Date from the Available Funds
then remaining in the Collection Account, to
the Servicer, if ABS is then the Servicer, the
Servicing Fee then due, together with certain
miscellaneous amounts;
(x) from the Available Funds then remaining
in the Collection Account, to the Reserve
Account, to the extent necessary to increase
the amount on deposit in the Reserve Account to
the Required Reserve Amount for such Payment
Date;
(xi) upon the occurrence and continuance of a
Residual Event (as defined in the Indenture),
the lesser of (A) the remaining Available Funds
and (B) the aggregate amount of Residual Re-
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ceipts originally included in Available Funds
for such Payment Date will be deposited to the
Residual Account;
(xii) from the Closing Date until the Reserve
Account Funding Date, the Servicing Fee
otherwise payable to ABS shall be deposited to
the Reserve Account;
(xiii) from the Available Funds then
remaining in the Collection Account, to the
Class D Noteholders, the Class D Principal
Payment and the Class D Overdue Principal,
(xiv) to ABS, the amount of any Servicing Fee
previously due to it but deposited to the
Reserve Account; and
(xv) to the Issuers, as the holder of the
Residual Interest, any remaining Available
Funds on deposit in the Collection Account.
Residual Receipts will be included in
"Available Funds" only through the Payment Date
on which Residual Receipts used (without
duplication) to cover amounts owing the Offered
Noteholders and the Servicer, on deposit in the
Residual Account, or withdrawn from the
Residual Account as a result of a shortfall
equals $ (the "Residual Cap Amount").
Once the Residual Cap Amount has been reached,
Residual Receipts will no longer be required to
be remitted to the Trustee as "Available
Funds," and will be released to the Issuers
free and clear and the lien of the Indenture
(whether or not a Residual Event is then in
effect, or occurs thereafter). See "Application
of Residual Receipts" below.
The Indenture additionally provides that on the
Payment Date which is also the Amortization
Date, all amounts then on deposit in the
Additional Property Funding Account will be
applied as Available Funds, and the Additional
Property Funding Account will be closed.
See "Description of the Notes -- Flow of
Funds."
Subordination Provisions...... A portion of the credit enhancement available
for the benefit of the Class A Noteholders is
provided by the subordination of the Class B
Notes, of the Class C Notes of the Class D
Notes and of the Residual Interest. A portion
of the credit enhancement available for the
benefit of the Class B Notes is provided by the
subordination of the Class C Notes of the Class
D Notes and of the Residual Interest. A portion
of the credit enhancement available for the
benefit of the Class C Noteholders is provided
by the subordination of the Class D Notes and
of the Residual Interest.
The cash flow and subordination provisions of
the Indenture provide that Available Funds on
each Payment Date will be used to fund payments
to the Noteholders (and to pay the fees and
expenses of the Servicer). "Available Funds"
with respect to a Payment Date generally
include (i) amounts collected during the
immediately preceding Collection Period with
respect to the Contracts and the Equipment,
including, without limitation, Scheduled
Payments, Final Contract Payments, Defaulted
Residual Receipts, Residual Receipts,
Prepayment Amounts, investment earnings on each
of the Accounts plus (ii)'amounts transferred
from the
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Reserve Account and/or the Residual Account
with respect to such Payment Date and deposited
in the Collection Account.
Allocation of Losses.......... The Indenture provides that if the Outstanding
Principal Balance of the Notes ever exceeds the
Aggregate Contract Principal Balance (i.e., the
Notes are "undercollateralized"), the
Outstanding Principal Balances of the Notes
will be "written down" in inverse order of
seniority such that parity is achieved. See
"Description of the Notes -- Allocation of
Losses."
Defaulted Contracts........... A "Defaulted Contract" will mean any Contract
(a)(i) that is a Delinquent Contract with
respect to which a User is contractually
delinquent for 121 days or more (without regard
to any Servicer Advances or the application of
any security deposit provided by the User (a
"Security Deposit") or (ii) as to which the
Servicer has determined in accordance with its
customary servicing practices that eventual
payment of the remaining Scheduled Payments
thereunder is unlikely or (iii) that has been
rejected by or on behalf of the User in a
bankruptcy proceeding and (b) as to which a
Release Event has not occurred. With respect to
any Contract, a "Release Event" is a payment in
full of such Contract or a removal of such
Contract from the Trust Estate by the Servicer
pursuant to the terms of the Indenture.
Since the Available Funds on any Payment Date
commencing with the Amortization Date are
applied in the order of priority described
above under "Flow of Funds" until such
Available Funds are exhausted, the effect of
including in the required "Class A Principal
Payment," "Class B Principal Payment," the
"Class C Principal Payment" and "Class D
Principal Payment" the amount of any deemed
loss (i.e., the Contract Principal Balance of
any Defaulted Contract) and prioritizing the
payment of the Class A Principal Payment, the
Class B Principal Payment, the Class C
Principal Payment and the Class D Principal
Payment (in that order) is to allocate losses
first, to the holder of the Residual Interest,
second, to the Class D Noteholders, third, to
the Class C Noteholders, fourth, to the Class B
Noteholders and fifth, to the Class A
Noteholders.
Through the operation of the "Class A Overdue
Principal," "Class B Overdue Principal" and
"Class C Overdue Principal" provisions, the
Class A Noteholders and the Class C Noteholders
are entitled to receive any aggregate,
cumulative shortfalls of Class A Principal
Amounts, Class B Principal Balances or Class C
Principal Balances not paid on prior Payment
Dates.
Application of Residual
Receipts...................... On each Payment Date, Residual Receipts shall
be deposited into the Collection Account and
applied as Available Funds until the aggregate,
cumulative amount of Residual Receipts used
(without duplication) to cover amounts owing
the Offered Noteholders and the Servicer, on
deposit in the Residual Account, or withdrawn
from the Residual Account as a result of a
shortfall equals $ (the "Residual Cap
Amount"), and will provide additional credit
support to the Notes. Actual Residual Receipts
may be more or less than the residual value of
the Equipment recorded on the
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books of the Issuers (the "Booked Residual
Value"). Under certain limited circumstances
more fully described in the Indenture (a
"Residual Event"), the Residual Receipts not
distributed to Noteholders, or paid to the
Servicer with respect to the Servicing Fee will
be deposited in the Residual Account. As
provided in the Indenture, funds on deposit in
the Residual Account will be available to cover
shortfalls in the amount available to pay the
Servicing Fee owing the Servicer and to make
interest and principal payments on the Notes.
If, on any Payment Date, such shortfall(s)
exist and both the Residual Account and the
Reserve Account have amounts on deposit
therein, the Indenture provides that such
shortfall shall first be funded from Residual
Account moneys. Following the termination of a
Residual Event, amounts on deposit in the
Residual Account will be deposited into the
Reserve Account to the extent that the amount
on deposit in the Reserve Account is less than
the Required Reserve Amount and thereafter will
be disbursed to the Issuers.
Reserve Account............... The Noteholders will have the benefit of funds
on deposit in an account (the "Reserve
Account") to the extent that, on any Payment
Date, there is a shortfall in the amount
available to pay amounts owing the Servicer or
to make interest and principal payments on the
Offered Notes. The Reserve Account will be
funded by an initial deposit of [ ]% of the
Initial Principal Balance of all Offered Notes
(such amount, the "Reserve Account Initial
Deposit"). Thereafter, to the extent provided
in the Indenture, additional deposits will be
made to the Reserve Account on each Payment
Date, to the extent that the amount on deposit
in the Reserve Account (the "Available Reserve
Amount") is less than the Required Reserve
Amount. The "Required Reserve Amount" equals
[3.25]% of the then aggregate Outstanding
Principal Balance of the Offered Notes, subject
to a floor amount (the "Reserve Account Floor")
equal to the lesser of (a) [1.00]% of the
Initial Principal Balances of the Offered Notes
and (b) the then aggregate Outstanding
Principal Balance of the Offered Notes. Amounts
on deposit in the Reserve Account in excess of
the Required Reserve Amount will be disbursed
to the Issuers in accordance with the
provisions of the Indenture.
Amounts on deposit in the Reserve Account on
any Payment Date shall be withdrawn therefrom
and transferred to the Collection Account if
the Available Funds (exclusive of such amounts
transferred from the Reserve Account) with
respect to such Payment Date are insufficient
to fund in full the items described above under
"Flow of Funds," if such items are of a higher
priority than the funding of the Reserve
Account (including, during the Interest-Only
Period, the funding of the Additional Property
Funding Requirement to the extent permitted by
the Indenture).
Prior to the first date on which the Reserve
Account is funded to the Required Reserve
Amount (such date, the "Reserve Account Funding
Date"), if ABS is then the Servicer, the
Servicing Fee otherwise payable to ABS as
Servicer will be deposited to the Reserve
Account.
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Servicing..................... The Servicer will be responsible for servicing,
managing and administering the Trust Estate and
enforcing and making collections on the
Contracts. The Servicer will be required to
exercise the degree of skill and care in
performing these functions that it customarily
exercises with respect to similar property
owned or serviced by the Servicer. The Servicer
will be entitled to receive (a) a monthly fee
(the "Servicer Fee") of the product of (i) one-
twelfth of 1.00% (the "Servicer Fee
Percentage") and (ii) the Aggregate Contract
Principal Balance of all Contracts as of the
beginning of the previous Collection Period,
payable out of the Collection Account, (b) late
payment fees and (c) certain other fees paid by
the Users ("Servicing Charges"), as
compensation for acting as Servicer. Under
certain limited circumstances, the Servicer may
resign or be removed, in which event either the
Trustee or a third party meeting the
requirements set forth in the Receivables
Transfer Agreement will be appointed as
successor Servicer. See "Description of the
Notes -- Events of Servicer Termination."
The Servicer will be required to cause amounts
collected on the Contracts to be deposited to
the Collection Account or the Advance Payment
Account, as applicable, maintained by the
Trustee no later than two Business Days, or
such later date as permitted by the Rating
Agencies, following the Servicer's
determination that such amounts relate to the
Contracts or the Equipment. See "Description of
the Notes -- The Accounts."
Substitution and
Modifications................. The Indenture permits the Servicer, subject to
certain requirements, to made substitutions in
replacement of Contracts which are determined
to have breached a representation or warranty,
and, to a limited extent, of Defaulted
Contracts or modify Contracts; provided, that
(x) the Predecessor Contract, or the Contract
as modified, has a Contract Principal Balance
not lower than the Contract Principal Balance
of the substituted Contract (calculated
immediately prior to each Contract becoming a
Defaulted Contract), or the Contract prior to
such modification, as the case may be, and
provided further that the aggregate of the
Booked Residual Value of all the Equipment will
not be materially less as a result of such
substitution.
New Contracts may be substituted for Defaulted
Contracts to a maximum dollar amount equal to
10% of the Original Aggregate Contract
Principal Balance. There is no maximum on the
Contracts which may be substituted for
Contracts which breach representations or
warranties.
Advances...................... Subject to the limitations described herein, on
or prior to each Payment Date, the Servicer
may, but is not required, to make advances
(each, a "Servicer Advance") for delinquent
Scheduled Payments, but only to the extent it
determines in its sole discretion that such
advances will be recoverable in future periods.
A "Delinquent Contract" will mean, as of any
date, a Contract as to which payment, or part
thereof, remains unpaid for more than 60 days
from the original due date for such payment.
With respect to any Delinquent Contract,
whenever the Servicer shall have
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23
determined that it will be unable to recover a
Servicer Advance or a portion thereof on such
Delinquent Contract, the Servicer will not be
required to make such Servicer Advance or
portion thereof, but will be required to
enforce its remedies (including acceleration)
under such Contract. The Indenture shall
provide that, in the event that the Servicer
determines that any Servicer Advances
previously made are nonrecoverable
("Nonrecoverable Advances") or any Delinquent
Contracts for which the Servicer has made a
Servicer Advance in respect thereof become
Defaulted Contracts, the Trustee shall draw on
the Collection Account to repay such Servicer
Advances to the Servicer.
Federal Income Tax
Considerations................ It is intended that the Offered Notes will be
characterized as indebtedness of the Issuers
for federal income tax purposes. If
characterized as indebtedness, interest on such
Offered Notes will be taxable as ordinary
income when received by a Noteholder on the
cash method of accounting and when accrued by
Noteholders on the accrual method of
accounting. See "Material Federal Income Tax
Considerations."
ERISA Considerations.......... The Employee Retirement Income Security Act of
1974, as amended ("ERISA") places certain
restrictions on those pension and other
employee benefits plans to which it applies.
Pursuant to regulations issued by the United
States Department of Labor defining "plan
assets," if the Offered Notes are considered to
be indebtedness without substantial equity
features under local law, the assets comprising
the Trust Estate will not be considered assets
of any ERISA plan holding the Offered Notes,
thereby generally avoiding potential
application of ERISA's prohibited transaction
rules. However, in certain circumstances, the
prohibited transaction rules may be applicable
to the purchase of the Offered Notes even if
the Offered Notes are not deemed to have
substantial equity features. Certain exemptions
from the prohibited transaction rules could be
applicable, however, with respect to the
acquisition and holding of the Offered Notes.
Accordingly, the Offered Notes may be acquired
by ERISA plans, subject to certain
restrictions. Before purchasing any of the
Notes, fiduciaries of such plans should
determine whether an investment in the Offered
Notes is appropriate under ERISA. See "ERISA
Considerations."
Rating........................ It is a condition to the issuance of the Notes
that the Class A Notes be rated at least "AAA,"
the Class B Notes be rated at least "A" and
that the Class C Notes be rated at least "BBB"
by Standard & Poor's Ratings Group ("S&P"), the
Class A Notes be rated at least "Aaa," the
Class B Notes be rated at least "A2" and the
Class C Notes be rated at least "Baa2" by
Moody's Investors Service, Inc. ("Moody's") and
the Class A Notes be rated at least "AAA," the
Class B Notes be rated at least "A+" and the
Class C Notes be rated at least "BBB+" by Fitch
IBCA, Inc. ("Fitch"), respectively (each a
"Rating Agency"). The ratings assess the
likelihood of timely payment of interest and
the ultimate payment of principal to the
Offered Noteholders by the Stated Maturity
Date. There is no assurance that any rating
will not be lowered or withdrawn if, in the
judgement of any Rating Agency, circum-
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stances in the future so warrant. See "Ratings
of the Offered Notes."
Material Risks................ Certain material risks may be present in an
investment in the Offered Notes. See "Material
Risks."
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MATERIAL RISKS
Prospective Noteholders should consider the following additional risk
factors in connection with the purchase of Notes.
LIMITED LIQUIDITY MAY RESULT IN A NOTEHOLDER BEING UNABLE TO LIQUIDATE ITS
INVESTMENT. There is currently no public market for the Offered Notes and there
is no assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Offered Notes. There is no assurance that any
such market will be created or, if so created, will continue. If no public
market develops, the Offered Noteholders may not be able to liquidate their
investment in the Offered Notes prior to maturity.
THE ORIGINATOR WILL GENERALLY HAVE POSSESSION OF THE CONTRACTS, EXPOSING
NOTEHOLDERS TO THE RISK THAT THEY MAY LOSE THEIR INTERESTS IN THE
CONTRACTS. The Originator will warrant that the transfer of the Contracts to
the Issuers is a valid assignment, transfer and conveyance of the Contracts to
the Issuers, and that the Trustee on behalf of the Noteholders will have a valid
security interest in the Contracts. The Servicer will retain possession of the
Contracts. If the Originator, the Servicer, the Trustee or other third party,
while in possession of the Contracts, sells or pledges and delivers such
Contracts to another party, in violation of the Receivables Transfer Agreement
or the Indenture, there is a risk that such other party could acquire an
interest in such Contracts have a priority over that of the Noteholders.
Furthermore, if the Originator, the Servicer or a third party, while in
possession of the Contracts, is rendered insolvent, such event of insolvency may
result in competing claims to ownership or security interests in the Contracts.
Such an attempt, even if unsuccessful, could result in delays in payments on the
Notes. If successful, such attempt could result in losses to the Noteholders or
an acceleration of the repayment of the Notes. The Originator will make certain
representations and warranties with respect to the ownership of the Contracts.
The Originator will be obligated to acquire (by repurchase or substitution) any
Contract from the Trust Estate if there is a breach of such representations and
warranties that materially adversely affects the interests of the Trustee on
behalf of the Noteholders to such Contract and such breach has not been cured.
RECOVERIES ON RECEIVABLES MAY BE LIMITED, DIMINISHING THE VALUE OF THE
RELATED UNDERLYING COLLATERAL WHICH MAY RESULT IN THE ISSUERS RECEIVING
SUBSTANTIALLY LESS THAN THE FACE AMOUNT OF THE RELATED CONTRACT. State laws
impose requirements and restrictions relating to foreclosure sales and obtaining
deficiency judgments following such sales. In the event that the Issuers must
rely on repossession and disposition of Equipment to cover losses on Defaulted
Contracts, the Issuers may not realize the full amount due because of the
application of those requirements and restrictions. Other factors that may
affect the ability of the Issuers to realize the full amount due on the
Contracts include the failure to file financing statements to perfect the
Issuers' security interest in the Equipment against a lessee, depreciation,
obsolescence, damage or loss of any item of Equipment, and the application of
federal and state bankruptcy and insolvency laws. As a result, the Noteholders
may be subject to delays in receiving payments and losses.
INSOLVENCY OF ABS. ABS believes that the transfer of the Contracts to the
Issuers should be treated as an absolute and unconditional sale or assignment.
However, in the event of an insolvency of ABS, a court could attempt to
recharacterize the sale of the Contracts by ABS to the Issuers as a loan to ABS
from the Issuers, secured by a pledge of such Contracts or could allow the
trustee in bankruptcy to repudiate the Contracts that are operating leases and
all obligations thereunder. Moreover, in the event of an insolvency of ABS, a
court could attempt to consolidate the assets of the Issuers with those of ABS
since ABS will own, directly or indirectly, all of the equity of the Issuers.
Either attempt, even if unsuccessful, could result in delays in payments of the
Notes. If such attempts were successful, the Notes would be accelerated, and the
Trustee's recovery on behalf of the Noteholders could be limited to the then
current value of the Trust Estate. Thus, the Noteholders could lose the right to
future payments and might incur reinvestment losses on amounts recovered. See
"Certain Legal Matters Affecting the Receivables Obligations."
BOOK-ENTRY REGISTRATION MAY FURTHER REDUCE LIQUIDITY, AND MAY LEAD TO
PAYMENT DELAYS. The Offered Notes initially will be represented by one or more
Notes registered in the name of Cede & Co. and will not be registered in the
names of the beneficial owners or their nominees. As a result of this, unless
and until Definitive Notes are issued, beneficial owners will not be recognized
by the Issuers or the Trustee as Noteholders, as that term is used in each
Indenture. Hence, until such time, beneficial owners will only be
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able to exercise the rights of Noteholders indirectly, through DTC, Euroclear or
CEDEL and their respective participating organizations, and will receive reports
and other information provided for under the Indenture only if, when and to the
extent provided by DTC, Euroclear or CEDEL, as the case may be, and its
participating organizations. See "Appendix I -- Book-Entry Registration."
CERTAIN PROVISIONS OF THE UCC MAY FURTHER DIMINISH RECOVERIES. Certain
states have adopted a version of Article 2A of the Uniform Commercial Code
("Article 2A"). Article 2A purports to codify many provisions of existing common
law. Although there is little precedent regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" lease or "unconscionable" provision in a lease, provide a
lessee with remedies, including the right to cancel the lease contract, for
certain lessor breaches or defaults, and may add to or modify the terms of
"consumer lease" and leases where the lessee is a "merchant lessee." Article 2A,
moreover, recognizes typical commercial leases "hell or high water" rental
payment clauses and validates reasonable liquidated damages provisions in the
event of lessor or lessee defaults. Article 2A also recognizes the concept of
freedom of contract and permits the parties in a commercial context a wide
degree of latitude to vary provisions of the law.
THE ISSUERS HAVE THE RIGHT TO REMOVE CONTRACTS IN CERTAIN CASES IN EXCHANGE
FOR THE DELIVERY OF SUBSTITUTE CONTRACTS. As described herein, pursuant to the
Indenture, the Issuers have the option, but not the obligation, to designate one
or more contracts to be a Substitute Contract as a replacement for any Contract
which, due to a breach of a representation or warranty, must be removed from the
Trust Estate or, to a limited extent, if such Contract becomes a Defaulted
Contract, in which event the scheduled payments from such Substitute Contract
will replace (in whole or in part) the remaining scheduled payments on the
removed or Defaulted Contract. The Originator is not required to designate one
or more contracts as a Substitute Contract. Accordingly, Noteholders should not
expect that Substitute Contracts will be available.
THE RATE OF PRINCIPAL PREPAYMENT ON THE NOTES MAY BE INFLUENCED BY
SUBSTITUTIONS AND REPURCHASES. Because the rate of payment of principal on the
Notes during the Amortization Period will depend, among other things, on the
rate of payment on the Contracts, such rate of payments of principal on the
Notes cannot be predicted. Payments on the Contracts will include scheduled
payments as well as prepayments permitted by the Servicer, payments as a result
of Defaulted Contracts (to the extent not replaced by Substitute Contracts), and
payments upon repurchases by the Originator on account of a breach of certain
representations and warranties in the Receivables Transfer Agreement (to the
extent not replaced by Substitute Contracts). The rate of early terminations of
Contracts due to prepayments and defaults may be influenced by a variety of
economic and other factors. For example, adverse economic conditions and certain
natural disasters such as floods, hurricanes, earthquakes and tornadoes may
affect prepayments. The risk of reinvesting unscheduled distributions resulting
from prepayments of the Notes will be borne by the Noteholders. See "Prepayment
and Yield Considerations."
INTERESTS IN THE EQUIPMENT; CERTAIN SECURITY INTERESTS NOT PERFECTED, WHICH
MAY RESULT IN DIMINISHED RECOVERY VALUES. The Contracts generally consist of
"chattel paper" which creates a security interest in the related item of
Equipment with respect to such Contract. A security interest in personal
property is generally not a perfected security interest unless a UCC financing
statement has been filed in the appropriate filing office with respect to such
security interest. The Originator has filed UCC financing statements in its
favor against Users in respect of Equipment, with an original Equipment cost in
excess of $25,000. Financing statements in favor of the Originator with respect
to approximately 31.09% of the Original Aggregate Contract Principal Balance
will have been so filed. Generally, no action will be taken to perfect the
interest of the Originator in any Equipment to the extent the original Equipment
cost of the related Equipment is less than or equal to $25,000. As a result, the
Originator generally does not have a perfected security interest in Equipment
with an original Equipment cost of less than or equal to $25,000, which
represents approximately 68.91% of the Original Aggregate Contract Principal
Balance. To the extent UCC financing statements evidencing the Originator's
security interest in the Equipment have not been filed against the User (i.e.,
with respect to those Users relating to Equipment with an original cost of less
than $25,000) no such security interests in the Equipment will be perfected in
favor of the Originator, the Issuers or the Trustee and another party (such as a
creditor of the User) may acquire rights in the Originator's interest in the
Equipment superior to those of the Issuers or the Trustee. See "Certain Legal
Matters Affecting The Receivables" in this Prospectus. The lack of
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a perfected security interest in certain Equipment will result in claims against
such Users being unsecured and may adversely affect the ability of the Servicer
to realize on such Equipment.
