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As Filed with the Securities and Exchange Commission on July 30, 1996
Registration No. 333-xxxxx
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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WALNUT EQUIPMENT LEASING CO., INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-1712443
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE BELMONT AVENUE WILLIAM SHAPIRO, ESQ., P.C.
SUITE 200 ONE BELMONT AVENUE, SUITE 202
BALA CYNWYD, PA 19004 BALA CYNWYD, PA 19004
(610) - 668 - 0700 (610) - 668 - 0707
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(Address, including zip code, (Name, Address, including zip code and
and telephone number, including telephone number, including area code,
area code, of registrant's of agent for service)
principal executive offices)
COPY OF COMMUNICATIONS TO:
William Shapiro, Esq., P.C. Kenneth S. Shapiro, President
Suite 202, One Belmont Avenue Welco Securities, Inc.
Bala Cynwyd, Pennsylvania 19004 Suite 105, One Belmont Avenue
Telephone Number (610)668-0707 Telephone Number (610)668-0709
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / X /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this Form, 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. / /
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act check the following box and list the Securities Act
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
Proposed
maximum
Title of each of Proposed maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered registered per unit (1) price (1) fee
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Demand and Fixed
Term Senior Thrift
Certificates $35,500,000 $100-$25,000 $35,500,000 $12,241.38
(1) Estimated solely for the purpose of determining the registration fee.
* The Registrant is hereby proposing to register a new offering of Senior
Thrift Certificates in the principal amount of $35,500,000 and is hereby
amending Registration No. 33-81630 pursuant to Rule 429 of which approximately
$4,500,000 of Senior Thrift Certificates will remain unsold. The registration
fee is calculated on the amount being registered hereunder.
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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WALNUT EQUIPMENT LEASING CO., INC.
Cross Reference Sheet Pursuant to Reg. Sec. 229.501(b)
Item Number and Caption Caption in Prospectus
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Facing Page, Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................... Inside Front Cover Page,
Table of Contents
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.......... The Company, Risk Factors,
Selected Financial Data
4. Use of Proceeds............................. Use of Proceeds
5. Determination of Offering Price............. Not Applicable
6. Dilution.................................... Not Applicable
7. Selling Security Holders.................... Not Applicable
8. Plan of Distribution........................ Cover Page, Risk Factors,
Plan of Distribution
9. Description of Securities to be Registered.. Description of Securities
10. Interests of Named Experts and Counsel...... Legal Opinion
11. Information With Respect to the Registrant.. Business, Risk Factors,
Financial Statements,
Selected Financial Data,
Management's Discussion
and Analysis of Financial
Condition and Results of
Operations, Plan of
Distribution, Experts
12. Incorporation of Certain Information
by Reference................................ Inside Front Cover Page
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. Not Applicable
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Subject to Completion, July 30, 1996
WALNUT EQUIPMENT LEASING CO., INC.
$40,000,000 SENIOR THRIFT CERTIFICATES
Demand Senior Thrift Certificates
(Subject to Certain Limitation or Restriction on Redemptions)
Fixed Term Senior Thrift Certificates
For Periods of 6 through 120 months
The minimum denomination of these securities which will be offered and sold
by the terms of this prospectus is $100. The Interest rate on Demand Senior
Thrift Certificates shall be at least 1% above the 6-Month U.S. Treasury Bill
Rate. The rate of interest on Fixed-Term Senior Thrift Certificates shall be
at least 1% above the 6-Month U.S. Treasury Bill Rate for certificates issued
for 24 months or less, at least 2% above the 6-month U.S. Treasury Bill Rate
for Certificates issued for 25 to 60 months, and at least 3% above the 6-Month
U.S. Treasury Bill rate for those issued for periods exceeding 60 months.
These securities which are unsecured obligations of the Company are being
offered on a continuous, on-going "best-efforts" basis with no minimum amount
guaranteed to be sold. As such, the Company is unable to assure that any of
these securities will be sold nor is the Company able to calculate the amount
of proceeds, if any, it will receive from this offering. Purchasers have the
option of purchasing either a Demand Certificate, or a Fixed Rate Certificate
with a maturity ranging from six to one-hundred twenty months. This
election is made by the purchaser as they subscribe for the Certificates. The
current interest rates being offered pursuant to the current supplement
attached to this Prospectus reflect the interest rates being offered on
Certificates purchased within given ranges of maturity, i.e. six to eleven
months and up to one-hundred twenty months in duration.
For a description of the 6-Month U.S. Treasury Bill Rate calculation,
including the minimum interest rate, see "DESCRIPTION OF SECURITIES -
CERTIFICATES; Interest 6-Month U.S. Treasury Bill Rate".
AN INVESTMENT IN THE SENIOR THRIFT CERTIFICATES INVOLVES CERTAIN INVESTMENT
RISKS, INCLUDING THE RISK OF LOSS OF A SIZEABLE PORTION OF ANY INVESTMENT IF
THE COMPANY WERE TO LIQUIDATE IMMEDIATELY. THE COMPANY'S ABILITY TO CONTINUE
IN EXISTENCE IS DEPENDENT UPON ITS ABILITY TO REVERSE ITS LOSSES BY INCREASING
NEW LEASE BUSINESS AND OBTAINING ADEQUATE FINANCING SOURCES. THE COMPANY'S
CONTINUED OPERATIONS ARE CONTINGENT UPON THE ABILITY TO OBTAIN FINANCING
THROUGH THE OFFER AND SALE OF THESE SECURITIES, AS WELL AS FROM THE ISSUANCE
OF DEMAND AND FIXED RATE CERTIFICATES BEING OFFERED BY THE COMPANY'S
WHOLLY-OWNED SUBSIDIARY, EQUIPMENT LEASING CORPORATION OF AMERICA ("ELCOA"),
THE OFFER AND SALE OF WHICH THERE CAN BE NO ASSURANCES. PROCEEDS OF THIS
OFFERING WILL BE USED TO REDEEM OR PAY INTEREST ON PREVIOUSLY ISSUED
SECURITIES. INVESTORS CONSIDERING A PURCHASE OF THESE CERTIFICATES SHOULD
CONSIDER THE FOLLOWING SIGNIFICANT RISK FACTORS:
- THE PROJECTED CASH FLOWS FROM ALL OF THE COMPANY'S REVENUE SOURCES WILL
NOT BE SUFFICIENT TO PAY OFF THE COMPANY'S OUTSTANDING DEBT. SEE
"SUMMARY OF THE OFFERING - THE COMPANY" ON PAGE 1.
- FOR THE YEARS 1996 THROUGH 1980, EARNINGS WERE INADEQUATE TO COVER
INTEREST EXPENSE AND PREFERRED STOCK DIVIDENDS.
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- DURING EACH OF THE PAST 16 YEARS, THE COMPANY HAS HAD SIGNIFICANT
LOSSES AND ACCUMULATED DEFICITS.
- DURING THE THREE FISCAL YEARS ENDED APRIL 30, 1996, 1995, AND 1994,
APPROXIMATELY 75%, 71%, and 59% RESPECTIVELY, OF THE PROCEEDS OF
CERTIFICATES SOLD BY THE COMPANY WERE USED FOR THE REDEMPTION OF
PREVIOUSLY ISSUED DEBT.
- APPROXIMATELY $15,544,525 IN PRINCIPAL AMOUNT OF PREVIOUSLY ISSUED
SENIOR THRIFT CERTIFICATES, ALONG WITH APPROXIMATELY $4,354,626 OF
PREVIOUSLY ISSUED SUBORDINATED THRIFT CERTIFICATES OF THE COMPANY WILL
BECOME DUE DURING FISCAL 1997. THE COMPANY MUST ROLLOVER AN ESTIMATED
$8,900,000 OF CERTIFICATES COMING DUE IN FISCAL 1997, AND TO THE EXTENT
SUCH DEBT IS NOT ROLLED OVER MUST USE THE PROCEEDS OF THE SALE OF
CERTIFICATES TO PAY OFF SUCH DEBT. SEE "SUMMARY OF THE OFFERING - THE
COMPANY" ON PAGE 1.
- THE COMPANY ESTIMATES THAT IT MUST GENERATE APPROXIMATELY $34,800,000
OF NEW LEASE RECEIVABLES IN ORDER TO REACH A "BREAK-EVEN" LEVEL OF
OPERATIONS, ALTHOUGH IT HAS NEVER GENERATED MORE THAN $13,218,230 IN
NEW LEASES IN ANY ONE YEAR, AND THE LEVEL OF NEW LEASES GENERATED HAS
REMAINED RELATIVELY CONSTANT OVER THE LAST THREE FISCAL YEARS. SEE
"SUMMARY OF THE OFFERING" AND RISK FACTOR #3 ON PAGE 18.
IN ADDITION, REPAYMENT OF PRINCIPAL OR INTEREST ON THE CERTIFICATES WILL, IN
LARGE PART, BE DEPENDENT UPON THE COMPANY'S ABILITY TO OFFER AND SELL
ADDITIONAL CERTIFICATES IN THE FUTURE. AT APRIL 30, 1996, APPROXIMATELY
$3,859,000 OR 20.9% OF LEASE RECEIVABLES OUTSTANDING ON A CONTRACTUAL BASIS
WERE 12 OR MORE MONTHS PAST DUE. FOR A DISCUSSION OF CERTAIN MATTERS THAT
SHOULD BE CONSIDERED IN EVALUATING A CONTEMPLATED INVESTMENT, SEE "RISK
FACTORS".
This offering (the "Offering") relates to an aggregate of $40,000,000 in
principal amount of a class of debt securities having priority in liquidation
over certain previously issued Subordinated Thrift Certificates, designated as
Senior Thrift Certificates (the "Certificates"), being offered by Walnut
Equipment Leasing Co., Inc., a Delaware corporation, (the "Company"). The
Certificates offered hereunder rank on parity upon liquidation with other
unsecured creditors. As of April 30, 1996, total liabilities to these
creditors were $1,062,724, along with $21,394,687 in outstanding Senior Thrift
Certificates which ranked on parity therewith. The Certificates are senior in
liquidation preference to prior issuances of Subordinated Thrift Certificates
by the Company in the principal amount of $5,523,118, and $4,000 of
Subordinated debentures, outstanding as of April 30, 1996, and are obligations
of the Company only. Certificate holders will be unsecured creditors and
acquire no proprietary interest in the Company or any of its subsidiaries.
See "DESCRIPTION OF SECURITIES - CERTIFICATES". Contemporaneous with the
offering of Certificates, ELCOA is also offering debt securities in the
principal amount of $50,000,000 to the public pursuant to a Registration
statement which will become effective on or about August 31, 1996 under the
Securities Act of 1933, as amended. ELCOA's debt securities are not
guaranteed by the Company nor offered by the Company as a co-issuer. See
"BUSINESS - Method of Financing." As of April 30, 1996, ELCOA's outstanding
principal amount of debt securities totaled $26,407,959, along with
$2,767,158 in accrued interest.
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THE CERTIFICATES ARE UNSECURED OBLIGATIONS OF THE COMPANY WHICH DO NOT
REPRESENT AN INTEREST IN A MONEY MARKET FUND, THRIFT INSTITUTION, GOVERNMENTAL
AGENCY, OR INSTRUMENTALITY AND ARE NOT INSURED BY ANY OF THE FOREGOING, NOR
SUBJECT TO STATE OR FEDERAL REGULATIONS, INCLUDING (BUT NOT LIMITED TO)
REGULATIONS APPLICABLE TO BANKS AND SAVINGS AND LOAN ASSOCIATION WITH REGARD
TO THE MAINTENANCE OF RESERVES, THE QUALITY OR CONDITION OF ITS ASSETS AND
OTHER MATTERS. THE CERTIFICATES DO NOT HAVE THE SAFETY OR INSURANCE FEATURES
OF CONVENTIONAL SAVINGS ACCOUNTS AND BANK CERTIFICATES OF DEPOSIT.
The Company reserves the right to reject any application to purchase the
Certificates, in whole or in part, and to modify the terms of the offering
prospectively from time to time only as to any unissued debt securities
offered in the future, provided that the terms of any Certificate offered
under the Indenture described herein can be modified only in accordance with
the provisions of such document. The decision to accept or reject any
application for purchase is made on the same business day as funds are
received before any checks are deposited by the Company. Funds will not be
deposited unless an application for purchase has been accepted. Applications
for purchase are accepted from purchasers residing in states where the
Certificates are registered for sale (or exempt from registration). Certain
states may impose objective suitability standards, with minimum income
requirements ranging from $20,000 to $50,000 and minimum net worth (exclusive
of home, home furnishings or automobiles) ranging from $45,000 to $450,000, as
will be noted on the prospectus supplement attached to this prospectus. In
addition, subjective suitability standards as required by the National
Association of Securities Dealers, Inc. ("NASD"), including but not limited to
the purchaser's income, net worth, occupation, and stated investment
objective, may be considered by the Underwriter in relation to the size of the
purchase before accepting any application for purchase. See "DESCRIPTION OF
SECURITIES - CERTIFICATES". The Certificates will be fully registered as to
principal and interest, and will be in negotiable form. The Company reserves
the right to redeem the Certificates at any time at its own discretion on 60
days written notice. For a description of the right of a holder to receive
early payment, see "DESCRIPTION OF SECURITIES - CERTIFICATES; Right to Request
Early Payment". It is the Company's present policy, subject to availability
of funds, to pay the principal and accrued interest of any Demand Certificate
within five business days after demand for redemption is received, although
this policy may be changed at any time without notice to Certificate holders.
The Company is not obligated to redeem Demand Certificates, or to redeem Fixed
Term Certificates prior to maturity at the request of the holder, in excess of
an aggregate of $250,000 in principal amount in any calendar month. For a
more complete discussion regarding redemption of Certificates, including the
$250,000 monthly limitation on redemption of Demand and Fixed Term
Certificates redeemed prior to maturity, see "DESCRIPTION OF SECURITIES -
Redemption". A prepayment penalty is deducted from the principal amount of
any fixed rate certificate redeemed at the request of the holder prior to
maturity. See "Right to Request Early Payment." There is no active trading
market for the Certificates, nor is any trading market expected to develop.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE 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.
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<TABLE>
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Underwriter
Price to Discounts and Proceeds to
Public Commissions Company (2)
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<S> <C> <C> <C>
Per Certificate..... 100% None to 8% (1) (3)
Total............... $40,000,000 (1) (3)
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</TABLE>
(1) The offering is being made by the Company through Welco Securities, Inc.
("Welco" or the "Underwriter"), an affiliate of the Company on a
continuous "best efforts" basis. As such, the underwriter has made no
contractual commitment to sell any minimum amount of Certificates, and the
Company has no assurance that it will receive any minimum amount of
proceeds as a result of sales of Certificates in the offering. This
offering will terminate upon sale of all Certificates registered
hereunder. This prospectus may only be used through August 31, 1997. The
Underwriter will receive a commission equal to 1/15 of 1% of the principal
amount for each month of the term of all fixed term Certificates sold by
the Underwriter, ranging from .4% for a 6-month certificate to 8.0% for a
120 month certificate. There is no minimum amount of Certificates which
must be sold. Welco may enter into selected dealer agreements with member
firms of the National Association of Securities Dealers, Inc. ("NASD") and
pay a sales commission to such firms, determined on the same basis as the
underwriting commissions, up to eight percent (8%) of the principal amount
of Certificates sold. Any such member who participates in the offering
may be deemed to be an "underwriter" within the meaning of the Securities
Act of 1933. The Company has agreed to reimburse Welco for any
out-of-pocket expenses incurred in connection with the offer and sale of
the Certificates, including commissions or concessions paid by Welco, and
has agreed to indemnify the underwriter with respect to certain matters in
connection with this offering. See "PLAN OF DISTRIBUTION". An opinion
regarding the pricing of this offering from J.E. Liss & Company, Inc., a
qualified independent underwriter pursuant to Schedule E of the NASD
By-Laws, has been obtained by Welco. See "PLAN OF DISTRIBUTION".
(2) Before deducting expenses estimated at approximately $80,000.
(3) The proceeds to the Company will be 100% of the amount of Certificates
sold through Welco, less reimbursement of expenses and commissions to
Welco. Certificates sold through other member firms of the NASD are
subject to payment of commissions and reallowances paid up to 8% of the
principal amount of the offering price, as the case may be. Since the
Certificates are sold on a best efforts basis with no minimum, the Company
is unable to calculate the amount of proceeds which it will receive.
WELCO SECURITIES, INC.
The Date of this Prospectus is August, 1996
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The Certificates are offered by the Company and the Underwriter as agent
for the Company subject to prior sale, withdrawal, and cancellation or
modification of the offering, without notice, at any time by the Company, or
the Underwriter prior to the release or delivery of any proceeds of this
offering to the Company, whether or not a confirmation of sale of Certificates
offered by this Prospectus has been issued by the Underwriter or any dealer.
The right is reserved by the Company, the Underwriter and the dealers to
reject any and all offers to purchase and to cancel any and all confirmations
of sale of any Certificates offered hereby, in whole or in part, for cause or
without cause, at any time prior to delivery of the Certificates to the
subscriber.
No person is authorized by the Company to give any information or make any
representation other than as contained in this Prospectus in connection with
the offering made hereby, and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell to or a
solicitation of an offer to buy from any person in any state or jurisdiction
in which it is unlawful to make such offer or solicitation. Neither delivery
of this Prospectus nor any sale made hereunder shall under any circumstance
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus speaks as of the date hereof
and the delivery of this Prospectus at any time does not imply that
information herein is correct as to any date subsequent to that date.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by the
Company can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; 14th Floor, Seven World Trade Center, New
York, New York 10048; and 500 West Madison Street, Suite 1400, Northwestern
Atrium Center, Chicago, Illinois 60661.
The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended, with respect to the Certificates
offered hereby. This Prospectus does not contain all the information included
in such Registration Statement, certain items of which are omitted in
accordance with the Rules and Regulations of the Commission. For further
information with respect to the Company and the Certificates offered hereby,
reference is made to the Registration Statement and the Exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to Section 15(d) of
the Exchange Act, as amended, are incorporated herein by reference in this
Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended April 30, 1996.
(Filed July 26, 1996).
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Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated herein by reference (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
the Prospectus incorporates). Requests should be directed to Walnut Equipment
Leasing Co., Inc., P.O. Box 1050, Bala Cynwyd, PA 19004, Attention: William
Shapiro; telephone number (610) 668-0700.
Notwithstanding the fact that the Company may not be required to deliver
an annual report to security holders, the Company, will, upon the request of
any security holder, without charge, furnish an annual report on Form 10-K
containing audited financial information that will have been examined by
independent certified public accountants, and any quarterly report on Form
10-Q containing unaudited information. In addition, the Company may furnish
such other reports as may be authorized, from time to time, by its Board of
Directors.
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<TABLE>
TABLE OF CONTENTS
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PAGE PAGE
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Summary of the Offering 1 Description of Securities 52
The Company 10 Certificates 52
The Offering 11 General 52
Selected Financial Data 16 Redemption 54
Risk Factors 17 Senior Debt 55
General 17 Automatic Extension 56
Relative to Certificates 22 Right to Request Early Payment 56
Use of Proceeds 24 Option to Receive
Business 25 Compound Interest 56
Marketing 28 Interest 6-Month United States
Credit Policy 30 Treasury Bill Rate 57
Analysis of Delinquencies 33 Restrictions on Merger 58
Analysis of Bad Debt Modification of the Indenture 58
Write-offs 36 Covenant as to Repair 58
Methods of Financing 36 Events of Default 58
Employees 39 Transactions with the Trustee 59
Data Processing 39 Plan of Distribution 59
Competition 39 Legal Opinion 60
Management's Discussion and Experts 61
Analysis of Financial Condition Independent Auditor's
and Results of Operations: Report 63
Results of Operations 40 Financial Statements 64
Capital Resources and
Liquidity 47
</TABLE>
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SUMMARY OF THE OFFERING
The following summary of the Company's business and the principal terms of
the Certificates being offered hereby is qualified in its entirety by the
detailed information appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "RISK FACTORS":
SUMMARY OF THE COMPANY'S EFFORTS TO REDUCE PROJECTED CASH FLOW DEFICIENCY
As of April 30, 1996, the Company projected a cash flow deficiency of
approximately $30,300,000 in principal amount of debt and interest over the
next five fiscal years. In fiscal year ending April 30, 1997, an aggregate
principal amount of debt and interest of $41,416,858 will be coming due. The
Company must "rollover" and renew an estimated $27,383,557 or 78% of its
Certificates coming due in fiscal 1997, and to the extent such debt is not
rolled over must use the proceeds of the sale of its debt securities to pay off
such debt.
To overcome the projected cash flow deficiency in the future, the Company
estimates that it must be able to generate new leases annually of approximately
$72,000,000 or approximately $6,000,000 per month. The Company has never
generated more than $13,218,230 in new leases in any one year, and the amount
of new leases generated has remained relatively constant over the last three
fiscal years. During the fiscal year ended April 30, 1996, the Company's new
leases generated averaged approximately $835,000 per month. Despite this fact,
the Company's plans to securitize sufficient leases to overcome its projected
cash deficiency assume that it can generate $4,000,000 of additional leases for
this purpose. The Company estimates that if new lease volume increases between
7% and 10% per month, it would take between 17 to 23 months to achieve this
benchmark. If the Company achieves a greater level of success as a result of
its marketing efforts, the time period would be reduced, and if the efforts are
less than anticipated, the time necessary to achieve this benchmark may be
greater. The Company's past marketing efforts were inadequate to generate
sufficient new leases, resulting in the projected deficiency.
The Company's past marketing efforts through means of indirect solicitation
were achieved from less than 1% of the total estimated market for leases of the
type and dollar size that the Company solicits. During the fiscal year ended
April 30, 1995, the Company began to modify its marketing efforts to emphasize
direct solicitation of equipment vendors and manufacturers in targeted
industries. The Company believes that the approximately 180 equipment vendors
monthly which supplied its new volume of business during the fiscal year ended
April 30, 1996 represents only a small fraction of the small-ticket equipment
marketplace. The Company's past marketing efforts which emphasized the use of
direct mail as the primary marketing tool were not successful in increasing the
number of equipment vendors using the Company's leasing services. See
"BUSINESS - Marketing". The Company's marketing strategy now emphasizes the
establishment of joint, cooperative efforts with equipment manufacturers
nationwide in an effort to promote leasing as a sales tool to the distribution
network selling each manufacturer's equipment. To achieve the volume of new
leases essential to reduce the projected deficiency, the Company needs to
increase the number of equipment vendors that use its leasing services on a
regular monthly basis from approximately 180 to 900 equipment vendors.