With respect to Contracts relating to items of Equipment with original
Equipment costs in excess of $25,000, the Originator will represent and warrant
that a UCC financing statement in its favor has been filed in the appropriate
filing office, with the result that the Originator has obtained a perfected
security interest in such Equipment. Because of the administrative burden and
expense involved, no UCC financing statements will be individually assigned by
the Originator to either the Issuers or the Trustee. However, general, "blanket"
UCC financing statements naming (i) the Originator, as debtor, and the Issuers
as secured party in New Jersey, and (ii) the Issuers, as debtors, and the
Trustee as secured party, will be filed in most states. Furthermore, certain
provisions of the Bankruptcy Code provide that the retention of bare legal title
to a property interest, such as a lien on personal property, for servicing
purposes, does not, in and of itself, vest beneficial ownership of such a
property interest in the legal title holder. The likely legal result of the
foregoing, in light of the transfer of the Contracts and the Equipment to the
Issuers, is to transfer to the Issuers the benefits of all perfected security
interests in those items of Equipment in which the Originator itself had a
perfected security interest (i.e., with respect to items of Equipment with an
original Equipment cost in excess of $25,000). Pursuant to the Indenture, the
Issuers will pledge all of their respective right, title and interest in and to
the Trust Estate (including security interests in the Equipment) to the Trustee
for the benefit of the Noteholders.
EQUIPMENT OBSOLESCENCE MAY DIMINISH RECOVERY VALUES. In the event a
Contract becomes a Defaulted Contract and the User (and any guarantor) has
insufficient assets available to pay the Contract payments on the scheduled
payment dates, the only other source of moneys (other than the credit
enhancement provided by the subordination and the Reserve Account) for such
amounts will be the income and proceeds from the disposition of the related
Equipment. Because the market value of equipment generally declines with age and
may be subject to sudden, significant declines in value because of technological
advances, in the event of a repossession and sale of Equipment subject to a
Defaulted Contract, the Trustee may not recover the entire amount due on such
Contract. As a result, the Noteholders may be subject to delays in receiving
payments and suffer loss of their investment in the Notes.
THE ORIGINATOR'S ABILITY TO ORIGINATE ADDITIONAL CONTRACTS MAY DETERMINE
WHETHER THE INTEREST-ONLY PERIOD CAN BE MAINTAINED, AND WHEN THE AMORTIZATION
PERIOD MAY COMMENCE. It is expected that during the Interest-Only Period, no
principal will be paid to the Noteholders. If, however, during the Interest-Only
Period, a sufficient amount of Additional Contracts are not available for pledge
to the Trustee, the Interest-Only Period shall terminate, and the Amortization
Period will commence. The occurrence of such an event would result, generally,
from a shortage in availability of qualifying Additional Contracts during the
Interest-Only Period. See "Social, Economic and Other Factors" below. The
Originator does not, as of the date of this offering, expect that any shortage
in availability will in fact arise during the Interest-Only Period, and has
agreed to originate, and subsequently transfer to the Issuers, who will
subsequently pledge to the Trustee, for the benefit of the Noteholders, a
sufficient amount of Additional Contracts such that neither of the events
described above will occur. However, if the Originator is unable to originate
Additional Contracts as expected, there is a risk that the Noteholders may
receive payments of principal during the Interest-Only Period.
SOCIAL, ECONOMIC AND OTHER FACTORS MAY ALSO DETERMINE WHETHER THE
INTEREST-ONLY PERIOD CAN BE MAINTAINED, AND WHEN THE AMORTIZATION PERIOD MAY
COMMENCE. The ability of the Issuers to pledge Additional Contracts to the
Trustee is dependent in part upon whether the Users thereunder perform their
payment and other obligations required by such Additional Contracts in order
that such Additional Contracts meet the specified requirements for transfer on
the related Cut-Off Date during the Interest-Only Period. The performance by
such Users may be affected as a result of a variety of social and economic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumers' general perception of economic conditions. However,
the Originator is unable to determine and has no basis to predict whether or to
what extent economic or social factors will affect the performance by such Users
and the availability of Additional Contracts.
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CREDIT ENHANCEMENT IS LIMITED, AND, IF IT IS EXHAUSTED; LOSSES MAY
RESULT. Credit enhancement with respect to the Offered Notes will be provided
by the subordination of the Class D Notes, the Residual Interest and funds on
deposit in the Reserve Account. In addition, the Class A Notes have the benefit
of the subordination of the Class B, the Class C Notes and the Class D Notes,
the Class B Notes have the benefit of the subordination of the Class C Notes and
the Class D Notes and the Class C Notes have the benefit of the subordination of
the Class D Notes. However, on any Payment Date the amount available to
Noteholders is limited to the extent of funds on deposit in the Collection
Amount and the Reserve Account. Therefore, if a Contract becomes a Defaulted
Contract at a time when total losses on the Contracts are in excess of the
Outstanding Principal Balance of any subordinated Class and, the amounts, if
any, available to be withdrawn from the Reserve Account are reduced to zero, the
holders of Notes of any senior Class may experience losses.
THE INITIAL CONTRACT POOL MAY HAVE GEOGRAPHIC CONCENTRATION. As of the
Cut-Off Date, approximately 15.19%, 9.14%, 8.39%, 8.00%, 7.87% and 5.12% of the
Initial Contracts (based on the Original Aggregate Contract Principal Balance)
were located in California, New York, Texas, Florida, New Jersey and
Pennsylvania, respectively. No other state accounts for more than 3.60% of the
Initial Contracts. See "The Trust Estate." Accordingly, adverse economic
conditions or other factors particularly affecting any of these regions could
adversely affect the performance on the Initial Contracts.
THE SERVICER WILL BE PERMITTED TO COMMINGLE COLLECTIONS TO A LIMITED
EXTENT, WHICH MAY LEAD TO DELAYS IN THE EVENT OF A SERVICER BANKRUPTCY. Under
the Indenture, the Servicer is required to deposit all collections on the
Contracts received after the Cut-Off Date to the Collection Account within two
Business Days, or such later date as permitted by the Rating Agencies, of
receipt thereof. If bankruptcy or reorganization proceedings were commenced with
respect to the Servicer, those funds held by the Servicer may be subject to an
automatic stay resulting in a delay in the transfer of such funds to the
Trustee.
THE ISSUERS
The Issuers are Advanta Leasing Receivables Corp. IV ("ALRC IV") and
Advanta Leasing Receivables Corp. V ("ALRC V"). The Issuers will be jointly and
severally liable on the Notes. Each Issuer is a Nevada corporation which was
formed in February of 1998; 100% of the common equity of each Issuer is owned by
Advanta Business Services Corp. The principal office of each Issuer is located
at 1325 Airmotive Way, Reno, Nevada 89502.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
As of the date of this Prospectus, neither of the Issuers have had an
operating history The net proceeds of the sale of the Notes will be employed to
purchase the Contracts. See "Use of Proceeds." The Issuers are prohibited by
their respective certificates of incorporation from engaging in business other
than (i) the purchase of equipment leases and lease receivables (including
equipment) from ABS 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 Nevada law. The Issuers' ability
to incur, assume or guaranty indebtedness for borrowed money are also restricted
by their respective certificates of incorporation.
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DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUERS
The following table sets forth the executive officers and directors of the
Issuers and their ages and positions as of February 17, 1998. Because the
Issuers are organized as special purpose companies and will be largely passive,
it is expected that the officers and directors of each Issuer in such capacity
will participate in the management of each Issuer to a limited extent. Most of
the actions related to maintaining and servicing the assets will be performed by
the Servicer.
ADVANTA LEASING RECEIVABLES CORP. IV
NAME AGE POSITION
- ---------------------------------------- ------ --------------------------------------------
Charles H. Podowski..................... 51 Director
Francis B. Jacobs, II................... 56 Director
Edward E. Millman....................... 46 President and Director
Susan A. McVeigh........................ 29 Treasurer and Director
Janice C. George........................ 59 Vice President and Director
Cole Silver............................. 41 Secretary
ADVANTA LEASING RECEIVABLES CORP. V
Charles H. Podowski..................... 51 Director
Francis B. Jacobs, II................... 56 Director
Edward E. Millman....................... 46 President and Director
Susan A. McVeigh........................ 29 Treasurer and Director
Janice C. George........................ 59 Vice President and Director
Cole Silver............................. 41 Secretary
Charles H. Podowski has served as Director since being elected on February
17, 1998. Mr. Podowski joined Advanta Corp. in 1995 and is currently President
of Advanta Insurance Companies and Chairman of Advanta Business Services Corp.
Prior to joining Advanta, Mr. Podowski had a seventeen year career with CIGNA
Corporation, where he held various positions, the most recent being Senior Vice
President of their International Division with responsibility for life insurance
subsidiaries in Asia and Australia and emerging worldwide markets.
Edward E. Millman has served as President and Director since being elected
on February 17, 1998. Since 1997, Mr. Millman has served as the Senior Vice
President and Chief Financial Officer of Advanta Business Services Corp. Since
joining Advanta Corp. in 1989, Mr. Millman has held positions of Senior Vice
President of International Operations, Chief Financial Officer of the consumer
credit card business and before that as Vice President in Advanta Corp.'s
Treasury Group.
Cole Silver has served as Secretary since being elected on February 17,
1998. Mr. Silver joined Advanta Business Services Corp. in 1992 and is currently
the Senior Vice President and General Counsel.
Susan A. McVeigh has served as Treasurer and Director since being elected
on February 17, 1998. Ms. McVeigh joined Advanta Corp. in 1994 as a transaction
manager in the consumer credit card business and has worked in several positions
within the asset securitization area and is currently Manger of Treasury and
Securitization for Advanta Business Services Corp.
Janice C. George has served as Vice President and Director being elected on
February 17, 1998. For the last five years Ms. George has been employed by
Griffin Corporate Services.
Francis B. Jacobs, II has served as Director since being elected on
February 17, 1998. For the last five years Mr. Jacobs has been employed by
Delaware Trust Capital Management.
None of the above-listed directors and officers of the Issuers will be
compensated directly by the Issuers nor with any funds or assets of the Issuers
nor will any such directors and officers receive compensation in the capacities
in which they act for the Issuers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Issuers pursuant to the foregoing provisions, or otherwise, each
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30
of the Issuers has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
thereof, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Issuers of expenses incurred or
paid by a director, officer or controlling person of the Issuers in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Issuers will, unless in the opinion of their counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
USE OF PROCEEDS
The Issuers will apply the net proceeds from the sale of the Notes as
follows: (i) to make the initial deposit to the Reserve Account, in the amount
specified in the Indenture; (ii) to acquire certain of the Initial Contracts
from certain affiliates of the Originator and (iii) to acquire the remaining
Initial Contracts from the Originator.
THE TRUSTEE
The Chase Manhattan Bank will be the Trustee under the Indenture. Advanta
Business Services Corp., as Originator or Servicer, 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
each Indenture. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Indenture will be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon such separate trustee or
co-trustee, who shall exercise and perform such rights, powers, duties and
obligations solely at the direction of the Trustee.
THE TRUST ESTATE
GENERAL. The Trust Estate primarily consists of the Contracts and the
related security interests in the Equipment.
Approximately 60.35% of the Initial Contracts, measured by Original
Aggregate Contract Principal Balance, consist of an agreement, including, as
applicable, schedules, supplements and amendments to a master lease, pursuant to
which specified Equipment is leased to a lessee at a specified monthly rental.
Approximately 39.65% of the Initial Contracts, measured by Original Aggregate
Contract Principal Balance, take the form of finance contracts, installment sale
contracts and leases, loans and other contracts consisting of notes and
accompanying security agreements. Each Additional Contract will be in the form
of a lease or a loan.
The Contracts will take the form of leases, loans or other contracts.
Leases may be "true" leases or leases intended as security; loans may include
installment sale contracts. Leases, loans or other contracts typically require a
"residual" payment at the end of the term in the form of either a purchase
option or required balloon payment. In addition, all Initial Contracts that take
the form of leases contain "hell or high water" clauses unconditionally
obligating the User to make periodic payments, without setoff, at the time and
on the dates specified in such Contract, notwithstanding default by the
Originator, the Servicer, or Issuers, either or any assignee of any of them
under such Contract, damage to or destruction of the related Equipment or any
other event.
Users under the Initial Contracts that take the form of leases may, upon
prior written notice to the Servicer, assign or sublease the related Equipment,
provided that the Servicer consents to the assignee or sublessee in accordance
with the terms of the related Contract. The right to receive such prior written
notice
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and grant or deny such consent shall be exercised by the Servicer pursuant to
the authority delegated to it in the related Contract. Notwithstanding any such
assignment or sublease, each User will remain liable for the lessee obligations
under the related Contract and such Contract will remain part of the assets
pledged to the Trustee.
The Notes are secured by (i) Initial Contracts with an Original Aggregate
Contract Principal Balance of $368,577,602.40 (calculated using the Statistical
Discount Rate), (ii) the Reserve Account and (iii) certain other miscellaneous
accounts.
The Initial Contracts consist of (i) transactions originated by the
Originator, agents of the Originator or brokers in the name of the Originator
and (ii) transactions acquired by the Originator from third-parties and
underwritten by the Originator in the same manner as Contracts originated by the
Originator.
Certain of the Initial Contracts that take the form of leases contain
provisions requiring that the related User purchase the related Equipment at the
end of the related Contract term for an amount, which may in certain cases be
the fair market value of the related Equipment at Contract maturity. Such amount
may be (i) a specified amount or (ii) a minimum specified amount plus an
unspecified excess amount which together with the minimum specified amount is
the lesser of (a) the fair market value of the related Equipment at Contract
maturity or (b) a maximum specified amount. Any payment of such a specified
amount or minimum specified amount received from a User in connection with a
required purchase by such User at maturity of the related Contract is a "Final
Contract Payment." Any such excess amount received from a User is an "Excess
Amount."
Certain Initial Contracts that take the form of leases do not contain a
provision requiring the related User to purchase the related Equipment, but
rather contain an end-of-term purchase option (such Contracts and Equipment, the
"Purchase Option Contracts" and "Purchase Option Equipment," respectively). Such
purchase options are exercisable at varying amounts, and are referred to as
"Purchase Option Payments." In the event that a User under a Purchase Option
Contract does not exercise its purchase option, such User is required to either
re-lease the Equipment or return the related Purchase Option Equipment to the
Servicer.
Generally, the Initial Contracts that take the form of leases are on a
"net" basis, that is, the User is responsible for all operating expenses,
including taxes and insurance premiums. The Users under the Initial Contracts
generally are obligated to: (i) remit all Contract Payments due; (ii) operate
the related Equipment in compliance with the manufacturers' instructions; (iii)
maintain and service the related Equipment; and (iv) insure the related
Equipment against casualty losses, public liability for bodily injury and
against property damage.
References herein to percentages of Contracts refer in each case to the
percentage of the Aggregate Contract Principal Balance (calculated using the
Statistical Discount Rate) of the Initial Contracts as of the Cut-Off Date.
As of the Cut-Off Date, the Initial Contracts had remaining terms to
maturity of 2 to 77 months. The final Scheduled Payment or Final Contract
Payment on the Initial Contract with the latest maturity is due in May, 2004. As
of the Cut-Off Date, the Contract Principal Balances of the Initial Contracts
range from $431,366.99 to $18.76. No more than .13% of the Original Aggregate
Contract Principal Balance is attributable to any one User (including affiliates
of such User), and the average Contract Principal Balance is $6,406.26.
The Initial Contracts which are leases in form generally do not provide for
a right of the User to prepay. However, under the Indenture, the Servicer is
permitted to allow prepayment in an amount not less than the Prepayment Amount.
In addition, in the event that a User requests an upgrade or trade-in of
Equipment, the Servicer may remove such Equipment and related Contract from the
Trust Estate, but only upon payment of an amount equal to the sum of (i) the
Contract Principal Balance as of the first day of the Collection Period
preceding such removal, (ii) one month's interest thereon at the Actual Discount
Rate, and (iii) any Scheduled Payments due and outstanding under such Contract
that have not been paid by the User (collectively the "Prepayment Amount").
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ADVANTA BUSINESS SERVICES CORP. UNDERWRITING, ORIGINATING AND
SERVICING PRACTICES
GENERAL. Advanta Business Services Corp. ("ABS") is a wholly-owned
subsidiary of Advanta Leasing Holding Corp., a Delaware corporation ("ALHC").
ALHC is a wholly-owned subsidiary of Advanta Corp. (a publicly-traded company
based in Spring House, PA and is listed on the NASDAQ as ADVNA and ADVNB). ABS
has two primary lines of business. One is a Mastercard credit card product
geared towards small businesses. The other is convenience lending which consists
of originating, acquiring and servicing primarily commercial leases and loans
(the "Contracts") to businesses and business owners in the United States and its
territories and possessions. Advanta Business Services Corp. is headquartered at
1020 Laurel Oak Road, Voorhees, NJ 08043-7228 and its phone number is (609)
782-7300.
ABS leases and finances a wide variety of small-ticket equipment,
including, but not limited to, office equipment, telecommunications equipment,
automotive repair equipment, surveillance equipment, and furniture, to
businesses and business owners throughout the United States. ABS underwrites and
services its equipment leasing and financing business from its headquarters in
Voorhees, New Jersey.
CONTRACT ORIGINATION. ABS originates Contracts primarily through its sales
and marketing programs at its New Jersey headquarters. Transactions are
originated as a result of ABS's relationships with its various brokers and
vendors. From time to time, vendors who are familiar with the ABS's leasing and
financing services as a result of previous transactions may recommend
prospective customers make a credit application to ABS for financing. Other
transactions may be submitted to ABS as a result of a more formal program
between ABS and a vendor where the vendor's marketing representatives may offer
prospective customers financing at pre-arranged rates, based upon the vendor's
equipment, and certain terms and conditions approved by ABS.
In a majority of these vendor programs, ABS owns the equipment subject to
each contract and bills and collects payments directly with the obligor. For
some select vendor programs, ABS will bill and collect payments using a
non-descriptive name, so that the obligor does not recognize ABS as a party to
the transaction. Under this program, once a contract becomes 60-90 days past
due, ABS is then immediately identified to the obligor. Vendors may choose to
originate the contracts on ABS's standard contract documentation or they may use
their own internally generated contract documentation which is reviewed and
approved by ABS's legal staff. In instances where ABS does not own the
equipment, they will, under certain circumstances, obtain a perfected security
interest in the equipment.
On occasion, ABS will purchase contracts or other financing transactions
which were originated by unaffiliated lessors/lenders; provided, however, that
the creditworthiness and origination procedures of such originator meet the
approval of ABS; and provided further, that ABS approves the creditworthiness of
the obligor and all of the related documentation in such transaction.
Another program through which ABS originates contracts is through the use
of brokers. In a typical broker transaction, ABS originates contracts referred
to it by a given broker and pays the broker a referral fee. Contracts originated
under this program are reviewed in a manner consistent with ABS's then existing
credit polices and procedures. Contracts may also be purchased by ABS on a bulk
or portfolio basis. These contracts may be originated by a variety of
Originators under several different underwriting guidelines. When reviewing
potential bulk or portfolio acquisitions, the existing Originator's contracts
will be reviewed by the ABS credit staff. Using pre-determined guidelines, an
acceptance or rejection decision will be made. For each potential bulk or
portfolio purchase, ABS has the ability to accept or reject individual
contracts.
RESIDUAL VALUES. ABS has realized residual values which, on average,
exceeded the booked residual values in respect of such contracts. For contracts
in which there is a pre-determined buy-out price, the buy-out price is the
residual value recorded on ABS's books. In the event the equipment is returned,
ABS utilizes the services of its vendors and brokers and also participates in an
active secondary market for the sale of this returned, used equipment.
ABS'S CREDIT REVIEW. ABS performs a thorough credit review of all
prospective obligors. Typically, the credit review process begins when the
prospective obligor completes a credit application. The completed credit
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33
application is entered into the company's computerized processing system. A
standardized credit scoring model is employed and the credit decision is based
on several criteria which may include verification of a credit bureau report for
the principal(s) of the company, verification of a Dun & Bradstreet listing for
the company, and a review of the total exposure for all contracts currently
outstanding with ABS, which may not exceed a certain dollar limit. Credit
applications can be automatically approved and/or rejected based on the dollar
amount of the application and a score falling within a certain range in the
model. For those credit applications not falling within a specified dollar
amount and/or credit, the decision is then based on an analysis by the credit
staff. Authority to make credit decisions is based on seniority and lending
experience. In general, transactions in excess of $500,000 must be approved by
the senior management of ABS.
ABS's senior credit committee provides a forum for making credit decisions
on transactions which exceed the authority of individual or paired credit
approvers either in size or complexity. The senior credit committee also
identifies strategic credit issues and the credit polices and procedures
throughout the company.
In addition, the credit department has staff dedicated to perform reviews
of potential new vendors and brokers to ensure compliance with the company's
overall credit policies and procedures. In reviewing new relationships with
vendors and brokers, ABS considers, among other things, length of time in
business, bank, credit and trade references, Dun & Bradstreet reports, and
credit bureau reports on all of the officers.
COLLECTION/SERVICING. Collection activities with respect to delinquent
contracts are performed by ABS's servicing staff in Voorhees, New Jersey. Each
contract has a provision for assessing late charges in the event that an obligor
fails to make a payment on the contract on the related due date. Telephone
contact is normally initiated when an account is one to fifteen days past due.
All collection activity is entered into the computerized collection system.
Activity notes are input directly into the collection system in order for
company personnel to monitor the status of the account and take any necessary
actions. Collectors have available at their computer terminals the latest status
and collection history on each account.
If a payment has not been received by the 11th day after the due date, the
system automatically generates a computerized late notice which is sent directly
to the obligor. If a payment has not been received by the 31st day after the due
date, a default letter is sent out to the obligor. If a payment has not been
received by the 61st day after the due date, a demand letter is sent out
directly to the obligor. Telephone contact is continued throughout the
delinquency period. If the transaction continues to be delinquent, ABS may
exercise any remedies available to it under the terms of the contract, including
Termination, acceleration and/or repossession. Each contract is evaluated on the
merits of the individual situation, with the equipment value being considered as
well as the current financial strength of the obligor. If collection activities
do not rectify the account, ABS typically charges off the account at 121 days
past due.
At the time of charge-off, the account is turned over to ABS's in-house
litigation department. In general, a decision is made to either pursue the
obligor and/or personal guarantor through litigation or send to a third-party
collection agency to enforce the original terms of the contract. Prior to
litigation, the legal recovery department will attempt to obtain resolution of
the account. The litigation decision is dependent on a review of the account
including credit bureau reports, obligor payment history, and/or Dunn &
Bradstreet reports. In cases where the obligor has filed for bankruptcy, the ABS
legal recovery department follows up with the debtor to determine whether it
intends to assume or reject the contract. In addition, the department pursues
the non-bankrupt debtors while reviewing the fair market value of the equipment,
the remaining balance of the contract, and the credit of the non-bankrupt
obligors. If the bankruptcy department cannot settle with the non-bankrupt
obligors, the file may be passed to the litigators for suit. In many cases,
although the obligor has filed for bankruptcy protection from its creditors, it
continues to make regular payments on its contract to ABS.
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SUBSTITUTIONS AND MODIFICATIONS
Pursuant to the Indenture, the Originator will have the right (but not the
obligation) at any time to substitute one or more Contracts (each a "Substitute
Contract") for a Contract ("Predecessor Contract") if:
(i) the Predecessor Contract then meets the requirements for being a
"Defaulted Contract," and
(ii) the Aggregate Contract Balance(s) of such Substitute Contract or
Contracts is at least equal to the Aggregate Contract Balance(s) of such
Predecessor Contract or Contracts, each as of the Calculation Date
immediately following the date of such substitution and calculated, with
respect to the Predecessor Contract, as if such Predecessor Contract were
not a Defaulted Contract.
The Indenture requires that the delivery of Substitute Contracts cannot
result in a material reduction in the aggregate Booked Residual Value of all
equipment as of the time of such substitution.
In addition, the Servicer has the right to modify the payment terms of the
Contracts under certain circumstances, provided the Contract, as modified, (i)
has a Contract Principal Balance not lower than the Contract Principal Balance
of the Contract prior to the modification and (ii) does not have a maturity date
later than the maturity date of the Contract then pledged to the Trustee that
has the latest maturity date of all the Contracts then included in the Trust
Estate. See "Description of the Notes -- Remittance and Other Servicing
Procedures" for a description of additional provisions regarding modifications.
Upon repossession and disposition of any Equipment subject to a Defaulted
Contract, any deficiency remaining will be pursued to the extent deemed
practicable by the Servicer. The Servicer on behalf of the holder of the
Residual Interest is directed to maximize the residual value of the Equipment
relating to any Defaulted Contract (the "Net Residual Value"), and, in such
regard, the Servicer may sell such Equipment at the best available price,
refurbish such Equipment and re-lease or sell such Equipment to third parties,
or take any other commercially reasonable steps to maximize such Equipment's Net
Residual Value. Defaulted Residual Receipts with respect to any such Defaulted
Contract, including any future payments received with respect to such Defaulted
Contracts, shall be paid to the Collection Account as Available Funds. If the
Servicer reasonably believes that the Net Residual Value of any Equipment is
zero or de minimis, it will dispose of such Equipment in accordance with its
standard procedures.
STATISTICAL INFORMATION
The statistical information presented in this Prospectus concerning the
pool of Contracts as of the Cut-Off Date is based on the number and the
Aggregate Contract Principal Balance of the Initial Contracts as of the Cut-Off
Date (the "Original Aggregate Contract Principal Balance"). The Aggregate
Contract Principal Balance of the Initial Contracts as of the Cut-Off Date is
$368,577,602.40 using the Statistical Discount Rate. The Aggregate Contract
Principal Balance of the Initial Contracts as of the Cut-Off Date is $
using the Actual Discount Rate. The statistical distribution of such
characteristics of the Initial Contracts as of the Cut-Off Date using the Actual
Discount Rate will vary somewhat from the statistical distribution of such
characteristics of the Initial Contracts as of the Cut-Off Date using the
Statistical Discount Rate as presented in this Prospectus, although such
variance will not be material. In addition, certain Initial Contracts included
in the statistical information included herein were determined not to meet the
eligibility requirements for the final pool. As a result, the statistical
distribution of characteristics as of the Closing Date for the final Contract
pool will vary somewhat from the statistical distribution of such
characteristics as presented in this Prospectus, although such variance will not
be material.
Unless otherwise noted, all calculations of Contract Principal Balances
with respect to the Initial Contracts and all statistical percentages in this
Prospectus are measured by the Original Aggregate Contract Principal Balance
(calculated using the Statistical Discount Rate). Furthermore, in all instances
in this Prospectus where the Statistical Discount Rate is used to calculate the
Contract Principal Balances, such calculation is performed by discounts related
to Scheduled Payments at the same payment interval of the related Contract.
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35
Following is certain statistical information relating to the Initial
Contracts, calculated as of the Cut-Off Date. Certain columns may not add to
100% due to rounding.
CERTAIN INFORMATION WITH RESPECT TO THE CONTRACTS AND THE USERS. The
following tables summarize certain information with respect to the Contracts and
the Users as of the Cut-Off Date.
DISTRIBUTION OF CONTRACTS BY STATE
PERCENTAGE OF
PERCENTAGE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT
STATE CONTRACTS CONTRACTS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----------------------------------------- --------- ------------- ------------------- ----------------------
AK....................................... 76 0.13% $ 546,487.77 0.15%
AL....................................... 671 1.17% 4,227,321.29 1.15%
AR....................................... 297 0.52% 1,914,572.48 0.52%
AZ....................................... 986 1.71% 6,344,595.91 1.72%
CA....................................... 8,154 14.17% 55,973,967.65 15.19%
CO....................................... 1,043 1.81% 6,576,153.72 1.78%
CT....................................... 1,216 2.11% 7,262,063.63 1.97%
DC....................................... 335 0.58% 2,868,228.41 0.78%
DE....................................... 378 0.66% 1,932,260.03 0.52%
FL....................................... 4,970 8.64% 29,470,657.74 8.00%
GA....................................... 1,952 3.39% 13,267,511.78 3.60%
HI....................................... 117 0.20% 707,987.96 0.19%
IA....................................... 171 0.30% 967,875.60 0.26%
ID....................................... 213 0.37% 1,581,082.37 0.43%
IL....................................... 1,513 2.63% 10,616,940.14 2.88%
IN....................................... 595 1.03% 3,465,207.22 0.94%
KS....................................... 248 0.43% 1,459,009.58 0.40%
KY....................................... 520 0.90% 3,002,517.09 0.81%
LA....................................... 233 0.40% 1,337,555.61 0.36%
MA....................................... 1,870 3.25% 12,172,050.09 3.30%
MD....................................... 1,421 2.47% 8,524,420.98 2.31%
ME....................................... 308 0.54% 1,546,756.11 0.42%
MI....................................... 791 1.37% 5,079,134.69 1.38%
MN....................................... 458 0.80% 2,985,037.76 0.81%
MO....................................... 655 1.14% 4,471,172.56 1.21%
MS....................................... 238 0.41% 1,575,139.05 0.43%
MT....................................... 108 0.19% 539,905.61 0.15%
NC....................................... 1,525 2.65% 9,080,530.05 2.46%
ND....................................... 57 0.10% 213,485.91 0.06%
NE....................................... 84 0.15% 527,085.21 0.14%
NH....................................... 370 0.64% 2,269,165.88 0.62%
NJ....................................... 4,503 7.83% 28,998,094.39 7.87%
NM....................................... 276 0.48% 1,651,159.51 0.45%
NV....................................... 339 0.59% 2,224,651.57 0.60%
NY....................................... 5,160 8.97% 33,685,187.43 9.14%
OH....................................... 1,879 3.27% 10,987,824.21 2.98%
OK....................................... 485 0.84% 2,924,107.62 0.79%
OR....................................... 576 1.00% 3,803,263.83 1.03%
PA....................................... 3,216 5.59% 18,880,601.71 5.12%
RI....................................... 378 0.66% 2,326,876.87 0.63%
SC....................................... 657 1.14% 3,900,817.21 1.06%
SD....................................... 54 0.09% 299,507.01 0.08%
TN....................................... 722 1.25% 4,707,867.60 1.28%
TX....................................... 4,634 8.05% 30,910,590.92 8.39%
UT....................................... 218 0.38% 1,918,636.04 0.52%
VA....................................... 1,337 2.32% 8,914,208.75 2.42%
VI....................................... 111 0.19% 241,162.73 0.07%
VT....................................... 142 0.25% 747,006.12 0.20%
WA....................................... 654 1.14% 4,812,794.08 1.31%
WI....................................... 411 0.71% 2,827,697.22 0.77%
WV....................................... 147 0.26% 930,889.47 0.25%
WY....................................... 62 0.11% 378,778.23 0.10%
----- ------ -------------- ------
57,534 100.00% $368,577,602.40 100.00%
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DISTRIBUTION OF CONTRACTS BY CONTRACT PRINCIPAL BALANCE
PERCENTAGE OF ORIGINAL
PERCENTAGE OF AGGREGATE BALANCE
NUMBER OF NUMBER OF AGGREGATE CONTRACT CONTRACT PRINCIPAL
CONTRACT PRINCIPAL BALANCE CONTRACTS CONTRACTS PRINCIPAL BALANCE BALANCE
- --------------------------- --------- ------------- ------------------ ----------------------
0.00 - 5,000.00... 35,537 61.77% $ 73,335,058.86 19.90%
5,000.01 - 10,000.00.. 11,478 19.95% 80,909,047.23 21.95%
10,000.01 - 15,000.00.. 4,743 8.24% 58,045,996.78 15.75%
15,000.01 - 20,000.00.. 2,380 4.14% 40,842,268.43 11.08%
20,000.01 - 25,000.00.. 1,220 2.12% 27,230,026.41 7.39%
25,000.01 - 30,000.00.. 755 1.31% 20,686,789.92 5.61%
30,000.01 - 35,000.00.. 454 0.79% 14,704,116.57 3.99%
35,000.01 - 40,000.00.. 287 0.50% 10,712,867.74 2.91%
40,000.01 - 45,000.00.. 184 0.32% 7,773,380.71 2.11%
45,000.01 - 50,000.00.. 141 0.25% 6,698,421.62 1.82%
50,000.01 - 60,000.00.. 148 0.26% 8,011,305.90 2.17%
60,000.01 - 70,000.00.. 63 0.11% 4,068,253.93 1.10%
70,000.01 - 80,000.00.. 34 0.06% 2,534,686.68 0.69%
80,000.01 - 90,000.00.. 27 0.05% 2,304,353.05 0.63%
90,000.01 - 100,000.00.. 22 0.04% 2,092,682.88 0.57%
100,000.01 - 125,000.00.. 30 0.05% 3,342,546.61 0.91%
125,000.01 - 150,000.00.. 14 0.02% 1,890,046.86 0.51%
150,000.01 - 175,000.00.. 9 0.02% 1,445,446.32 0.39%
175,000.01 - 200,000.00.. 4 0.01% 731,238.38 0.20%
greater than 200,000.01....
4 0.01% 1,219,067.52 0.33%
----- ------ -------------- ------
57,534 100.00% $ 368,577,602.40 100.00%
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37
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
PERCENTAGE OF
NUMBER OF PERCENTAGE OF ORIGINAL
REMAINING NUMBER OF CONTRACTS AGGREGATE CONTRACT AGGREGATE CONTRACT
TERM CONTRACTS BALANCE PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------- --------- ------------- ------------------ ----------------------
0-12 12,598 21.90% $ 18,526,542.21 5.03%
13-24 17,703 30.77% 76,150,410.84 20.66%
25-36 14,594 25.37% 108,568,002.44 29.46%
37-48 6,749 11.73% 77,036,253.36 20.90%
49-60 5,357 9.31% 79,835,523.39 21.66%
61-72 529 0.92% 8,312,759.60 2.26%
73-84 4 0.01% 148,110.56 0.04%
----- ------ -------------- ------
57,534 100.00% $ 368,577,602.40 100.00%
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
EQUIPMENT
PERCENTAGE OF PERCENTAGE OF ORIGINAL
NUMBER OF NUMBER OF AGGREGATE CONTRACT AGGREGATE CONTRACT
DESCRIPTION CONTRACTS CONTRACTS BALANCE PRINCIPAL BALANCE PRINCIPAL BALANCE
----------------------------------- --------- ------------------ ------------------- ----------------------
Agriculture Equipment.............. 32 0.06% $ 384,328.88 0.10%
Amusement.......................... 46 0.08% 408,757.69 0.11%
Audio/Video Equipment.............. 1,108 1.93% 6,437,756.93 1.75%
Automotive Equipment............... 1,639 2.85% 14,301,002.42 3.88%
Cleaning/Laundry Equipment......... 951 1.65% 7,555,529.29 2.05%
Communications..................... 29 0.05% 253,590.75 0.07%
Computers/Software................. 13,201 22.94% 100,244,759.69 27.20%
Construction/Industrial
Equipment........................ 2,464 4.28% 18,387,425.53 4.99%
Furniture.......................... 737 1.28% 7,024,386.82 1.91%
Health/Fitness..................... 177 0.31% 1,570,312.91 0.43%
Landscaping Equipment.............. 285 0.50% 1,946,415.66 0.53%
Mailing Machines & Equipment....... 1,852 3.22% 7,924,088.79 2.15%
Measuring Equipment................ 43 0.07% 321,903.47 0.09%
Medical Equipment.................. 1,462 2.54% 18,458,801.31 5.01%
Mobile Communications.............. 235 0.41% 1,164,680.69 0.32%
Office Machines.................... 14,351 24.94% 89,305,751.17 24.23%
Packaging Equipment................ 31 0.05% 459,995.88 0.12%
Photography Equipment.............. 496 0.86% 3,536,041.18 0.96%
Printing Press/ Type Setter........ 187 0.33% 1,898,697.52 0.52%
Refrigerators/Restaurants.......... 1,802 3.13% 9,907,865.78 2.69%
Retail Business Equipment.......... 5,023 8.73% 11,484,677.03 3.12%
Security/Alarm System.............. 3,369 5.86% 14,865,277.11 4.03%
Security Equipment................. 3,846 6.68% 21,973,997.56 5.96%
Sewing and Embroidery.............. 84 0.15% 1,286,781.29 0.35%
Stenograph/Court Reporters......... 829 1.44% 2,699,614.70 0.73%
Vending Equipment.................. 319 0.55% 2,654,291.59 0.72%
Water Coolers...................... 663 1.15% 922,669.49 0.25%
Woodworking Equipment.............. 45 0.08% 655,260.01 0.18%
Other.............................. 2,228 3.87% 20,542,941.26 5.57%
--------- ------- ------------------- -------
57,534 100.00% $368,577,602.40 100.00%
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HISTORICAL DELINQUENCY INFORMATION. Delinquency information for equipment
leases in the Servicer's servicing portfolio.
DECEMBER 31,
HISTORICAL DELINQUENCY EXPERIENCE SERVICING PORTFOLIO
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995 1994 1993
--------------- --------------- --------------- --------------- ---------------
$ % $ % $ % $ % $ %
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total Receivables Balance(1)........... $674,570 $614,828 $460,224 $317,295 $202,963
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
No. of Delinquent Days
31-60 Days............................. 31,226 4.63 34,521 5.61 24,481 5.32 13,370 4.21 11,590 5.71
61-90 Days............................. 11,920 1.77 9,705 1.58 5,890 1.28 4,928 1.55 3,126 1.54
91 Days +.............................. 9,189 1.36 6,702 1.09 4,828 1.05 2,674 0.84 1,619 0.80
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total Delinquency...................... $ 52,335 7.76 50,928 8.28 35,199 7.65 20,972 6.61 16,335 8.05
- ---------------
(1) The Total Receivables Balance is equal to the aggregate future rent owing on
the leases in the Servicer's servicing portfolio.
HISTORICAL DEFAULT EXPERIENCE. Loss information for the Servicer's
servicing portfolio is set forth below.
HISTORICAL LOSS EXPERIENCE SERVICING PORTFOLIO
(IN THOUSANDS OF DOLLARS)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Average Receivables Outstanding(1)....................... $652,607 $551,645 $394,910 $259,500 $146,920
Net Losses............................................... $ 15,293 $ 10,356 $ 6,320 $ 3,426 $ 3,178
Net Losses as a Percentage of Average Receivables........ 2.34% 1.88% 1.60% 1.32% 2.16%
- ---------------
(1) Equals the arithmetic average of each month's Receivable Balance within this
period specified. The Receivable Balance is equal to the aggregate future
rent owing on the leases.
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DESCRIPTION OF THE NOTES
GENERAL. The Notes will be issued pursuant to the Indenture. The Notes
will be available only in book-entry form; see "Appendix 1--Book-Entry
Registration."
PAYMENT DATES. Payments on the Notes will be made on the 15th day of each
month (or if such day is not a Business Day, the next succeeding Business Day),
commencing on March 15, 1998 (each, a "Payment Date"), to holders of record on
the last day of the immediately preceding calendar month (each, a "Record
Date").
INTEREST PAYMENTS. On each Payment Date, the interest due (the "Interest
Payments") with respect to each Class of Notes since the last Payment Date, or
in the case of the first Payment Date, since the Closing Date, will be the
interest that has accrued on such Notes since the last Payment Date, or in the
case of the first Payment Date, since the Closing Date (each such period, an
"Interest Accrual Period") at the applicable Interest Rate applied to the then
unpaid principal amounts (the "Outstanding Principal Balance") of the Notes of
each Class, after giving effect to payments of principal, on the preceding
Payment Date.
INTEREST-ONLY PERIOD. From time to time the Issuers may pledge Additional
Property to the Trustee. The Indenture provides that, unless a Required
Amortization Event occurs prior to the Stated Amortization Date, amounts which
would otherwise be paid as principal to the holders of the Notes will be
released to the Issuers in consideration of the Issuers' pledge to the Trustee,
for the benefit of the Noteholders, of Additional Property, with the result that
the Noteholders will receive payments of interest only, and no payments of
principal, on each Payment Date prior to and including the November 1998 Payment
Date.
PRINCIPAL PAYMENTS. Unless a Required Amortization Event occurs earlier,
the Noteholders will receive no principal payments until the December 1998
Payment Date.
For each Payment Date during the Amortization Period, the Notes of each
Class 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 herein below and under "--Flow of Funds."
On each Payment Date during the Amortization Period, to the extent funds
are available therefor, the principal will be paid to the Noteholders in the
following priority: (a)(i) to the Class A Noteholders only (in "sequential-pay"
fashion to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes, in that order), until the Outstanding Principal Balance on the
Class A Notes has been reduced to zero, the Class A Principal Payment, (b) to
the Class B Noteholders, until the Outstanding Principal Balance on the Class B
Notes has been reduced to zero, the Class B Principal Payment, (c) to the Class
C Noteholders, the Class C Principal Payment and, following the funding of the
Reserve Account to its required level, (d) to the Class D Noteholders, the Class
D Principal Payment until the Outstanding Principal Balance on the Class D Notes
has been reduced to zero.
The Indenture provides that if the Class A-3 Notes are redeemed separately
pursuant to a Class A-3 Special Redemption, the Class A-3 Notes will be deemed
to have been repurchased by the Issuers. In such event, the Issuers will be
entitled to receive payments of principal and interest on the Class A-3 Notes,
and the Class A-3 Outstanding Principal Balance will thereafter continue to
amortize in the "sequential-pay" structure described herein. As a result of the
provisions, if the Class A-3 Notes had previously been redeemed, the Class A-4
Notes will begin receiving Principal Payments on the same Payment Date as they
would have had the Class A-3 Notes not previously been redeemed.
In addition, on each Payment Date, any Principal Payment shortfalls for any
prior Payment Date shall accrue and be due to the related Noteholders (such
Principal Payment shortfalls on the Class A-1 Notes, the "Class A-1 Overdue
Principal," the Class A-2 Notes, the "Class A-2 Overdue Principal," the Class
A-3 Notes, the "Class A-3 Overdue Principal," the Class A-4 Notes, the "Class
A-4 Overdue Principal," the Class B Notes, the "Class B Overdue Principal," the
Class C Notes, the "Class C Overdue Principal" and the Class D Notes, the "Class
D Overdue Principal") on subsequent Payment Dates.
"The "Class A Principal Payment" is, with respect to any Payment Date, the
excess of (x) the aggregate Outstanding Principal Balance of the Class A Notes
immediately prior to such Payment Date over (y) the
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lesser of (A) the Class A Target Investor Principal Amount and (B) the excess of
(1) the Aggregate Contract Principal Balance as of the last day of the related
Collection Period over (2) the Class D Floor.
The "Class A Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class A Percentage and (b) the
Aggregate Contract Principal Balance as of the related Calculation Date.
The "Class B Principal Payment" is, with respect to any Payment Date, the
excess of (x) the aggregate Outstanding Principal Balance of the Class B Notes
immediately prior to such Payment Date over (y) the lesser of (A) the Class B
Target Investor Principal Amount and (B) the excess of (1) the Aggregate
Contract Principal Balance as of the last day of the related Collection Period
over (2) the Class D Floor.
The "Class B Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class B Percentage and (b) the
Aggregate Contract Principal Balance as of the related Calculation Date.
The "Class C Principal Payment" is, with respect to any Payment Date, the
excess of (x) the aggregate Outstanding Principal Balance of the Class C Notes
immediately prior to such Payment Date over (y) the lesser of (A) the Class C
Target Investor Principal Amount and (B) the excess of (1) the Aggregate
Contract Principal Balance as of the last day of the related Collection Period
over (2) the Class D Floor.
The "Class C Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class C Percentage and (b) the
Aggregate Contract Principal Balance as of the related Calculation Date.
The "Class D Floor" with respect to each Payment Date means (a) 3.50% of
the Original Aggregate Contract Principal Balance, plus, (b) the Cumulative Loss
Amount on the immediately preceding Payment Date, minus (c) the lesser of (1)
the Reserve Account Floor and (2) the amount on deposit in the Reserve Account
at the opening of business on such Payment Date.