1
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<PAGE>12
During the second half of the current fiscal year ending April 30, 1995, the
Company began to intensify its marketing efforts to achieve this goal. In
this regard, the Company now targets equipment manufacturers with a broad
sales distribution network to offer them "private label lease programs"
customized to their distributors' needs. The Company believes that the
cooperation of equipment manufacturers in emphasizing leasing as a sales tool
to their equipment distribution network will be more effective than
unsolicited direct mail in raising the level of equipment vendors routinely
submitting new lease applications for consideration. As of July 5, 1995, 23
manufacturers had agreed to join with the Company in this program. As of June
30, 1996, the number had grown to 75 manufacturers entered into co-operative
manufacturer agreements with the company, with the Company actively soliciting
additional manufacturers on an ongoing basis. See also "Further Refinements
in Marketing Strategy and Efforts to Reduce Operating Losses" on page 45 of
this Prospectus. The Company's recent experience in direct telephone contact
with targeted equipment sellers indicates that while it was more effective
than direct mail in generating vendor interest in using the Company's leasing
services as a marketing tool to increase equipment sales, the cooperation of
the equipment manufacturer is crucial to increasing the awareness of
distributors of the Company's services. The Company is beginning to
experience an increase in new lease volume as a result of these efforts. In
this regard, see "Further Refinements in Marketing Strategy and Efforts to
Reduce Operating Losses" on page 45.
The Company plans to sell certain leases and rental contracts to be
generated in the future, along with the related equipment, to third party
financial institutions who would purchase the lease and rental contracts for
an amount in excess of the Company's original investment. The third-party
purchaser would collect the receivables, and the Company would have no further
obligation to the third party purchaser, but would not receive any further
income from the leases after sale. The Company estimates that it would
generate gross profits of 12.4% of the total anticipated lease contract
receivables sold through this process, sometimes called the "securitization"
process. The Company did not pursue this process of selling lease and rental
contracts to third parties in the past because it was unable to generate
sufficient new leases in amounts attractive to lease securities for sale.
Because of its recent shift in marketing strategy which now emphasizes
cooperation with equipment manufacturers, and direct telephone contact with
equipment sellers rather than indirect solicitation, the Company expects the
number of equipment vendors and manufacturers utilizing the Company's leasing
services to increase. Consequently, the number and amount of new leases would
increase to amounts which would be attractive to third-party purchasers
seeking larger pools of leases for purchase. When the Company retains lease
contracts in its own portfolio, the income which will be recognized over the
term of the lease is intended to offset the costs of funds and necessary cost
of the Company's operations to originate and service these leases. The
analysis which follows indicates that the implicit rate of return on the
Company's investment in leases retained is approximately 21% per annum, while
the anticipated costs of funds is approximately 9%, resulting in an
anticipated gross profit yield of 12% over the term of the lease contracts
retained. At past levels of new leases being generated, the sale of lease
contracts and rentals would not generate sufficient long term income necessary
to offset the Company's fixed costs. See "BUSINESS". The analysis which
follows illustrates the manner in which the Company expects to utilize the
sale of an additional $2,700,000 of debt securities in the aggregate to
purchase the equipment necessary to maintain ongoing, monthly sales of
2
<PAGE>
<PAGE>13
equipment to third-party financial institutions, sometimes referred to as
"asset securitizers". The Company will commence these sales of leases to
asset securitizers after it has utilized the excess cash on hand through
investment in new equipment for lease. The sales of additional leases to
asset securitizers are expected to commence during fiscal 1997. When these
sales commence on a regular basis, the Company estimates that it would earn a
monthly gross profit of approximately $400,000 via the securitization process
over the next 10 years. The Company expects to purchase with all of the
proceeds of sale of an additional $2,700,000 of Certificates additional
equipment for lease contracts aggregating approximately $4,000,000 of new
lease receivables. Proceeds from sale of these leases to an asset securitizer
would be approximately $3,100,000, which is a recovery of the initial
$2,700,000 investment in equipment, along with a gross profit of approximately
$400,000. The Company would then reinvest the $2,700,000 from such sale in
additional equipment to be leased and subsequently sold to an asset
securitizer on a monthly basis. See also Footnote 7 on page 10 which follows.
The Company does not expect recent increases in market interest rates in
general to have a material impact on these calculations, because the Company
will raise the rates charged on new leases in an amount sufficient to offset
any increase in interest rates, as will its competitors in the leasing
industry. See Footnotes 4 and 7 to the table on pages 9 and 10 which follows.
This table indicates that if the Company is able to achieve these intentions,
it would take ten years to reduce the projected deficiency. The type of
assets underlying the leases which the Company anticipates selling are as one
of the same general type as those that it has originated to date. See
"BUSINESS - Marketing and Credit Policy" for a description of the number and
dollar amount of such leases generated in the past fiscal year. The Company
believes it can generate the lease of the type and number illustrated above in
the following analysis as a result of revisions in its marketing strategy
outlined and referenced above, and more fully disclosed in this Prospectus.
In this regard, see also "Further Refinements in Marketing Strategy and
Efforts to Reduce Operating Losses" on page 45.
ANALYSIS OF ELEMENTS ESSENTIAL TO REDUCTION OF PROJECTED CASH FLOW DEFICIT
THE PROJECTED CASH FLOWS FROM ALL OF THE COMPANY'S HISTORICAL REVENUE
SOURCES WILL NOT BE SUFFICIENT TO PAY OFF THE COMPANY'S OUTSTANDING DEBT. The
following table discloses the differences between the Company's anticipated
cash flows and the principal amount of debt coming due under the assumption
that no existing certificate holders will continue to rollover their
outstanding debt securities:
<TABLE>
<CAPTION>
Fiscal Year Ending April 30,
2001 and
1997 1998 1999 2000 beyond Totals
----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Scheduled
Aggregate
Future
Amounts
Receivable
Under Lease
Contracts $9,359,537 $5,370,900 $2,614,370 $ 778,285 $ 300,724 $18,423,816
3
<PAGE>
<PAGE>14
<S> <C> <C> <C> <C> <C> <C>
Estimated
Receipt of
Residual Value
of Leased
Equipment (1) 866,119 497,016 241,930 72,021 27,829 1,704,915
Cash on Hand
and US Government
Securities at April
30, 1996 9,207,905 --- --- --- --- 9,207,905
----------- ---------- ---------- ---------- ---------- -----------
Subtotal (2) 19,433,561 5,867,916 2,856,300 850,306 328,553 29,336,636
Aggregate
Principal
Amount of
Debt and
Accrued
Interest
Coming Due 41,416,858 6,891,029 4,811,539 2,538,297 3,981,774 59,639,497
----------- ---------- ---------- ---------- ---------- -----------
Deficiency $21,983,297 1,023,113 1,955,239 $1,687,991 $3,653,221 $30,302,861
----------- ---------- ---------- ----------- ---------- -----------
<FN>
(1) There is no residual cash flow anticipated from sale of equipment in
excess of the estimated receipt of residual values as stated.
(2) These amounts represent cash flows before operating costs, and the actual
amounts available to repay existing debt are likely to be substantially less
than the amounts presented.
</TABLE>
The Company plans to utilize the benefits of the asset securitization
market by selling pools of leases to third party specialists who assemble
smaller pools into a large pool for sale to major institutional investors to
generate additional cash flows and income to repay current certificate
holders, in addition to cash flows from its existing assets, rather than
relying solely on additional cash from new purchasers of its debt securities.
Asset securitization allows the Company to pool together certain leases, and
to sell that portfolio of leases to a third party at a rate of return to the
purchaser which is less than the rate that the Company originally contracted
with each lessee. This excess becomes a cash profit to the Company upon sale,
and provides the Company with the return of its original investment plus its
profit which would be available for reinvestment in additional leases for sale
into the asset securitization market. Leases originated for the purpose of
securitization are not expected to be held to the end of their contractual
term, but would be transferred and sold in a relatively short period. This
procedure will enable the Company to enter into a number of asset
securitization sales in the future, based upon the success of the Company's
marketing efforts in generating additional new leases. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". To
the extent that securitized leases are sold to unrelated third parties, new
investors in the Certificates would not receive any preferential position in
4
<PAGE>
<PAGE>15
the Company's assets, and would rank on parity with previous purchasers of the
Certificates. The Company does not intend to securitize its existing
portfolio of leases, but to hold them for their remaining contractual terms.
The table above reflects a net deficiency in cash flows over scheduled
debt maturities of $30,302,861 over the next five fiscal years. Based upon
the gross rents charged over the "net investment" in direct finance leases
during the three years ended April 30, 1996, the implicit rate of return by
the Company on its net investment was approximately 21% per annum. For a more
complete discussion of the market for the Company's leasing services see
"BUSINESS - Marketing" and "Credit Policy". During the three fiscal years
ended April 30, 1996, 1995, and 1994, the Company's average rate of interest
on total debt outstanding was 9.3%, 9.0%, and 9.3%, respectively. The Company
estimates that the interest expense associated with its outstanding debt
securities, as well as for increased borrowings anticipated to be incurred,
will be approximately 9%. The difference would leave the Company with an
expected spread of 12%. Based upon expected operating expenses (consisting of
lease origination and general and administrative expenses, along with an
adequate provision for doubtful lease receivables) at anticipated levels of
approximately $4,200,000 per year, the Company projects that it currently has
the financial resources to increase the outstanding aggregate lease
receivables to $33,900,000 provided that the lease rate on new receivables to
be originated remains relatively the same as the past three fiscal years. If
the Company can increase the generation of new lease receivables by an amount
necessary to provide additional operating revenues equal to the loss of
approximately $5,600,000 at April 30, 1996, its operations will reach a
"break-even" point after which it will begin to generate an operating profit.
The table below summarizes the Company's expectations of the operating results
should the Company's outstanding lease receivables exceed $33,900,000, based
on the assumptions contained in the footnotes which follow. Assuming that the
same percentage of existing Certificate holders continue to rollover
outstanding certificates based on historical experience, (which, for the
fiscal year ended April 30, 1996 was 78%) the Company believes that it would
be able to repay the above deficiency by securitizing at least $24,200,000 of
additional leases per year over the next ten fiscal years. This is based upon
an implicit rate of purchase by an asset securitizer, usually a financial
institution purchasing a pool of leases from the Company, of approximately 14%
based on current market conditions, of which there can be no assurances in
each respect, and would generate additional operating income of approximately
$4,000,000 per year.
The Company intends to repay the projected deficit of $30,302,861 at April
30, 1996, and to increase annual operating revenues in a sufficient amount to
offset the operating loss for the fiscal year ended April 30, 1996 through the
acceleration of its marketing efforts to increase the amount of new leases
generated over current levels. The Company believes that its current
operating facilities have the excess capacity to handle the origination and
servicing of a larger portfolio of leases with minimal incremental costs, and
that it has sufficient cash on hand to fund an increased portfolio of new
leases necessary to meet the Company's intentions. The following table, and
the footnotes contained below, depict the projected results from increasing
new leases and the sale to third party asset securitizers of the associated
lease rentals.
5
<PAGE>
<PAGE>16
The Company has investigated the current marketplace of asset securitizers
seeking to purchase lease portfolios of between $2,000,000 to $5,000,000 by
researching recent equipment leasing trade journals and newsletters in which
financial institutions seeking to purchases similar portfolios have advertised
regularly for portfolio sellers. In addition, the Company has received
brochures by mail and telephone solicitations from asset securitizers seeking
to purchase portfolios of leases from the Company. In particular, the Company
has contacted or been approached by a variety of asset securitizers throughout
the United States to ascertain the validity of their interest to purchase
lease portfolios of the size and quality that the Company anticipates selling.
Based on a recent preliminary assessment by the Company, the implicit rate of
return on lease portfolios currently sought by asset securitizers should be no
more than 14% at current market conditions based on portfolios of the size and
type that the Company expects to sell. The Company has not engaged in any
transactions with asset securitizers to date.
In order to achieve its intentions, the Company would be required, based
upon the assumptions as set forth below, to generate at least $47,600,000 in
net leases available for sale through securitization to third parties, which
is more than twice the amount of lease receivables currently reported on the
Company's balance sheet as of April 30, 1996. Reference is made to the
"BUSINESS - Marketing" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Revenues from Lease Contracts and
Rentals" for a discussion of the Company's ongoing efforts to increase the
volume of new leases to be generated in the future.
The table which follows depicts the Company's intentions regarding the
realization of the projected deficit.
The Company intends to sell its pools of leases to third parties who are
in the business of acquiring smaller pools of between $2,000,000 to $5,000,000
of lease receivables for resale as larger portfolios, and transferring to the
asset securitizer the responsibility for administering, collecting and
liquidating these pools for which the asset securitizer would be entitled to
receiving a servicing fee from the rentals collected. These third parties
also take overcollateralization into consideration in pricing their pools for
sale to third party investors, and factor this requirement into their implicit
rate at which they would purchase pools from the Company.
6
<PAGE>
<PAGE>17
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(All figures rounded to Generation of Additional
the nearest $100,000) Operating Income to Offset
A. Through Increase in the Amount of Operating Projected
Outstanding Leases Losses Deficit
--------------------------------- --------- ---------
<S> <C> <C> <C>
Amount of Aggregate Lease Receivables
Outstanding at April 30, 1996 $18,400,000
Increase in amount outstanding from
investment of available cash at April 30,
1996, plus additional prepayments and
security deposits from lessees (1) 15,500,000(1) $ 2,700,000(2)
-----------
Projected Amount of Aggregate
Leases Receivables Outstanding $33,900,000
B. Through Sale of Additional Leases
Through Securitization
---------------------------------
Estimated aggregate new lease
receivables necessary annually to
generate sufficient operating revenues
to offset operating losses and
projected deficit at April 30, 1996 $72,000,000
Less: Reinvestment of rentals received
from existing portfolio of leases
outstanding at April 30, 1996 (3) (8,900,000)(6)
Increase in amount of leases outstanding
through investment of cash at April 30,
1996, plus additional prepayments and
security deposits as noted above (15,500,000)(1)(6)
-----------
Net leases available for sale through
securitization to third parties 47,600,000
Income to be generated from sale of assets
through securitization of net leases
available for sale
(a) In an amount necessary to offset
operating loss at April 30, 1996 (4) 23,400,000 2,900,000
(b) Remaining leases to be sold through
securitization by the Company to reduce
the projected deficit reflected above (4) 24,200,000 3,000,000
-----------
47,600,000
7
<PAGE>
<PAGE>18
</TABLE>
<TABLE>
<S> <C> <C> <C>
Multiplied by number of years estimated
by the Company necessary to repay X 10
projected deficit ----------- ----------
Additional operating revenues
to be generated as reflected above (5) $ 5,600,000 $30,000,000
Less: Operating loss at April 30, 1996 5,600,000
Less: Projected deficit at April 30, 1996
as reflected above 30,000,000
----------- -----------
Net Result -0- -0-
<FN>
(1) Based upon investment of cash and U.S. Government Securities on hand of
approximately $9,200,000 at April 30, 1996, along with prepayments and security deposits
in the estimated amount of $1,400,000 which will be collected at inception of additional
new lease contracts to be entered into and available for investment in additional
equipment for lease. Taken together these resources aggregating $10,600,000 would be
available for the origination of $15,500,000 in new leases, assuming that the
relationship of the gross rents to be charged over the "net investment" in direct
finance leases remains at 146%.
(2) The increase in annual operating revenue is based upon the relationship between
operating revenues recognized over the outstanding aggregate leases which at April 30,
1996 was approximately 20%, multiplied by an increase of $15,500,000 of outstanding
lease receivables, or $3,000,000.
The projected increase in aggregate lease receivables requires no additional
interest expense, as the funds necessary for any projected increase through the purchase
of equipment were on hand at April 30, 1996. Lease origination costs associated with
any increase in new leases generally would be considered direct costs under SFAS 91, and
capitalized as part of the equipment cost. Any increase in general and administrative
expenses associated with an increase in lease receivables would be offset by the
increase in late charges and other fees to be collected by the Company. The Company
estimates that for purposes of this calculation, the additional write-offs for doubtful
accounts on an annual basis for the incremental increase in new leases would be
approximately $800,000. As such, the additional revenues of $3,000,000 less expenses of
$300,000 would result in net additional income of $2,700,000 annually.
(3) Reinvestment of rentals is the amount of new leases to be generated from
reinvestment of the receipts from scheduled collections, less anticipated annual costs
of operations of the existing lease portfolio at April 30, 1996. The calculation of
reinvested rentals is deducted from the $72,000,000 amount disclosed on the table as
these leases would not be available for sale to an asset securitizer, but rather to
maintain the portfolio of leases at April 30, 1996 levels. This amount is estimated by
anticipated scheduled receipts from rentals of $9,400,000 and residual values of
$900,000 as set forth on page 4, less anticipated costs of operations and bad debts
totalling approximately $4,200,000. This leaves approximately $6,100,000 available for
investment in equipment, which multiplied by 146% generates new gross lease receivables
of approximately $8,900,000.
8
<PAGE>
<PAGE>19
(4) The additional operating income to be generated by the Company through
asset sales for securitization with third parties would be calculated as the
amount paid by a third party for the anticipated lease collections to be
received, less the initial investment in the equipment by the Company. The
purchaser would base its offering price upon a yield that it expects to
receive on its investment in the lease receivables purchased over their
remaining contractual term. For purposes of this calculation, the Company has
assumed that the purchaser would seek an implicit rate of 14% on its
investment. The Company bases its estimate of its gross profit of 12.4% on
its lease receivables to be sold as follows. Assuming a $1,000 investment in
equipment cost, anticipated lease receipts would be $1,475, based on
historical experience. The Company expects to be able to sell the anticipated
receipts applicable to that lease for $1,183, based upon the net present value
of these receipts at a 14% implicit rate of return to the purchaser. The
gross profit would be $183 or 12.4% of the total anticipated lease receipts to
be sold of $1,475 (as $183 divided by $1,475 equals 12.4%). To the extent
that the asset purchaser bases its offering price on an implicit rate of
return in excess of the Company's expectations, or that the Company's implicit
rate on new leases is less than 21%, the gross profit to the Company would be
less. In the alternative, if the rate offered by the asset purchaser is less
than 14%, or the Company's implicit return on new leases is greater than 21%,
the Company's gross profit on the sale of a pool of leases would be greater.
The costs associated with asset securitization are relatively immaterial.
Interest expense would not increase since the Company would be recovering an
immediate return of its cash investment at time of sale which would be
available for reinvestment in additional leases. Any lease origination costs
would be considered direct and capitalized in accordance with SFAS 91. There
would be no additional costs for general and administrative expenses, or any
provision for doubtful lease receivables as the Company would transfer both
the obligations of servicing the lease receivables and collection to the
outside third party purchaser. As such, any calculation of the costs
associated with the Company's anticipated asset sales to third party
purchasers, (which are expected to be immaterial), other expenses typically
associated with public securities offerings, as well as
"overcollateralization" of assets as a credit enhancement to institutional
investors, have been ignored for purposes of this calculation.
(5) This calculation ignores the reduction of the Company's interest expense
associated with repayment of outstanding indebtedness from profits generated
from asset securitization sales, which would be devoted toward servicing the
Company's debt deficiency. As such, the time period necessary to reduce the
projected deficit would be shortened to the extent that savings in interest
expense would also be directed towards that reduction.
(6) This calculation assumes that the Company's historical experience with
respect to rollovers of maturing Certificates will continue at similar levels.
To the extent that rollovers are less than historical levels, the Company
would be required to replace maturing debt securities with proceeds from sale
of Certificates or other debt. See "BUSINESS - Methods of Financing" and
"Capital Resources and Liquidity" along with Risk Factor #7 on page 20 of this
Prospectus for a more detailed discussion.
9
<PAGE>
<PAGE>20
(7) The table above reflects approximately $47,600,000 in leases which would
be available annually for sale to third-party asset securitizers. The Company
contemplates monthly sales of lease portfolios of approximately $4,000,000
(after dividing the $47,600,000 in leases available for sale by twelve months
per year). Based upon a gross profit percentage of 12.4% of the total
anticipated lease receipts to be sold (as set forth in Footnote 4, above),
each sale would provide the Company monthly with approximately $3,100,000 in
proceeds from each sale. The equipment cost of each lease portfolio to be
sold of approximately $2,700,000 would be recovered as part of the sale
proceeds, along with a gross profit each month of $400,000 (i.e. $3,100,000
less $2,700,000) which would be directed towards a reduction of operating
losses and the projected deficit. As such, the Company would require
additional sales of debt securities in the aggregate principal amount of
$2,700,000 initially to purchase the equipment necessary to maintain ongoing,
monthly sales of equipment to a third-party asset securitizer. Of the proceeds
of sales monthly, $2,700,000 would be reinvested in additional equipment
intended for sale. This process would continue monthly, without requiring
additional sales of debt securities. The annual interest requirement of the
additional debt securities of $2,700,000, assuming an interest expense of 9%,
would be approximately $243,000 per year. The annual savings of reduction of
outstanding debt of $4,000,000 as set forth in the table would save the
Company $360,000 annually based on a 9% interest rate. Principal repayment of
the $2,700,000 would be available each time a portfolio of leases is sold.
The tables above disregard the additional interest expense and principal
repayments on the additional $2,700,000 in debt securities as the savings in
interest expense on the reduction of the debt associated with the net
projected deficit would more than offset any such interest and principal
repayment requirements. The table reflected above, based upon the assumptions
as set forth, contemplate approximately 10 years to eliminate the net
projected deficit.
</TABLE>
THE COMPANY
The Company, which was incorporated in Pennsylvania in 1969, commenced
business in 1960 through its predecessor, and sole common shareholder, Walnut
Associates, Inc. Effective April 29, 1977, the situs of incorporation of the
Company was changed to Delaware. The Company conducts its operations
principally through wholly-owned subsidiaries in 48 states. See "BUSINESS."
The term "Company" refers collectively to the present Delaware corporation,
its predecessors and its wholly-owned subsidiaries, unless the context
otherwise indicates.