The "Class D Principal Payment" is the amount necessary to reduce the
Outstanding Principal Balance of the Class D Notes to the greater of the Class D
Target Investor Principal Amount and the Class D Floor; provided, however, that
upon the payment of the aggregate Outstanding Principal Balance of the Offered
Notes has been reduced to zero, the Class D Principal Payment shall equal to
excess of (x) the Aggregate Contract Principal Balance as of the second
preceding Calculation Date over (y) the sum of (A) the Aggregate Contract
Principal Balance as of the preceding Calculation Date, plus, (B) the sum of the
Class A Principal Payment, the Class B Principal Payment and the Class C
Principal Payment on such Payment Date.
The "Class D Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class D Percentage and (b) the
Aggregate Contract Principal Balance as of the related Calculation Date.
The "Class A Percentage" is 88.32%; the "Class B Percentage" is 5.05%, the
"Class C Percentage" is 2.03% and the "Class D Percentage" is 4.00%.
The outstanding Class A-1 Note principal balance for any Payment Date shall
be equal to the Class A-1 Initial Principal Balance less any Principal Payments
previously made on the Class A-1 Notes, and less any Class A-1 Allocated Loss
Amount (the "Class A-1 Principal Balance"); the outstanding Class A-2 Note
principal balance for any Payment Date shall be equal to the Class A-2 Initial
Principal Balance less any Principal Payments previously made on the Class A-2
Notes, and less any Class A-2 Allocated Loss Amount (the "Class A-2 Principal
Balance"); the outstanding Class A-3 Note principal balance for any Payment Date
shall be equal to the Class A-3 Initial Principal Balance less any Principal
Payments previously made on the Class A-3 Notes, and less any Class A-3
Allocated Loss Amount (the "Class A-3 Principal Balance"); the outstanding Class
A-4 Principal Balance for any Payment Date shall be equal to the Class A-4
Principal Balance less any Principal Payments previously made on the Class A-4
Notes, and less any Class A-4 Allocated Losses (the "Class A-4 Principal
Balance," together with the Class A-1 Principal Balance, the Class A-2 Principal
Balance and the Class A-3 Principal Balance as of such date, the "Class A
Principal Balance" as of such date); the outstanding Class B Note principal
balance for any Payment Date shall be
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equal to the Class B Initial Principal Balance less any Principal Payments
previously made on the Class B Notes, and less any Class B Allocated Loss Amount
(the "Class B Principal Balance"); the outstanding Class C Note principal
balance for any Payment Date shall be equal to the Class C Initial Principal
Balance less any Principal Payments previously made on the Class C Notes, and
less any Class C Allocated Loss Amount (the "Class C Principal Balance"); the
outstanding Class D Note principal balance for any Payment Date shall be equal
to the Class D Initial Principal Balance less any Principal Payments previously
made on the Class D Notes, and further less any Class D Allocated Loss Amount
(the "Class D Principal Balance").
The "Cumulative Loss Amount" means, with respect to each Payment Date, an
amount equal to the excess, if any, of (a) the Outstanding Principal Balance of
the Offered Notes after giving effect to all payments on such Payment Date, over
(b) the Aggregate Contract Principal Balance as of the related Calculation Date.
FLOW OF FUNDS. The Indenture will require that the Trustee establish an
account (the "Collection Account") and that the Servicer deposit to the
Collection Account (or the Advance Payment Account, as described herein), all
collections or receipts received by the Servicer on the Contracts no later than
two Business Days following the Servicer's determination that such amounts
relate to the Contracts or the Equipment.
A. On each Payment Date prior to the Amortization Date, the Trustee will be
required to make the following payments from the Available Funds (including
amounts transferred from the Reserve Account on such Payment Date) then on
deposit in the Collection Account and, with respect to paragraph (vi), from
amounts on deposit in the Additional Property Funding Account, in the following
order of priority:
(i) from the Available Funds, to the Servicer, any unrecoverable Servicer
Advances;
(ii) from the Available Funds then remaining in the Collection Account, to
the servicer, if ABS is not then the Servicer, the Servicing Fee then due,
together with certain miscellaneous amounts;
(iii) from the Available Funds then remaining in the Collection Account, to
the Class A Noteholders, the Class A Note Interest and Class A Overdue Interest
for the related Interest Accrual Period; pari passu with respect to each Class
of Class A Notes;
(iv) from the Available Funds then remaining in the Collection Account, to
the Class B Noteholders, the Class B Note Interest and the Class B Overdue
Interest for the related Interest Period;
(v) from the Available Funds then remaining in the Collection Account, to
the Class C Noteholders, the Class C Note Interest and the Class C Overdue
Interest for the related Interest Accrual Period;
(vi) from the sum of (x) the Available Funds then remaining in the
Collection Account, and (y) the amount then on deposit in the Additional
Property Funding Account (such sum, the "Available Additional Property Funding
Amount"), as follows:
(A) to the Issuers, an amount equal to the least of:
(i) the Available Additional Property Funding Amount;
(ii) the sum of (a) the excess of (x) the Aggregate Contract
Principal Balance as of the second preceding Calculation Date over the
Aggregate Contract Principal Balance as of the preceding Calculation
Date plus (b) the amount on deposit in the Additional Property Funding
Account at the opening of business on such Payment Date (such sum, the
"Additional Property Funding Requirement" for such Payment Date); and
(iii) the Aggregate Contract Principal Balances of all Additional
Contracts actually pledged to the Trustee on such Payment Date; and
(B) to the Additional Property Funding Account, the lesser of:
(i) the excess, if any, (x) the Additional Property Funding
Requirement for such Payment Date over (y) the amount described in
clause (A)(iii) above; and
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(ii) the remaining Available Additional Property Funding Amount;
(vii) On and after each Payment Date after the Reserve Account
Funding Date, from the Available Funds then remaining in the Collection
Account, to the Servicer, if ABS is the Servicer, the Servicing Fee then
due, together with certain miscellaneous amounts;
(viii) from the Available Funds then remaining in the Collection
Account to the Reserve Account, to the extent necessary to increase the
amount on deposit in the Reserve Account to the Required Reserve Amount
for such Payment Date;
(ix) upon the occurrence and continuance of a Residual Event (as
defined in the Indenture), the lesser of (A) the remaining Available
Funds and (B) the aggregate amount of Residual Receipts originally
included in the Available Funds for such Payment Date will be deposited
to the Residual Account;
(x) from the Closing Date until the Reserve Account Funding Date,
the Servicing Fee otherwise payable to ABS shall be deposited to the
Reserve Account;
(xi) to ABS, the amount of any Servicing Fee previously due to it
but deposited to the Reserve Account; and
(xii) to the Issuers, as the holders of the Residual Interest, any
remaining Available Funds on deposit in the Collection Account.
B. On the Payment Date which is also the Amortization Date and on each
Payment Date thereafter, the Trustee will be required to make the following
payments from the Available Funds (including amounts transferred from the
Reserve Account on such Payment Date) then on deposit in the Collection Account,
in the following order of priority:
(i) from the Available Funds, to the Servicer, any unrecoverable Servicer
Advances;
(ii) from the Available Funds then remaining in the Collection Account, to
the Servicer, if ABS is not then the Servicer, the Servicing Fee then due,
together with certain miscellaneous amounts;
(iii) from the Available Funds then remaining in the Collection Account, to
the Class A Noteholders, the Class A Note Interest and Class A Overdue Interest
for the related Interest Accrual Period, pari passu with respect to each Class
of Class A Notes;
(iv) from the Available Funds then remaining in the Collection Account, to
the Class B Noteholders, the Class B Note Interest and the Class B Overdue
Interest for the related Interest Period;
(v) from the Available Funds then remaining in the Collection Account, to
the Class C Noteholders, the Class C Note Interest and the Class C Overdue
Interest for the related Interest Accrual Period;
(vi) until the Class A Principal Amount has been reduced to zero, from the
Available Funds then remaining in the Collection Account, the Class A Principal
Payment and the Class A Overdue Principal;
(vii) until the Class B Principal Balance has been reduced to zero, to the
Class B Noteholders, from the Available Funds then remaining in the Collection
Account, the Class B Principal Payment and the Class B Overdue Principal;
(viii) until the Class C Principal Balance has been reduced to zero, to the
Class C Noteholders, from the Available Funds then remaining in the Collection
Account, the Class C Principal Payment and the Class C Overdue Principal;
(ix) on each Payment Date after the Reserve Account Funding Date from the
Available Funds then remaining in the Collection Account, to the Servicer, if
ABS is then the Servicer, the Servicing Fee then due, together with certain
miscellaneous amounts;
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(x) from the Available Funds then remaining in the Collection Account, to
the Reserve Account, to the extent necessary to increase the amount on deposit
in the Reserve Account to the Required Reserve Amount for such Payment Date;
(xi) upon the occurrence and continuance of a Residual Event (as defined in
the Indenture), the lesser of (A) the remaining Available Funds and (B) the
aggregate amount of Residual Receipts originally included in Available Funds for
such Payment Date will be deposited to the Residual Account;
(xii) from the Closing Date until the Reserve Account Funding Date, the
Servicing Fee otherwise payable to ABS shall be deposited to the Reserve
Account;
(xiii) from the Available Funds then remaining in the Collection Account,
to the Class D Noteholders, the Class D Principal Payment and the Class D
Overdue Principal,
(xiv) to ABS, the amount of any Servicing Fee previously due to it but
deposited to the Reserve Account; and
(xv) to the Issuers, as the holder of the Residual Interest, any remaining
Available Funds on deposit in the Collection Account.
Residual Receipts will be included in "Available Funds" only through the
Payment Date on which Residual Receipts used (without duplication) to cover
amounts owing the Offered Noteholders and the Servicer, on deposit in the
Residual Account, or withdrawn from the Residual Account as a result of a
shortfall equals $ (the "Residual Cap Amount"). Once the Residual Cap
Amount has been reached, Residual Receipts will no longer be required to be
remitted to the Trustee as "Available Funds," and will be released to the
Issuers free and clear and the lien of the Indenture (whether or not a Residual
Event is then in effect, or occurs thereafter). See "Application of Residual
Receipts" below.
The Indenture additionally provides that on the Payment Date which is also
the Amortization Date, all amounts then on deposit in the Additional Property
Funding Account will be applied as Available Funds, and the Additional Property
Funding Account will be closed.
REQUIRED AMORTIZATION EVENTS. The earliest to occur of any of the
following: (i) the occurrence of an Events of Servicer Termination or an Event
of Default, (ii) the amount on deposit in the Additional Property Funding
Account exceeds $3,000,000, (iii) the bankruptcy of the Servicer or either of
the Issuers, (iv) as of any Calculation Date, the ratio of the Aggregate
Contract Balance of Delinquent Contracts which are 31 days or more delinquent to
the aggregate Contract Balance, exceeds 11.50%, (v) as of any Calculation Date,
the 3 month average ratio of the aggregate Contract Balance of all Contracts
which become Defaulted Contracts to the Aggregate Contract Principal Balances,
exceeds 3.75%, (vi) the amount on deposit in the Reserve Account falls below the
level of the Reserve Account Initial Deposit or (vii) the percentage equivalent
of a fraction, the numerator of which is the Outstanding Principal Balance of
the Offered Notes (after taking into account all payments to be made on such
payment Date, but prior to taking into account any allocation of the Senior
Allocated Loss Amount, if any, for such Payment Date) and the denominator of
which is the sum of the Aggregate Contract Principal Balance as of the related
Calculation Date, plus the amount on deposit in the Reserve Account and in the
Additional Property Funding Account at the end of such Payment Date exceeds
96.00%. As used in clause (iv) above, and elsewhere herein, the term "Contract
Balance" means, with respect to a Contract, as of any date, the aggregate
undiscounted amount of all remaining Scheduled Payments. The "Aggregate Contract
Balance" is, as of any date, the sum of the Contract Balances as of the prior
Calculation Date.
AFFIRMATIVE COVENANTS. The Originator will covenant and agree in the
Contribution Agreement, among other things, that during the Interest-Only
Period, (i) the Originator will remain in the business of originating and
purchasing equipment and related leases, loans, and other contracts
substantially similar to the Initial Equipment and Initial Contracts, (ii) the
Originator will use its best efforts to originate and purchase such equipment
and related leases, loans and other contracts in a quantity no less than the
cumulative amount during the Interest-Only Period of (a) amounts remaining on
deposit in the Collection Account after making certain payments as described
herein and (b) amounts on deposit in the Additional Property Funding Account
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44
and (iii) the Originator will not sell, or enter into agreements to sell, such
equipment or related leases, loans and other contracts to others in a manner
which would materially and adversely affect the Originator's ability to perform
its obligations under the Contribution Agreement, to make available Additional
Contracts for pledge by the Issuers to the Trustee.
"CLEAN-UP CALL" REDEMPTION. The Issuers will have the option, subject to
certain conditions, to redeem all, but not less than all, of the Notes of all
Classes as on Payment Date on which the Aggregate Contract Principal Balance
(after giving effect to the payment of principal on such Payment Date) is less
than or equal to 10% of the Original Aggregate Contract Principal Balance. The
Issuers will give notice of such redemption to the Trustee at least 30 days
before the Payment Date fixed for such prepayment. Upon deposit of funds
necessary to effect such redemption, the Trustee shall pay the remaining unpaid
principal amount of the Notes so called for redemption and all accrued and
unpaid interest as of the Payment Date fixed for redemption.
CLASS A-3 SPECIAL REDEMPTION. The Class A-3 Notes may be redeemed (a
"Class A-3 Special Redemption") on any Payment Date, at a price equal to the sum
of (i) the then Class A-3 Principal Balance, accrued and unpaid interest thereon
and (ii) the Class A-3 Special Redemption Premium. The Class A-3 Special
Redemption Premium is payable only in the event that the Issuers exercise the
Class A-3 Special Redemption and not in the event of a "clean-up call"
redemption.
The "Class A-3 Special Redemption Premium" shall equal the excess, if any,
discounted as described below, of (a) the amount of interest that would accrue
on the aggregate Outstanding Principal Balance of the Class A-3 Notes at the
Class A-3 Interest Rate during the period commencing on and including the
Payment Date on which such Class A-3 Special Redemption Premium is required to
be paid to the Class A-3 Noteholders to but excluding the [Insert Class A-3
expected maturity date], over (b) the amount of interest that would have accrued
on the aggregate Outstanding Principal Balance of the Class A-3 Notes over the
same period at a rate per annum of interest equal to the bond equivalent yield
to maturity on the Determination Date preceding such Payment Date on the [insert
benchmark Treasury for Class A-3 Note]. Such excess shall be discounted to the
present value to such Payment Date at the applicable yield described in clause
(b) above.
The Indenture provides that if the Class A-3 Notes are redeemed separately
pursuant to a Class A-3 special redemption, the Class A-3 Notes will be deemed
to have been repurchased by the Issuers. In such an event, the Issuers will be
entitled to receive payments of principal and interest on the Class A-3 Notes,
and the Class A-3 Outstanding Principal Balance will thereafter continue to
amortize in the "sequential-pay" structure described herein. As a result of such
provisions, if the Class A-3 Notes had previously been redeemed, the Holders of
the Class A-4 Notes will begin receiving Principal Payments on the same Payment
Date as they would have had the Class A-3 Notes not previously been redeemed. As
a result of the provisions, if the Class A-3 Notes had previously been redeemed,
the Class A-4 Notes will begin receiving Principal Payments on the same Payment
Date as they would have had the Class A-3 Notes not previously been redeemed.
SUBORDINATION PROVISIONS. A portion of the credit enhancement available
for the benefit of the Class A Noteholders is provided by the subordination of
the Class B Notes, of the Class C Notes, of the Class D Notes and of the
Residual Interest. A portion of the credit enhancement available for the benefit
of the Class B Noteholders is provided by the subordination of the Class C
Notes, the Class D Notes and of the Residual Interest. A portion of the credit
enhancement available for the benefit of the Class C Noteholders is provided by
the subordination of Class D Notes and by the Residual Interest.
The cash flow and subordination provisions of the Indenture provide that
Available Funds on each Payment Date will be used to fund payments to the
Noteholders (and to pay the fees and expenses of the Servicer). "Available
Funds" with respect to a Payment Date generally include (i) amounts collected
during the immediately preceding Collection Period with respect to the Contracts
and the Equipment, including, without limitation, Scheduled Payments, Final
Contract Payments, Defaulted Residual Receipts, Residual Receipts, Prepayment
Amounts, and investment earnings on each of the Accounts plus (ii) amounts
transferred from the Reserve Account with respect to such payment Date and
deposited in the Collection Account.
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45
On each Payment Date prior to the Amortization Date, with respect to
amounts due to the Offered Noteholders, the Indenture requires that there be
paid, first, interest (together with any overdue interest and interest thereon)
to the Class A Noteholders; second, interest (together with any overdue interest
and interest thereon) to the Class B Noteholders; and, third, interest (together
with any overdue interest and interest thereon) to the Class C Noteholders.
On and after the Payment Date which is also the Amortization Date, with
respect to amounts due to the Offered Noteholders, the Indenture requires that
there be paid, first, interest (together with any overdue interest and interest
thereon) to the Class A Noteholders; second, interest (together with any overdue
interest and interest thereon) to the Class B Noteholders; third, interest
(together with any overdue interest and interest thereon) to the Class C
Noteholders; fourth, principal to the Class A Noteholders (to be paid in
"sequential-pay" fashion); fifth, principal to the Class B Noteholders; and
sixth, principal to the Class C Noteholders, as further described herein.
If, on any Payment Date, and after taking into account all payments of
principal and interest made on such Payment Date, the aggregate Outstanding
Principal Balances of all Notes exceeds the Aggregate Contract Principal Balance
as of the related Calculation Date, such excess will be applied to reduce the
Outstanding Principal Balance of the Class D Notes (but not below zero); any
amount so applied is a "Class D Allocated Loss."
ALLOCATION OF LOSSES. The Indenture provides that if the Outstanding
Principal Balance of the Notes ever exceeds the Aggregate Contract Principal
Balance (i.e., the Notes are "undercollateralized"), the Outstanding Principal
Balances of the Notes will be "written down" in inverse order of seniority such
that parity is achieved.
Specifically, as of any Payment Date, the "Class D Allocated Loss Amount"
is the lesser of (i) the Outstanding Principal Balance of the Class D Notes and
(ii) the amount, if any, by which (x) the Outstanding Principal Balance of the
Notes (after taking into account all payments of principal made on such Payment
Date) exceeds (y) the Aggregate Contract Principal Balance as of the related
Calculation Date; and the "Senior Allocated Loss Amount" is the amount, if any,
by which (x) the Outstanding Principal Balance of the Offered Notes (after
taking into account all payments of principal made on such Payment Date) exceeds
(y) the sum of the Aggregate Contract Principal Balance as of the related
Calculation Date, plus the amounts then on deposit in the Reserve Account and
the Residual Account at the end of such Payment Date.
As of any Payment Date, and after taking into account all payments of
principal on such Payment Date:
The "Class C Allocated Loss Amount" is the lesser of (x) the Outstanding
Principal Balance of the Class C Notes and (y) the excess of (A) the Senior
Allocated Loss Amount for such Payment Date over (B) the Class D Allocated Loss
Amount for such Payment Date.
The "Class B Allocated Loss Amount" is the lesser of (x) the Outstanding
Principal Balance of the Class B Notes and (y) the excess of (A) the Senior
Allocated Loss Amount for such Payment Date over the sum of the Class D
Allocated Loss Amount and the Class C Allocated Loss Amount for such Payment
Date.
The "Class A Allocated Loss Amount" is the lesser of (x) the Outstanding
Principal Balance of the Class A Notes and (y) the excess of (A) the Senior
Allocated Loss Amount for such Payment Date over the sum of the Class D
Allocated Loss Amount, the Class C Allocated Loss Amount and the Class B
Allocated Loss Amount for such Payment Date.
The "Class A-1 Allocated Loss Amount," the "Class A-2 Allocated Loss
Amount," the "Class A-3 Allocated Loss Amount" and the "Class A-4 Allocated Loss
Amount" for a Payment Date are each such Class's pro rata portion of any Class A
Allocated Loss Amount for such Payment Date.
DEFAULTED CONTRACTS. A "Defaulted Contract" will mean any Contract (a)(i)
that is a Delinquent Contract with respect to which a User is contractually
delinquent for 121 days or more (without regard to any Servicer Advances or the
application of any security deposit provided by the User (a "Security Deposit"))
or (ii) as to which the Servicer has determined in accordance with its customary
servicing practices that eventual payment of the remaining Scheduled Payments
thereunder is unlikely or (iii) that has been rejected by or on
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behalf of the User in a bankruptcy proceeding and (b) as to which a Release
Event has not occurred. With respect to any Contract, a "Release Event" is a
payment in full of such Contract or a removal of such Contract by the Servicer
pursuant to the terms of the Indenture.
Since the Available Funds on any Payment Date commencing with the
Amortization Date are applied in the order of priority described above under
"Flow of Funds" until such Available Funds are exhausted, the effect of
including in the required "Class A Principal Payment," "Class B Principal
Payment," "Class C Principal Payment" and "Class D Principal Payment" the amount
of deemed loss (i.e., the Contract Principal Balance of any Defaulted Contract)
and prioritizing the payment of the Class A Principal Payment, the Class B
Principal Payment, the Class C Principal Payment and the Class D Principal
Payment (in that order) is to allocate losses first, to the holder of the
Residual Interest, second, to the Class D Noteholders, third, to the Class C
Noteholders, fourth, to the Class B Noteholders and fifth, to the Class A
Noteholders.
Through the operation of the "Class A Overdue Principal," "Class B Overdue
Principal," "Class C Overdue Principal" and "Class D Overdue Principal"
provisions, the Class A Noteholders, the Class B Noteholders, the Class C
Noteholders and the Class D Noteholders are entitled to receive any aggregate,
cumulative shortfalls of Class A Principal Amounts, Class B Principal Balances
or Class C Principal Balances not paid on prior Payment Dates.
APPLICATION OF RESIDUAL RECEIPTS. On each Payment Date, Residual Receipts
shall be deposited into the Collection Account and applied as Available Funds
until the aggregate, cumulative amount of Residual Receipts so applied since the
Closing Date (without duplication), exceeds $ (the "Residual Cap
Amount"), and will provide additional credit support to the Notes. Actual
Residual Receipts may be more or less than the residual value of the Equipment
recorded on the books of the Issuers (the "Booked Residual Value"). Under
certain limited circumstances more fully described in the Indenture (a "Residual
Event"), the Residual Receipts not distributed to Noteholders, or paid to the
Servicer with respect to the Servicing Fee will be deposited in the Residual
Account. As provided in the Indenture, funds on deposit in the Residual Account
will be available to cover shortfalls in the amount available to pay the
Servicing Fee owing the Servicer and to make interest and principal payments on
the Notes. If, on any Payment Date, such shortfall(s) exist and both the
Residual Account and the Reserve Account have amounts on deposit therein, the
Indenture Provides that such shortfall shall first be funded from Residual
Account moneys. Following the termination of a Residual Event, amounts on
deposit in the Residual Account will be deposited into the Reserve Account to
the extent that the amount on deposit in the Reserve Account is less than the
Required Reserve Amount and thereafter will be disbursed to the Issuers.