The Company is engaged directly and through its wholly-owned subsidiary,
ELCOA, in the business of financing and administering the purchase of general
commercial equipment, principally as the lessor under non-cancellable direct
financing leases. See "BUSINESS". Equipment is purchased by the Company only
after a lease agreement with regard to the equipment has been executed. ELCOA
purchases certain newly acquired equipment and related leases from the Company
and pays to the Company an origination fee for performing this service. The
Company invoices the lessees pursuant to a servicing agreement between the
Company and ELCOA and collects and deposits rentals received into an escrow
account established for ELCOA's benefit. A monthly fee is paid to the Company
10
<PAGE>
<PAGE>21
for performing this service. See "BUSINESS - Methods of Financing". As of
April 30, 1996, the Company carried or managed on behalf of its affiliates
6,644 leases, each with an average lease receivable balance of $2,406. The
purchase of equipment for lease by the Company has been funded primarily in
the past from the proceeds of the sale of debt securities referred to as
subordinated thrift certificates ("Subordinated Thrift Certificates"), and
since December 1, 1987 from proceeds of senior thrift certificates ("Senior
Thrift Certificates").
The Company and ELCOA, expect a significant portion of their future leased
equipment to be funded through sales of certain debt obligations referred to
herein as "Demand and Fixed Rate Certificates" to be issued by ELCOA, as well
as from the certificates offered hereunder.
Since 1980, the Company has registered and sold Senior and Subordinated
Thrift Certificates to the public. As of April 30, 1996, there were 2,744
holders of Senior and Subordinated Thrift Certificates of the Company who held
an aggregate principal amount of $26,917,805 of these certificates and 3,932
holders of the Demand, Fixed Rate and Money Market Thrift Certificates of
ELCOA, aggregating $26,407,959 in principal amount.
The Company's principal executive office is located at Suite 200, One
Belmont Avenue, Bala Cynwyd, Pennsylvania 19004. The Company's telephone
number is (610) 668-0700.
THE OFFERING
The Company will offer under this offering two forms of certificates,
Demand Senior Thrift Certificates ("Demand Certificates") and Fixed Term
Senior Thrift Certificates ("Fixed Term Certificates") which have the
following characteristics.
SENIOR THRIFT CERTIFICATES
Demand Senior Thrift Certificates... The Demand Certificates bear interest
at rates determined monthly by the
Company which are at least 1% above the
6-month U.S. Treasury Bill Rate
established by the U.S. Treasury weekly
auction on or immediately prior to the
first day of the month for which
interest is to be paid. See
"DESCRIPTION OF SECURITIES -
CERTIFICATES; Interest 6-month U.S.
Treasury Bill Rate". The interest rate
paid will vary from month to month
depending upon the U.S. Treasury Bill
auctions. If in any month the 6-Month
U.S. Treasury Bill Rate as set forth
above falls below 6% per annum at such
auction or if there shall be no such
U.S. Treasury Bill Rate in effect, the
11
<PAGE>
<PAGE>22
U.S. Treasury Bill Rate shall be deemed
to be 6% per annum. Interest is payable
monthly on the 10th day of the calendar
month for the prior month or part
thereof and is due, along with
principal on the 5th business day of
the month after the month during which
demand for payment is received. The
minimum investment is $100 per
certificate. The percentage above the
6-month United States Treasury Bill
Rate is to be determined at the
beginning of the month by the Company
(or in the absence of any
determination, such percentage shall be
deemed to be 1% above the six-month
United States Treasury Bill Rate).
Thus, the minimum interest on these
certificates shall be 7% per annum.
Repayment of principal is due on the
fifth day of the calendar month
following the month in which such
request is made. It is the present
policy of the Company, which may be
discontinued at any future date without
notice, subject to the availability of
funds as the Board of Directors
determines in its own discretion, to
pay the principal to the holder within
5 business days after demand for
redemption is received.
Fixed Term Senior
Thrift Certificates............. The Fixed Term Certificates bear
interest at rates determined by the
Company, which are at least equal to 1%
above the 6-month U.S. Treasury Bill
Rate for Certificates with maturities
of 24 months or less, at least 2% above
the 6-month U.S. Treasury Bill Rate for
Certificates with maturities of 25 to
60 months, and at least 3% above the
6-month U.S. Treasury Bill Rate for
Certificates with maturities exceeding
60 months. See "DESCRIPTION OF
SECURITIES - CERTIFICATES; Interest
6-month U.S. Treasury Bill Rate". The
6-month U.S. Treasury Bill Rate used to
calculate the interest rate applicable
to a particular Certificate will be the
rate in effect during the week in which
the purchase price for such Certificate
is received by the Company. The
minimum investment is $100 per
12
<PAGE>
<PAGE>23
certificate and interest is payable
monthly on the 10th day of the calendar
month for the prior month or part
thereof. If in any month the 6-month
U.S. Treasury Bill Rate as set forth
above shall fall below 6% per annum, or
if there is no such U.S. Treasury Bill
Rate in effect, the 6-month U.S.
Treasury Bill Rate shall be deemed to
be 6% per annum. Thus, the minimum
interest on these Certificates shall be
7% per annum for certificates with
maturities of 24 months or less, 8% per
annum for Certificates with maturities
of 25 to 60 months, and 9% per annum
for Certificates with maturities
exceeding 60 months. The fixed term
certificates consist of 6 through 120
month Senior Thrift Certificates, as
selected by the purchaser for any
number of whole calendar months within
those terms.
Provisions Relating to All Certificates
General............................ All Certificates will bear interest
from the date investor funds are
accepted by the Company. Holders of
Certificates may elect to receive
interest which is paid or accumulated
monthly, or in the alternative,
bi-monthly, quarterly, semi-annually,
annually, or at maturity with interest
compounded monthly and accruing to the
date of payment. Notifications
reminding holders of the maturity dates
of their Fixed Term Certificates will
be made to the registered holder by the
Company by mail approximately one month
in advance of the maturity date. Only
with the consent of all holders of the
Certificates can the Company reduce the
stated rate of interest on any
certificate or change the maturity date
or the principal amount of any
certificate. However, with the consent
of at least 75% in aggregate principal
amount of the outstanding Certificates,
it may make certain other changes in
the terms of the Certificates. See
"DESCRIPTION OF SECURITIES -
CERTIFICATES; Modification of The
Indenture".
13
<PAGE>
<PAGE>24
The Certificates will be considered
"Senior Debt" as defined, but will not
be secured by any lien on the assets of
the Company and will have no sinking
fund provisions. The debt evidenced by
the Certificates will be Senior in
priority in the event of liquidation to
all Subordinated Thrift Certificates
and subordinated debentures, as well as
to accrued interest thereon, and
preferred and common stock; however,
the Certificates would be junior in
priority to holders of $26,407,959 in
principal amount, plus $2,767,158 of
accrued interest, of ELCOA's debt
securities outstanding as of April 30,
1996 in liquidation of ELCOA's assets.
See "DESCRIPTION OF SECURITIES - SENIOR
DEBT". As of April 30, 1996,
$5,523,118 in principal amount of
Subordinated Thrift Certificates, and
$4,000 in subordinated debentures, was
outstanding. See "RISK FACTORS-
General; Relative Priorities of Holders
of the Company's Debt."
The Company is not obligated to redeem
Demand Senior Thrift Certificates, or
Fixed Term Senior Thrift Certificates
prior to maturity, in excess of
$250,000 in principal amount in any
month. See "DESCRIPTION OF SECURITIES
- CERTIFICATES; Redemption".
Amount Offered..................... The total principal amount of
Certificates being offered pursuant to
this Prospectus is $40,000,000. Within
this aggregate limit, there are no
limitations on the respective types or
amounts of Certificates which may be
sold. There is no minimum principal
amount of Certificates that must sold.
Modification, Termination or
Extension of Offering.............. The Company reserves the right to
modify at any time, the terms of this
offering. Any such modification will
apply only to Certificates offered
after the date of such modification and
shall comply with the terms of the
trust indenture, and any supplement
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<PAGE>
<PAGE>25
thereto. If required, such
modification will be reflected in an
amendment to this Prospectus. The
Company reserves the right to terminate
the offering at any time.
Trustee............................ The Certificates are to be issued under
the terms of a sixth supplemental
indenture dated as of August xx, 1996
to a trust indenture dated October 7,
1987 between the Company and Summit
Bank (successor by merger to First
Valley Bank) of Bethlehem,
Pennsylvania.
Risk Factors....................... There are substantial risks associated
with this offering. See "RISK
FACTORS".
Use of Proceeds.................... The proceeds of this offering will be
used primarily to acquire commercial
equipment for lease in connection with
the Company's business, and possibly
for redemptions of previously issued
debt securities that may mature during
the period of this offering. See "USE
OF PROCEEDS".
15
<PAGE>
<PAGE>26
<TABLE>
SELECTED FINANCIAL DATA
The following summarizes certain financial information with respect to the Company for the
five years ended April 30, 1996, and should be read in conjunction with the discussion at
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
the "Consolidated Financial Statements."
<CAPTION>
Year Ended April 30,
OPERATING RESULTS: 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenue $3,619,831 $3,979,146 $3,960,337 $4,027,780 $3,577,772
Interest Expense, net 4,844,532 4,313,253 4,094,189 3,637,908 3,205,121
Net Loss (5,631,409) (5,064,166) (4,082,175) (3,864,576) (3,078,250)
BALANCE SHEET DATA:
Total Assets 25,036,097 25,443,367 25,479,099 22,277,616 18,246,128
Demand, Fixed Rate, and
Money Market Thrift
Certificates 26,407,959 24,521,875 21,810,991 18,041,504 12,867,678
Senior Thrift
Certificates 21,394,687 18,783,578 16,650,670 14,085,849 11,713,791
Subordinated Thrift
Certificates 5,523,118 6,025,366 6,038,409 6,138,830 6,390,450
Subordinated Debentures 4,000 5,858 5,858 7,718 7,718
Shareholders' Deficit(2) (35,674,525) (30,043,116) (24,978,950) (20,896,775) (17,030,006)
OTHER FINANCIAL DATA
% of Interest Expense
to Operating Revenue 133.8% 108.4% 103.4% 90.3% 89.6%
Ratio of Earnings
to Fixed Charges (1) --- --- --- --- ---
Aggregate New Leases
Entered 10,025,786 10,189,624 10,168,874 11,293,059 13,218,230
Aggregate Finance Lease
Receivables 18,423,816 18,829,268 20,979,917 21,739,601 20,957,501
<FN>
(1) The ratios of earnings to fixed charges were computed by dividing pre-tax income plus
fixed charges and preferred dividend requirements by the amount of fixed charges and preferred
dividend requirements. For the years ended April 30, 1996, 1995, 1994, 1993, and 1992, the
ratio of earnings to fixed charges was less than "1." During those years, earnings were
inadequate to cover fixed charges (including preferred dividend requirements) by $5,631,409,
$5,064,166, $4,082,175, $3,866,769, and $3,081,059, respectively.
(2) See "Consolidated Statements of Changes in Shareholders' Deficit" for the three fiscal
years ended April 30, 1996.
</TABLE>
16
<PAGE>
<PAGE>27
RISK FACTORS
Investors in the Certificates offered hereby should consider the following
factors in their investment decision:
GENERAL
1. RISKS ATTRIBUTABLE TO CONTINUOUS LOSSES AND ACCUMULATED DEFICIT: The
Company reported losses, on a consolidated basis, of $5,631,409 $5,064,166,
and $4,082,175 during the years ended April 30, 1996, 1995 and 1994,
respectively, and reported negative cash flow from operations during the three
years ended April 30, 1996. Additionally, at April 30, 1996 it had a
shareholders' deficit of $35,674,525 (142.5% of assets) and an accumulated
deficit of $35,776,581 (142.9% of assets). See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS". With the exception
of Equipment Leasing Corporation of America ("ELCOA") the Company's
wholly-owned Delaware subsidiary, the Company conducts its operations
principally through wholly-owned subsidiaries of the same name each of which
is incorporated separately in 48 states in which they conduct business. The
subsidiaries are accounted for on a consolidated basis, and are only separated
for state corporate income tax purposes. As of April 30, 1996, ELCOA reported
total assets of $29,355,259, shareholder's equity of $105,584 and a loss from
operations for the year ended April 30, 1996 of $712,621 which are
consolidated into the Company's consolidated financial statements.
The Company's continued viability is dependent upon increasing the volume
of purchases of equipment for lease. The Company's financial viability is
dependent upon approximately 78% of the current Certificate holders continuing
to rollover their outstanding debt securities on an annual basis. The
Company's continuing operations are therefore contingent upon the ability to
sell its debt securities beyond the next fiscal year in anticipation of
funding new equipment purchases for lease. The Company can give no assurance
either as to its level of future new business or profitability for 1997 or
thereafter. Accordingly, management can give no assurance that the operating
results of 1997 will not result in a loss.
2. HIGH DELINQUENCY RATE ON DIRECT FINANCE LEASE RECEIVABLES: Subsequent to
April 30, 1988, the reserve for anticipated losses from delinquent leases has
been increased by provisions charged against earnings based upon a review not
less than quarterly of the Company's delinquent accounts, which resulted in
additional reserves charged during the fiscal year ended April 30, 1996, based
upon impairments of delinquencies that have or are expected to occur, on past
due accounts. The Company generally leases "small ticket" commercial
equipment costing generally between $1,000 to $25,000 to small to medium sized
companies whose instability is historically greater than larger established
businesses. For a discussion of the provision for doubtful lease receivables,
see "BUSINESS-Credit Policy and Analysis of Delinquencies".
As of April 30, 1996 and 1995, approximately $3,859,000 or 20.9% and
$3,724,000 or 19.8%, respectively, of the contractual total remaining lease
payments due and to become due of direct finance lease receivables were 12 or
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<PAGE>
<PAGE>28
more months past due. For a discussion of the Company's historical experience
in regard to delinquencies and bad debt write-offs, see "BUSINESS-Analysis of
Delinquencies" and "Bad Debt Write-offs". See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for a discussion of
the Company's lack of profitability, as well as Note 1 to the Consolidated
Financial Statements.
3. THE CONTINUED VIABILITY OF THE COMPANY IS DEPENDENT UPON INCREASING THE
VOLUME OF NEW LEASES GENERATED: The Company estimates that it must generate
approximately $34,800,000 of new lease receivables annually in order to reach
a "break-even" level of operations. In order to achieve a level of profitable
operations and to repay the projected cash flow deficiency at April 30, 1996,
the Company estimates that it must be able to generate new leases annually of
approximately $72,000,000, or approximately $6,000,000 per month. The Company
has never generated more than $13,218,230 in new leases in any one year, and
the amount of new leases generated has remained relatively constant over the
last two fiscal years. The Company is refining its marketing efforts to
achieve these goals. In this regard, see "SUMMARY OF THE OFFERING" on page 1
and "FURTHER REFINEMENTS IN MARKETING STRATEGY AND EFFORTS TO REDUCE OPERATING
LOSSES" on page 45.
4. USE OF LEVERAGE AND EFFECT OF FLUCTUATION OF INTEREST CHARGES ON
OPERATIONS: The Company has depended heavily upon borrowed funds in its
operations and is highly leveraged (i.e. a substantial portion of the
Company's operations are financed through borrowings). Annual interest
expense as a percentage of annual operating revenue has steadily increased
since 1992, and for the fiscal year ended April 30, 1996, annual interest
expense represented 133.8% of operating revenues. In view of the Company's
high leverage, continued losses could affect the Company's ability to meet its
principal and interest obligations on its outstanding debt, which at April 30,
1996, consisted in part of $21,394,687 in Senior Thrift Certificates,
$5,527,118 in principal amount of Subordinated Debentures and Subordinated
Thrift Certificates, and $26,407,959 in principal amount of Demand, Fixed Rate
and Money Market Thrift Certificates, issued by ELCOA. Accordingly, the level
of risk is increased in proportion to the length of the terms of the
Certificates, and any election by the holder to accumulate interest. The
Company's obligation to pay its debts will increase its exposure to possible
loss, since fixed payments on debt service must be made on specific dates. At
April 30, 1996 its shareholders' deficit was $35,674,525 and its outstanding
liabilities were $60,710,622. See Notes 3, 4 and 5 to the Consolidated
Financial Statements.
Since 1980, the Company has experienced significant operating losses.
Significant uncertainties presently exist, such as whether or not sufficient
new business can be generated to achieve profitable operations and eliminate
the accumulated deficit, whether or not sufficient financing can be obtained
to purchase equipment and whether or not a significant number of debtholders
will request redemption or "roll-over" of their certificates at maturity. In
light of the Company's financial position, its ability to generate cash
through the sale of Senior Thrift Certificates may be adversely affected and
it may be more difficult to obtain bank financing should such a need arise.
Also, redemptions of borrowings may exceed historical experience and/or cash
received from rentals on outstanding leases. These may be lower than
management's expectations, which would result in insufficient cash for
operations.
18
<PAGE>
<PAGE>29
Based upon these uncertainties, the Company is unable to estimate its
liquidity beyond the next fiscal year. Therefore, a substantial doubt remains
with regard to the Company's ability to continue in existence and accordingly,
the recoverability of its assets at their recorded value is in doubt. Should
the Company be unable to continue its operations, in the event of liquidation,
additional adjustments to the financial statements could reduce the recorded
amount of assets available for distribution to holders of Certificates offered
hereunder, although these Certificates would be senior in liquidation to the
Subordinated Thrift Certificates. See the Independent Auditor's Reports (with
regard to the Company's ability to continue as a going-concern which is
dependent in part upon its ability to achieve profitable operations and obtain
adequate financing sources), Note 1 to Consolidated Financial Statements, and
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS".
Substantially all of the Company's assets are invested in "small-ticket"
equipment subject to fixed term, fixed rate leases. The Company's income may
be adversely affected by increases in both prime and U.S. Treasury Bill rates.
Rates on the Company's senior and subordinated debt may vary with the U.S.
Treasury Bill rate. In the event the Company's interest costs increase, the
Company will not be able to increase its rental income on existing leases to
cover such additional interest expense. In such event, existing leases may
become unprofitable after expenses and cause the Company to suffer additional
losses.
5. AVAILABILITY OF CREDIT AND LIQUIDITY: The Company's method of
financing is dependent primarily upon the sale of the Certificates offered
hereunder and the sales of debt securities offered by ELCOA, and to a lesser
extent its belief that it could pledge leases as collateral with banks or
other lending institutions to obtain additional funds at terms which permit it
to earn a return on the funds invested in the leased equipment and for periods
that permit the loans to be repaid from the rental payments pursuant to the
leases. Due to the Company's history of losses since 1980, current revenue
derived from operations is inadequate to service the Company's obligations
absent the proceeds to be derived from the offering of debt securities to the
public. There can be no assurance that the Company will be able to raise
sufficient funds through the sale of the Certificates. In addition, there can
be no assurances that the Company will be able to borrow sufficient funds from
lending institutions, or sell groups of leases to other financial institutions
for required amounts of cash. Accordingly, this could inhibit the Company's
viability, as the Company's future growth in new leases is dependent upon
increasing sources of adequate financing in order to purchase equipment for
lease. As such, continuing operations are contingent upon the Company's
ability to sell its debt securities beyond the next fiscal year. See "Summary
of the Offering" and "BUSINESS - Methods of Financing".
The Company expects to continue to offer to ELCOA the option of purchasing
new leases to the extent that ELCOA realizes funds from the sale of its debt
securities. There is no assurance that ELCOA will be successful in its sale
of these debt securities. As of April 30, 1996, $26,407,959 in principal
amount of these debt securities were outstanding. See "BUSINESS - Methods of
Financing", and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS; Capital Resources and Liquidity".
19
<PAGE>
<PAGE>30
6. DEFICIENCY IN RATIO OF EARNINGS TO FIXED CHARGES: During the past five
fiscal years ended April 30, 1996, the Company's earnings for financial
statement purposes, before fixed charges (principally interest on its debt
obligations) were less than the amount of those fixed charges, and the ratio
of earnings to fixed charges was less than "1". See "SUMMARY OF THE OFFERING
- - Selected Financial Data" and the notes thereto. If the Company continues to
have losses, its ratio of earnings to fixed charges will continue to be less
than "1" and it may experience difficulty in meeting its obligations,
including interest on the Certificates in the future years. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
7. POSSIBLE USE OF PROCEEDS TO REDEEM DEBT SECURITIES: The proceeds of
Certificates sold pursuant to this offering may be used to redeem or pay
interest on previously issued securities, as well as on the Certificates
registered herein. See "USE OF PROCEEDS." During the three fiscal years ended
April 30, 1996, 1995, and 1994 approximately 75%, 71%, and 59%, respectively,
of the proceeds of sale of securities by the Company were used for the
redemption of principal and interest on previously issued debt. The Company
expects that the percentage of proceeds from the sale of securities used for
the redemption of previously issued debt will be similar during fiscal 1997 to
recent years. Previously issued Subordinated Thrift Certificates with a total
principal amount of over $4,355,000 are due in the current fiscal year of
which over $481,176 is payable on demand. Approximately $1,839,000 of accrued
interest is payable on demand on previously issued Subordinated Thrift
Certificates. Approximately $15,545,000 in principal amount of previously
issued Senior Thrift Certificates will mature between May 1, 1996 and April
30, 1997. The proceeds of the offering of Certificates may be used to redeem
these amounts of previously issued debt securities. Approximately $606,885 of
Senior and Subordinated Certificates payable to related parties are due in the
current fiscal year, as well as $146,848 of accrued interest thereon at April
30, 1996. See Notes 4, 5 and 10 to the Consolidated Financial Statements.
For a complete discussion of the resources available for the repayment of
previously issued debt which will mature during the fiscal year ending April
30, 1997, see "Capital Resources and Liquidity".
8. RISKS ASSOCIATED WITH THE EQUIPMENT LEASING BUSINESS: The success of
the Company will in certain respects depend upon the quality of the equipment,
the viability of the equipment dealers and manufacturers, the timing of the
purchases of equipment by the Company, the credit-worthiness of the lessees
and their ability to meet their rental payment obligations as they become due
and the Company's loss experience. Equipment leasing is subject to the risk
of technological and economic equipment obsolescence and the attendant risks
upon defaults by lessees. While the Company investigates prospective lessees
to ascertain whether they will be able to meet their obligations under
proposed leases, there exists no established specific credit standards for
prospective lessees. See "BUSINESS-Credit Policy." As a result, the ability
of the Company's lessees to meet their lease obligations is subject to risks,
such as general economic conditions nationwide, over which the Company has
little influence or control.