RESERVE ACCOUNT. The Noteholders will have the benefit of funds on
deposit in an account (the "Reserve Account") to the extent that, on any Payment
Date, there is a shortfall in the amount available to pay amounts owing the
Servicer or to make interest and principal payments on the Offered Notes. The
Reserve Account will be funded by an initial deposit of % of the Initial
Principal Balance of all Offered Notes (such amount the "Reserve Account Initial
Deposit"). Thereafter, to the extent provided in the Indenture, additional
deposits will be made to the Reserve Account on each Payment Date, to the extent
that the amount on deposit in the Reserve Account (the "Available Reserve
Amount") is less than the Required Reserve Amount. The "Required Reserve Amount"
equals [3.25]% of the then aggregate Outstanding Principal Balances of the
Offered Notes, subject to a floor amount (the "Reserve Account Floor") equal to
the lesser of (a) [1.00]% of the Initial Principal Balance of the Offered Notes
and (b) the aggregate Outstanding Principal Balance of the Offered Notes.
Amounts on deposit in the Reserve Account in excess of the Required Reserve
Amount will be disbursed to the Issuers in accordance with the provisions of the
Indenture.
Amounts on deposit in the Reserve Account on any Payment Date shall be
withdrawn therefrom and transferred to the Collection Account if the Available
Funds (exclusive of such amounts transferred from the Reserve Account) with
respect to such Payment Date are insufficient to fund in full the items
described above under "Flow of Funds," if such items are of a higher priority
than the funding of the Reserve Account (including during the Interest-Only
Period, the funding of the Additional Property Funding Requirement to the extent
permitted by the Indenture).
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Prior to the first date on which the Reserve Account is funded to the
Required Reserve Amount (such date, the "Reserve Account Funding Date"), if ABS
is then the Servicer, the Servicing Fee otherwise payable to ABS as Servicer
will be deposited to the Reserve Account.
RESIDUAL ACCOUNT. The Trustee will establish and maintain an Eligible
Account (the "Residual Account"). Under certain limited circumstances more fully
described in the Indenture (a "Residual Event"), Residual Receipts will be
deposited in the Residual Account in accordance with the application of funds as
further described in the Indenture. As provided in the Indenture, funds on
deposit in the Residual Account will be available to cover shortfalls in the
amount available to pay the amounts owing the Servicer and to make interest and
principal payments on the Notes. Following the termination of a Residual Event,
amounts on deposit in the Residual Account will be deposited into the Reserve
Account to the extent that the amount on deposit in the Reserve Account is less
than the Required Reserve Amount and thereafter will be disbursed to the
Issuers.
REPRESENTATIONS AND WARRANTIES OF THE ORIGINATOR. The Originator will
make certain warranties in the Receivables Transfer Agreement (as of the Closing
Date with respect to the Initial Contracts and as of the related date of pledge
with respect to the Additional Contracts, unless otherwise indicated), the
benefits of which will be assigned to the Trustee, including that: (i) as of the
Cut-Off Date, no more than 10% of a payment on any Contract was more than 60
days past due and (except for payments which are 60 days or less past due) there
was no default, breach, violation or event permitting acceleration under the
terms of any Contract, (ii) no provision of any Contract has been waived,
altered or modified in any respect other than in compliance with the Credit and
Collection Policy, except by instruments or documents contained in the related
Contract File (other than payment delinquencies permitted under clause (i)
above), (iii) each Contract represents the legal, valid and binding payment
obligation of the User, enforceable in accordance with its terms, subject to
certain restrictions imposed under bankruptcy laws and the availability of
equitable relief, (iv) the Contracts generally are not, and will not be, subject
to any right of rescission, setoff, counterclaim or defense, including the
defense of usury, (v) all requirements of applicable federal, state and local
laws, and regulations thereunder, including, without limitation, usury laws, if
any, in respect of each Contract have been complied with in all material
respects, (vi) each Contract contains provisions requiring the User to assume
all risk of loss or malfunction of the related Equipment, and making the User
absolutely and unconditionally liable for all payments required to be made
thereunder, without any right of setoff for any reason whatsoever, (vii) no
Contract provides for the substitution, exchange or addition of any other items
of equipment pursuant to such Contract which would result in any reduction of
the total Scheduled Payments thereon or extension of payments due under each
Contract except for such extensions which would not extend beyond the term of
the Initial Contract with the longest remaining term as of the Closing Date,
(viii) each Contract was assignable by the Originator and is assignable by the
Issuers, (ix) all necessary action shall have been taken by the Originator to
transfer to the Issuers all of the Originator's right, title and interest in and
to each Contract and the related Equipment, (x) neither the Contract nor the
related Equipment has been sold, transferred, assigned or pledged by the
Originator to any person other than the Issuers, and immediately prior to
assigning or pledging the Contracts and the related Equipment to the Issuers,
the Originator was the sole owner of each Contract and the related Equipment
free and clear of any liens and encumbrances, (xi) no Contract has been
satisfied, subordinated or rescinded, except for any Contract prepaid in full
after the Cut-Off Date but before the Closing Date and (xii) no one User
(including its affiliates) has Contracts with an Aggregate Contract Principal
Balance that exceeds [1.5]% of the Original Aggregate Contract Principal
Balance.
The Originator will also represent that, as of the Closing Date, the
Initial Contracts have the following characteristics assuming a discount rate
equal to the Statistical Discount Rate: (A) each Initial Contract has a
remaining term as of the Closing Date of not less than 2 months and not more
than 77 months, (B) the weighted average remaining term of the Initial Contracts
is approximately 36 months, (C) each Initial Contract has a Contract Principal
Balance as of the Cut-Off Date of not more than $1,000,000, (D) as of the
Cut-Off Date, no item of Equipment has been repossessed, (E) no more than 15.19%
of the Original Aggregate Contract Principal Balance is attributable to
Contracts with Users in any single state, and (F) no Initial Contract has a
Scheduled Payment or Final Contract Payment due after May 4, 2004.
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With respect to any Additional Contracts pledged to the Trustee, for the
benefit of the Noteholders, the Originator will make the following
representations as of the date of the related pledge of such Additional
Contracts assuming a discount rate equal to the Actual Discount Rate: (A) each
Additional Contract has a remaining term as of the related Cut-Off Date of not
less than months and not more than months, (B) the weighted average
remaining term of the Contracts is not less than months, (C) each
Additional Contract has a Contract Principal Balance as of the related Cut-Off
Date of not more than $1,000,000, (D) as of the related Cut-Off Date, no item of
Equipment related to the Additional Contracts has been repossessed, (E) no more
than % of the Aggregate Contract Principal Balance for all Contracts on the
related Cut-Off Date is attributable to Contracts with Users in any single state
and (F) no Additional Contract has a Scheduled Payment or Final Contract Payment
due after , 200 .
Such representations and warranties will survive the pledge of the Trust
Estate to the Trustee, for the benefit of the Noteholders.
Under the terms of the Receivables Transfer Agreement and the Indenture,
the Originator will be obligated (x) to accept the reconveyance of any Contract
and deposit the related Prepayment Amount with the Trustee, or (y) deliver a
qualifying Substitute Contract, in either case on or before the end of the
calendar month following the month of its discovery or receipt of notice of a
breach of a representation or warranty made by the Originator or the Servicer,
respectively, that materially adversely affects such Contract, which breach has
not been cured or waived in all material respects. This obligation either to
accept the reconveyance of such Contract and remit the Prepayment Amount or
deliver a qualifying Substitute Contract will constitute the sole remedy against
the Originator available to the Issuers, the Trustee and the Noteholders for a
breach of a representation or warranty made by the Originator, with respect to
the required characteristics of the Contracts.
INDEMNIFICATION. The Receivables Transfer Agreement will provide that the
Originator will defend and indemnify the Issuers, the Trustee and the
Noteholders against any and all losses, claims, damages and liabilities to the
extent, but only to the extent, that the same have been suffered by any such
party by virtue of (i) a breach by the Originator of its respective obligations
(other than breach of the Originator's representations and warranties, with
respect to which the sole remedy is expressly limited to the Originator's
acceptance of the reconveyance of the affected Contracts and the remittance of
the Prepayment Amount, or delivery of replacement Contracts, as discussed above)
under the Receivables Transfer Agreement or (ii) in the case of the Trustee, its
performance of its duties hereunder, except to the extent that such loss, claim,
damage or liability resulted from the Trustee's negligence or willful
misconduct.
The Indenture will also provide that the Servicer will defend and indemnify
the Issuers, the Originator, the Trustee and the Noteholders against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation, reasonably incurred,
arising out of or resulting from (i) the use, repossession or operation by the
Servicer or any affiliate thereof of any Equipment and (ii) the failure of the
Servicer to perform its duties under the Indenture. Advanta Business Services
Corp.'s obligations, as Servicer, to indemnify the Noteholders for acts or
omissions of Advanta Business Services Corp. as Servicer will survive the
removal of the Servicer but will not apply to any acts or omissions of a
successor Servicer. Such indemnification does not extend to indirect,
incidental, special or consequential damages.
THE ACCOUNTS. The Servicer is required to establish and maintain in
accordance with the Indenture five accounts (each, an "Account"), the
"Collection Account," the "Advance Payment Account," the "Additional Property
Funding Account," the "Residual Account" and the "Reserve Account" each to be
held by the Trustee for the benefit of the Noteholders. Each such Account will
be one or more segregated trust accounts.
The Servicer is required to deposit to the Collection Account all
collections received by it with respect to the Contracts, within two Business
Days, or such later date as permitted by the Rating Agencies following the
Servicer's determination that such amounts relate to the Contracts or the
Equipment, Servicer Advances are required to be deposited therein not later than
the Determination Date for the related Collection Period; the Trustee will
deposit in the Collection Account from the Advance Payment Account, not later
than the
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Determination Date, that portion of any Advance Payments that constitute
Scheduled Payments due during the immediately preceding Collection Period; the
Originator or the Servicer will deposit in the Collection Account, not later
than the Determination Date, any Prepayment Amount then due and payable by it.
The Servicer is required to deposit all Advance Payments and all Security
Deposits received by the Servicer in the Advance Payment Account. "Advance
Payments" are amounts paid by a User during a Collection Period with respect to
amounts due from such User in subsequent Collection Periods but do not include
Prepayment Amounts. The Servicer is required to instruct the Trustee to transfer
from the Advance Payment Account to the Collection Account (i) the portion of
any Advance Payment due and owing for a Collection Period and (ii) the portion
of any Security Deposit being applied to a Scheduled Payment or Final Contract
Payment in accordance with the Indenture, in each case, no later than the
related Determination Date.
The Additional Property Funding Account will hold amounts required to be
disbursed upon the instruction of the Issuers, as stated in the Indenture,
pending the pledge of Additional Property to the Trustee, for the benefit of the
Noteholders. The amount on deposit in the Additional Property Funding Account
may not exceed [$3,000,000]. The purpose of the Additional Property Funding
Account is to prevent a temporary shortfall in the supply of Additional Property
from becoming a Required Amortization Event. If a Required Amortization Event
occurs, then no further pledges of Additional Property shall occur, and all
amounts that would otherwise have been paid in consideration of such pledges
will be transferred to the Collection Account and distributed in accordance with
the Indenture on the immediately following Payment Date.
The Indenture permits the Servicer to direct the investment of amounts in
the Accounts in "Eligible Investments" as defined in the Indenture that mature
not later than the Business Day prior to the next succeeding Payment Date. Any
income from such investments will be included in Available Funds.
The Servicer may deduct from amounts otherwise payable to the Collection
Account with respect to a Collection Period an amount equal to amounts
previously deposited by the Servicer into the Collection Account but (i)
subsequently uncollectible as a result of dishonor of the instrument of payment
for or on behalf of the User or (ii) later determined to have resulted from
mistaken deposits.
ADVANCES. In the event that any User fails to remit its full Scheduled
Payment or Final Contract Payment by the Calculation Date, the Servicer may, but
is not required to make an advance, no later than the related Determination
Date, from its own funds of an amount equal to such unpaid Scheduled Payment (a
"Servicer Advance") if the Servicer, in its sole discretion, determines that
eventual repayment of such Servicer Advance is likely from collections from or
on behalf of the related User. The Indenture provides for the reimbursement of
the Servicer for such Servicer Advances from funds available for distribution in
the Collection Account on each Payment Date before the payments to Noteholders
have been made as set forth below in "Flow of Funds."
WITHHOLDING. The Trustee is required to comply with all applicable
federal income tax withholding requirements respecting payments of interest with
respect to the Notes. The consent of Noteholders will not be required for such
withholding. In the event that the Trustee does withhold or causes to be
withheld any amount from interest payments or advances thereof to any
Noteholders pursuant to federal income tax withholding requirements, the Trustee
shall indicate the amount withheld annually to such Noteholders.
REPORTS TO NOTEHOLDERS. On each Payment Date, the Trustee will forward
with each payment to the Noteholders, a statement prepared by the Servicer
setting forth the following information (per $1,000 of Initial Note Principal
Amount as to (a) and (b) below):
(a) The amount of such payment allocable to such Noteholder's
Percentage Interest of the Class A Principal Payment, the Class B Principal
Payment, the Class C Principal Payment or the Class D Principal Payment, as
applicable, and Class A Overdue Principal, the Class B Overdue Principal,
Class C Overdue Principal or Class D Overdue Principal, as applicable;
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(b) The amount of such payment allocable to such Noteholder's
Percentage Interest of Class A Note Interest, Class B Note Interest or
Class C Note Interest, Class A Overdue Interest, Class B Overdue Interest
or Class C Overdue Interest, as applicable;
(c) The aggregate amount of fees and compensation received by the
Servicer pursuant to the Indenture for the Collection Period;
(d) The Class A Note Principal Balance, the Class B Note Principal
Balance, Class C Note Principal Balance and Class D Note Principal Balance,
the Class A Note Factor, the Class B Note Factor, the Class C Note Factor,
Class D Note Factor, the Aggregate Contract Principal Balance and the
Collateral Factor, after taking into account all distributions made on such
Payment Date;
(e) The total unreimbursed Servicer Advances with respect to the
related Collection Period;
(f) The Aggregate Contract Principal Balance for all Contracts that
became Defaulted Contracts during the related Collection Period, and, in
the case of the Initial Period, continue to be Defaulted Contracts,
calculated immediately prior to the time such Contracts became Defaulted
Contracts; and
(g) The Aggregate Contract Principal Balance (calculated as of the
related Cut-Off Date) of the Additional Property, if any; and
(h) The amount on deposit in the Additional Property Funding Account,
Reserve Account and in the Residual Account.
The "Class A-1 Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-1 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-1 Initial Principal Balance.
The "Class A-2 Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-2 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-2 Initial Principal Balance.
The "Class A-3 Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-3 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-3 Initial Principal Balance.
The "Class A-4 Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class A-4 Principal Balance which will be outstanding on the next
Payment Date (after taking into account all distributions to be made on such
Payment Date) to (y) the Class A-4 Initial Principal Balance.
The "Class B Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class B Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions to be made on such Payment
Date) to (y) the Class B Initial Principal Balance.
The "Class C Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class C Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions to be made on such Payment
Date) to (y) the Class C Note Initial Principal Balance.
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The "Class D Note Factor" is the seven digit decimal number that the
Servicer will compute or cause to be computed for each Collection Period and
will make available on the related Determination Date representing the ratio of
(x) the Class D Principal Balance which will be outstanding on the next Payment
Date (after taking into account all distributions to be made on such Payment
Date) to (y) the Class D Note Initial Principal Balance.
The "Collateral Factor" is the seven digit decimal number that the Servicer
will compute or cause to be computed for each Collection Period and will make
available on the related Determination Date representing the ratio of (x) the
Aggregate Contract Principal Balance as of the immediately preceding Calculation
Date to (y) the Original Aggregate Contract Principal Balance.
In addition, by January 31 of each calendar year following any year during
which the Notes are outstanding, commencing January 31, 1999, the Trustee will
furnish to each Noteholder of record at any time during such preceding calendar
year, information as to the aggregate of amounts reported pursuant to items (a)
and (b) above for such calendar year to enable Noteholders to prepare their
federal income tax returns.
REMITTANCE AND OTHER SERVICING PROCEDURES. The Servicer has agreed to
manage, administer and service the Receivables and to enforce and make
collections on the Receivables and any insurance policies, exercising the degree
of skill and care consistent with that which the Servicer customarily exercises
with respect to similar property owned, managed or serviced by it.
The Servicer may grant to a User any rebate, refund or adjustment that the
Servicer in good faith believes is required, because of prepayment in full of a
Contract. The Servicer may deduct the amount of any such rebate, refund or
adjustment from the amount otherwise payable by the Servicer into the Collection
Account; provided, however, that the Servicer will not permit any rescission or
cancellation of any Contract which would materially impair the rights of the
Trustee or the Noteholders in the Contracts or the proceeds thereof, nor will
the prepayment price after giving effect to any such rebate, refund or
adjustment (and without any adjustment for any Security Deposit previously paid
by the User) be less than the Prepayment Amount. The Servicer may waive, modify
or vary any term of a Contract if the Servicer, in its reasonable and prudent
judgment, determines that it will not be materially adverse to the Noteholders.
However, the Servicer will covenant in the Indenture that (i) it will not
forgive any payment of rent, principal or interest (except for certain offsets
for Security Deposits which offsets are only permitted after the Servicer has
deposited in the Collection Account an amount equal to such offset), (ii) unless
a User is in default, it will not permit any modification with respect to a
Contract which would reduce or increase the Contract Principal Balance of the
Contract; provided, however, that no change in the final maturity date of any
Contract shall be permitted under any circumstances if such new maturity date is
later than the latest maturity date of any other Contract then pledged to the
Trustee, and (iii) the Servicer may accept prepayment in part or in full;
provided, however that (1) in the event of prepayment in full, the Servicer may
consent to such prepayment only in an amount not less than the Prepayment Amount
and (2) in the event of a partial prepayment, the Servicer may consent to such
partial prepayment only if (x) following such partial prepayment there are no
delinquent amounts then due from the User and (y) such partial prepayment will
not reduce the Contract Principal Balance by more than an amount equal to (I)
the amount of such partial prepayment, minus (II) unpaid interest at the Actual
Discount Rate, accrued through the Payment Date immediately following such
partial prepayment on the outstanding Contract Principal Balance prior to such
partial prepayment. In the case of a partial prepayment, the Servicer is
required to accurately recalculate the Contract Principal Balance, and the
allocation of Scheduled Payments to principal and interest.
Notwithstanding the foregoing, the Indenture permits the Servicer, subject
to certain requirements, to make substitutions in replacement of Defaulted
Contracts or modify Contracts; provided, that (x) the Substitute Contract, or
the Contract as modified, has a Contract Principal Balance not lower than the
Contract Principal Balance of the Predecessor Contract, or the Contract prior to
such modification, as the case may be, and (y) the aggregate, cumulative
Contract Principal Balance of such substituted or modified Contracts may not
exceed 10% of the Original Aggregate Contract Principal Amount.
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The Servicer will be required to pursue, in its reasonable business
judgment, all of its rights and remedies to require each User to pay all
Scheduled Payments due on each Contract, as well as to maximize other recoveries
with respect thereto in the form of Residual Receipts and Defaulted Residual
Receipts.
As used herein:
"Scheduled Payments" means, with respect to any Contract, the stated
periodic rental payments (exclusive of any amounts in respect of insurance
or taxes) set forth in such Contract, together with any applicable Final
Contract Payment, in each case due from the related User.
"Final Contract Payment" means a payment required to be made by a User
at the time of such Contract's maturity in the nature of a "balloon"
payment, which payment may be (i) a specified amount or (ii) a minimum
specified amount plus an unspecified excess amount which together with the
minimum specified amount is the lesser of (a) the fair market value of the
related Equipment at Contract maturity or (b) a maximum specified amount.
"Residual Receipts" means, generally, (x) the proceeds of a User's
optional purchase or re-lease of Equipment and (y) proceeds of the sale or
re-lease of Equipment, in each case to the extent such proceeds exceed any
Scheduled Payments and Final Contract Payments remaining unpaid.
"Defaulted Residual Receipts" means all proceeds related to the sale,
re-lease or other disposition of Equipment related to Defaulted Contracts
and any amounts collected related to the failure of such User to pay any
required amounts under the related Contract or to return the Equipment, in
each case as reduced by (i) any unreimbursed Servicer Advances with respect
to such Contract or such Equipment and (ii) any reasonably incurred
out-of-pocket expenses incurred by the Servicer in enforcing such Contract
or in liquidating such Equipment are referred to as "Defaulted Residual
Receipts". Defaulted Residual Receipts are not "Residual Receipts."
SERVICING COMPENSATION AND PAYMENT OF EXPENSES. For its servicing of the
Contracts, the Servicer will receive servicing compensation equal to the monthly
Servicer Fee for each Collection Period (payable on the next succeeding Payment
Date). For so long as ABS is the Servicer, the payment of the Servicing Fee will
be subordinate to payments on the Offered Notes.
The servicing compensation will compensate the Servicer for customary
equipment contract servicing activities to be performed by the Servicer for the
Trustee for the benefit of the Noteholders, additional administrative services
performed by the Servicer on behalf of the Trustee for the benefit of the
Noteholders and expenses paid by the Servicer on behalf of the Trustee for the
benefit of the Noteholders.
The Servicer, on behalf of the Trustee for the benefit of the Noteholders,
will be responsible for the managing, servicing and administering the
Receivables and enforcing and making collections on the Contracts and any
insurance policies and for the enforcing of any security interest in any item of
Equipment, all as set forth in the Indenture. The Servicer's responsibilities
will include collecting and posting of all payments, responding to inquiries of
Users, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the Trustee with respect to distributions,
providing appropriate federal income tax information for use in providing
information to Noteholders, collecting and remitting sales and property taxes on
behalf of taxing authorities, maintaining the perfected security interest of the
Trustee in the Equipment and the Contracts.