20
<PAGE>
<PAGE>31
9. TRANSACTIONS WITH AFFILIATES AND POTENTIAL CONFLICTS OF INTEREST: The
Company pays a management service fee of $5,750 per month to Walnut
Associates, Inc. (which is 100% owned by William Shapiro, President of the
Company), leases its print-shop and storage facilities from Walnut Associates,
Inc., reimburses Financial Data, Inc. (which is 100% owned by Walnut
Associates, Inc.) for costs to perform certain programming and production work
and reimburses the law firm of William Shapiro, Esq., P.C., of which William
Shapiro is the principal shareholder, for legal costs and expenditures
incurred for legal services involving collections of defaulted leases. The
underwriter, Welco Securities, Inc., is also an affiliate of the Company. See
Note 10 to the Consolidated Financial Statements for complete discussion of
the nature of the transactions and the amount of these expenditures during the
three years ended April 30, 1996. The Company believes these transactions to
be on terms which are at least as favorable as the Company could obtain from
non-affiliates.
Since the Company and ELCOA are affiliated and share the same officers and
directors, certain conflicts of interest may arise between the Companies. The
purchasers of the Certificates must, to a great extent, rely on the integrity
and corporate responsibilities of the Company's officers and directors to
assure themselves that such individuals will not abuse their discretion in
making business decisions.
ELCOA may compete with the Company in the equipment leasing business.
Should both companies have funds available at the same time for acquiring
equipment and related leases, conflicts of interest may arise as to which
company should hold and retain the equipment and related leases. In such
situations, the officers will analyze the equipment already purchased by the
Company and the investment objectives of the Company and ELCOA. The officers
will make the decision as to which company will ultimately retain the
equipment and related leases, based upon such factors among others, as (a) the
amount of cash available to the Company and ELCOA, (b) the current and long
term liabilities of each company, and (c) the effect of such acquisition on
the diversification of each company's equipment and lease portfolio. ELCOA
has the right of first refusal in any equipment the Company wishes to sell,
based upon an Option Agreement between the parties. An additional conflict
may exist since the Company has been engaged in the collection of delinquent
accounts on behalf of ELCOA and will continue to receive servicing fees during
its collection efforts, although ELCOA may not recognize any income beyond the
original lease term.
10. RELATIVE PRIORITIES OF HOLDERS OF THE COMPANY'S DEBT: The
Certificates are senior in priority in the event of liquidation of the Company
to the outstanding Subordinated Thrift Certificates and subordinated
debentures of the Company, which were $5,523,118 and $4,000, respectively, at
April 30, 1996, as well as to accrued interest thereon, preferred and common
stock of the Company. The Certificates rank on parity with $21,394,687 in
outstanding Senior Thrift Certificates, plus accrued interest thereon, at
April 30, 1996. However, in the event of liquidation of ELCOA, holders of
ELCOA's debt securities would be senior in priority in liquidation to ELCOA's
assets. There are no provisions for a sinking fund or lien on the assets of
the Company in favor of the holders of the Certificates or subordinated debt
of the Company. To the extent that holders of the subordinated debt redeem
their securities or "rollover" into the Certificates, the preference in favor
21
<PAGE>
<PAGE>32
of the holders of the Certificates would be reduced. The Company is unable to
estimate to what extent holders of the subordinated debt will redeem their
certificates or "rollover" into the Certificates.
In addition, should the Company continue to suffer continuous operating
losses as it has in the past, it may become necessary to cease making
principal payments either at maturity or upon a holder's election to redeem,
or to suspend required payments of interest to all holders. To date, neither
the Company nor ELCOA have ever defaulted in the repayment of principal or
interest as scheduled on any loans or debt securities under the provisions of
any trust indenture. See "DESCRIPTION OF SECURITIES: Events of Default".
There are no restrictions upon the Company's ability to issue debt senior
to the Senior Thrift Certificates or additional debt which may be secured by a
lien on the Company's assets. See "DESCRIPTION OF SECURITIES - Senior Debt".
11. KEY EXECUTIVE AND CONTROL: Mr. William Shapiro, the Company's
President and founder, has played a key role in the Company's development.
Although the Company employs what it believes to be competent management and
supervisory personnel to oversee its daily operations, the loss of Mr.
Shapiro's services, might have an adverse effect on the Company's operations
and prospects, and might affect its ability to implement its strategic plans.
There can be no assurance that the Company would be able to employ qualified
personnel on acceptable terms to replace Mr. Shapiro, nor is the Company the
beneficiary of any life insurance policies covering Mr. Shapiro. Mr. Shapiro
has not entered into any written employment agreement with the Company.
12. COMPETITION IN THE EQUIPMENT LEASING INDUSTRY: The equipment leasing
industry is highly competitive. In initiating its leasing transactions, the
Company will compete with leasing companies, manufacturers that lease their
products directly, equipment brokers and dealers, and financial institutions,
including commercial banks and insurance companies. Many competitors will be
larger than the Company and will have access to more favorable financing.
Competitive factors in the equipment leasing business primarily involve
pricing and other financial arrangements.
RELATIVE TO CERTIFICATES
1. PREPAYMENT PENALTY: In the event a holder of any Fixed Term
Certificate requests payment prior to maturity, a prepayment penalty will be
charged in accordance with a prescribed formula. The Company's present policy
is to repay principal and interest on early repayment within five business
days after demand, although this policy may change without notice to security
holders. Absent this policy, the Company is required to redeem Demand
Certificates on the fifth day of the next calendar month after a written
request for redemption is received, subject to a limitation of $250,000 per
month. See "DESCRIPTION OF SECURITIES - CERTIFICATES; Right to Request Early
Payment and "Limitations on Redemptions."
2. RESTRICTION ON REDEMPTION OF CERTIFICATES: The Company is not
obligated to redeem in any calendar month an amount in excess of $250,000 in
principal in the aggregate of Demand Certificates, together with Fixed Term
Certificates for which the holder requests redemption prior to maturity. In
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<PAGE>
<PAGE>33
addition, an aggregate $300,000 monthly limitation applies to redemption of
similar Subordinated Thrift Certificates. If a substantial portion of the
Demand Certificates demand repayment and/or the holders of the Fixed Term
Certificates redeem prior to maturity, there is no assurance that the Company
will be able to satisfy such requests at the time of such demand. The Company
estimates that on April 30, 1996, the Company and ELCOA had available to it
cash and short-term U.S. Government Securities of approximately $9,200,000 and
additional funds that could be borrowed or generated through sale with respect
to unhypothecated leases of approximately $8,820,000 to satisfy such requests.
In addition, the Company can call the Certificates on sixty days notice to the
holder for redemption. See "DESCRIPTION OF SECURITIES - CERTIFICATES;
Redemption".
3. ABSENCE OF INSURANCE AND GUARANTEES: The Certificates are neither
insured by any governmental agency, as are certain investments in financial
institutions such as banks, savings and loans or credit unions, nor are they
guaranteed by any public agency or private entity. It should also be noted
that the Company is not subject to any generally applicable governmental
limitations on its own borrowing which are designed to protect investors.
4. ABSENCE OF TRADING MARKETS AND ARBITRARY OFFERING PRICE: No current
trading market for the Certificates exists, and it is not anticipated that any
trading market for any of the Certificates being offered will develop. There
can be no assurance that all or a significant portion of the Certificates
being offered hereunder will be sold. The offering price of the Certificates
has been arbitrarily determined by the Company with the concurrence of Welco,
and bears no relation to the Company's assets, book value, deficit, or any
other established criteria of value.
5. OTHER FACTORS POTENTIALLY AFFECTING SALE OF CERTIFICATES: Future
sales of Certificates are affected by the money markets, and recent and
potential changes in government regulation, including interest rate
limitations which have been phased out and which may be paid by banks and
savings institutions. The relative attractiveness of the Certificates is
influenced by changes in the terms on which cash can be invested by members of
the public in other interest bearing investments, such as savings accounts,
interest bearing checking accounts (NOW accounts), Individual Retirement
Accounts, "money market" funds, certificates of deposit, commercial paper,
government securities and other types of debt obligations, which afford less
risks to the investors.
In addition, since the Company and ELCOA may compete in the financial
market for funds, this may have an adverse effect on the Company's ability to
increase its source of funds available to purchase equipment for lease. These
factors may inhibit the ability of the Company to sell the certificates
offered hereunder.
There is no minimum amount of Certificates which must be sold under this
offering.
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<PAGE>34
USE OF PROCEEDS
The Company intends to apply the net proceeds remaining after payment of
expenses of this offering for the purchase of commercial and industrial
equipment for lease, and for redemption of previously issued securities
together with interest. See "BUSINESS" on page 25 and Risk Factor #4 on page
18 of this Prospectus. The maximum amount which may be realized from the
offering is $40,000,000, less anticipated expenses of $80,000 and commissions
to be paid to the Underwriter. The Company's primary business is the purchase
of general commercial and industrial equipment which is to be leased to the
Company's customers. As Certificates are sold, the proceeds are used for the
redemption of previously issued debt together with interest with any excess
proceeds received daily allocated to that day's purchase of equipment for
lease on a daily continuous basis. In the event that the net proceeds
realized from this offering are less than or equal to the principal amounts
that will mature on or before April 30, 1997, the Company will give first
priority to the redemption of maturing certificates over the purchase of
equipment to be leased. Since the offering is on a "best efforts", continuous
basis with no minimum amount to be sold, the Company intends to apply the
proceeds of this offering to the purchase of equipment, but is unable to
calculate with any certainty the allocation of proceeds for any of the
foregoing purposes.
Approximately $4,355,000 in principal amount of Subordinated Thrift
Certificates will mature between May 1, 1996 and April 30, 1997 with interest
rates ranging from 10.00% to 13.10%. Approximately $15,545,000 in principal
amount of Senior Thrift Certificates will mature between May 1, 1996 and April
30, 1997, with interest rates ranging from 7.00 to 13.10%. The Company
believes that these amounts become due ratably, on a daily basis, over the
twelve months ended April 30, 1997. Proceeds of this offering may be used in
part to redeem these enumerated amounts of debt securities previously issued.
The Company expects that the percentage of proceeds from the sale of
securities used for the redemption of previously issued debt will be similar
during fiscal 1997 to recent years and during the three fiscal years ended
April 30, 1996, 1995 and 1994 such percentages were 75%, 71%, and 59%,
respectively. In addition, the percentage of proceeds from the sale of
securities used for the purchase of equipment for lease during the three
fiscal years ended April 30, 1996, 1995 and 1994 were 25%, 29%, and 41%,
respectively. The Company expects that the percentage of proceeds from the
sale of securities to be used for the purchase of equipment may be similar
during fiscal 1997. The weighted-average interest rate of outstanding
subordinated and Senior Thrift Certificates at April 30, 1996 was
approximately 8.6%. See Notes 4 and 5 to the Consolidated Financial
Statements. Since the offering of the Certificates is made on a
"best-efforts" basis with no minimum amount which must be sold, the Company is
unable to calculate with any certainty the proceeds to be realized from this
offering.
Pending such uses, the net proceeds of this offering may be invested in
short-term commercial bank "money market funds" or other high-grade liquid
interest-bearing investments such as U.S. Treasury bills not exceeding six
months in maturity.
24
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<PAGE>35
BUSINESS
The Company's principal business is the acquisition of commercial and
industrial equipment for business use which it leases under full-payout direct
financing leases to what it considers credit-worthy lessees. See "Marketing"
and "Credit Policy." The Company services the needs of manufacturers and
distributors of small commercial equipment by offering them the opportunity to
use leasing as a sales tool. See "Marketing." The Company acquires the
equipment only after leases have been consummated. The Company ordinarily
writes leases for periods of one to five years for equipment costing $750 or
more, but which does not usually exceed $6,000. The lease agreements entered
into between the Company and the lessees contemplate the payment of funds
sufficient to recover the Company's investment and to provide a profit over
the terms of the leases. The Company recognizes as income over the entire
term of the leases the difference between the total rents scheduled to be
collected along with the estimated residual value of the equipment at the end
of the lease term, less the cost of the equipment. The Company recognizes
income from each lease over its respective term, even if payments are
delinquent for any number of months. The Company sets aside from its income a
provision for anticipated losses from delinquencies. See Footnote 1 to the
Consolidated Financial Statements. The lease agreements do not contain an
express purchase option. The Company has offered the equipment for sale to
the former lessee at the recorded residual value, after expiration of the
lease, which ranges from $1 to approximately 10% of the Company's original
equipment cost. Substantially all leased equipment has been sold to the
lessees at termination of their leases. See "Marketing".
The leases require that the lessee maintain and insure the equipment. The
Company disclaims any obligation to repair or maintain the equipment. The
lessee relies solely on warranties or services from the vendor or the
manufacturer of the equipment. In leasing equipment the Company relies
principally on the credit of the lessee to recapture its cost of equipment
rather than the residual value of the equipment. Due to the small size of
each individual lease, the Company does not conduct an actual physical
inspection of the equipment prior to or during the term of the lease, but
relies instead upon both written and oral representations by the lessees
regarding satisfactory acceptance of the equipment, prior to commencement of
the lease and payment of the vendor's invoice by the Company. The Company
carries its own insurance in the event the lessee fails to insure, and also
maintains insurance which management believes is adequate against liability
from the anticipated use, or loss by fire or otherwise of the equipment by the
lessees. These leases are commonly referred to as "direct finance leases."
The Company uses a standard non-cancellable lease for its direct finance
leases, the terms and conditions of which vary slightly from transaction to
transaction. These leases are commonly referred to as "full-payout", "hell or
high water", or finance leases pursuant to Article 2A of the Uniform
Commercial Code. As such, the lessees are unconditionally obligated to make
monthly rental payments to the Company irrespective of the condition, use, or
maintenance of the equipment under lease. In management's opinion, the
lessees have no legal or equitable defenses that may be asserted against the
Company in the event the leased equipment does not function properly. In
substantially all cases, the lease states that lessees are obligated to (1)
remit all rents due, regardless of the performance of the equipment; (2)
25
<PAGE>
<PAGE>36
operate the equipment in a careful and proper manner and in compliance with
applicable governmental rules and regulations; (3) maintain and service the
equipment; (4) insure the equipment against casualty losses and public
liability, bodily injury and property damage; and (5) pay directly or
reimburse the Company for any taxes associated with the equipment, its use,
possession or lease, except those relating to net income derived by the
Company therefrom.
Under terms of the lease contract, the lessees are prohibited from
assigning or subletting the equipment or appurtenant lease to any third party
without the express written consent of the Company. The lease provides that
the Company, in the event of a default by the lessee, may declare the entire
unpaid balance of rentals due and payable immediately and may seize and remove
the equipment for subsequent sale, release or other disposition. During the
fiscal year ended April 30, 1996, the Company entered into 1,880 direct
finance leases which had an average initial term of approximately 34 months,
representing aggregate contractual lease receivables of $10,025,786. Of
these, a technical event of default in the terms of the lease contract
occurred in 530 leases having an aggregate contractual lease receivable of
$2,677,080, of which 79 having an aggregate contractual lease receivable of
$375,710 (included in the 530 leases) were serious enough to require the
Company to declare the entire unpaid balance of rentals due and payable
immediately. See "Marketing".
The Company has, from time to time, leased equipment under renewable
leases which do not contemplate full recovery of the Company's original costs
during their initial one year term. These leases are referred to as operating
leases, intended primarily for large corporate and governmental lessees that
are restricted from entering into leases with terms longer than one year. The
leases are automatically renewed for an additional year, and so on from year
to year, unless terminated upon ninety days' prior written notice. Under the
operating lease the lessee is granted an option to purchase the equipment for
the original invoice price less a credit for a portion of the rentals paid.
The Company requires equipment vendors to refrain from replacing for two years
the equipment should the lessee cancel after the initial one year term. The
monthly rental is calculated as 6% of the equipment cost monthly. Total
annual rentals charged by the Company equals 72% of the original equipment
cost. The repurchase price is equal to the original cost of the equipment,
less a credit for a portion of the rentals received from the lessee. There
are no assurances that the Company's costs will be recovered. As of April 30,
1996, the net book value of equipment subject to operating leases was $19,420.
As of that date, the Company had contracts for operating leases in the
aggregate remaining balance of $10,433 all of which are due during the fiscal
year ended April 30, 1997.
The Company (including ELCOA), as of April 30, 1996, owned 7,104 direct
financing leases with an aggregate balance of $18,423,816, on a consolidated
basis, with an average lease receivable balance of $2,593. Of these leases,
504 had balances between $6,000 and $9,999 with an aggregate balance of
$3,781,021, and 160 had balances in excess of $10,000 with an aggregate
balance of $2,570,715. Leases over $6,000 accounted for 9.4% of the total
number of leases outstanding and 34.5% of the total dollar amount of lease
receivables outstanding at April 30, 1996. On occasion, the Company enters
into more than one lease agreement with a particular lessee. As of April 30,
26
<PAGE>
<PAGE>37
1996, the three largest lessees were Mica Metals, Inc. with a balance of
$76,161, Miller Freeman, Inc. with a balance of $55,265 and Greenbriar
Restaurant with a balance of $46,648. All three leases were generated as a
result of Co-operative Agreements with Manufacturers. Accordingly, no single
lessee represents over .4 percent of the outstanding lease portfolio. As of
April 30, 1996, ELCOA owned 6,644 direct financing leases which had an
aggregate lease receivable balance of $16,667,226, and an average lease
receivable balance of $2,509. Of these leases, 408 had balances between
$6,000 and $9,999 with an aggregate balance of $3,032,573 and 127 and balances
in excess of $10,000 with an aggregate balance of $2,057,444.
The Company purchases its equipment for lease from a variety of equipment
vendors located throughout the United States, none of which was responsible
for supplying the company with 5% or more of its equipment purchases. See
"Marketing". There are no back-log orders for equipment purchase commitments.
The Company believes it is in a competitive position within its industry
because of its ability to carry a large number of small equipment leases
through the extensive utilization of electronic data processing and its "back
office" facilities. Electronic data processing includes proprietary computer
programs developed exclusively for the Company, which enable it to maintain
detailed records of each lease contract presently outstanding and can likely
service by at least ten fold its present number of contracts without
modification. Other "back-office" facilities include credit investigation,
documentation, bookkeeping and collection departments, all centrally located
in the Company's headquarters which eliminate the need to contract outside
services to perform these duties now and in the future. However, future
growth is dependent upon sources of adequate financing for the cost of newly
acquired equipment, including the proceeds from the sale of Senior Thrift
Certificates and the sale of debt securities by ELCOA, the Company's
wholly-owned subsidiary. See "Methods of Financing."
During the three fiscal years ended April 30, 1996, 1995, and 1994, the
gross rents charged over the "net investment" in direct finance leases were
146%, 145% and 147%, respectively. Gross rents are calculated as the
aggregate rentals contracted to be received over the terms of all leases
entered during the respective years, and are not on an annual basis. Factors
considered by the Company in determining the rents to be charged are the net
equipment cost, marketing expenses, credit investigation, document processing,
invoicing and collections, potential bad debt write-offs, the Company's cost
of funds, term of the lease, and a profit margin.
The Company's leasing activities are not generally oriented towards
creating tax benefits, and therefore changes in recent tax legislation since
1986 have only a marginal benefit to the Company. The Company believes that
some of the Company's competitors lost the benefit of using excess tax
deductions and credits generated by their leasing operations to offset income
from other sources, which in the past allowed them to offer lower leasing
rates than the Company. To the extent the changes mentioned above reduced the
benefits of equipment ownership, the Company believes that businesses might be
more inclined to lease because deductibility of rental payments by the lessees
remain unaffected, while purchases no longer provide certain tax advantages.
Management believes that changes under the Tax Reform Act of 1986, as amended,
have had no material impact on the Company's operations.
27
<PAGE>
<PAGE>38
MARKETING
Since its inception, the Company has concentrated on seeking lessees
desiring to lease equipment costing $6,000 or less under direct finance
leases, because it believes that there is less competition for small leases.
In addition, the Company is able to spread risk of loss from defaulted leases
over a greater number of leases. It leases items such as office equipment,
business machines, graphic arts equipment, scientific and medical
instrumentation, material handling equipment, microfilm equipment, automobile
test equipment, cash registers, restaurant and food-service equipment, and
other business, industrial and commercial equipment and does not concentrate
in any one type. The Company estimates the total cost of equipment purchased
for lease comprising 5% or more of the total purchases during the twelve
months ended April 30, 1996 and 1995 as follows:
INDUSTRY April 30, 1996 April 30, 1995
- -------- -------------- --------------
Food/Hospitality Service 45% 39%
Industrial Equipment 20% 21%
Auto After Market and Test Equipment 9% 13%
Office Machines and Copiers 11% 8%
Computers and Peripheral Hardware 5% 7%
Audio Visual and Communications --- 5%
These amounts vary from year to year, and may not be indicative of future
purchases. The equipment purchased is primarily newly manufactured equipment,
but on occasion the Company will purchase used equipment for lease at its then
fair market value. The equipment is located throughout the United States
without undue concentration in any one area. The Company's historical
experience indicates that the equipment under lease does not generally become
obsolete at the conclusion of the lease term.
The Company concentrates its marketing effort to reach salesmen, dealers,
distributors and branch offices of companies selling equipment similar to that
described above for lease to appropriate lessees. The Company has previously
used regional offices, direct mail programs, and telemarketing, all of which
have been phased out in favor of the Company's current marketing strategy that
emphasizes direct contact with manufacturers in promoting leasing as a sales
tool to their dealers. The Company believes that with the cooperative efforts
of equipment manufacturers, an increased number of dealers and distributors
(i.e. "vendors") will become aware of the option of using leasing as a sales
tool, which in turn will increase the generation of new leases by the Company.
The Company currently actively conducts business on a monthly basis through
approximately 180 equipment vendors, distributors, and branch outlets of
manufacturers. None supply more than 5% of the Company's new business.
The following table reflects the aggregate dollar amount of rentals
represented by new leases and the number of such leases written during each of
the last three years, on a quarterly basis.