EVIDENCE AS TO COMPLIANCE. The Indenture requires that the Servicer cause
an independent accountant (who may also render other services to the Servicer)
to prepare a statement to the Trustee and each Rating Agency with respect to the
fiscal year ending in 1998, and annually as of the same month and day
thereafter, to the effect that the independent accountant has examined the
servicing procedures, manuals, guides and records of the Servicer and the
accounts and records of the Servicer relating to the Receivables and the
Contract Files (which procedures, manuals, guides and records shall be described
in one or more schedules to such statement), that such firm has compared the
information contained in the Servicer's Reports delivered in the relevant period
with information contained in the accounts and records for such period and that,
on the basis of such examination and comparison, nothing has come to the
independent accountant's attention to
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indicate that the Servicer has not, during the relevant period, serviced the
Receivables in compliance with such servicing procedures, manuals and guides and
in the same manner required by the Servicer's standards and with the same degree
of skill and care consistent with that which the Servicer customarily exercises
with respect to similar property owned by it, that such accounts and records
have not been maintained in accordance with the Indenture, that the information
contained in the Servicer's Reports does not reconcile with the information
contained in the accounts and records or that such certificates, accounts and
records have not been properly prepared and maintained in all material respects,
except in each case for (a) such exceptions as the independent accountant shall
believe to be immaterial and (b) such other exceptions as shall be set forth in
such statement. On or before 90 days following the end of each fiscal year,
commencing 90 days from the end of the fiscal year ending in 1998, the Servicer
shall deliver to the Trustee and each Rating Agency a copy of such statement.
The Indenture will also provide for annual delivery of a report (the
"Supplementary Report") by the Servicer to the Trustee not later than 90 days
after the end of each fiscal year, signed by a Servicing Officer on behalf of
the Servicer and dated as of the last day of such fiscal year, stating that (a)
a review of the activities of the Servicer and the Servicer's performance under
the Indenture for the previous 12-month period has been made under such
Servicing Officer's supervision and (b) nothing has come to such Servicing
Officer's attention to indicate that the Servicer could be terminated as such
under the terms of the Receivables Transfer Agreement or, if such Events of
Servicer Termination has so occurred and is continuing, specifying each such
event known to the officer, the nature and status thereof and the steps
necessary to remedy such event.
The Servicer is also required to furnish to the Trustee, and the Trustee is
required to furnish to the Noteholders, copies of the Servicer's annual audited
and quarterly unaudited financial statements.
The Indenture will provide that the Servicer, upon request of the Trustee,
will furnish to the Trustee such underlying data necessary for performing the
Trustee's duties under the Indenture or for enforcement actions as can be
generated by the Servicer's existing data processing system.
SERVICER NOT TO RESIGN. The Indenture will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
an Events of Servicer Termination as discussed below.
EVENTS OF DEFAULT AND NOTICE THEREOF. The following events will be
defined in the Indenture as "Events of Default":
(a) default in making Interest Payments when such become due and
payable, or a default in reducing the Outstanding Principal Balance of any
Class of Offered Notes to zero by such Class's Stated Maturity Date;
(b) default in the performance, or breach, by either Issuer of certain
negative covenants limiting its actions;
(c) default in the performance, or breach, of any other covenant of
either Issuer in the Indenture, and continuance of such default or breach
for a period of 30 days after the earliest of (i) any officer of the Issuer
first acquiring the knowledge thereof, (ii) the Trustee's giving written
notice thereof to the Issuer or (iii) the holders of a majority of the then
Outstanding Principal Balance of the Notes giving written notice thereof to
the Issuers and the Trustee;
(d) if any representation or warranty of either Issuer made in the
Indenture or the Receivables Transfer Agreement or any other writing
provided to the holders of the Notes proves to be incorrect in any material
respect as of the time when the same has been made; provided, however, that
the breach of any representation or warranty made by either Issuer will be
deemed to be "material" only if it negatively affects the Noteholders, the
enforceability of the Indenture or of the Notes; or
(e) insolvency or bankruptcy events relating to either Issuer.
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The Indenture will provide that the Trustee shall give the Noteholders
notice of all uncured defaults known to it (the term "default" to include the
events specified above without grace periods).
If an Event of Default under an Indenture of the kind specified in clause
(e) above occurs, the unpaid principal amount of the related Notes shall
automatically become due and payable together with all accrued and unpaid
interest thereon. If any other Event of Default occurs and is continuing, then
the Trustee will, if so directed by the holders of 66 2/3% (33 1/3% in the case
of a payment default) of the then Outstanding Principal Balance of the Offered
Notes, or the holders of such percentages of the then Outstanding Principal
Balance of such Notes may declare the unpaid principal amount of all the Notes
to be due and payable immediately, together with all accrued and unpaid interest
thereon. The Trustee may, however, if the Event of Default involves other than
non-payment of principal or interest on the Notes, not sell the Trust Estate
unless such sale is for an amount greater than or equal to the Outstanding
Principal Balance of the Notes unless directed to do so by the holders of 66
2/3% (33 1/3% in the case of a payment default) of the then Outstanding
Principal Balance of the Offered Notes.
Subsequent to an Event of Default and following any acceleration of the
Notes pursuant to the Indenture, any moneys that may then be held or thereafter
received by the Trustee shall be applied in the following order of priority, at
the date or dates fixed by the Trustee and, in case of the distribution of the
entire amount due on account of principal or interest, upon presentation of the
Notes and surrender thereof:
First to the payment of all costs and expenses of collection
incurred by the Trustee and the Noteholders (including the reasonable fees
and expenses of any counsel to the Trustee and the Noteholders);
Second to the payment of all Servicer's Fees then due to such
person;
Third first, to the payment of all accrued and unpaid interest on
the Outstanding Principal Balance of the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes pro-rata to the date of payment
thereof, including (to the extent permitted by applicable law) interest on
any overdue installment of interest and principal from the maturity of such
installment to the date of payment thereof at the rate per annum equal to
the Class A-1 Interest Rate, Class A-2 Interest Rate, Class A-3 Interest
Rate and Class A-4 Interest Rate, respectively, second to the payment of
all accrued and unpaid interest on the Outstanding Principal Balance of the
Class B Notes to the date of payment thereof, including (to the extent
permitted by applicable law) interest on any overdue installment of
interest and principal from the maturity of such installment to the date of
payment thereof at the rate per annum equal to the Class B Interest Rate,
third, to the payment of all accrued and unpaid interest on the Outstanding
Principal Balance of the Class C Notes to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue installment of interest and principal from the maturity of such
installment to the date of payment thereof at the rate per annum equal to
the Class C Interest Rate, fourth, to the payment to zero of the
Outstanding Principal Balance of the Class A Notes, pro-rata with respect
to such Class A Notes, to the date of payment thereof, fifth, to the
payment to zero of the Outstanding Principal Balance of the Class B Notes
to the date of payment thereof, and sixth, to the payment to zero of the
Outstanding Principal Balance of the Class C Notes; provided, that the
Noteholders may allocate such payments for interest, principal and premium
at their own discretion, except that no such allocation shall affect the
allocation of such amounts or future payments received by any other
Noteholder;
Fourth to the payment of amounts then due to the Trustee under the
Indenture and not paid pursuant to clause First above; and
Fifth to the payment of the remainder, if any, to the Class D
Noteholders, to the Issuers or any other Person legally entitled thereto.
The Issuers will be required to furnish annually to the Trustee, a
statement of certain officers of the Issuers to the effect that to the best of
their knowledge the Issuers are not in default in the performance and observance
of the terms of the Indenture or, if the Issuers are in default, specifying such
default.
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The Indenture will provide that the holders of 66-2/3% in Outstanding
Principal Balance of the Offered Notes (excluding any Notes held by ABS or any
affiliate of ABS) 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 or
power conferred on the Trustee. The Indenture will provide that in case an Event
of Default shall occur (which shall not have been cured or waived), the Trustee
will be required to exercise such of its rights and powers under such Indenture
and to use the degree of care and skill in their exercise that a prudent man
would exercise or use in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under such Indenture at the request of any of the Noteholders
unless they shall have offered to the Trustee reasonable security or indemnity.
MODIFICATION OF THE INDENTURE. With certain exceptions, under the
Indenture, the rights and obligations of the Issuer and the rights of the
Noteholders may be modified by the Issuer with the consent of the holders of not
less than 66 2/3% in Outstanding Principal Balance of the Offered Notes
(excluding any Notes held by ABS or any affiliate of ABS); but no such
modification may be made which would (a) extend the fixed maturity of any Note,
or reduce the principal amount thereof, or reduce the rate or extend the time of
payment of principal or interest thereon, without the consent of the holder of
each Note so affected or (b) reduce the above-stated percentage of Notes,
without the consent of the holders of all Notes then outstanding under such
Indenture.
EVENTS OF SERVICER TERMINATION. The following events and conditions are
defined in the Sales and Servicing Agreement as "Events of Servicer
Termination":
(a) failure on the part of the Servicer to remit to the Trustee within
five Business Days following the receipt thereof any monies received by the
Servicer required to be remitted to the Trustee under the Indenture;
(b) so long as Advanta Business Services Corp. is the Servicer,
failure on the part of Advanta Business Services Corp. to pay to the
Trustee on the date when due, any payment required to be made by Advanta
Business Services Corp. pursuant to the Indenture or the Receivables
Transfer Agreement;
(c) default on the part of either the Servicer or (so long as Advanta
Business Services Corp. is the Servicer) Advanta Business Services Corp. in
its observance or performance in any material respect of certain covenants
or agreements in the Receivables Transfer Agreement or in the Indenture;
(d) if any representation or warranty of Advanta Business Services
Corp. made in the Receivables Transfer Agreement shall prove to be
incorrect in any material respect as of the time made; provided, however,
that the breach of any representation or warranty made by Advanta Business
Services Corp. in such Receivables Transfer Agreement will be deemed to be
"material" only if it affects the Noteholders, the enforceability of the
Indenture or of the Notes; and provided, further, that such material breach
of any representation or warranty made by Advanta Business Services Corp.
in the Receivables Transfer Agreement with respect to any of the Contracts
or the Equipment subject thereto will not constitute a Servicer Event of
Default if Advanta Business Services Corp. repurchases such Contract and
Equipment in accordance with the Receivables Transfer Agreement to the
extent provided therein; and
(e) certain insolvency or bankruptcy events relating to the Servicer.
SERVICER TERMINATION. So long as a Servicer Event of Default under the
Sales and Servicing Agreement is continuing, the Trustee shall, upon the
instructions of the holders of 66-2/3% in Outstanding Principal Balance of the
Offered Notes, by notice in writing to the Servicer terminate all of the rights
and obligations of the Servicer (but the Servicer's obligations which shall
survive any such termination) under Indenture. On the receipt by the Servicer of
such written notice, all authority and power of the Servicer under the Indenture
to take any action with respect to any Contract or Equipment will cease and the
same will pass to and be vested in the Trustee pursuant to and under the
Indenture.
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PREPAYMENT AND YIELD CONSIDERATIONS
On each Payment Date prior to the Amortization Date, all amounts remaining
on deposit in the Collection Account after making certain payments as described
herein and amounts on deposit in the Additional Property Funding Account will be
disbursed by the Trustee in consideration of the pledge of Additional Property
relating to Contracts having an Aggregate Contract Principal Balance on such
Payment Date equal as nearly as practicable to such amounts. Beginning with the
Amortization Date, to the extent of Available Funds, an amount equal to Class A
Principal Payment, the Class B Principal Payment, the Class C Principal Payment
and the Class D Principal Payment shall be due as principal to the holders of
the Class A Notes, the Class B Notes, the Class C Notes and the Class D Notes as
described herein.
Following the Interest-Only Period, the rate of principal payments on the
Notes will be directly related to the rate of principal payments on the
underlying Contracts. If purchased at a price other than par, the yield to
maturity will also be affected by the rate of principal payments. The principal
payments on such Contracts may be in the form of scheduled principal payments or
liquidations due to default, casualty and the like. Any such payments will
result in distributions to Noteholders of amounts which would otherwise have
been distributed over the remaining term of the Contracts. In general, the rate
of such payments may be influenced by a number of other factors, including
general economic conditions. The rate of payment of principal may also be
affected by any removal of the Contracts from the pool and the deposit of the
related Prepayment Amount into the Collection Account.
The Contracts which are leases in form generally do not provide for the
right of the User to prepay. Under the Indenture, the Servicer will be permitted
to allow such prepayments in full or in part, provided that no prepayment of a
Contract will be allowed in an amount less than the Prepayment Amount.
The effective yield to Noteholders will depend upon, among other things,
the price at which the Notes are purchased, and the amount of and rate at which
principal, including both scheduled and nonscheduled payments thereof, is paid
to the Noteholders. The yield to Noteholders will be affected by lags between
the time interest accrues to Noteholders and the time the related interest
income is received by the Noteholders. See "Material Risks--Maturity and
Prepayment Considerations" herein.
The following chart sets forth the percentage of the Initial Principal
Balance of the Class A-1, Class A-2, Class A-3, Class A-4, Class B and Class C
Notes which would be outstanding on the Payment Dates set forth below assuming a
CPR of 0.00% and 12.00%, respectively and were calculated using the Statistical
Discount Rate. Such information is hypothetical and is set forth for
illustrative purposes only. The CPR ("Conditional Payment Rate") assumes that a
fraction of the Aggregate Contract Principal Balance is prepaid on each
Calculation Date, which implies that each Contract is equally likely to prepay.
This fraction, expressed as a percentage, is annualized to arrive at the
Conditional Payment Rate for the Contract pool. The CPR measures prepayments
based on the outstanding discounted present value of the Contracts, after the
payment of all Scheduled Payments on the Contracts during such Collection
Period. The CPR further assumes that all Contracts are the same size and
amortize at the same rate and that each Contract will be either paid as
scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of Scheduled Payments as of the Cut-Off Date, assumes that the
Issuers do not exercise their options to redeem the Notes and assumes the
Closing Date is , the first Payment Date is , and no
Required Amortization Event occurs.
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PERCENTAGE OF THE INITIAL CLASS A-1, A-2, A-3, A-4 CLASS B AND CLASS C
OUTSTANDING AT THE RESPECTIVE CPR SET FORTH BELOW
0% CPR 12% CPR
-------------------------------------------------------------- ----------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
PAYMENT DATE A-1 A-2 A-3 A-4 CLASS B CLASS C A-1 A-2 A-3 A-4
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Closing Date......... 100 100 100 100 100 100 100 100 100 100
PAYMENT DATE CLASS B CLASS C
- --------------------- ------- -------
Closing Date......... 100 100
March, 1998.......... 100 100 100 100 100 100 100 100 100 100
April, 1998.......... 100 100 100 100 100 100 100 100 100 100
May, 1998............ 100 100 100 100 100 100 100 100 100 100
June, 1998........... 100 100 100 100 100 100 100 100 100 100
July, 1998........... 100 100 100 100 100 100 100 100 100 100
August, 1998......... 100 100 100 100 100 100 100 100 100 100
September, 1998...... 100 100 100 100 100 100 100 100 100 100
October, 1998........ 100 100 100 100 100 100 100 100 100 100
November, 1998....... 100 100 100 100 100 100 100 100 100 100
December, 1998....... 85 100 100 100 96 96 81 100 100 100
January 1999......... 70 100 100 100 92 92 63 100 100 100
February, 1999....... 55 100 100 100 89 89 46 100 100 100
March, 1999.......... 41 100 100 100 85 85 29 100 100 100
April, 1999.......... 26 100 100 100 81 81 13 100 100 100
May, 1999............ 13 100 100 100 78 78 0 98 100 100
June, 1999........... 0 100 100 100 74 74 0 91 100 100
July, 1999........... 0 93 100 100 71 71 0 84 100 100
August, 1999......... 0 87 100 100 68 68 0 77 100 100
September, 1999...... 0 81 100 100 65 65 0 71 100 100
October, 1999........ 0 75 100 100 62 59 0 65 100 100
November, 1999....... 0 70 100 100 59 52 0 59 100 100
December, 1999....... 0 64 100 100 56 44 0 53 100 100
January, 2000........ 0 59 100 100 53 37 0 47 100 100
February, 2000....... 0 54 100 100 50 30 0 42 100 100
March, 2000.......... 0 49 100 100 48 24 0 37 100 100
April, 2000.......... 0 44 100 100 45 17 0 32 100 100
May, 2000............ 0 39 100 100 42 11 0 27 100 100
June, 2000........... 0 34 100 100 40 4 0 22 100 100
July, 2000........... 0 29 100 100 37 0 0 18 100 100
August, 2000......... 0 25 100 100 31 0 0 14 100 100
September, 2000...... 0 21 100 100 26 0 0 10 100 100
October, 2000........ 0 17 100 100 21 0 0 6 100 100
November, 2000....... 0 13 100 100 16 0 0 2 100 100
December, 2000....... 0 9 100 100 12 0 0 0 91 100
January, 2001........ 0 5 100 100 7 0 0 0 64 100
February, 2001....... 0 2 100 100 3 0 0 0 37 100
March, 2001.......... 0 0 87 100 0 0 0 0 12 100
April, 2001.......... 0 0 58 100 0 0 0 0 0 94
May, 2001............ 0 0 31 100 0 0 0 0 0 83
June, 2001........... 0 0 4 100 0 0 0 0 0 72
July, 2001........... 0 0 0 90 0 0 0 0 0 62
August, 2001......... 0 0 0 78 0 0 0 0 0 53
September, 2001...... 0 0 0 66 0 0 0 0 0 43
October, 2001........ 0 0 0 55 0 0 0 0 0 34
November, 2001....... 0 0 0 44 0 0 0 0 0 25
December, 2001....... 0 0 0 33 0 0 0 0 0 17
January, 2002........ 0 0 0 23 0 0 0 0 0 9
March, 1998.......... 100 100
April, 1998.......... 100 100
May, 1998............ 100 100
June, 1998........... 100 100
July, 1998........... 100 100
August, 1998......... 100 100
September, 1998...... 100 100
October, 1998........ 100 100
November, 1998....... 100 100
December, 1998....... 95 95
January 1999......... 91 91
February, 1999....... 86 86
March, 1999.......... 82 82
April, 1999.......... 78 78
May, 1999............ 74 74
June, 1999........... 70 70
July, 1999........... 66 66
August, 1999......... 63 61
September, 1999...... 59 53
October, 1999........ 56 45
November, 1999....... 53 37
December, 1999....... 50 29
January, 2000........ 47 22
February, 2000....... 44 15
March, 2000.......... 41 8
April, 2000.......... 39 1
May, 2000............ 34 0
June, 2000........... 28 0
July, 2000........... 23 0
August, 2000......... 18 0
September, 2000...... 13 0
October, 2000........ 8 0
November, 2000....... 4 0
December, 2000....... 0 0
January, 2001........ 0 0
February, 2001....... 0 0
March, 2001.......... 0 0
April, 2001.......... 0 0
May, 2001............ 0 0
June, 2001........... 0 0
July, 2001........... 0 0
August, 2001......... 0 0
September, 2001...... 0 0
October, 2001........ 0 0
November, 2001....... 0 0
December, 2001....... 0 0
January, 2002........ 0 0
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0% CPR 12% CPR
-------------------------------------------------------------- ----------------------------------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
PAYMENT DATE A-1 A-2 A-3 A-4 CLASS B CLASS C A-1 A-2 A-3 A-4
- --------------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
February, 2002....... 0 0 0 12 0 0 0 0 0 1
PAYMENT DATE CLASS B CLASS C
- --------------------- ------- -------
February, 2002....... 0 0
March, 2002.......... 0 0 0 2 0 0 0 0 0 0
April, 2002.......... 0 0 0 0 0 0 0 0 0 0
May, 2002............ 0 0 0 0 0 0 0 0 0 0
June, 2002........... 0 0 0 0 0 0 0 0 0 0
July, 2002........... 0 0 0 0 0 0 0 0 0 0
August, 2002......... 0 0 0 0 0 0 0 0 0 0
September, 2002...... 0 0 0 0 0 0 0 0 0 0
October, 2002........ 0 0 0 0 0 0 0 0 0 0
November, 2002....... 0 0 0 0 0 0 0 0 0 0
December, 2002....... 0 0 0 0 0 0 0 0 0 0
January, 2003........ 0 0 0 0 0 0 0 0 0 0
February, 2003....... 0 0 0 0 0 0 0 0 0 0
March, 2003.......... 0 0 0 0 0 0 0 0 0 0
April, 2003.......... 0 0 0 0 0 0 0 0 0 0
May, 2003............ 0 0 0 0 0 0 0 0 0 0
June, 2003........... 0 0 0 0 0 0 0 0 0 0
July, 2003........... 0 0 0 0 0 0 0 0 0 0
August, 2003......... 0 0 0 0 0 0 0 0 0 0
September, 2003...... 0 0 0 0 0 0 0 0 0 0
October, 2003........ 0 0 0 0 0 0 0 0 0 0
November, 2003....... 0 0 0 0 0 0 0 0 0 0
December, 2003....... 0 0 0 0 0 0 0 0 0 0
January, 2004........ 0 0 0 0 0 0 0 0 0 0
February, 2004....... 0 0 0 0 0 0 0 0 0 0
March, 2004.......... 0 0 0 0 0 0 0 0 0 0
April, 2004.......... 0 0 0 0 0 0 0 0 0 0
WEIGHTED AVERAGE
LIFE(1) (YEARS).... 1.02444 2.09145 3.18335 3.70184 1.95659 1.68049 0.97683 1.91281 2.95340 3.52789
March, 2002.......... 0 0
April, 2002.......... 0 0
May, 2002............ 0 0
June, 2002........... 0 0
July, 2002........... 0 0
August, 2002......... 0 0
September, 2002...... 0 0
October, 2002........ 0 0
November, 2002....... 0 0
December, 2002....... 0 0
January, 2003........ 0 0
February, 2003....... 0 0
March, 2003.......... 0 0
April, 2003.......... 0 0
May, 2003............ 0 0
June, 2003........... 0 0
July, 2003........... 0 0
August, 2003......... 0 0
September, 2003...... 0 0
October, 2003........ 0 0
November, 2003....... 0 0
December, 2003....... 0 0
January, 2004........ 0 0
February, 2004....... 0 0
March, 2004.......... 0 0
April, 2004.......... 0 0
WEIGHTED AVERAGE
LIFE(1) (YEARS).... 1.80099 1.54355
- ---------------
(1) The weighted average life of a Note is determined by (a) multiplying the
amount of cash distributions in reduction of the Outstanding Principal
Balance of the respective Note by the number of years from the Closing Date
to such Payment Date, (b) adding the results, and (c) dividing the sum by
the respective Initial Principal Balance.