28
<PAGE>
<PAGE>39
<TABLE>
<CAPTION>
Fiscal Years Ended April 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Aggregate Lease Rentals $10,025,786 $10,189,624 $10,168,874
Number of New Leases 1,880 2,170 2,242
Average Amount per New Lease $5,333 $4,696 $4,536
New Leases
Entered Quarterly
- -----------------
First Quarter $ 2,500,771 $ 2,824,902 $ 2,744,959
Second Quarter 2,730,560 2,371,098 2,299,854
Third Quarter 2,066,380 2,596,150 2,286,672
Fourth Quarter 2,728,075 2,397,474 2,837,389
</TABLE>
During the beginning of the third quarter of the fiscal year ended April
30, 1993, management eliminated certain types of equipment that it previously
considered for lease, such as credit-card machines, commercial water coolers
and security surveillance equipment. Management believed that these, as well
as other types of equipment it considered to be over-priced, were a factor in
the increased amount of delinquencies during the fiscal year ended April 30,
1993. In addition, management restricted the submission of lease applications
through brokers as the ratios of consummated leases to the number of
applications submitted was unacceptable. These factors, in conjunction with a
weak nationwide economy, led to the decline in new lease volume during the
remainder of the fiscal year, which trend continued into the fiscal years
ended April 30, 1994 and 1995. The Company estimates that its share of the
"small-ticket" leasing market for commercial equipment costing less than
$25,000 is less than 1%.
During the fourth quarter of the fiscal year ended April 30, 1994, the
Company refined its marketing efforts aimed at equipment manufacturers,
encouraging them to cooperate with the Company in educating their dealer or
branch office distribution networks with using leasing as a sales tool.
During the last three months of the fiscal year ended April 30, 1995, the
Company began to target equipment manufacturers with sales in excess of
$5 million and an established distribution network to offer them a "private
label lease program". These programs are intended to further increase the
Company's marketing efforts. For a more complete discussion of these efforts,
see "Further Refinements in Marketing Strategy and Efforts to Reduce Operating
Losses" on page 45. Management anticipates that these programs will continue,
and as other leasing companies raise their minimum transaction size, the
Company expects to gain from an increase in size of new lease applications
being submitted. As noted by the table above, the average size of each new
lease receivable has increased approximately 18% over the three fiscal years
ended April 30, 1996, of which approximately 80% of this increase is related
to the fiscal year ended April 30, 1996. Management expects this trend to
continue as its cooperative efforts with equipment manufacturers continue to
mature. See "Further Refinements in Marketing Strategy and Efforts to Reduce
Operating Losses" on page 45.
29
<PAGE>
<PAGE>40
The Company markets its leases throughout the United States. The
following is a breakdown as of April 30, 1996 of the original cost of
equipment, net of residual value, that the Company owns or manages on behalf
of ELCOA in various areas of the United States. Approximately $22,480,933 in
original equipment cost is owned by ELCOA, and managed by the Company. See
"BUSINESS - Methods of Financing."
<TABLE>
<CAPTION>
Amount %
----------- ------
<S> <C> <C>
New England $ 2,880,054 11.84
Mid Atlantic 7,010,403 28.82
Southeast 4,249,540 17.47
Midwest 2,826,540 11.62
South 2,264,637 9.31
Rocky Mountain 547,308 2.25
West Coast 1,748,952 7.19
Southwest 2,797,350 11.50
----------- ------
$24,324,784 100.0%
=========== ======
</TABLE>
CREDIT POLICY
In order to conduct a business dealing in leases principally under $10,000,
the Company has developed what it considers to be an efficient method of
determining credit risks. The Company bases its decision to accept an
application from a potential lessee on the Company's assessment of the lessee's
ability to meet its obligations for payments as set forth under the lease and
not upon the resale value of the equipment in the event of the lessee's
default. The Company's lessees range from newly formed businesses (less than
two years in business) to major corporations. Lease rental rates are
established based upon the Company's assessment of credit risk, as newly formed
and smaller businesses pay a higher rate in general than would established
companies. As the Company entered into an excess of 1,800 leases to all types
and sizes of businesses during the fiscal year ended April 30, 1996, it is
unable to quantify with any certainty the general material characteristics of
all of its lessees. The Company believes that at least a majority of its
lessees are small to medium size businesses with between $100,000 and
$2,000,000 in annual sales and less than 50 employees. The Company relies
heavily on bank references, trade references, personal credit reports on the
principals of the lessee, number of years in business, property searches and
other credit bureau reports. In addition to the credit investigation, the
Company generally requires the owners and principal shareholders (and their
spouses) of sole proprietorships, partnerships, and closely-held corporations
which have been in business less than three years, or have fewer than 20
employees, to personally guarantee the obligations of the lessee. Additional
rental prepayments are required if the lessee has been in business for less
than two years. Most credit decisions are made within one day of the initial
credit application. The Company has found that credit evaluation is essential
as the equipment has a substantially reduced value on resale or releasing.
30
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<PAGE>41
Consequently, it must rely primarily on its initial credit judgment. The
Company employs 8 people in its Credit and Collection Departments, and has a
policy of litigating all claims against lessees for unpaid rentals. These
claims are usually settled in favor of the Company, as the lease contract
provides that in the event of default by the lessee, the Company is entitled to
the accelerated balance of the remaining contractual lease payments, late
charges and, in the event of litigation, reimbursement for collection costs and
reasonable attorney's fees. Historically, the amount recovered from
collections of delinquent leases has exceeded the legal fees incurred in
connection therewith. The Company reimbursed the law firm of William Shapiro,
Esq., P.C., an affiliate, for payroll costs of its staff attorneys and any
required advances for court costs, and did not pay any other fees on either a
contingent or hourly basis. Neither William nor Kenneth Shapiro who are
officers and directors of the Company are included in the law firm's payroll.
William Shapiro is the sole shareholder of the law firm. See Note 10 to the
Consolidated Financial Statements.
Prior to May 1, 1988, at the inception of each new lease, an allowance was
established for potential future losses. The level of the allowance was based
upon historical experience of collections, management's evaluation of estimated
losses as well as prevailing and anticipated economic conditions. Management
evaluated the adequacy of the resulting allowance annually. The allowance is
currently based upon a periodic evaluation, performed at least quarterly, of
delinquent finance lease receivables to reflect anticipated losses from
delinquencies and impairments that have already occurred. See Note 1 to the
Consolidated Financial Statements. During the three fiscal years ended April
30, 1996, 1995 and 1994, the allowance for doubtful accounts was increased
annually by provisions in the amounts of $1,055,997, $1,635,963, and $792,879,
respectively. The amounts written off in each of the three fiscal years ended
April 30, 1996, 1995 and 1994 were $940,243, $2,111,032, and $897,098, or
5.05%, 10.61%, and 4.20% of average gross lease receivables, respectively. The
Company expects the percentage of net charge-offs to average gross lease
receivables to continue to decline from fiscal 1996 into fiscal 1997. During
the fiscal year ended April 30, 1995, the Company conducted an extensive review
of the collectibility of all past due accounts, and increased write-offs in
those situations where further costs in pursuing legal remedies were
unwarranted. This resulted in an extraordinary level of write-offs of older
delinquent accounts as evidenced by the $1,170,789 or 55.5% decrease in
write-offs for the current fiscal year ended April 30, 1996 in comparison to
the prior year. The Company aggressively takes legal recourse with respect to
each delinquent lease irrespective of the amount at controversy and believes
this approach is an important part of the collection effort. Obligations are
not written off until there is either an adverse court decision, bankruptcy or
settlement, and local counsel has determined that the obligation cannot be
recovered. As a result, delinquent receivable balances appear higher than
industry averages because of the Company's decision to report them on a
contractual basis, and to pursue delinquent lessees until all collection
efforts have been completely exhausted. Once collection efforts are
discontinued, any likelihood of recovering the equipment, to the extent not
previously repossessed, is considered remote.
The Company makes a practice of assessing and collecting late charges on
all delinquent accounts, if possible. Late charges are assessed on all
delinquent accounts at the rate of 5% monthly of the delinquent past due
31
<PAGE>
<PAGE>42
payments. Late charges collected and included in revenue for the fiscal years
ended April 30, 1996, 1995 and 1994 were approximately $411,000, $418,000,
$372,000, respectively. Increased emphasis on collections accounted for the
increase in late charges during the fiscal years ended April 30, 1996 and 1995
in comparison to the fiscal year ended April 30, 1994. In addition, the
Company has historically recovered at least the recorded amount of residual
values at the conclusion of each lease, unless written-off as uncollectible.
See Note 1 to the Consolidated Financial Statements.
The Company believes that its loss experience and delinquency rate are
reasonable for its operations. The Company's rates charged on its leases tend
to be higher than industry averages due to the relative lack of competition in
small-ticket leasing. The higher rates are intended to offset the increased
credit risks and processing costs associated with small-ticket leases.
Although the Company's loss experience measured as a percentage of net
charge-offs to average lease receivables outstanding is consistent with
industry averages, its delinquency rate is higher than industry averages
because of its market, i.e. primarily small to medium sized business. In
addition, delinquent receivable balances appear higher than industry average
because of the Company's decision to pursue delinquent lessees until all
collection efforts have been completely exhausted.
The implications of these higher percentages require the Company to
continue its collection efforts diligently to minimize its actual losses from
delinquent accounts. The Company notes that because of recent changes in
bankruptcy laws and delays in state court systems nationwide, the time
necessary to litigate and collect on any judgment has increased during the past
five years. Experience over the five years, measured as a percentage of net
charge-offs, remained fairly constant. The increase in net charge-offs during
the fiscal year ended April 30, 1995 resulted primarily from the exhaustion of
legal efforts to collect certain delinquent leases arising prior to May, 1989,
for which management believed further attempts to collect to be futile. Other
factors such as evolving changes in case and statutory law in some states
favoring debtors rights (notably Florida, Texas, Alabama, South Carolina, and
California), post-judgment filing costs associated with continuing litigation
and pursuit in collections, economic conditions in certain geographical areas,
and the age of the delinquent lease receivables being collected also can be
attributed to the increase in write-offs during fiscal 1995. As the credit
criteria for new leases in those states favoring debtors rights have been
enhanced, management believes that the likelihood of collecting the remaining
delinquent lease receivables at April 30, 1996 is greater than those previously
written-off. Management attributes the slowdown in the economy nationwide as a
principal reason for the increase in new delinquencies during fiscal 1994, as
well as to lessee dissatisfaction with equipment the Company no longer
considers for lease. These include credit card processing machinery, water
coolers, and surveillance equipment, which management considered to be
overpriced (considered to be a factor in less than 10% of the cases in
litigation). See "Marketing". The management of receivables during the past
three years in light of relatively weak economic conditions and overextension
of small and medium-size businesses continues to pose a demanding challenge
upon financial institutions in general. Business failures, bankruptcies, and
the trend toward slower payment increased when compared to prior years. The
Company's lessees, many of them owners of small and medium-sized businesses,
have been particularly affected by the economic malaise during the past three
32
<PAGE>
<PAGE>43
fiscal years. However, because of the diversification of the Company's leases
in dollar amount and geographical location, any continued weakening in the
economy should have no material impact on the Company's overall cash flow. The
collection of delinquent lease balances remains one of the Company's top
priorities, resulting in a shifting of staff priorities to the collection and
legal functions.
The allowance for doubtful accounts was 8.3% of total finance lease
receivables at April 30, 1996 which management believes is adequate for future
write-offs on the Company's aggregate lease receivables as of April 30, 1996.
See Note 1 to the Consolidated Financial Statements. Charge-offs as a
percentage of average aggregate future lease receivables were 5.05%, 10.61%,
4.20%, 4.37%, and 2.55% for the fiscal years ended April 30, 1996, 1995, 1994,
1993 and 1992, respectively. Gross chargeoffs increased during the fiscal year
ended April 30, 1993 as a result of the change from a manual to computerized
legal tracking system in the legal area, prompting additional charge-offs of
leases deemed uncollectible as a result of an additional review of all
delinquent accounts undertaken during the conversion. During the fiscal year
ended April 30, 1995, management conducted an extensive review of the
collectibility of all past due accounts, and further increased the amount of
write-offs in those situations where further costs in pursuing legal remedies
in collection were unwarranted. This analysis considered the post-judgment
filing costs associated with the Company's methods of collection, including but
not limited to bank, wage, personal property, and real estate foreclosure, and
the possibility of recovery exceeding those costs based upon the financial
condition of the lessee. As a result, the amount of write-offs during the
fiscal year ended April 30, 1995 represents a dramatic increase, while the
amount of past-due accounts decreased proportionately. While the writeoffs of
delinquent lease receivables increased dramatically during the fiscal year
ended April 30, 1995, management considers the type of leases previously
entered into to be a contributing factor to the increased writeoffs. As the
credit quality and character of new leases generated improved during the fiscal
year ended April 30, 1996, the percentage of writeoffs decreased.
ANALYSIS OF DELINQUENCIES
The Company's collection department follows a seven day cycle with regard
to collection of delinquent leases and maintains status reports of each
contact. During the fiscal year ended April 30, 1994, management integrated
its data processing capabilities with its collection efforts to make the
collection effort more efficient. On the 7th, 14th and 21st day after a
delinquent lease payment is due, a reminder is sent requesting payment. On the
28th and 35th day after a payment is due, a written collection letter is sent
to the lessee. On the 42nd day after the due date, a mailgram is sent from the
collection department demanding payment of the delinquent balance. On the
49th, 56th and 63rd day after payments are initially due, additional letters
are sent demanding immediate payment. On the 70th and 77th day, an attorney's
letter is sent informing the lessee that suit will commence if payment is not
received immediately. On the 84th day after the due date, an attorney letter
informing the lessee of immediate suit is sent. On the 91st day, the case is
referred to local counsel for suit. As of April 30, 1996 and 1995,
approximately $3,859,127 and $3,723,593, respectively, of direct finance lease
receivables based on a strict total contractual basis of the aggregate balance
remaining of each lease (not based upon recency of last payment) were 12 or
33
<PAGE>
<PAGE>44
more months past due. During the fiscal years ended April 30, 1996 and 1995,
net collections from cases referred to local attorneys for suit were
approximately $1,508,000 and $1,379,000, respectively. The amount collected
during fiscal 1996 increased in proportion to the overall increase in past due
lease receivables reflected in the chart which follows. This increase is the
result of management's implementation of procedures to increase accountability
of local attorneys employed to collect delinquent receivables.
The Company recognizes as income over the entire term of the leases the
difference between the total rents scheduled to be collected along with the
estimated residual value of the equipment at the end of the lease term, less
the cost of the equipment. The income from all leases continue to be
recognized, even if payments are delinquent for any number of months. The
Company sets aside from its income a provision for anticipated losses from
delinquencies. See Footnote 1 to the Consolidated Financial Statements.
Leases are written-off only if there is an adverse court decision,
bankruptcy, settlement, or unwarranted further costs of collecting
insignificant lease balances, and assigned counsel in the state where the
lessee does business has determined that further action in recovering the debt
is unwarranted. The Company does not repossess equipment on underlying
delinquent leases (except for certain instances under federal bankruptcy laws)
which may be over 24 months past due as repossession would compromise the
Company's ability to recover a money judgment equal to the total remaining
payments due under the lease contract. When the equipment is returned to the
Company, the Company maintains an inventory of the repossessed equipment until
it can be re-let or sold. The Company writes down the carrying value of this
equipment to its forced sale value when it is repossessed. As of April 30,
1996, the Company maintained an inventory of repossessed equipment in the
amount of $75,734, and established reserves of $63,168 to reduce the carrying
value to the equipment's estimated, realizable forced sale value.
34
<PAGE>
<PAGE>45
<TABLE>
<CAPTION>
ANALYSIS OF DELINQUENCIES, continued
1996 1995 1994
$ % $ % $ %
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate Future Lease Receivables $18,423,816 100.0 $18,829,268 100.0 $20,979,917 100.0
Current 11,219,452 60.9 11,763,768 62.4 13,003,138 62.0
Past Due - Two Monthly Payments 973,864 5.3 1,178,983 6.3 1,017,320 4.8
Past Due - Three Monthly Payments 409,693 2.2 485,901 2.6 359,982 1.7
Past Due - Four or More Monthly Payments 5,820,807 31.6 5,400,616 28.7 6,599,477 31.5
Aggregate Future Lease
Receivables - Twelve or More
Months Past Due 3,859,127 20.9 3,723,593 19.8 4,709,748 22.4
Aggregate Future Lease
Receivables - Twenty-Four
or More Months Past Due 2,466,333 13.4 2,394,188 12.7 2,957,453 14.1
</TABLE>
35
<PAGE>
<PAGE>46
<TABLE>
ANALYSIS OF BAD DEBT WRITE-OFFS
<CAPTION>
Fiscal Years Ended April 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Aggregate Future
Lease Receivables $18,423,816 $18,829,268 $20,979,917
Provisions for
Doubtful Lease Receivables 1,055,997 1,635,963 792,879
Gross Charge-Offs 948,842 2,118,607 899,690
Gross Recoveries 8,599 7,575 2,592
Net Charge-Offs 940,243 2,111,032 897,098
Average Outstanding Future
Lease Receivables 18,626,542 19,904,593 21,359,759
Percent of Net Charge-Offs
to Average Aggregate Lease
Receivables 5.05% 10.61% 4.20%
Allowance for Doubtful
Lease Receivables 1,529,143 1,413,389 1,888,458
Percent of Allowance for
Doubtful Lease Receivables
to Aggregate Future Lease
Receivables 8.3% 7.5% 9.0%
Percent of Allowance for
Doubtful Lease Receivables
to Aggregate Future Lease
Receivables Past Due Four or
More Monthly Payments 26.3% 26.2% 28.6%
</TABLE>
METHODS OF FINANCING
The Company, in order to conduct its business, must have the financial
resources with which to purchase the equipment it leases. The funds for such
purchases have been generated during the past three fiscal years primarily
from net proceeds from sale of debt securities and receipt of rental payments.
In the past, the Company and ELCOA have registered and sold debt securities to
the public to fund the purchase of equipment for lease.
The Company intends to continue its registration and sale of Senior Thrift
Certificates during the next fiscal year. It does not intend to issue any
securities which will be senior to the Senior Thrift Certificates previously
issued and currently outstanding absent any unforeseeable circumstances,
although there are no restrictions on any such issuances of additional debt.
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These senior debt securities will carry interest rates which are expected to
be lower than the outstanding subordinated debt obligations. ELCOA's offer
and sale of Demand and Fixed Rate Certificates are also expected to provide a
substantial source of funds. Proceeds of sale from these securities will
replace existing indebtedness at maturity, and provide additional funds for
the purchase of equipment for lease. See Notes 3, 4 and 5 to the Consolidated
Financial Statements.
In an effort to increase the utilization of its lease origination,
administrative, and servicing capabilities, and to reduce the cost per lease
for providing these services, the Company could, in the future, market these
services on a fee basis to other companies, including financial institutions.
The Company believes this would allow it to offset certain fixed costs without
requiring increases in new funds raised through sales of its senior debt or
other financing.
During the three fiscal years ended April 30, 1996, the Company was
approached by other organizations seeking to sell all or a portion of their
small-ticket leasing portfolios, including savings & loans and other small
leasing companies. Management determined that the offers received were
unacceptable due to problems with documentation, original credit investigations,
lack of any warranties associated with any contemplated purchase, and yield
requirements of the sellers. During the fiscal year ended April 30, 1995,
management responded to a solicitation for bids to purchase a portfolio of
leases taken by the Pennsylvania Insurance Commission in connection with the
rehabilitation of a domiciled insurance company that operated a small-ticket
leasing company. While the Company determined that a cash bid was
unwarranted, it submitted an acceptable bid to collect and administer the
portfolio of leases for a contingency fee of fifty percent (50%) of the gross
leases collected. On May 18, 1995, the Company signed an agreement with the
Office of Liquidations and Rehabilitations of the Pennsylvania Insurance
Commission to collect and administer this portfolio of approximately 75 leases
having an aggregate lease balance of approximately $1,800,000. During the
fiscal year ended April 30, 1996, the Company earned $4,113 from collections
of these lease receivables, which has been included in earned income from
direct finance leases. Due to the material delinquencies associated with a
portion of this portfolio, management is not yet able to determine what, if
any, amounts are anticipated to be collected in the next fiscal year from its
efforts. However, management does not believe that it will incur any
additional costs in the administration and collection of these leases as a
result of its established back-office personnel and procedures.
The Company has been engaged to perform certain lease origination
functions (i.e. marketing, credit investigation, and documentation processing)
on behalf of its wholly-owned subsidiary, ELCOA, for which it has been paid an
amount equal to four percent (4%) of the gross equipment purchases by the
Company for lease, plus reimbursement for any direct selling expenses,
principally commissions to equipment vendors. ELCOA purchases its equipment
for lease from Walnut. Walnut relies upon a variety of equipment vendors
located throughout the United States, none of which is responsible for
supplying 5% or more of their total equipment purchases. ELCOA relies upon
Walnut's facilities and staff to develop its leases. Under terms of an option
agreement, ELCOA has the continuing right of first refusal to purchase newly
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<PAGE>48
acquired equipment, as well as the related leases, when Walnut has equipment
available for sale. This agreement continues until terminated by the mutual
agreement of the parties in writing. In addition, the Company will receive
six dollars fifty cents ($6.50) per month per outstanding lease for performing
certain administrative functions for ELCOA, notably invoicing of monthly
rentals, collection of lease receivables and residual values, management
guidance, personnel, financing, and the furnishing of office and computer
facilities, under a Service Contract. All rentals received on behalf of ELCOA
are segregated, processed and deposited into an escrow account pursuant to a
written agreement. Management believes that the terms of purchase are at
least as favorable as those available from unaffiliated third parties.
It should be noted that although the Company's rental income from its
lessees is fixed at the inception of each lease, its income from a given lease
is affected by changes in the interest rate it pays on borrowed funds. To the
extent that the interest rates charged by any financial institution that may
hypothecate leases or the interest rates that the Company pays on its debt
securities increase, the Company must pay any such increased cost without
having the ability to increase its rental charges on existing leases.
ELCOA registered for sale on June 10, 1996 a $50,000,000 offering of
Demand and Fixed Rate Certificates. ELCOA's sale of additional debt
securities, which are similar to Walnut's Senior Thrift Certificates, will
allow the Company to increase the funds of the consolidated group thereby
enabling the Company to increase the amount of equipment purchased for lease.