For the 0% CPR and 12% CPR scenarios, if the Issuers exercise their option
to redeem the Notes pursuant to a "clean-up call," the average life of the Class
A-1 Notes; Class A-2 Notes, Class A-3 Notes, Class A-4 Notes, Class B Notes and
Class C Notes would be years and years; years and years; years and
years; years and years and years and years, respectively.
The Trustee may resign at any time, in which event the Issuers will be
obligated to appoint a successor Trustee. The Issuers may also remove each
Trustee if such Trustee ceases to be eligible to continue as such under the
Indenture, fails to perform in any material respect its obligations under such
Indenture, or becomes insolvent. In such circumstances, the Issuers will be
obligated to appoint a successor Trustee.
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CERTAIN LEGAL MATTERS AFFECTING THE RECEIVABLES
GENERAL. The Contracts are triple-net leases, requiring the Users to pay
all taxes, maintenance and insurance associated with the Equipment, and are
primarily non-cancelable by the Users.
The Contracts are "hell or high water" leases, under which the obligations
of the User are absolute and unconditional, regardless of any defense, setoff or
abatement which the User may have against ABS, the Servicer, the Issuers, or any
other person or entity whatsoever.
Events of default under the Contracts are generally the result of failure
to pay amounts when due, failure to observe other covenants in the Contract,
misrepresentations by, or the insolvency, bankruptcy or appointment of a trustee
or receiver for the User under a Contract. The remedies of the lessor (and the
Issuers as assignee) following a notice and cure period are generally to seek to
enforce the performance by the User of the terms and covenants of the Contract
(including the User's obligation to make scheduled payments) or recover damages
for the breach thereof, to accelerate the balance of the remaining scheduled
payments paid to terminate the rights of the User under such Contract. Although
the Contracts permit the lessor to repossess and dispose of the related
Equipment in the event of a lease default, and to credit such proceeds against
the User's liabilities thereunder, such remedies may be limited where the User
thereunder is subject to bankruptcy, or other insolvency proceedings.
UCC AND BANKRUPTCY CONSIDERATIONS. The Contracts generally consist of
"chattel paper" which creates a security interest in the related item of
Equipment with respect to such Contract. A security interest in personal
property is generally not a perfected security interest unless a UCC financing
statement has been filed in the appropriate filing office with respect to such
security interest. The Originator has filed UCC financing statements in its
favor against Users in respect of Equipment, with an original Equipment cost in
excess of $25,000. Financing statements in favor of the Originator with respect
to approximately 31.09% of the Original Aggregate Contract Principal Balance
will have been so filed. Generally, no action will be taken to perfect the
interest of the Originator in any Equipment to the extent the original Equipment
cost of the related Equipment is less than or equal to $25,000. As a result, the
Originator generally does not have a perfected security interest in Equipment
with an original Equipment cost of less than or equal to $25,000, which
represents approximately 68.91% of the Original Aggregate Contract Principal
Balance. To the extent UCC financing statements evidencing the Originator's
security interest in the Equipment have not been filed against the User (i.e.,
with respect to those Users relating to Equipment with an original cost of less
than $25,000) no such security interests in the Equipment will be perfected in
favor of the Originator, the Issuers or the Trustee and another party (such as a
creditor of the User) may acquire rights in the Originator's interest in the
Equipment superior to those of the Issuer or the Trustee. See "Certain Legal
Matters Affecting The Receivables" in this Prospectus. The lack of a perfected
security interest in certain Equipment will result in claims against such Users
being unsecured and may adversely affect the ability of the Servicer to realize
on such Equipment.
With respect to Contracts relating to items of Equipment with original
Equipment costs in excess of $25,000, the Originator will represent and warrant
that a UCC financing statement in its favor has been filed in the appropriate
filing office, with the result that the Originator has obtained a perfected
security interest in such Equipment. Because of the administrative burden and
expense involved, no UCC financing statements will be individually assigned by
the Originator to either the Issuers or the Trustee. However, general, "blanket"
UCC financing statements naming (i) the Originator, as debtor, and the Issuers
as secured party, and (ii) the Issuers, as debtors, and the Trustee as secured
party, will be filed in all states. Furthermore, certain provisions of the
Bankruptcy Code provide that the retention of bare legal title to a property
interest, such as a lien on personal property, for servicing purposes, does not,
in and of itself, vest beneficial ownership of such a property interest in the
legal title holder. The likely legal result of the foregoing, in light of the
transfer of the Contracts and the Equipment to the Issuers, is to transfer to
the Issuers the benefits of all perfected security interests in those items of
Equipment in which the Originator itself had a perfected security interest
(i.e., with respect to items of Equipment with an original Equipment cost in
excess of $25,000). Pursuant to the Indenture, the Issuers will pledge all of
their respective right, title and interest in and to the Trust Estate (including
security interests in the Equipment) to the Trustee for the benefit of the
Noteholders.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of material federal income tax
consequences to the original purchasers of the Offered Notes of the purchase,
ownership and disposition of the Offered Notes. It does not purport to discuss
all federal income tax consequences that may be applicable to investment in the
Offered Notes or to particular categories of investors, some of which may be
subject to special rules. In particular, this discussion applies only to
institutional investors that purchase Offered Notes directly from the Issuers
and hold the Offered Notes as capital assets.
The discussion that follows, and the opinion set forth below of Dewey
Ballantine LLP, special tax counsel to the Issuers ("Federal Tax Counsel"), are
based on the 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 Federal Tax Counsel is not binding on
the courts or the Internal Revenue Service (the "IRS"). Potential investors are
urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase, ownership
and disposition of the Notes.
Federal Tax Counsel has prepared the following discussion and is of the
opinion that such discussion is correct in all material respects.
CHARACTERIZATION OF THE OFFERED NOTES AS INDEBTEDNESS. In the opinion of
Federal Tax Counsel, although no transaction closely comparable to that
contemplated herein has been the subject of any treasury regulation, revenue
ruling or judicial decision, based on the application of existing law to the
facts as set forth in the applicable agreements, the proper treatment of the
Offered Notes is as indebtedness for federal income tax purposes.
Although it is the opinion of Federal Tax Counsel that the Offered Notes
are properly characterized as indebtedness for federal income tax purposes, no
assurance can be given that such characterization of the Offered Notes will
prevail. If the Offered Notes were treated as an ownership interest in the Trust
Estate, all income on such Trust Estate would be income to the holders of the
Offered 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 Offered Notes.
If, alternatively, the Offered Notes were treated as an equity interest in
the Trust Estate, distributions on the Offered Notes probably would not be
deductible in computing the taxable income of the Issuers, and all or a part of
distributions to the holders of the Offered Notes probably would be treated as
dividend income to those holders. Such a characterization could result in a
reduced amount of cash available for distributions to the holders of the Offered
Notes.
TAXATION OF INTEREST INCOME OF OFFERED NOTEHOLDERS. If characterized as
indebtedness, interest on the Offered Notes will be taxable as ordinary income
for federal income tax purposes when received by Offered Noteholders using the
cash method of accounting and when accrued by Offered Noteholders using the
accrual method of accounting. Interest received on the Offered Notes also may
constitute "investment income" for purposes of certain limitations of the Code
concerning the deductibility of investment interest expense.
Original Issue Discount. It is not anticipated that the Offered Notes
will have any original issue discount ("OID") other than possibly OID within a
de minimis exception and that accordingly the provisions of sections 1271
through 1273 and 1275 of the Code generally will not apply to the Offered Notes.
OID will be considered de minimis if it is less than 0.25% of the principal
amount of Offered Note multiplied by its expected weighted average life.
Market Discount. A subsequent purchaser who buys an Offered Note for less
than its principal amount may be subject to the "market discount" rules of
Sections 1276 through 1278 of the Code. If a subsequent purchaser of an Offered
Note disposes of such Offered Note (including certain nontaxable dispositions
such as a gift), or receives a principal payment, any gain upon such sale or
other disposition will be recognized, or the
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amount of such principal payment will be treated, as ordinary income to the
extent of any "market discount" accrued for the period that such purchaser holds
the Offered Note. Such holder may instead elect to include market discount in
income as it accrues with respect to all debt instruments acquired in the year
of acquisition of the Offered Notes and thereafter. Market discount generally
will equal the excess, if any, of the then-current unpaid principal balance of
the Offered Note over the purchaser's basis in the Offered Note immediately
after such purchaser acquired the Offered Note. In general, market discount on
an Offered Note will be treated as accruing over the term of such Offered Note
in the ratio of interest for the current period over the sum of such current
interest and the expected amount of all remaining interest payments, or at the
election of the holder, under a constant yield method. At the request of a
holder of an Offered Note, information will be made available that will allow
the holder to compute the accrual of market discount under the first method
described in the preceding sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire an Offered Note at a market discount may 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.
Notwithstanding the above rules, market discount on an Offered Note will be
considered to be zero if it is less than a de minimis amount, which is 0.25% of
the remaining principal balance of the Offered Note multiplied by its expected
weighted average remaining life. If OID or market discount is de minimis, the
actual amount of discount must be allocated to the remaining principal
distributions on the Offered Note and, when each such distribution is received,
capital gain equal to the discount allocated to such distribution will be
recognized.
Market Premium. A subsequent purchaser who buys an Offered Note for more
than its principal amount generally will be considered to have purchased the
Offered Note at a premium. Such holder may amortize such premium, using a
constant yield method, over the remaining term of the Offered Note and, except
as future regulations may otherwise provide, may apply such amortized amounts to
reduce the amount of interest income reportable with respect to such Offered
Note over the period from the purchase date to the date of maturity of the
Offered Note. Legislative history to the Tax Reform Act of 1986 indicates that
the amortization of such premium on an obligation that provides for partial
principal payments prior to maturity should be governed by the methods for
accrual of market discount on such an obligation (described above). A holder
that elects to amortize such premium must reduce tax basis in the related
obligation by the amount of the aggregate deductions (or interest offsets)
allowable for amortizable premium. If a debt instrument purchased at a premium
is redeemed in full prior to its maturity, a purchaser who has elected to
amortize premium should be entitled to a deduction for any remaining unamortized
premium in the taxable year of redemption.
SALE OR EXCHANGE OF OFFERED NOTES. If an Offered Note is sold or
exchanged, the seller of the Offered 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 Offered Note. The adjusted basis of an Offered Note will
generally equal its cost, increased by any OID or market discount includible in
income with respect to the Offered Note through the date of sale and reduced by
any principal payments previously received with respect to the Offered 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 Offered Note was held as a capital
asset. Capital losses generally may be used only to offset capital gains.
BACKUP WITHHOLDING WITH RESPECT TO OFFERED NOTES. Payments of interest
and principal, together with payments of proceeds from the sale of Offered
Notes, may be subject to the "backup withholding tax" under Section 3406 of the
Code at a rate of 31% if recipients of such payments fail to furnish to the
payor certain information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from such tax. Any amounts deducted and
withheld from a payment to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner.
FOREIGN INVESTORS IN OFFERED NOTES. Certain U.S. Federal Income Tax
Documentation Requirements. A beneficial owner of Offered Notes holding
securities through CEDEL of Euroclear (or through DTC if the
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62
holder has an address outside the U.S.) will be subject to the 30% U.S.
withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. Persons (as defined
below), unless (i)each clearing system, bank or other financial institution that
holds customers' securities in the ordinary course of its trade or business in
the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Offered
Notes that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation
or bank with a U.S. branch, for which the interest income is effectively
connected with its conduct of a trade or business in the United States, can
obtain an exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons residing in a country that has a tax treaty with
the United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by a beneficial Owner of Offered Notes or its agent. Exemption
for U.S. Persons (Form W-9). U.S. Persons can obtain a complete exemption from
the withholding tax by filing Form W-9 (Payer's Request for Taxpayer
Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The owner of an Offered Note
or, in the case of a Form 1001 or a Form 4224 filer, his agent, files by
submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to
withholding, backup withholding and information reporting that, if adopted in
their current form would, among other things, unify current certification
procedures and forms and clarify certain reliance standards. The regulations are
proposed to be effective for payments made after December 31, 1997 but provide
that certificates issued on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
Proposed regulations, however, are subject to change prior to their adoption in
final form.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income. The term "Non-U.S. Person" means any person who is not a U.S. Person
or (iv) a trust if a court within the United States can exercise primary
supervision over its administration and at least one United States fiduciary has
the authority to control all substantial decisions of the trust. This summary
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Offered Notes. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of the Offered Notes.
STATE, LOCAL AND OTHER TAXES. Investors are urged to consult their own
tax advisors regarding whether the purchase of the Offered Notes, either alone
or in conjunction with an investor's other activities, may subject an investor
to any state or local taxes based on an assertion that the investor is either
"doing business" in, or deriving income from a source located in, any state or
local jurisdiction. Additionally, potential investors should consider the state,
local and other tax consequences of purchasing, owning or disposing of an
Offered 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.
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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 ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE OFFERED NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS OR IN THE INTERPRETATIONS
THEREOF.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements and restrictions on those pension and other
employee benefits plans to which it applies and on those persons who are
fiduciaries with respect to such plans. In accordance with ERISA's fiduciary
standards, before purchasing the Offered Notes, a fiduciary should determine
whether such an investment is permitted under the documents and instruments
governing the plan and is appropriate for the plan in view of its overall
investment policy and the composition of its portfolio.
Section 406 of ERISA and Section 4975 of the Code prohibit certain
transactions involving the assets of certain plans subject thereto (each, a
"Benefit Plan") and persons who are "parties in interest," within the meaning of
ERISA, or "disqualified persons," within the meaning of the Code. Certain
transactions involving the purchase, holding or transfer of the Notes might be
deemed to constitute prohibited transactions under ERISA and the Code if assets
of the Trust Estate were deemed to be assets of a Benefit Plan. Under
regulations issued by the United States Department of Labor set forth in 29
C.F.R. Section 2510.3101 (the "Plan Asset Regulations"), the assets of the Trust
Estate would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquires an "Equity Interest" in the
Trust Estate and none of the exceptions contained in the Plan Asset Regulations
is applicable. An Equity Interest is defined under the Plan Asset Regulations as
an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. It is
anticipated that the Offered Notes should be treated as indebtedness without
substantial equity features without substantial equity features for purposes of
the Plan Asset Regulations. However, even if the Offered Notes are treated as
indebtedness for such purposes, the acquisition or holding of Offered Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Issuers or any of its affiliates is or becomes a party in
interest or disqualified person with respect to such Benefit Plan. In this
event, 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 an Offered 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
bank collective investment funds; PTCE 84-14, regarding transactions effected by
"qualified professional asset managers," PTCE 95-60, regarding investments by
insurance company general accounts and PTCE 96-23 regarding transactions
effected by In-House Asset Managers. Each investor using assets of a Benefit
Plan which acquires the Offered Notes, or to whom the Notes are transferred,
will be deemed to have represented that the acquisition and continued holding of
the Offered Notes will be covered by one of the exemptions listed above or
another Department of Labor class exemption.
Insurance companies considering the purchase of the Offered Notes should
also consult their own counsel as to the application of the recent decision by
the United States Supreme Court in John Hancock Mutual Life Insurance Co. v.
Harris Trust and Savings Bank (114 S. Ct. 517 (1993)) to such a purchase. Under
that decision, assets held in an insurance company's general account may be
deemed assets of ERISA plans under certain circumstances.
Due to the complexity of these rules and the penalties imposed upon persons
involved in prohibited transactions, it is particularly important that a
fiduciary investing assets of an ERISA plan consult with counsel regarding the
consequences under ERISA of the acquisition and holding of Notes, including the
availability of any administrative exemptions from the prohibited transaction
rules.
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UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement (the "Underwriting Agreement") for the sale of the Offered Notes, the
Originator and the Issuers have agreed to sell and the underwriters named below
(the "Underwriters") have agreed to purchase the Offered Notes as set forth
below:
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITERS OF THE CLASS A NOTES OF CLASS A-1 NOTES OF CLASS A-2 NOTES OF CLASS A-3 NOTES OF CLASS A-4 NOTES
- ----------------------------------------------- ------------------ ------------------ ------------------ ------------------
Salomon Smith Barney...........................
Lehman Brothers Inc............................
Prudential Securities..........................
BZW Securities Inc.............................
UNDERWRITERS OF PRINCIPAL AMOUNT
THE CLASS B NOTES OF CLASS B NOTES
- ----------------------------------------------- ------------------
Salomon Smith Barney...........................
UNDERWRITERS OF PRINCIPAL AMOUNT
THE CLASS C NOTES OF CLASS C NOTES
- ----------------------------------------------- ------------------
Salomon Smith Barney...........................
The Issuers have been advised by Salomon Brothers Inc., as representative
of the Underwriters, that the Underwriters propose initially to offer the
Offered Notes to the public at the respective public offering prices set forth
on the cover page of this Prospectus Supplement, and to certain dealers at such
price, less a concession not in excess of % per Class A-1 Note, % per
Class A-2 Note, % per Class A-3 Note, % per Class A-4 Note, % per
Class B Note and % per Class C Note. The Underwriters may allow and such
dealers may reallow to other dealers a discount not in excess of % per Class
A-1 Note, % per Class A-2 Note, % per Class A-3 Note, % per Class B
Note and % per Class C Note. After the initial public offering, the public
offering price may be changed.
Each Underwriter will represent and agree that:
(a) it has not offered or sold, and, prior to the expiry of six months
from the Closing Date, will not offer or sell, any Offered 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 Offered 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 Offered Notes to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 or persons to whom such document may otherwise
lawfully be issued, distributed or passed on.
The Originator has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Issuers have been advised by Salomon Brothers Inc., as representative
of the Underwriters, that the Underwriters presently intend to make a market in
the Offered Notes, as permitted by applicable laws and regulations. The
Underwriters are not obligated, however, to make a market in the Offered Notes
and any such market making may be discontinued at any time at the sole
discretion of the Underwriters. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the Offered Notes.
In connection with the offering of the Offered Notes, the Underwriters and
selling group members and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Notes. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which such person may bid for or purchase
the Offered Notes for the purpose of stabilizing its market price.
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RATINGS OF THE OFFERED NOTES
It is a condition to the issuance of the Notes that the Class A Notes be
rated at least "AAA," that the Class B Notes be rated at least "A" and that the
Class C Notes be rated at least "BBB" by Standard & Poor's Ratings Group
("S&P"), the Class A Notes be rated at least "Aaa," the Class B Notes be rated
at least "A2" and the Class C Notes be rated at least "Baa2" by Moody's
Investors Service, Inc. ("Moody's") and the Class A Notes be rated at least
"AAA," the Class B Notes be rated at least "A+" and the Class C Notes be rated
at least "BBB+" by Fitch IBCA, Inc. ("Fitch"), respectively (each, a "Rating
Agency").
Each such rating, will reflect only the views of the related Rating Agency
and will be based primarily on the amount of subordination, the availability of
funds on deposit in the Reserve Account and the value of the Trust Estate. The
ratings are not a recommendation to purchase, hold or sell the related Notes,
inasmuch as such ratings do not comment as to market price or suitability for a
particular investor. There is no assurance that any such rating will continue
for any period of time or that it will not be lowered or withdrawn entirely by
the related Rating Agency if, in its judgment, circumstances so warrant. A
revision or withdrawal of such rating may have an adverse affect on the market
price of the Offered Notes. The rating of the Offered Notes addresses the
likelihood of the timely payment of interest and the ultimate payment of
principal on the Offered Notes by the Stated Maturity Date. The rating does not
address the rate of prepayments that may be experienced on the Contracts and,
therefore, does not address the effect of the rate of prepayments on the return
of principal to the Noteholders.
EXPERTS
The balance sheets of Advanta Leasing Receivables Corp. IV and Advanta
Leasing Receivables Corp. V as of February 18, 1998, have been appended hereto
in reliance on the report of Arthur Andersen LLP, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the Notes
will be passed upon for the Issuers and the Underwriter by Dewey Ballantine LLP,
New York, New York.
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INDEX OF TERMS
TERM(S) PAGE(S)
- ------------------------------------------------------------------------------- -----------
ABS............................................................................ 1, 24
Account........................................................................ 40
Actual Discount Rate........................................................... 2
Additional Property Funding Account............................................ 40
Additional Property Funding Availability....................................... 33
Additional Property Funding Requirement........................................ 10, 33
Advance Payment Account........................................................ 40
Advance Payments............................................................... 40
Aggregate Contract Balance..................................................... 5
Aggregate Contract Principal Balance........................................... 3
ALHC........................................................................... 24
ALRC IV........................................................................ 1, 20
ALRC V......................................................................... 1, 20
Amortization Date.............................................................. 2
Amortization Period............................................................ 11
Article 2A..................................................................... 18
Available Additional Property Funding Amount................................... 10, 33
Available Funds................................................................ 13, 36
Available Reserve Amount....................................................... 14, 38
Benefit Plan................................................................... 55
Booked Residual Value.......................................................... 13, 38
Business Day................................................................... 2
Calculation Date............................................................... 2
Cede........................................................................... 2
CEDEL.......................................................................... 2
Class.......................................................................... 1
Class A Initial Principal Balance.............................................. 2
Class A Note Interest.......................................................... 5
Class A Noteholders............................................................ 2
Class A Notes.................................................................. 1
Class A Overdue Interest....................................................... 5
Class A Overdue Principal...................................................... 13, 37
Class A Percentage............................................................. 7, 32
Class A Principal Balance...................................................... 32
6, 13, 31,
Class A Principal Payment...................................................... 37
Class A Target Investor Principal Amount....................................... 6, 32
Class A-1 Initial Principal Balance............................................ 2
Class A-1 Interest Rate........................................................ 2
Class A-1 Note Factor.......................................................... 42
Class A-1 Notes................................................................ 1
Class A-1 Overdue Principal.................................................... 6
Class A-1 Principal Balance.................................................... 32
Class A-2 Initial Principal Balance............................................ 2
Class A-2 Interest Rate........................................................ 2
Class A-2 Note Factor.......................................................... 42
Class A-2 Notes................................................................ 1
Class A-2 Overdue Principal.................................................... 6
Class A-2 Principal Balance.................................................... 32
Class A-3 Initial Principal Balance............................................ 2
Class A-3 Interest Rate........................................................ 2
-i-
67
TERM(S) PAGE(S)
- ------------------------------------------------------------------------------- -----------
Class A-3 Note Factor.......................................................... 42
Class A-3 Notes................................................................ 1
Class A-3 Overdue Principal.................................................... 6, 31
Class A-3 Principal Balance.................................................... 32
Class A-3 Special Redemption................................................... 9, 36
Class A-3 Special Redemption Premium........................................... 10, 39
Class A-4 Initial Principal Balance............................................ 2
Class A-4 Interest Rate........................................................ 2
Class A-4 Note Factor.......................................................... 42
Class A-4 Notes................................................................ 1
Class A-4 Overdue Principal.................................................... 6
Class A-4 Principal Balance.................................................... 32
Class B Initial Principal Balance.............................................. 2
Class B Interest Rate.......................................................... 2
Class B Note Factor............................................................ 42
Class B Note Interest.......................................................... 5
Class B Noteholders............................................................ 2
Class B Notes.................................................................. 1
Class B Overdue Interest....................................................... 5
6, 13, 31,
Class B Overdue Principal...................................................... 37
Class B Percentage............................................................. 7, 32
Class B Principal Balance...................................................... 33
6, 13, 32,
Class B Principal Payment...................................................... 37
Class B Target Investor Principal Amount....................................... 6, 32
Class C Floor.................................................................. 7, 32
Class C Initial Principal Balance.............................................. 2
Class C Interest Rate.......................................................... 2
Class C Note Factor............................................................ 42
Class C Note Interest.......................................................... 5
Class C Noteholders............................................................ 2
Class C Notes.................................................................. 1
Class C Overdue Interest....................................................... 5
6, 13, 31,
Class C Overdue Principal...................................................... 37
Class C Percentage............................................................. 7, 32
Class C Principal Balance...................................................... 33
Class C Principal Payment...................................................... 7, 13, 32
Class C Target Investor Principal Amount....................................... 7, 32
Class D Allocated Loss......................................................... 36
Class D Allocated Loss Amount.................................................. 37
Class D Initial Principal Balance.............................................. 2
Class D Note Interest.......................................................... 5
Class D Notes.................................................................. 1
Class D Overdue Principal...................................................... 6, 37
Class D Percentage............................................................. 7, 32
Class D Principal Balance...................................................... 2
Class D Principal Payment...................................................... 6
Class D Target Investor Principal Amount....................................... 7, 32
Closing Date................................................................... 1
Code........................................................................... 52
Collateral Factor.............................................................. 42
Collection Account............................................................. 9, 33, 40
-ii-
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TERM(S) PAGE(S)
- ------------------------------------------------------------------------------- -----------
Collection Period.............................................................. 5
Commission..................................................................... 2
Conditional Payment Rate....................................................... 48
Contract Balance............................................................... 5
Contract Files................................................................. 3
Contract Principal Balance..................................................... 2
Contracts...................................................................... 1, 3, 24
Contribution Agreement......................................................... 4
Cumulative Loss Amount......................................................... 7, 33
Cut-Off Date................................................................... 2
Defaulted Contract............................................................. 13, 37
Defaulted Residual Receipts.................................................... 44
Delinquent Contract............................................................ 15
Determination Date............................................................. 5
DTC............................................................................ 2
Eligible Investments........................................................... 41
Equipment...................................................................... 1, 3
Equity Interest................................................................ 55
ERISA.......................................................................... 16, 55
Euroclear...................................................................... 2
Events of Default.............................................................. 45
Events of Servicer Termination................................................. 46
Excess Amount.................................................................. 23
Exchange Act................................................................... 2
Federal Tax Counsel............................................................ 52
Final Contract Payment......................................................... 43
Fitch.......................................................................... 16, 56
Flow of Funds.................................................................. 13, 37
Indenture...................................................................... 9
Initial Contracts.............................................................. 3
Initial Property............................................................... 3
Interest Accrual Period........................................................ 5, 31
Interest Payments.............................................................. 5, 31
Interest Rate.................................................................. 2
Interest-Only Period........................................................... 2
IRS............................................................................ 52
Issuers........................................................................ 1
Material Risks................................................................. 16
Moody's........................................................................ 16, 56
Net Residual Value............................................................. 26
Nonrecoverable Advances........................................................ 15
Noteholders.................................................................... 2
Notes.......................................................................... 1
Offered Notes.................................................................. 1
OID............................................................................ 52
Original Aggregate Contract Principal Balance.................................. 7, 26
Originator..................................................................... 1
Outstanding Principal Balance.................................................. 5, 31
Payment Date................................................................... 2, 5, 31
Plan Asset Regulations......................................................... 55
Predecessor Contract........................................................... 26
-iii-
69
TERM(S) PAGE(S)
- ------------------------------------------------------------------------------- -----------
Prepayment Amount.............................................................. 8, 23
Principal Balance.............................................................. 4
Principal Payments............................................................. 5, 31
PTCE........................................................................... 55
Purchase Option Contracts...................................................... 23
Purchase Option Equipment...................................................... 23
Purchase Option Payments....................................................... 23
Rating Agency.................................................................. 16, 56
Receivables.................................................................... 1, 3
Record Date.................................................................... 5, 31
Registration Statement......................................................... 2
Release Event.................................................................. 13, 37
Required Amortization Event.................................................... 4
Required Reserve Amount........................................................ 14, 38
Reserve Account................................................................ 14, 38, 40
Reserve Account Floor.......................................................... 15, 41
Reserve Account Initial Deposit................................................ 15, 41
Residual Account............................................................... 38
Residual Amount Cap............................................................ 13, 38
Residual Event................................................................. 14, 38
Residual Interest.............................................................. 4
Residual Receipts.............................................................. 43, 44
S&P............................................................................ 16, 56
Scheduled Payments............................................................. 3, 43
Securities Act................................................................. 2
Security Deposit............................................................... 13, 37
Senior Allocated Loss Amount................................................... 37
Servicer....................................................................... 1
Servicer Advance............................................................... 15, 41
Servicer Fee................................................................... 14
Servicer Fee Percentage........................................................ 14
Servicing Charges.............................................................. 15
Stated Amortization Date....................................................... 2
Stated Maturity Date Date...................................................... 2, 3
Statistical Discount Rate...................................................... 7
Substitute Contract............................................................ 26
Supplementary Report........................................................... 44
Trust Estate................................................................... 1
Trustee........................................................................ 1
U.S. Person.................................................................... 54
UCC............................................................................ 3
Underwriter.................................................................... 55
Underwriting Agreement......................................................... 55
User........................................................................... 3
-iv-
70
APPENDICES
PAGE
-------
Book-Entry Registration.............................................................. A-1
Independent Auditors' Report of ALRC IV.............................................. B-1
Financial Statements of ALRC IV...................................................... C-1
Notes to ALRC IV Financial Statements................................................ D-1
Independent Auditors' Report of ALRC V............................................... E-1
Financial Statements of ALRC V....................................................... F-1
Notes to ALRC V Financial Statements................................................. G-1
71
BOOK-ENTRY REGISTRATION
Offered Noteholders may hold their Notes through DTC (in the United States)
or Cedel or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Offered Notes of each Class.
Cedel and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective Depositaries (as defined herein) which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC. Citibank will act as depositary for Cedel and Morgan
Guaranty Trust will act as depositary for Euroclear (in such capacities, the
"Depositaries").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of notes. Participants include the
Underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants (as defined herein) and Euroclear
Participants (as defined herein) will occur in accordance with their respective
rules and operating procedures.
Cross-market transfers between persons holding or indirectly through DTC,
on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected through DTC in accordance
with DTC rules on behalf of the relevant European international clearing systems
by its Depositary. 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 Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or a Euroclear
Participant to a Participant will be received with value on the DTC settlement
date but will be available in the relevant Cedel or Euroclear cash account only
as of the business day following settlement in DTC. For information with respect
to tax documentation procedures relating to the Offered Notes, see "Material
Federal Income Tax Considerations."
Offered Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Offered Notes may do so only through Participants and Indirect Participants.
In addition, Offered Noteholders will receive all distributions of principal and
interest on the Offered Notes from the Trustee through DTC and its Participants.
Under a book-entry format, Offered Noteholders will receive payments after the
related Distribution Date, as the case may be, because, while payments are
required to be forwarded to Cede, as nominee for DTC, on each such date, DTC
will forward such payments to its Participants which thereafter will be required
to forward them to Indirect Participants or
A-1
72
holders of beneficial interests in the Offered Notes. It is anticipated that the
only Offered Noteholder will be Cede, as nominee of DTC, and that holders of
beneficial interests in the Offered Noteholders, under the Indenture will only
be permitted to exercise the rights of Offered Noteholders, under the Indenture
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Offered Notes and is required to
receive and transmit distributions of principal of and interest on the Offered
Notes. Participants and Indirect Participants with which holders of beneficial
interests in the Offered Notes have accounts similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of these
respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Offered Notes to pledge Offered Notes to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of such Offered Notes, may be limited due to the lack of a Definitive
Note for such Offered Notes.
DTC has advised the Issuers that it will take any action permitted to be
taken by an Offered Noteholder under the Indenture only at the direction of one
or more Participants to whose account with DTC the Offered Notes are credited.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("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
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear 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 the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear 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 Euroclear is also available 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 Banking Department, as well as the Belgian Banking Commission.
A-2
73
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 securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates 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 or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Offered Notes held through Cedel or Euroclear
will be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Material Federal Income Tax Considerations." Cedel or the Euroclear
Operator, as the case may be, will take any other action permitted to be taken
by an Offered Noteholder under the Indenture on behalf of a Cedel Participant or
Euroclear Participant only in accordance with its relevant rules and procedures
and subject to its Depositary's ability to effect such actions on its behalf
through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Offered Notes among participants of DTC,
Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DEFINITIVE NOTES. The Offered Notes will be issued in fully registered,
authenticated form to Beneficial Owners or their nominees (the "Definitive
Notes"), rather than to DTC or its nominee, only if (a) the Issuers advises the
Trustee in writing that DTC is no longer willing or able to discharge properly
its responsibilities as Depository with respect to such Notes, and the Trustee
or the Issuers is unable to locate a qualified successor or (b) the Issuers at
its option elects to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee is required to notify all Beneficial Owners
through DTC of the availability of Definitive Notes for such Class. Upon
surrender by DTC of the Definitive Note representing the Notes and instructions
for reregistration, the Trustee will issue such Definitive Notes, and thereafter
the Trustee will recognize the holders of such Definitive Notes as Noteholders
under the related Indenture (the "Holders"). The Trustee will also notify the
Holders of any adjustment to the Record Date with respect to the Notes necessary
to enable the Trustee to make distributions to Holders of the Definitive Notes
for such Class of record as of each Payment Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Offered Notes will be made by
the Trustee directly to Holders in accordance with the procedures set forth
herein and in the Indenture. Distributions will be made by check, mailed to the
address of such Holder as it appears on the Note register. Upon at least 10
days' notice to Noteholders for such Class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentation and surrender of such Note at the office or agency specified in the
notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and exchangeable at the
offices of the Trustee or its agent in New York, New York, which the Trustee
shall designate on or prior to the issuance of any Definitive Notes with respect
to such Class. No service charge will be imposed for any registration of
transfer or exchange, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge imposed in connection therewith.
A-3
74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Advanta Leasing Receivables Corp. IV:
We have audited the accompanying balance sheet of Advanta Leasing
Receivables Corp. IV (a wholly owned subsidiary of Advanta Business Services
Corp.), as of February 18, 1998. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Advanta Leasing Receivables Corp.
IV as of February 18, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 20, 1998
B-1
75
ADVANTA LEASING RECEIVABLES CORP. IV
BALANCE SHEET -- FEBRUARY 18, 1998
ASSET
Cash................................................................................ $1,000
======
STOCKHOLDER'S EQUITY
SHAREHOLDER'S EQUITY:
Common stock (authorized 1,000 shares, $.01 par value, issued and outstanding
1,000 shares).................................................................. 10
Additional paid-in capital........................................................ 990
------
Total liabilities and shareholder's equity................................ $1,000
======
The accompanying notes are an integral part of this statement.
C-1
76
ADVANTA LEASING RECEIVABLES CORP. IV
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 18, 1998
1. NATURE OF OPERATIONS:
Advanta Leasing Receivables Corp. IV (the Company), a wholly owned
subsidiary of Advanta Business Services Corp. (ABSC), was incorporated in the
State of Nevada on February 18, 1998. The Company has been inactive since that
date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire equipment described in certain equipment
leases and to purchase equipment leases and lease receivables (collectively
lease receivables) from ABSC and any of its affiliates; to issue and sell notes
collaterized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in any lawful act or
activity and to exercise any power that is incidental and is necessary or
convenient to the foregoing and permitted under Nevada law.
2. CAPITAL CONTRIBUTION:
ABSC purchased 1,000 shares of the common stock of the Company for $1,000
on February 18, 1998.
D-1
77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Advanta Leasing Receivables Corp. V:
We have audited the accompanying balance sheet of Advanta Leasing
Receivables Corp. V (a wholly owned subsidiary of Advanta Business Services
Corp.), as of February 18, 1998. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Advanta Leasing Receivables Corp. V
as of February 18, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 20, 1998
E-1
78
ADVANTA LEASING RECEIVABLES CORP. V
BALANCE SHEET -- FEBRUARY 18, 1998
ASSET
Cash................................................................................ $1,000
======
STOCKHOLDER'S EQUITY
SHAREHOLDER'S EQUITY:
Common stock (authorized 1,000 shares, $.01 par value, issued and outstanding
1,000 shares).................................................................. 10
Additional paid-in capital........................................................ 990
------
Total liabilities and shareholder's equity................................ $1,000
======
The accompanying notes are an integral part of this statement.
F-1
79
ADVANTA LEASING RECEIVABLES CORP. V
NOTES TO FINANCIAL STATEMENTS:
February 18, 1998
1. NATURE OF OPERATIONS:
Advanta Leasing Receivables Corp. V (the "Company"), a wholly owned
subsidiary of Advanta Business Services Corp. ("ABSC"), was incorporated in the
State of Nevada on February 18, 1998. The Company has been inactive since that
date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire equipment described in certain equipment
leases and to purchase equipment leases and lease receivables (collectively
lease receivables) from ABSC and any of its affiliates; to issue and sell notes
collateralized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in any lawful act or
activity and to exercise any power that is incidental and is necessary or
convenient to the foregoing and permitted under Nevada law.
2. CAPITAL CONTRIBUTION:
ABSC purchased 1,000 shares of the common stock of the Company for $1,000
on February 18, 1998.
G-1
80
======================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE ORIGINATOR, THE SERVICER OR THE ISSUERS OR ANY AFFILIATE THEREOF OR THE
TRUST ESTATE SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------
TABLE OF CONTENTS
PAGE
----
Summary of Terms....................... 1
Material Risks......................... 20
The Issuers............................ 23
Management's Discussion and Analysis of
Financial Condition.................. 23
Directors and Executive Officers of the
Issuers.............................. 24
Use of Proceeds........................ 25
The Trustee............................ 25
The Trust Estate....................... 25
Advanta Business Services Corp.
Underwriting, Originating and
Servicing Practices.................. 27
Description of the Notes............... 34
Prepayment and Yield Considerations.... 51
Certain Legal Matters Affecting the
Receivables.......................... 54
Material Federal Income Tax
Considerations....................... 55
ERISA Considerations................... 58
Underwriting........................... 59
Ratings of the Offered Notes........... 60
Experts................................ 60
Certain Legal Matters.................. 60
Book-Entry Registration................ A-1
Advanta Leasing Receivables Corp. IV (a
wholly owned subsidiary of Advanta
Business Services Corp.) Balance
Sheet February , 1998.............. C-1
Advanta Leasing Receivables Corp. V (a
wholly owned subsidiary of Advanta
Business Services Corp.) Balance
Sheet February , 1998.............. F-1
Until, (90 days after the date of this Prospectus, all dealers effecting
transactions in the Notes, whether or not participating in this distribution,
may be required to deliver a Prospectus. This is in addition to the obligation
of dealers to deliver a Prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
======================================================
======================================================
$
EQUIPMENT RECEIVABLES
ASSET-BACKED NOTES,
SERIES 1998-1
ADVANTA BUSINESS
SERVICES CORP.
ORIGINATOR
$ % CLASS A-1 NOTES
$ % CLASS A-2 NOTES
$ % CLASS A-3 NOTES
$ % CLASS A-4 NOTES
$ % CLASS B NOTES
$ % CLASS C NOTES
------------
PROSPECTUS
FEBRUARY , 1998
------------
SALOMON SMITH BARNEY
======================================================
81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
SEC Filing Fee.................................................. $109,090.80
Trustee's Fees and Expenses*.................................... *
Legal Fees and Expenses*........................................ 212,500
Accounting Fees and Expenses*................................... 30,000
Printing and Engraving Expenses*................................ 35,000
Blue Sky Qualification and Legal Investment Fees and
Expenses*..................................................... 10,000
Rating Agency Fees*............................................. 40,000
Miscellaneous*.................................................. 200,000
--------
TOTAL................................................. $ *
========
- ---------------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts under
certain circumstances.
Article Seventh of the By-laws of Advanta Leasing Receivables Corp. IV
provides that all officers and directors of the corporation shall be indemnified
by the corporation from and against all expenses, liabilities or other matters
arising out of their status as an officer or director for their acts, omissions
or services rendered in such capacities.
Article Seventh of the By-laws of Advanta Leasing Receivables Corp. V
provides that all officers and directors of the corporation shall be indemnified
by the Corporation from and against all expenses, liabilities or other matters
arising out of the status as an officer or director of, their acts, omissions or
services rendered in such capacities.
The form of the Underwriting Agreement, filed as Exhibit 1.1 to this
Registration Statement, provide that Advanta Business Services Corp., Advanta
Leasing Receivables Corp. IV and Advanta Leasing Receivables Corp. V will
indemnify and reimburse the underwriter(s) and each controlling person of the
underwriter(s) with respect to certain expenses and liabilities, including
liabilities under the Securities Act of 1933 or other federal or state
regulations or under the common law, which arise out of or are based on certain
material misstatements or omissions in the Registration Statement. In addition,
the Underwriting Agreements provide that the underwriter(s) will similarly
indemnify and reimburse Advanta Business Services Corp., Advanta Leasing
Receivables Corp. IV and Advanta Leasing Receivables Corp. V with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of
Advanta Business Services Corp., it's By-laws permit the board of directors to
purchase and maintain insurance on behalf of the registrant's agents, including
its officers and directors, against any liability asserted against them in such
capacity or arising out of such agents' status as such, whether or not such
registrant would have the power to indemnify them against such liability under
applicable law.
II-1
82
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION OF DOCUMENTS
- ------- ------------------------------------------------------------------------------------
1.1* Form of Underwriting Agreement.
3.1.1* Certificate of Incorporation of Advanta Leasing Receivables Corp. IV
3.1.2* Certificate of Incorporation of Advanta Leasing Receivables Corp. V
3.2.1* By-Laws of Advanta Leasing Receivables Corp. IV
3.2.2* By-Laws of Advanta Leasing Receivables Corp. V
4.1 Master Business Receivables Asset-Backed Financing Facility Agreement.
4.2* Form of Supplement to Master Facility Agreement.
4.3 Master Contribution Agreement.
4.4 Form of Supplement to Master Contribution Agreement.
4.5* Form of Sale and Assignment Agreement.
5.1 Opinion of Dewey Ballantine LLP with respect to validity.
8.1 Opinion of Dewey Ballantine LLP with respect to tax matters.
23.1 Consents of Dewey Ballantine LLP are included in its opinions filed as Exhibits 5.1
and 8.1 hereto.
23.2* Consent of Independent Public Accountants.
25.1* Form T-1.
- ---------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described above in Item 15, or otherwise,
the registrants has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by them is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
B. Undertaking pursuant to Rule 430A. The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in Reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) Undertaking pursuant to Item 512(b) of Regulation S-K.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in
II-2
83
the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(e) Undertaking pursuant to Item 512(d) of Regulation S-K.
The undersigned registrant hereby undertakes, with respect to Securities
offered through competitive bids, (1) to use its best efforts to distribute
prior to the opening of bids, to prospective bidders, underwriters, and dealers,
a reasonable number of copies of a prospectus which at the time meets the
requirements of Section 10(a) of the Act, and relating to the securities offered
a competitive bidding, as contained in the registration statement, together with
any supplements thereto, and (2) to file an amendment to the registration
statement reflecting the results of bidding, the terms of the reoffering and
related matters to the extent required by the applicable form, not later than
the first use, authorized by the issuer after the opening of bids, of a
prospectus relating to the securities offered at competitive bidding, unless no
further public offering of such securities by the issuer and no reoffering of
such securities by the purchasers is proposed to be made."
II-3
84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Reno, State of Nevada, on February 17, 1998.
ADVANTA LEASING RECEIVABLES CORP. IV
By: /s/ CHARLES H. PODOWSKI
-------------------------------------
Charles H. Podowski
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles H. Podowski, Cole Silver and Edward
Millman, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for an in his name, place
and stead, in any and all capacities to sign any or all amendments (including
post-effective amendments) to this Registration Statement and any or all other
documents in connection therewith, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
might or could be done in person, hereby ratifying and confirming all said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on February 17, 1998 by the
following persons in the capacities indicated.
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
/s/ JANICE C. GEORGE Director
- ---------------------------------------------
Janice C. George
/s/ FRANCIS B. JACOBS, II Director
- ---------------------------------------------
Francis B. Jacobs, II
/s/ EDWARD E. MILLMAN Director and Principal Executive Officer
- ---------------------------------------------
Edward E. Millman
/s/ SUSAN MCVEIGH Director and Principal Accounting Officer
- ---------------------------------------------
Susan McVeigh
/s/ CHARLES H. PODOWSKI Director
- ---------------------------------------------
Charles H. Podowski
II-4
85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Reno, State of Nevada, on February 17, 1998.
ADVANTA LEASING RECEIVABLES CORP. V
By: /s/ CHARLES H. PODOWSKI
------------------------------------
Charles H. Podowski
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Charles H. Podowski, Cole Silver and Edward
Millman, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for and in his name, place
and stead, in any and all capacities to sign any or all amendments (including
post-effective amendments) to this Registration Statement and any or all other
documents in connection therewith, and to file the same, with all exhibits
thereto, with the Securities and Exchange Commission, granting unto said
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
might or could be done in person, hereby ratifying and confirming all said
attorneys-in-fact and agents or any of them, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on February 17, 1998 by the
following persons in the capacities indicated.
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
/s/ JANICE C. GEORGE Director, Vice President and Assistant
- --------------------------------------------- Secretary
Janice C. George
/s/ FRANCIS B. JACOBS, II Director
- ---------------------------------------------
Francis B. Jacobs, II
/s/ EDWARD E. MILLMAN Director and Principal Executive Officer
- ---------------------------------------------
Edward E. Millman
/s/ SUSAN MCVEIGH Director and Principal Accounting Officer
- ---------------------------------------------
Susan McVeigh
/s/ CHARLES H. PODOWSKI Director
- ---------------------------------------------
Charles H. Podowski
II-5