The Company anticipates ELCOA's cost of funds in connection with the sale of
ELCOA's securities to be less than the Company's, thus allowing the Company
and ELCOA to maintain competitive lease rates in the market to attract new
business. This will result in increased cost efficiencies in lease
origination and administration expenses to the consolidated group, as fixed
costs of operations would be allocated over a greater number of new leases
generated.
ELCOA's costs of operations are in direct proportion to the size of its
lease portfolio. Since ELCOA is a subsidiary of the Company, both companies
are consolidated for financial statement purposes in accordance with generally
accepted accounting principles, whereby all intercompany accounts are
eliminated in the preparation of consolidated financial statements. The
transfer of assets that capitalized ELCOA did not change the total assets,
liabilities, or shareholders' deficit of the Company on May 23, 1986.
However, in the event of the reorganization or liquidation of the Company, the
claims of holders of ELCOA's debt securities would have a higher priority than
claims which would be asserted by a holder of the Company's debt against
ELCOA's assets.
To the extent that the volume of new lease receivables to be generated in
the future increases as management anticipates, the Company believes that
lease securitization may provide both the additional funding for and increased
revenues in conjunction with future growth. Reference is made to the "Summary
of the Offering" section of the prospectus dated September 14, 1995 relative
to the offering and sale of the Company's Senior Thrift Certificates. The
Company anticipates that such sales under a lease securitization program may
commence during the fiscal year ending April 30, 1997, although no such sales
have occurred to date, as a result of a lack of any increase in new lease
volume, and excess cash on hand.
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EMPLOYEES
The Company employs approximately 60 full and part-time employees and
considers its relationship with its employees to be satisfactory.
DATA PROCESSING
Almost all of the Company's bookkeeping or recordkeeping is performed by
electronic data processing utilizing programs developed and owned by Financial
Data, Inc., a subsidiary of Walnut Associates, Inc. Walnut Associates Inc. is
an affiliate of ELCOA and also the owner of all of the outstanding stock of
the Company. See Footnote 10 to the Consolidated Financial Statements. The
programs are designed to permit the growth of the Company's business without a
significant increase in bookkeeping or recordkeeping costs. In the opinion of
management, the Company maintains sufficient duplicate records to safeguard
its information.
COMPETITION
Equipment leasing and related businesses are highly competitive, and
competition may increase. A number of concerns are engaged in the same types
of business as the Company, including: (1) finance divisions, affiliates or
subsidiaries of suppliers which sell products leased by the Company; (2) banks
or their affiliates; (3) other leasing and finance companies, including ELCOA;
and (4) independently-formed partnerships operated for the specific purpose of
leasing equipment. Many of these organizations have greater financial or
other resources than the Company and, therefore, may be able to obtain funds
on terms more favorable than those available to the Company. This may permit
such organizations to offer lease terms which the Company could not match.
Also, such organizations may have competitive advantages including their
affiliation with vendors and their nationwide leasing organizations, or their
ability to offer "floor planning" programs which is the financing of an
equipment vendor's unsold inventory.
The Company seeks to compete primarily on the basis of service (by
providing simplified documents, prompt credit decisions, and by accepting a
multitude of types of equipment for lease) to a particular segment of the
industry, (i.e. small-ticket items), and by making its services available
nationwide (both urban and rural). It does not limit itself geographically to
regional sales offices as do some of its competitors, but extends its services
through use of toll-free telephone lines, facsimile transmission, and the
mail. The Company cannot compete for larger ticket items where rate is a
factor because of its higher cost of funds, and therefore must limit itself to
the small-ticket market.
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<PAGE>50
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE YEARS ENDED APRIL 30, 1996
REVENUES FROM LEASE CONTRACTS AND RENTALS
The consolidated financial statements and references herein include the
operations and obligations of the Company, including ELCOA, its wholly-owned
subsidiary. Total operating revenues were $3,619,831, $3,979,146, $3,960,337,
for the three fiscal years ended April 30, 1996, 1995, and 1994, respectively.
Revenues decreased by $359,315, or 9.0% during the fiscal year ended April 30,
1996 as a result of the reduction in the outstanding amount of direct finance
lease receivables. Revenues increased during the fiscal year ended April 30,
1995 by 18,809, or .47% as a result of the increase in new leases generated
during the fiscal year. See Footnote 1 to the Consolidated Financial
Statements. Management attributes the increased operating losses during the
three fiscal years ended 1996 to decreasing revenues in conjunction with an
increase in interest expense, due in part to excess interest paid on higher
cash balances awaiting investment in leases over yields from investment of
those funds in short-term, liquid investments. The increase in the provision
for doubtful lease receivables and interest expense accounted for the increased
losses from operations during the fiscal year ended April 30, 1995 over 1994.
Aggregate new finance lease receivables decreased by $163,838 to
$10,025,786, a 1.61% decrease, during the fiscal year ended April 30, 1996.
New lease volume has either remained stagnant or decreased during the past two
fiscal years, in part due to the delays associated with the implementation of
enhancements in its marketing efforts, and the impact of the Company's decision
during the second quarter of the fiscal year ended April 30, 1993 to
discontinue accepting new lease applications for equipment it considers
overpriced, including but not limited to credit card processing machinery,
water coolers, and security surveillance systems. The Company recognized
during the middle of the fiscal year ended April 30, 1993 that certain types of
equipment resulted in higher delinquencies and charge-offs due to general
dissatisfaction with this equipment by the lessees. In eliminating these types
of equipment, therefore, the Company had to seek other sources of commercial
equipment for lease. New lease volume during the second half of the fiscal
year ended April 30, 1993 of $4,760,456 increased to $5,124,061 during the last
half of the fiscal year ended April 30, 1994. This reflected the beginning of
some success in the Company's revised marketing strategy and shift in emphasis,
which is to diversify the types of equipment being leased. The Company
believes that increased solicitation of equipment vendors selling business
computers, office equipment, scientific and medical, food service, as well as
industrial production equipment, will lead to increasing numbers of
applications for new leases. For a further discussion of the Company's efforts
to increase the generation of new lease receivables, see "FURTHER REFINEMENTS
IN MARKETING STRATEGY AND EFFORTS TO REDUCE OPERATING LOSSES" on page 45.
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The average new lease receivable entered during the fiscal year ended April
30, 1996 was $5,333, representing an increase of 13.6% from the prior year.
Since a significant portion of the costs associated with the origination of new
leases is fixed in nature, the Company's recent marketing efforts are expected
to increase the average size of new leases, which will result in a decrease in
the cost of lease origination on a lease-by-lease basis.
Income earned under direct finance lease contracts was $3,609,620,
$3,965,846, and $3,947,213 for the three fiscal years ended April 30, 1996,
1995 and 1994, respectively. Total aggregate lease receivables outstanding
were $18,423,816, $18,829,268, and $20,979,917 at April 30, 1996, 1995 and
1994, respectively. The Company's average net investment in direct finance
leases, defined as the average aggregate future amounts receivable under lease
contracts plus average estimated residual value of equipment, less average
unearned income under lease contracts and average advance payments, was
$16,496,653, $17,735,138, and $18,852,262 during the fiscal years ended April
30, 1996, 1995 and 1994, respectively. Recognized revenues taken as a
percentage of the Company's average net investment in direct finance leases was
21.9%, 22.4%, and 20.9%, respectively, during the fiscal years ended April 30,
1996, 1995 and 1994, respectively. An increase in late charges collected
during the fiscal years ended April 30, 1996 and 1995 over previous years
accounted for the increase in the percentage of recognized revenues in
comparison to the fiscal year ended April 30, 1994. See also Note 1 to the
Consolidated Financial Statements.
In analyzing the Company's Consolidated Financial Statements, it is
therefore important to note the relationship between new lease volume added
during an accounting period and the net lease revenue and income reported for
that period. Net lease revenue recognized by the Company during an accounting
period is defined to be the income earned under direct finance lease contracts.
New lease volume is the total of all new lease contracts added to the portfolio
during the period. As a consequence, during a period in which the rate of
growth of new lease volume increases, the growth rate of net lease revenue in
that period will be less than the rate of growth in new lease volume, because
the income earned from new lease volume is recognized over the term of each
lease contract and not in the year the contract is entered. On the other hand,
certain expenses recognized by the Company during an accounting period, such as
the provision for doubtful lease receivables, are more directly related to the
aggregate amount of outstanding leases during that period. Thus,
current-period expenses are more dramatically impacted by the growth in new
lease receivables than is net lease revenue. As a result of the foregoing
factors, net lease revenue will in turn grow at a slower rate than the rate of
growth in net lease volume during periods of increasing rates of growth in new
lease volume. In periods of decreased rates of lease volume growth, the
foregoing relationships would be reversed.
As noted in the Independent Auditor's Report on page 63 and Note 1 to the
Consolidated Financial Statements, the Company's ability to continue as a going
concern is dependent in part upon achievement of sustained profitable
operations and obtaining adequate financing sources. This depends on achieving
a higher level of new lease volume than current levels of new business, and the
raising of additional funds through the sale of the Certificates, the proceeds
of which cannot be assured. The Company is unable to ascertain the minimum net
proceeds required to remove any threat to the continuation of the Company's
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business. Management has initiated measures as detailed below which it
believes will result in an increase in direct finance leases entered in the
next fiscal year, along with a corresponding increase in operating revenues.
In addition, management is attempting to limit the growth, if any, in related
lease origination expenses. Increased new lease volume is expected to result
from continuing to maintain relationships with equipment manufacturers. In an
effort to continue as a going concern, the Company has expanded its marketing
efforts to increase its future volume of new leases to greater utilize its
fixed cost "back-office" facilities. To the extent the Company's marketing
efforts result in a greater volume of new business, the fixed cost
"back-office" facilities will become a proportionately smaller cost as a
percentage of each new lease. Management believes that as a result of the
relatively fixed nature of these costs, a further increase in new lease
receivables will not increase lease origination and administrative expenses by
a proportionate percentage. See also "BUSINESS".
If in the future the volume of leases exceeds the Company's ability to
finance such leases, it may sell the excess new business on a fee basis to
other financial institutions, giving first priority to its wholly-owned
subsidiary, ELCOA, as a result of its option agreement, and then to other
financial institutions through the securitization process seeking to increase
their asset-based portfolio of receivables. No assurances can be given as to
the ability to sell such excess new business. Since ELCOA's funds have
historically carried longer maturity dates than the Company's, the Company
expects to sell substantially all of its longer term leases (i.e. 24 months or
more) to ELCOA as its funds become available. Substantially all new leases
with terms of 24 months or more were sold to ELCOA during the fiscal years
ended April 30, 1996 and 1995.
The Company's income is set at the time a given lease contract is executed.
Consequently, inflation has no impact on revenue subsequent to the inception of
any given lease. In addition, inflation has not had a material effect on the
Company's operating expenses. However, the increased reliance on variable rate
borrowings resulting from the sale of senior debt subjects the Company to
increased exposure to inflation because of the risk of increased interest
rates. In the event that redemption of senior and subordinated debt exceeds
future sales of such debt, the Company may be required to replace the
indebtedness through other borrowings. To the extent that loans would be at
variable interest rates, inflation would have a significant adverse impact on
the company's operations through increased costs of borrowing.
INTEREST EXPENSE
Increased borrowings contributed to the increase in interest expense for
the fiscal years ended April 30, 1996, 1995, and 1994. The effect of interest
rates on the Company during the three years ended April 30, 1996 can be
illustrated as follows:
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<TABLE>
<CAPTION>
Years Ended April 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest Expense, net $4,844,532 $4,313,253 $4,094,189
Average Rate of Interest
Paid by the Company on
Total Average Debt Outstanding 9.3% 9.0% 9.3%
Percentage of Interest
Expense to Operating Revenues 133.8% 108.4% 103.4%
</TABLE>
Aggregate average borrowings, including accrued interest, were $57,193,963,
$52,028,899, and $45,821,927, at April 30, 1996, 1995, and 1994, respectively.
Rates on outstanding debt securities during the three fiscal years ended April
30, 1996 correspond to interest rates in general over the period. The
increases in debt outstanding during the fiscal years ended April 30, 1996,
resulted from increased sales of debt securities, and were used to fund
equipment purchases for new aggregate lease receivables entered during that
period. The increase in total debt during the fiscal years ended April 30,
1996 and 1995 resulted in excess cash balances on hand at the end of the fiscal
year. Since excess funds are invested at lower rates than the interest paid on
these funds, the Company incurs additional expense on excess funds. See
"Consolidated Statements of Cash Flows and "Capital Resources and Liquidity."
Increased borrowings during the fiscal years ended April 30, 1996, 1995 and
1994 also were used to fund current operations and debt redemptions. Beginning
May 1, 1994, excess funds have been maintained in highly liquid U.S. government
securities of three months or less, which yield higher rates than comparable
term bank investments but less than the Company's cost of funds.
OTHER EXPENSES
Lease origination expenses increased by $111,276 or 10.4%, after having
decreased by $65,812 or 5.8% during the fiscal years ended April 30, 1996 and
1995, respectively. The increase during the fiscal year ended April 30, 1996
resulted primarily from a $90,184 increase in postage costs from increased
mailings relating to the Company's marketing efforts. The Company, utilizing
its printing and graphic arts facilities, produces brochures for the
manufacturers to mail to their dealer distribution network. These costs are
expensed as current period charges in conjunction with the Company's lease
origination efforts. This program met with limited success through 1993, as a
number of manufacturers either overlooked the distribution of these materials
or lacked the technology and machinery necessary to mail the brochures in bulk.
During the months of February and March, 1993, over 75 manufacturers
representing less than 10 different industries were participating in this
program. In an effort to minimize the costs associated with the program, those
manufacturers with whom little, if any, new business was being generated were
dropped from the mailing list. By the end of the fiscal year ended April 30,
1993, the Company had scaled back its efforts to less than 10 manufacturers.
In an effort to increase new lease volume during fiscal year ended April 30,
1994, the Company utilized telemarketing by its account executives to contact
equipment manufacturers solely for the purpose of having the manufacturer
cooperate with the Company in contacting their dealers directly to acquaint
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them with using leasing as a sales tool. The Company believed that repetitive
contacts with an increasing number of equipment dealers, generated either
through the use of direct mail or these cooperative efforts, would lead to
further increase in new lease volume. See "Business - Marketing." See "Further
Refinements in Marketing Strategy and Efforts to Reduce Operating Losses" for a
further discussion of the Company's lease origination efforts during the fiscal
year ended April 30, 1996.
Lease origination expenses, including capitalized commissions, totaled
12.3%, 11.0%, and 11.5% of new lease receivables entered during the fiscal
years ended April 30, 1996, 1995, and 1994, respectively. During the fiscal
years ended April 30, 1996, 1995 and 1994, commissions paid of $56,921,
$52,049, and $40,222, respectively, were capitalized as part of the equipment
cost. In accordance with SFAS 91, indirect expenses relating to lease
applications not booked are chargeable in the year incurred and are not
capitalized. See "BUSINESS-Marketing."
General and administrative expenses increased $138,223 or 6.8% during the
fiscal year ended April 30, 1996, after having increased $652 or .03% during
the fiscal year ended April 30, 1995. Additional supervisory personnel,
routine salary increases, and increased legal costs associated with collecting
delinquent lease receivables accounted for the majority of the increase during
the fiscal year ended April 30, 1996. The Company expects general and
administrative expenses to remain relatively constant during fiscal 1997, due
to the relatively fixed nature of these costs. The Company considers the costs
associated with receivable collections, which accounted for approximately 30%
of general and administrative expenses during fiscal 1996 and 1995, to be
principally fixed as they already include occupancy costs sufficient for
increased personnel, management and supervisory personnel already hired, and
computerized collection and billing procedures already in place. The
collections associated with increased volume will require only additional
clerical staff at an immaterial incremental cost. These collection costs
associated with legal filing procedures may increase due to court costs and
associated fees.
An allowance for doubtful direct finance lease receivables is maintained at
a level considered adequate to provide for estimated losses that will be
incurred in the collection of these receivables. The allowance is increased by
provisions charged to operating expense and reduced by charge-offs. Beginning
May 1, 1988, the Company increased the allowance by provisions based upon a
periodic evaluation of the lease portfolio, performed at least quarterly, in
accordance with SFAS 91. See Note 1 to the Consolidated Financial Statements
and "BUSINESS - Credit Policy."
Total provisions for doubtful lease receivables for the fiscal years ended
April 30, 1996, 1995, and 1994 were $1,055,997, $1,635,963, and $792,879,
respectively. See Note 1 to the Consolidated Financial Statements. The
increased provisions for the fiscal year ended April 30, 1995 resulted from
additional write-offs of delinquent past due receivables in conjunction with an
intensive review of all delinquent accounts in comparing the costs of further
legal pursuit of the Company's remedies in collection where the anticipated
results were unwarranted in light of any recoveries expected. This was an
extraordinary write-off of older balances as may be evidenced by the 35.5%
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<PAGE>55
decrease in the provisions during the fiscal year ended April 30, 1996. Also,
as of April 30, 1996, 1995 and 1994, the ratio of the Allowance for Doubtful
Lease Receivables to Aggregate Future Lease Receivables was 8.3%, 7.5%, and
9.0%, respectively. During these periods, the ratio of the Allowance for
Doubtful Lease Receivables expressed as a percentage of delinquent receivables
90 days or more past due was 26.3%, 26.2% and 28.6%, respectively. The Company
attributes the decreased percentages in fiscal 1996 and 1995 in comparison to
fiscal 1995 to its write-offs of older accounts which resulted in improving the
likelihood of collecting the remaining delinquent lease receivables in
comparison to those previously written-off. Charge-offs of delinquent lease
receivables expressed as a percentage of average net lease receivables were
5.05%, 10.61% and 4.20% during the fiscal years ended April 30, 1996, 1995 and
1994, respectively. Management expects the percentage of charge-offs from
delinquent lease receivables during fiscal 1996 to continue to decline during
fiscal 1997. See "BUSINESS - Analysis of Delinquencies" and "Analysis of Bad
Debt Write-Offs."
FURTHER REFINEMENTS IN MARKETING STRATEGY AND EFFORTS TO REDUCE OPERATING
LOSSES
Management initiated certain measures to refine its marketing strategy
during the fiscal year ended April 30, 1996 that it believes may result in an
increase in the levels of new leases to be generated in the future. The
Company must increase the level of new leases and control its costs of lease
origination and administration in order to reduce its operating losses.
Management initiated certain changes beginning in September, 1994 to
enhance its previous direct mail marketing program. The Company began to
purchase and/or internally obtain from equipment manufacturers nationwide lists
of commercial equipment vendors in industries such as office machinery, light
industrial equipment, data processing and peripheral equipment, along with food
service and preparation equipment, among others. By October 31, 1994, the
Company had obtained in excess of 50,000 names and information of additional
potential equipment vendors, manufacturers, and other distributors which were
added to its computer database. The Company had eliminated the costs
associated with indirect mail solicitation in favor of utilizing its in-house
account executives who were responsible to contact vendors in target groups of
equipment sellers, and to solicit interest in their using the Company's leasing
services as a sales tool. Once a vendor expressed interest in receiving
further information, the Company's marketing materials were forwarded to the
equipment vendor. The account executives were expected to maintain further
contact with the equipment sellers to implement the relationships of the
equipment sellers with the Company, and the Company utilized direct mail solely
to send bi-weekly reminders to interested vendors to use the Company's
services.
As noted above, the level of new lease volume during the fiscal year ended
April 30, 1995 increased only slightly from the prior year as a result of these
efforts. Management realized that repetitive telephone solicitation to remind
equipment vendors of the availability of the Company's services were dependent
on the timing of availability of new lease applications from equipment vendors.
Once an equipment vendor had been placed on the Company's database for
bi-weekly follow-up by mail, management determined that further telephone
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<PAGE>56
contact was useless until such time as the need for the Company's services
arose from the equipment vendor. Management did note, however, that in
situations where the equipment manufacturer encouraged its vendors to utilize
the Company's leasing services to assist in closing equipment sales, the
vendors were more receptive to utilizing the Company's services.
In this regard, beginning January, 1995, the Company began to target
equipment manufacturers having a broad sales distribution network (primarily
those with at least $5 million in annual sales and at least one hundred
equipment distributors and vendors) to offer them a "private label lease
program" customized for their distributors' needs. Manufacturers are given the
option of utilizing a personalized, i.e. "private label", to separately
identify themselves and the Company to their vendors. For example, a
relationship between TEC America, Inc., a manufacturer of cash registers and
point-of-sale equipment and the Company have created "TEC America Leasing" as a
fictitious name on behalf of the Company. This private label lease program was
intended to encourage TEC America Inc.'s dealers, branches and distributors to
utilize the Company's leasing services to implement their sales potential with
the ultimate users of TEC America Inc.'s equipment. As of July 5, 1995, the
Company had entered into agreements with 23 equipment manufacturers, of which
13 have adopted the "private label lease" facilities to their benefit.
During the fiscal year ended April 30, 1996, the Company focused on
increasing the number of manufacturers to develop mutual relationships in
promoting leasing as a tool to increase sales of equipment manufactured by
these cooperative companies. Although the Company attempted to hire additional
in-house personnel to handle the solicitation efforts in locating and nurturing
relationships with equipment manufacturers, management determined that personal
face-to-face contact with senior level management of equipment manufacturers
was necessary to initiate an ongoing relationship. During the end of the
fourth quarter of the fiscal year ended April 30, 1996, the Company began to
advertise nationally for individuals in major metropolitan areas to represent
the Company locally promoting this program on a face-to-face basis with
manufacturer prospects developed through the Company. As of July 1, 1996 two
individuals in the New York City Metropolitan area and one in Atlanta agreed to
represent the Company. They will be compensated on a fee basis for each
additional manufacturer added to the cooperative program. Additional
representatives in other areas will be added during the next fiscal year in an
effort to expedite the addition of more manufacturers into this program.
As of July 1, 1996, 75 manufacturers entered into co-operative manufacturer
agreements with the Company, of which 51 have adopted the private label lease
program. The Company is unable to quantify with any certainty the specific
results of new leases generated from direct mail or telephone contact, but
maintains records reflecting the amount of new leases generated from its
cooperative efforts with equipment manufacturers. While for the fiscal year
ended April 30, 1995, the results of these efforts were negligible, during the
12 months ended April 30, 1996, 213 leases aggregating $1,479,131 or 15% of
total new leases were generated directly from cooperative manufacturers and
those adopting the private label lease program. As there is a delay between
the time that a manufacturer agrees to the Company's efforts and when new
leases begin to be generated of at least six months in order to initiate the
program throughout each manufacturer's distribution network, monthly lease
volume is expected to increase during fiscal year 1997. While the average new
lease receivables entered monthly were approximately $835,000
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per month during the fiscal year ended April 30, 1996, new lease volume during
the month of May, 1996 was approximately $1,125,000. During May, 1996, 24
leases aggregating $169,056 or 15% of total new lease were generated directly
from cooperative manufacturers and those adopting the private label lease
program. Most manufacturers have minimum sales of $5,000,000 annually, and
range as high as $1 billion or more. The Company expects to continue these
specific marketing efforts to increase the number of manufacturers who will
utilize these services through the efforts of its in-house personnel and
through representatives located throughout the United States who will represent
the Company on a fee basis for purposes of engaging new manufacturers. In this
way, the Company accepts responsibility for the origination, servicing, and
funding for lease transactions from each manufacturer for new leases from the
manufacturers' distributors using the Company's forms and documentation
customized with the equipment manufacturers' name. The Company uses its
in-house printing and direct mail facilities to produce flyers and brochures to
be distributed throughout each manufacturer's sales distribution network
illustrating the benefits of leasing, to facilitate sales of the manufacturer's
equipment.
The Company estimates that the time delay between the first solicitation of
a manufacturer's sales distribution network and the receipt of new lease
applications can range from three to six months as the solicitation process to
newly engaged manufacturers is initiated. Although the lack of significant new
lease growth during the fiscal year ended April 30, 1996 can be attributed in
part to this delay, the Company is encouraged by the initial positive reaction
received from the equipment manufacturers, and intends to further emphasize
this program during the fiscal year ended April 30, 1997 as a means towards
increasing new lease volume. As noted in "BUSINESS-Marketing", the average new
lease receivable entered during the three fiscal years ended April 30, 1996
increased from $4,536 to $5,333, representing an increase of approximately 18%
over the period. This growth in the average size of new leases is directly
attributable to the size of new leases being generated from the efforts of
co-operative equipment manufacturers, some of which sell equipment retailing in
excess of $25,000 to larger companies. Management expects the size of its
average new lease receivables to increase during the fiscal year ending April
30, 1997 as a result of the size and types of equipment sold by the
manufacturers that have entered into agreements with the Company to solicit
their sales distribution network.
CAPITAL RESOURCES AND LIQUIDITY
The Company has financed its new business during the past three fiscal
years primarily from the proceeds of its senior borrowings, rental collections
from outstanding lease receivables, and the proceeds from sale of ELCOA's debt
securities.
The Certificates issued by ELCOA, the Company's wholly-owned subsidiary,
funded approximately 100% of new purchases of equipment for lease with an
additional portion invested in U.S. Government securities during the fiscal
year ended April 30, 1996. The registration and offering of additional senior
debt obligations by the Company will fund the remainder. See "BUSINESS -
Methods of Financing." During the three fiscal years ended April 30, 1996,
1995 and 1994, new Certificates of ELCOA in the approximate amounts of
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$7,800,000, $6,100,000, and $5,600,000, respectively, funded new equipment
purchases for the Company. The Company has not experienced any difficulty in
financing the purchase of equipment that it leases at current levels.
The Company's existing lease contracts as of April 30, 1996, schedule the
receipt of approximately $9,371,000 during the twelve months ending April 30,
1997 of which approximately $3,989,000 are scheduled receipts from accounts
which are two or more months past due. At April 30, 1996 aggregate future
amounts receivable under lease contracts were $18,423,816 of which
approximately $3,859,000 are future amounts receivable from accounts which were
12 or more months past due on a strict contractual basis (of which
approximately $3,510,000 relate to ELCOA's leases.)
Accounts payable and accrued expenses at April 30, 1996, excluding accrued
interest on debt, totaled $1,062,724 of which accounts payable of $802,956
included therein represent the Company's obligation for commitments for
purchase of equipment for lease which has not yet been delivered.
As of April 30, 1996 the Company and ELCOA also had unhypothecated leases
which could be hypothecated, on a discounted basis, to obtain funds of
approximately $8,820,000, cash of approximately $1,109,000, and an investment
in short term U.S. government securities (net) of approximately $8,099,000.
Available cash is intended to fund increases in new equipment to be purchased
for lease, of which there are no assurances. To the extent that the Company
retains excess cash in liquid investments such as bank money market accounts or
short-term U.S. government securities, its interest expense associated with the
funds will exceed any investment income, thereby increasing the cost of
maintaining such funds prior to investment in new lease receivables. The
Company's ability to invest excess funds is dependent upon its success with its
lease marketing efforts. See "Business - Marketing" and "Further Refinements
in Marketing Strategy and Efforts to Reduce Operating Losses." Hypothecation
is the use of lease contract receivables, on a discounted basis, as collateral
for the borrowing of funds from third parties, based on the eligible net lease
receivables (excluding delinquent lease receivables) for the remaining lease
term, which are pledged as collateral. To date, unhypothecated lease contracts
have not been pledged as collateral. Should the Company hypothecate leases for
the purposes of raising funds, such actions require approval and authorization
of the Company's Board of Directors only. The Company also expects ELCOA, its
wholly-owned subsidiary, based on historical experience and efforts being
undertaken by Welco in its solicitation efforts as underwriter for ELCOA's debt
securities, to be able to generate increased funds for the purchase of
equipment for lease which the Company will originate and service for lease.
As noted in the Statements of Cash Flows on page 69, sales of Demand and Fixed
Rate Certificates have decreased during the fiscal year ended April 30, 1996,
as a result of management's efforts to slow down the solicitation of
certificate sales. In the event that future redemptions of Certificates exceed
future sales of the Certificates to be offered, ELCOA may utilize its excess
cash to repay such borrowings. ELCOA believes that it has sufficient cash
resources to meet its normal operating requirements during the fiscal year
ending April 30, 1997. ELCOA registered for sale a new offering of $50,000,000
of debt securities on June 10, 1996. ELCOA's debt securities range in terms
from demand to 120 months. ELCOA has sold similar securities since 1986.
Welco Securities, Inc. ("Welco") utilizes public advertising in soliciting for
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prospective purchasers for these debt securities. Welco also has entered into
selected dealer agreements with other NASD firms who have sold ELCOA's
securities to their customers. See "BUSINESS - Methods of Financing."
Senior and subordinated borrowings issued by the Company aggregating
$23,441,726, as well as Demand, Fixed Rate, and Money Market Thrift
Certificates issued by ELCOA aggregating $17,971,133 are due during the twelve
months ending April 30, 1997. See Notes 3, 4, and 5 to the Consolidated
Financial Statements. These certificates may be renewed at the option of the
holder into new indebtedness at the maturity of the original certificate.
Accrued interest included therein in the amount of $6,309,733 is due on demand.
The Company anticipates that based on historical experience a significant
portion of the senior and subordinated debt and Demand, Fixed Rate and Money
Market Thrift Certificates previously issued by ELCOA coming due should be
renewed or "rolled over" into senior debt or ELCOA Certificates by the security
holders, although there are no assurances in this regard. Should debt due in
fiscal 1997 not be rolled over into new indebtedness by the holder, repayment
will be made to the holder from available cash on hand, liquidation of
receivables in the ordinary course of business, possible hypothecation of
leases, and from proceeds of sale of Certificates. Due to the continuous
nature of the offering of Certificates, outstanding securities mature daily
rather than a large percentage maturing on any given day. Outstanding lease
contracts are payable on a monthly basis at varying terms. As such, the
Company is unable to estimate with any certainty the relationship between the
available sources of funds to be allocated specifically for redemption of
maturing securities, especially in light of prescribed limitations on
redemptions. During the fiscal years ended April 30, 1996 and 1995,
approximately 78% and 86%, respectively, of all previously issued Senior Thrift
Certificate issued by the Company coming due were renewed and "rolled over"
into new indebtedness, and approximately 54% and 50% of ELCOA's Demand, Fixed
Rate, and Money Market Thrift Certificates matured and were reinvested during
these respective periods.
As noted in the Consolidated Statements of Cash Flows appearing on pages 68
and 69, the proceeds from sales of debt securities by the Company and ELCOA
decreased slightly by 2% during fiscal 1996 from fiscal 1995, while redemptions
of debt securities remained constant. Management attributes the 33% increase
in redemptions during fiscal 1995 from fiscal 1994 to be based in part on the
attractiveness of returns in the equity markets during fiscal 1995, along with
mutual funds, in comparison to the returns offered through fixed income
securities, including these debt securities. So long as the benefits from
investing in the equity markets either directly or through mutual funds
continues, management believes that redemptions may continue at the levels of
fiscal 1996 and 1995.
The number of accounts, at April 30, 1996, holding senior and subordinated
certificates of the Company was 2,744. Of these, 96 accounts held certificates
aggregating $50,000 or more. For purposes of these calculations, all accounts
for each separate holder have been aggregated as a single account holder. The
three largest senior and subordinated certificate holders held aggregate
principal amounts of $613,875, $589,940 and $350,000 as of April 30, 1996. As
of April 30, 1996, there were 3,932 accounts holding Demand, Fixed Rate and
Money Market Thrift Certificates, of which 81 held accounts aggregating $50,000
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or more. The three largest holders of Demand, Fixed Rate and Money Market
Thrift Certificates held aggregate principal amounts of $500,000, $284,914 and
$278,337 at April 30, 1996. The Company does not believe that this results in
an undue concentration of debt being held by relatively few individuals. In
the event of ELCOA's liquidation, holders of Demand, Fixed Rate and Money
Market Thrift Certificates would be senior in priority to claims against
ELCOA's assets. Therefore, they would effectively be senior to the
Certificates. There are no other debt securities issued by the Company which
are senior to the Certificates.
In addition to the Company's expectation of renewals, the Company intends
to raise additional financing to fund increases in new lease volume through the
sale of debt securities. See "BUSINESS - Methods of Financing." The Company
could also sell a portion of its lease portfolio to other financial
institutions seeking to increase their asset-based receivable portfolio through
the securitization process. In such event, the Company would immediately
recognize as income the net present value of the remaining lease payments at an
agreeable discounted rate, less its investment in the cost of the equipment
being leased. Cash realized from sale would immediately be available to invest
in new lease business, or meet redemptions of debt securities, thus reducing
reliance on additional debt to carry an increased lease portfolio.
The Company would not expect to borrow funds from financial institutions,
but expects in the alternative to sell certain leases rather than carrying them
for the remaining term of the leases, providing additional liquidity to meet
redemptions of debt securities in excess of the Company's expectations, of
which there are no assurances. The long term effect of utilizing these
proceeds to meet redemptions would be the reduction of outstanding receivables
and related income therefrom.
Taking into consideration the Company's prior experience in the sale of
senior debt based on historical expectations and the sale of Demand and Fixed
Rate Certificates by ELCOA (of which there is no assurance), as well as new
business, available credit, the Company's available cash, anticipated renewal
or "roll over" of a portion of the Company's senior and subordinated
borrowings, and the potential from funds generated from outside financial
institutions, including, but not limited to ELCOA, it is management's belief
that its cash will be sufficient to conduct its business and meet its
anticipated obligations during the next fiscal year. No assurance can be
given, however, that the redemption of senior and subordinated borrowings will
not exceed the Company's expectations or that a significant amount of senior
debt will be sold. In view of the Company's history of losses, the uncertainty
with respect to generation of new lease receivables and future interest rates
paid to banks and holders of senior and subordinated borrowings, the potential
redemption of senior and subordinated borrowings and Demand, Fixed Rate and
Money Market Thrift Certificates and the uncertainty as to the sale of future
offerings of securities, management is unable to estimate the Company's
profitability and liquidity beyond the current fiscal year. If the Company
continues to have losses, it may be unable to service its debts in future
years. Reference is made to Notes 2, 3, 4, and 5 of the Consolidated Financial
Statements for information relating to future amounts receivable under lease
contracts, the Company's senior and subordinated borrowings and ELCOA's Demand,
Fixed Rate and Money Market Thrift Certificates.
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Although the Company has reported losses since 1980 for financial statement
purposes, it has supported operations through rentals received from its lessees
and the sale of debt securities. However, in view of its high degree of
leverage and history of losses, future losses could jeopardize its leasing
operations and the ability to service its debt. The Company believes that
increases in new lease receivables without any appreciable increase in lease
origination or general and administrative expenses will reduce the level of its
operating losses in the future. Due to the current shareholders' deficit, if
the Company were to liquidate in the near future, holders of the subordinated
thrift certificates, and outstanding preferred and common stock would lose all
of their investment.
Excess funds have historically been invested in low yielding but highly
liquid investments. These funds have been held solely for the purpose of
awaiting investment in new lease receivables. During the fiscal year ended
April 30, 1996, the average interest rate earned by the Company on these funds
was approximately 5.3%, while the average interest rate paid on outstanding
certificates attributable to the funds was 9.3%, resulting in a negative spread
of 4.0%. There are no assurances of either future increases or decreases in
interest rates. Management has placed a high priority of increasing the
purchase of equipment for lease in order to reduce the available amount of cash
on hand. During the fiscal year ended April 30, 1996, the average rate of
return on the Company's investment in its lease receivables was approximately
21%.
To date, neither the Company nor ELCOA has ever defaulted on any
contractual payment of interest or principal on any bank borrowings, senior or
subordinated debt obligations, or Demand, Fixed Rate and Money Market Thrift
Certificates issued to the public. All requests for early repayment of
interest or principal have never been later than five business days after
demand for redemption was received.
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DESCRIPTION OF SECURITIES
CERTIFICATES
This offering relates to an aggregate of $40,000,000 in principal amount
of the Company's Demand and Fixed Term Senior Thrift Certificates. The
Certificates are to be issued under a sixth supplemental indenture dated as of
August xx, 1996 to an Indenture dated October 7, 1987 and supplements thereto
(referred to collectively as the "Indenture") between the Company and Summit
Bank (successor by merger to First Valley Bank), Bethlehem, Pennsylvania as
Trustee ("Trustee"). The merger of First Valley Bank, Bethlehem,
Pennsylvania, into Summit Bank, whose principal place of business is
Princeton, New Jersey became effective on July 15, 1996. A copy of the
Indenture is filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The following statements are brief summaries of certain
provisions of the Indenture, and provide a summary of all material provisions
of the Indenture. Whenever particular provisions of the Indenture or terms
defined therein are referred to herein, such provisions or definitions are
incorporated by reference as part of the statements made herein and all
statements are therefore, qualified in their entirety by reference to such
provisions or definitions.
Certain terms of the Indenture as set forth below may be modified. See
"Modification of the Indenture". Additionally, the Company has reserved the
right to terminate this offering, or modify the terms of the offering or the
Certificates, at any time by an appropriate amendment to this Prospectus. No
such modification will affect the rights of the then outstanding Certificates,
except to the extent described below.
The Certificates are not secured by any collateral or lien, nor are there
any provisions for a sinking fund. Banks lending funds to the Company may
hold security interests in certain leases as collateral and may have a
priority interest in those leases pledged as collateral. Parenthetical
references appearing below are to the sections of the Indenture.
GENERAL
Demand Certificates are redeemable at any time after issuance at the
option of the holder. Each Fixed Term Certificate shall mature from six
through one hundred twenty months from the date of issuance, as selected by
the purchaser at the time of purchase, for any term of whole calendar months
within this range. Demand Certificates shall mature on the fifth day of the
month following the month during which demand is made by the holder (Section
2.13). The Company is required to redeem Demand Certificates and may redeem
Fixed Term Certificates for which redemption has been requested prior to
maturity on the fifth day of the month following the month in which written
notice of demand was received, subject to a $250,000 monthly limitation. See
"Redemption - Limitations on Redemptions" below. It is the present policy of
the Company, subject to the availability of funds as determined by the Board
of Directors in its sole discretion, to pay the principal to the holder within
5 business days after demand for redemption is received. The Company may,
however, change this policy at any future date without notice to the holders
of the Certificates. Absent this policy , the Company is required to redeem
Demand Certificates on the fifth day of the next calendar month after a
written request for redemption is received, subject to a limitation of
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$250,000 per month. See "DESCRIPTION of SECURITIES-Limitations on
Redemptions." The Demand Certificates shall bear interest at least 1% above
the annualized 6-month U.S. Treasury Bill rate for bills sold on the first day
of the month, or if there is no auction on that day, the interest rate
established at the last auction prior to the first day of the month. Fixed
Term Certificates shall bear interest at a rate set by the Company at the date
of issuance but shall not be less than 1% above the annualized 6-month U.S.
Treasury Bill rate for Certificates with maturities of less than 24 months,
not less than 2% above the annualized 6-months U.S. Treasury Bill rate for
Certificates with maturities of 25 to 60 months, and not less than 3% above
the annualized 6-month U.S. Treasury Bill rate for Certificates with
maturities exceeding 60 months (Section 2.13). Interest shall continue to be
earned until the principal amount of the Certificate is paid or made available
for payment (Section 2.13). There is no maximum interest rate on either type
of securities.
Principal and Interest will be payable at the offices of the Company or
its paying agent, but unless other arrangements are made, interest will be
paid by check mailed to the registered holders of the Certificates at such
addresses as shall appear on the Certificate Register. (Sections 2.06, 2.13).
The Certificates will be issued only in registered form, without coupons, in
denominations of $100 or any additional amount approved by the Company
(Section 2.13). The denominations of the Certificates can be changed without
service charge, other than any tax or other governmental charge imposed in
connection therewith. (Section 2.06). The principal amount of the
Certificates which may be issued under the Indenture is to be determined, from
time to time, by the Board of Directors of the Company. The maximum amount to
be offered hereunder is $40,000,000 (Section 2.07, 10.01). The Certificates
will be unsecured obligations of the Company.
The Interest and Dividend Tax Compliance Act of 1983 provides for backup
withholding at a rate of 31% on certain payments of interest and dividends.
Backup withholding may apply only to dividend, interest, or certain other
payments made subsequent to 1983.
Under the backup withholding provisions, withholding on interest or
dividend may be imposed either:
(1) after the Secretary of the Treasury has mailed four notices to the
taxpayer stating that the taxpayer has underreported his income, and, if the
taxpayer has filed a return for the taxable year in which he underreported
income, the Secretary has made a deficiency assessment against the taxpayer;
(2) if the taxpayer fails to furnish a taxpayer identification number when
required to do so;
(3) if the Secretary notifies the payor that the taxpayer furnished an
incorrect taxpayer identification number; or
(4) with respect to instruments acquired after 1983, the taxpayer fails to
certify under penalty of perjury that he is not subject to backup withholding
as a consequence of having underreported his income.
Any payor required to withhold from interest or dividend payments on the
basis of taxpayer underreporting of income is required to notify the payee at
the time the withholding begins.
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REDEMPTION
COMPANY ELECTION
The Company may, at its own discretion, call for the redemption of the
Certificates, from time to time, either in whole or in part. Notice of the
redemption shall be given by first-class mail, postage prepaid, mailed to the
holder not less than 60 days prior to the redemption date. The Company would
then redeem all Certificates subject to redemption at the principal amount
thereof, plus interest accrued to the date of redemption. Certificates may be
redeemed at any time after purchase. Therefore, the purchaser is entitled to
at least 60 days interest in the event of the Company's redemption. Accrued
interest on the Certificates so redeemed shall be payable at the time of
redemption. No further interest shall accrue on redeemed Certificates after
the date of redemption. (Sections 2.13, 3.01 through 3.08).
HOLDER'S ELECTION
The Company is required to redeem each Fixed Term Certificate at maturity
without restriction. Subject to the $250,000 monthly limitation set forth
below, the Company will redeem Demand Certificates which shall mature on the
fifth day of the month following the month in which notice of demand is
received (see "SUMMARY OF THE OFFERING - the Offering") and may, but is not
required to, redeem any Fixed Term Certificate before maturity after notice of
demand is received in writing from the holder, subject to the $250,000 monthly
limitation set forth below in the aggregate. (See "DESCRIPTION OF SECURITIES
- - CERTIFICATES; Right to Request Early Payment"). The Company intends to
satisfy requests for redemption from cash on hand. If insufficient cash is
available, the Company may sell existing lease contracts. Requests for
redemption by mail should be addressed to the Company's offices at One Belmont
Avenue, Suite 200, Bala Cynwyd, PA 19004, or in person at the same address,
and must include the original certificate for redemption.
LIMITATIONS ON REDEMPTIONS
Under the Indenture, the Company is not obligated to redeem in any
calendar month an amount in excess of $250,000 in principal amount in the
aggregate of Demand Certificates, together with Fixed Term Certificates for
which the holder requests redemption prior to maturity. (Section 3.01(c)).
In computing this $250,000 limitation, Senior Thrift Certificates only are
included. The Company has a similar $300,000 limitation regarding its
outstanding Subordinated Thrift Certificates currently outstanding. The
Company to date has not invoked this limitation with respect to redemption of
Subordinated Thrift Certificates regardless of the amount redeemed in any
month, and has historically redeemed all such certificates upon presentation
regardless of that $300,000 limitation. The Company gives no assurances with
regards to the future. See "RISK FACTORS." During the three fiscal years
ended April 30, 1996, the average amount of Variable Rate Money Market Demand
Subordinated Thrift Certificates, Fixed Term Money Market Subordinated Thrift
Certificates, Demand and Fixed Term Senior Thrift Certificates redeemed
monthly prior to maturity was approximately $95,700, of which the highest
monthly total during the period was $585,000. During this three year period,
the monthly redemptions of subordinated certificates or demand or fixed term
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certificates redeemed prior to maturity have not exceeded the $300,000
limitation, while the redemption of Senior Thrift Certificates on demand or
fixed term redeemed prior to maturity exceeded the $250,000 monthly limitation
two times.
If this limitation is invoked by the Company with respect to redemption of
Demand and Fixed Term Certificates redeemed prior to maturity, the Trustee and
the holders of such Certificates submitted for redemption, but not redeemed,
will be so notified and the Certificates will be redeemed thereafter in the
order in which demands are received by the Company, with those for which
demands are received on the same day being redeemed proportionately. To the
extent that Certificates submitted for redemption are not paid in any given
calendar month, such Certificates will be given first priority (within the
order in which demand is received) in the next succeeding calendar month or
months until such Certificates are fully redeemed. Interest accrues through
date of payment. For this purpose a demand made orally will be treated as
having been made on the date of the oral demand, if it is confirmed by a
written demand received by the Company within ten days after the date of the
oral demand.
SENIOR DEBT
The indebtedness evidenced by the Certificates and any interest thereon is
considered as "Senior Debt" of the Company, and will rank on parity with other
"Senior Debt." (Sections 11.02, 12.10). As of April 30, 1996, the
Certificates ranked on parity upon liquidation with other unsecured creditor
liabilities of $1,062,724, along with $21,394,687 in principal amount of
outstanding Senior Thrift Certificates at that date. Therefore, outstanding
"Senior Debt" totaled $22,457,411 at April 30, 1996. "Senior Debt" is defined
to include any indebtedness outstanding (whether outstanding on the date of
the execution of the Indenture or thereafter created) at any time except for
the Subordinated Thrift Certificates and any subordinated debentures which may
then be outstanding. There are no limitations on the issuance of additional
"Senior Debt" as defined.
Since the Company maintains an equity ownership in ELCOA, its wholly-owned
subsidiary, holders of the outstanding Demand, Fixed Rate and Money Market
Thrift Certificates of ELCOA would maintain a priority interest as to ELCOA's
assets superior to the rights of the holders of the Certificates as to ELCOA's
assets, in the event of liquidation or reorganization of ELCOA. As such, the
Company's rights to ELCOA's assets are junior to the rights of the creditors
of ELCOA to those assets.
All of the Certificates to be issued hereunder are on parity with each
other and with any other under the Indenture pursuant to which these
Certificates are being offered (Section 2.16).
In the event of any liquidation, dissolution or any other winding up of
the Company, or of any receivership, insolvency, bankruptcy, readjustment,
reorganization or similar proceeding under the Federal Bankruptcy Act or any
other applicable Federal or state law relating to bankruptcy or insolvency,
during the continuation of any Event of Default (as described below), no
payments of any kind may be made on the Subordinated Thrift Certificates and
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subordinated debentures until all "Senior Debt", including the Certificates
and any accrued interest thereon, has been repaid. (Section 11.03). For a
discussion of the maturity dates and interest rates on outstanding
Subordinated Thrift Certificates and subordinated debentures as of April 30,
1996, see Note 5 to the Consolidated Financial Statements.
AUTOMATIC EXTENSION
If, after its maturity date, a Fixed Term Certificate is not presented for
payment by the holder, and the Company does not tender payment to the holder,
such certificate shall be treated as a Demand Certificate, and the rate and
other terms applicable to such Demand Certificates shall be determined as the
maturity date of the Fixed Term Certificate. (Section 2.15) The Company will
give each certificate holder one month's prior written notice of the time of
maturity, reminding him of the maturity date of his security and the fact that
the automatic extension provision will take effect unless he requests payment
(Section 2.13). The Company will advise, by monthly statement, certificate
holders of the due date of all fixed term securities owned by them.
RIGHT TO REQUEST EARLY PAYMENT
The Company will redeem any Fixed Term Certificate offered hereunder as of
the end of the calendar month during which notice of a request for early
payment is received. Payment will be made on the fifth day of the following
calendar month, or such shorter period of time as determined by the Company,
on the following conditions: a penalty, computed by multiplying the number of
months remaining to maturity by 1/8 of 1% and then multiplying the product by
the principal amount being redeemed prior to maturity, will be deducted from
the principal amount redeemed; however, the penalty shall not be less than
$25. For example, if 24 months prior to the due date, a holder elected to
redeem a $1,000 five year Fixed Term Certificate, the Company would deduct a
penalty of $30 from the principal repayment of $1,000 (1/8 of 1% multiplied by
the number of months by $1,000, equals $30). (Section 2.13) Interest on any
certificate redeemed prior to maturity would be paid at the original rate as
stated on the certificate.
OPTION TO RECEIVE COMPOUND INTEREST
Holders of Certificates have the option of electing to have interest on
their Certificates reinvested and compounded monthly (that is, interest at the
original rate shall be computed monthly on the new amount). There are no
restrictions on the use that the Company may make of the retained interest.
Once made, such an election may not be changed without the consent of the
Company. In the event a holder elects to have interest compounded, interest
will be paid, at the holder's election, bi-monthly, quarterly, semi-annually,
annually, or at maturity of his certificate (Section 2.13). Reinvested
interest will be an unsecured obligation of the Company and will be subject to
the same risks as the Certificates, and will continue to be considered as
"Senior Debt" of the Company. See "RISK FACTORS - General; Lack of Sinking
Fund". Interest compounded but unpaid to holders will be reported by the
holder for Federal income tax purposes, when earned, including when it is
compounded but unpaid. The Company will advise holders prior to January 31 of
each year concerning the amount of interest which must be reported as income
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for the preceding year. The Company does not believe that any "original issue
discount" as defined in the Internal Revenue Code of 1986, as amended, arises
from the sale of the Certificates as the stated principal amount redeemable at
maturity equals the original issuance price for each certificate. Purchasers
of Certificates should make their own determinations concerning any applicable
tax consequences, and are encouraged to consult their own tax advisors.
INTEREST 6-MONTH UNITED STATES TREASURY BILL RATE
Six-month United States Treasury Bills are auctioned weekly by the United
States Treasury Department, usually on Monday. The interest rate on the
6-month U.S. Treasury Bills, on a discount basis, based on the auction
average, is published widely in newspapers throughout the country, normally on
the day following the auction. During the five year period ended April 30,
1996, the rates ranged from a low of 2.78% to a high of 6.42%. As of July 1,
1996, the 6-Month U.S. Treasury Bill rate was 5.22%.
The interest rate to be paid on the Demand Senior Thrift Certificates
offered hereunder shall be at least 1% above the annualized interest rate paid
on 6-month United States Treasury Bills sold on the first day of the month, or
if there is no auction on that day, the interest rate established at the last
auction prior to the first day of the month. The rate will vary from month to
month depending upon the U.S. Treasury Bill Rate. In the event that the U.S.
Treasury Bill rate as set forth above shall fall below 6% per annum, or in the
event there shall be no such 6-month U.S. Treasury Bill rate in effect, the
rate of such 6-month U.S. Treasury Bill shall be deemed to be 6% per annum.
The percentage above the 6-month U.S. Treasury Bill rate is to be determined
at the beginning of the month by the Company (or in the absence of any such
determination, such percentage shall be deemed to be 1% above the 6-month U.S.
Treasury rate), based upon prevailing market conditions, and interest rates in
general. Therefore, the minimum interest which can be paid on Demand Senior
Thrift Certificates shall be 7%. (Section 2.13)
The interest rate to be paid on the Fixed Term Certificates shall be fixed
by the Company at a rate at least equal to 1% above the annualized interest
rate paid on 6-month U.S. Treasury Bills for Certificates with maturities of
24 months or less, 2% above the annualized interest rates paid on 6-month U.S.
Treasury Bills for Certificates with maturities of 25 to 60 months, and 3%
above the annualized interest rates paid on 6-month U.S. Treasury Bills for
Certificates with maturities exceeding 60 months based upon prevailing market
conditions and interest rates in general. For the purpose of computing the
interest to be paid on a given issuance of Fixed Term Certificates, the
annualized interest rate paid on 6-month U.S. Treasury Bills shall be
determined by reference to such rate in effect on the date that investor money
is received by the Company if such a date is the date when United States
Treasury Bills are issued, or the date of the most recently issued 6-month
U.S. Treasury Bills if investor money is not received on an issued date of
6-month U.S. Treasury Bills. Once established, the same rate of interest will
be paid for the term of the Certificate. In the event the 6-month U.S.
Treasury Bill rate, as set forth above, shall fall below 6% per annum, or in
the event there shall be no such U.S. Treasury Bill rate in effect, the rate
of such 6-month U.S. Treasury Bill shall be deemed to be 6% per annum.
(Section 2.13).
57
<PAGE>
<PAGE>68
Interest to be paid in any calendar month will be paid on or before the
10th day of the succeeding calendar month.
RESTRICTIONS ON MERGER
The Company, subject to certain conditions contained in Section 5.01 of
the Indenture, may consolidate or merge with or into, or sell or transfer all
or substantially all of its property and assets to any other corporation,
provided that the corporation (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received
the transfer of such property and assets, assumes payment of principal and
premium, if any, and interest on the Certificates and performs all obligations
in accordance with the terms of the Indenture. No approval of certificate
holders is required. The Company has no present plans to effect any of the
foregoing transactions. (See Article 5).
MODIFICATION OF THE INDENTURE
The Company may from time to time, enter into additional supplemental
indentures amending the terms of the Indenture with the consent of at least
75% in aggregate principal amount of the outstanding Certificates. No
supplemental indenture without the consent of each holder of outstanding
Certificates, may reduce the percentage of the Certificate holders necessary
to modify or alter the Indenture, waive any default under the Indenture,
reduce the stated amount of interest on any Certificate or change the maturity
date of the principal, the interest payment dates or other terms of payment.
The Company may, without consent of the holders of these Certificates, enter
into supplemental indentures under certain limited circumstances where the
rights of the holders are not materially affected. (Sections 9.01 through
9.03).
COVENANT AS TO REPAIR
The Company has covenanted that it will maintain and keep its properties
in good condition, repair and working order, provided, however, that the
Company may provide for any disposition of such properties consistent with
reasonable business judgment and not disadvantageous in any material respect
to the holders of the Certificates.
EVENTS OF DEFAULT
The following will be events of default: (a) default in the payment of any
interest when due which is not cured for 30 days; (b) default in payment of
principal (or premium, if any) when due; (c) default in the performance of any
other covenant of the Company, which is not cured within 60 days after
occurrence of the default and (d) certain events of bankruptcy, insolvency or
reorganization. (Section 6.01). If an Event of Default shall occur and not
be cured within the time period required, the Trustees or the holders of not
less than 25% of the principal amount of outstanding Certificates (including
holders who may be controlling persons) may declare the Certificates due and
payable by appropriate written notice. (Section 6.02).
58
<PAGE>
<PAGE>69
The holders of a majority in principal amount of all outstanding
Certificates will have the right to exercise any remedy available to the
Trustee, provided such holders have offered to the Trustee reasonable
indemnity, and have given prior written notice to the Trustee of a continuing
Event of Default. (Section 6.05).
The Company will be required to furnish to the Trustee annually a
statement as to the absence of default and compliance by the Company with the
terms of the Indenture. (Section 4.03).
TRANSACTIONS WITH THE TRUSTEE
The Company maintains deposit accounts and banking relations with the
Trustee, Summit Bank (successor by merger to First Valley Bank) of Bethlehem,
Pennsylvania.
The Trustee also serves as custodian for IRA/KEOGH accounts for
participants maintaining a custodial account to hold Certificates. The Trustee
assesses a $30 annual maintenance charge per account on all IRA/KEOGH
custodial accounts.
PLAN OF DISTRIBUTION
The Company has entered into an Underwriting Agreement with Welco
Securities, Inc., Suite 105, One Belmont Avenue, Bala Cynwyd, Pennsylvania
19004 (hereinafter referred to as the "Underwriter").
The Underwriter, is an affiliate of the Company, and is wholly-owned by
William Shapiro, the Company's President. The officers of the Underwriter,
William Shapiro and Kenneth S. Shapiro, are registered as licensed securities
agents and are also full time employees of the Company, and members of its
Board of Directors. The Underwriter also has been engaged to sell the debt
securities offered by ELCOA, the Company's wholly-owned subsidiary. William
Shapiro and Kenneth Shapiro are also affiliated as attorneys with counsel for
the Company. See Note 10 to the Consolidated Financial Statements. The
principal business function of the Underwriter is to sell the registered
securities of the Company and ELCOA as their agent. As a result of the
affiliations between the Company and the Underwriter, the Underwriting
Agreement cannot be deemed to have been negotiated at arm's length. Among
the factors considered in such determinations were the history of, and
prospects for the industry in which the Company competes, estimates of the
business potential of the Company, the present state of its development, its
financial condition, risks associated with the leasing industry in general,
interest rates in general during the time of the offering and demand for
similar securities of comparable companies.
Under the terms of the Underwriting Agreement, the Company has retained
the Underwriter as its agent and the Underwriter has agreed to use its best
efforts to offer the public on a continuous basis the Certificates described
herein at those prices specified on the cover of this Prospectus. The
Underwriter has made no commitment to purchase any of the Certificates offered
hereby, and will not make any market for the Certificates. There is no
minimum amount of Certificates which must be sold in order for this offering
to go forward.
59
<PAGE>
<PAGE>70
No sales charges, commissions, or other expenses of the offering will be
deducted from the principal amount of Certificates offered hereunder. The
Underwriter is to be paid a commission equal to 1/15 of 1% per month of the
principal amount of each Certificate purchased, for each month of the initial
term of any new fixed term Certificate sold through the Underwriter (ranging
from .4% for 6-month Certificates sold to 8.0% for 120 month Certificates) by
the Company from the proceeds of sales of the Certificates. Neither Kenneth
S. Shapiro nor William Shapiro receive any direct remuneration from the
Underwriter in connection with the sale of these securities, as commissions
are used by the Underwriter for expenses incurred in the solicitation and sale
of the Certificates. The Company has agreed to reimburse the Underwriter for
the fee of the qualified independent underwriter incurred in connection with
the offer and sale of the Certificates, which is $25,000.00. The Underwriter
may reallow to certain dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") and certain foreign dealers who are not
eligible for membership in the NASD, a commission of up to 8.0% of the
principal amount of Certificates sold by such dealers.
No commission shall be paid on account of the sale of any Demand
Certificate.
After the commencement of the offering, the commissions and reallowances,
if any, may be changed.
The Company will indemnify the Underwriter and all other brokers and
dealers who enter into agreements with the Underwriter against certain civil
liabilities, including certain liabilities under the Securities Act of 1933,
as amended.
The foregoing discussion sets forth a summary of all material provisions
of the Underwriting Agreement. For a complete description of the terms of the
Underwriting Agreement, reference is made to the Underwriting Agreement which
is filed as an exhibit to the Registration Statement, of which this Prospectus
is a part.
The Underwriter as a member of the NASD is subject to Schedule E of the
By-Laws of the NASD which deals with its participation in soliciting sales of
securities for the Company, its affiliate. Schedule E requires, in part, that
a qualified independent underwriter be engaged to render an opinion regarding
the fairness of the computation of the rates of interest being paid on
Certificates being offered through the Prospectus. The Underwriter has
obtained an opinion dated August xx, 1996 from J.E. Liss & Company, Inc. an
NASD member, which has participated in the preparation of the offering
documents, conducted its due diligence review of the offering, and is being
compensated with a fee of $25,000.00 by the Company for rendering the opinion
that the proposed offering terms, and the minimum rates at which these
Certificates may be offered, meet this fairness objective.
LEGAL OPINION
The law firm of William Shapiro, Esq., P.C. of Bala Cynwyd, Pennsylvania,
has rendered an opinion that pursuant to the Indenture between the Company and
Summit Bank (successor by merger to First Valley Bank) of Bethlehem,
Pennsylvania, as Trustee, and appropriate
60
<PAGE>
<PAGE>71
Company orders, the Certificates, when issued and sold pursuant to the
Indenture and in the manner contemplated by the Prospectus, will be valid and
binding obligations of the Company, except that such opinion is subject to the
following qualifications: (a) no opinion is rendered as to the availability
of equitable remedies including, but not limited to, specific performance and
injunctive relief, (b) the effect of bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium and other similar laws or equitable
principles affecting creditor's rights or remedies, and (c) the effect of
applicable laws and court decisions which may now or hereafter limit or render
unenforceable certain rights and remedies.
Both William Shapiro and Kenneth S. Shapiro, officers and directors of the
Company and officers of ELCOA, are associated with said law firm as attorneys,
of which Mr. William Shapiro is the sole stockholder of the professional
corporation. In addition, Kenneth S. Shapiro is President and director, and
William Shapiro is Secretary/Treasurer and director of Welco Securities, Inc.,
the Underwriter.
EXPERTS
The consolidated balance sheets of Walnut Equipment Leasing Co., Inc. and
subsidiaries as of April 30, 1996 and 1995, and the related consolidated
statements of operations, changes in shareholders' deficit, and cash flows for
each of the three years in the period ended April 30 1996, have been audited
by Cogen Sklar LLP, Independent Certified Public Accountants. The financial
statements appearing in the Registration Statement and this Prospectus are
included in reliance on the reports of such firm and upon the authority of
such firm as experts in auditing and accounting.
61
<PAGE>
<PAGE>72
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
<S> <C>
INDEPENDENT AUDITOR'S REPORT 63
Consolidated Balance Sheets as of April 30, 1996 and 1995 64-65
Consolidated Statements of Operations for the years
ended April 30, 1996, 1995 and 1994 66
Consolidated Statements of Changes in Shareholders'
Deficit for the years ended April 30, 1996, 1995
and 1994 67
Consolidated Statements of Cash Flows for the years
ended April 30, 1996 and 1995 and 1994 68-69
Notes to the Consolidated Financial Statements for
the fiscal years ended April 30, 1996, 1995 and 1994 70
</TABLE>
62
<PAGE>
<PAGE>73
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
of Walnut Equipment Leasing Co., Inc.
We have audited the accompanying consolidated balance sheets of Walnut
Equipment Leasing Co., Inc. (a wholly-owned subsidiary of Walnut Associates,
Inc.) and subsidiaries as of April 30, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholders' deficit and
cash flows for each of the three years in the period ended April 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Walnut
Equipment Leasing Co., Inc. and subsidiaries as of April 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended April 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Walnut
Equipment Leasing Co., Inc. and subsidiaries will continue as a going concern
and, accordingly, contemplate the realization of assets and liquidation of
liabilities in the ordinary course of business. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
and experienced negative cash flows from operations and has a shareholders'
deficit. Additionally, the Company's ability to meet its obligations is
dependent in part upon its ability to obtain borrowings adequate to fund its
cash flow needs. These uncertainties raise substantial doubt about the
entity's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
/s/ Cogen Sklar LLP
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
July 1, 1996
63
<PAGE>
<PAGE>74
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Direct finance leases:
Aggregate future amounts receivable under lease contracts $18,423,816 $18,829,268
Estimated residual value of equipment 1,704,915 1,976,244
Less:
Unearned income under lease contracts (3,355,800) (3,436,458)
Advance payments ( 568,715) ( 579,965)
---------- ----------
16,204,216 16,789,089
Allowance for doubtful lease receivables (1,529,143) (1,413,389)
---------- ----------
14,675,073 15,375,700
Operating leases:
Equipment at cost, less accumulated depreciation of
$14,413 and $6,680, respectively 19,420 23,316
Accounts receivable 1,112 ---
Cash and cash equivalents 9,207,905 8,957,949
Other assets (includes $618,293 and $637,479, respectively,
paid to or receivable from related parties) 1,132,587 1,086,402
----------- -----------
Total assets $25,036,097 $25,443,367
=========== ===========
<FN>
See accompanying notes
</TABLE>
64
<PAGE>
<PAGE>75
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (continued)
<CAPTION>
April 30,
1996 1995
----------- ------------
<S> <C> <C>
LIABILITIES
Amounts payable to equipment suppliers $ 802,956 $ 477,296
Other accounts payable and accrued expenses 268,169 260,762
Demand, Fixed Rate and Money Market Thrift Certificates
(includes $183,805, and $174,907,
respectively, held by related parties) 26,407,959 24,521,875
Senior Thrift Certificates (includes $812,773 and
$749,961, respectively, held by related parties) 21,394,687 18,783,578
Subordinated Thrift Certificates (includes $397,136 and
$400,243, respectively, held by related parties) 5,523,118 6,025,366
Accrued interest 6,309,733 5,411,748
Subordinated debentures (includes $4,000 and $4,000,
respectively, held by related parties) 4,000 5,858
---------- ----------
60,710,622 55,486,483
---------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Prime Rate Cumulative Preferred Shares, $1 par value,
$100 per share liquidation preference, 50,000 shares
authorized, 281 shares issued and outstanding
(liquidation preference $28,100) 281 281
Adjustable Rate Cumulative Preferred Shares, $1 par value,
$1000 per share liquidation preference. 1,000 shares
authorized, 275 shares issued and outstanding
(liquidation preference $275,000) 275 275
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding 101,500 101,500
Accumulated Deficit (35,776,581) (30,145,172)
----------- -----------
(35,674,525) (30,043,116)
----------- -----------
Total liabilities and shareholders' deficit $25,036,097 $25,443,367
=========== ===========
<FN>
See accompanying notes
</TABLE>
65
<PAGE>
<PAGE>76
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended April 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Income earned under
direct finance lease
contracts $3,609,620 $3,965,846 $3,947,213
Operating lease rentals 10,211 13,300 13,124
---------- ---------- ----------
3,619,831 3,979,146 3,960,337
---------- ---------- ----------
Costs and expenses:
Interest expense, net of
interest income of $484,713,
$380,377 and $170,963, respectively 4,844,532 4,313,253 4,094,189
Lease origination
expenses 1,179,238 1,067,962 1,133,774
General and
administrative expenses
(includes $905,451, $800,864
and $802,323, respectively,
paid to related parties) 2,157,252 2,019,029 2,018,377
Provision for doubtful
lease receivables 1,055,997 1,635,963 792,879
Depreciation on operating
lease equipment 14,221 7,105 3,293
---------- ---------- ----------
9,251,240 9,043,312 8,042,512
Loss from operations ---------- ---------- ----------
before provision for federal and
state income taxes (5,631,409) (5,064,166) (4,082,175)
Provision for federal and state
income taxes --- --- ---
----------- ----------- -----------
Net Loss $(5,631,409) $(5,064,166) $(4,082,175)
=========== =========== ===========
<FN>
See accompanying notes
</TABLE>
66
<PAGE>
<PAGE>77
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
For the Years Ended April 30, 1996, 1995 and 1994
<CAPTION>
Prime Rate Adjustable Rate Total
Cumulative Cumulative Common Accumulated Shareholders'
Preferred Shares Preferred Shares Stock Deficit Deficit
---------------- ---------------- ------- ------------- ------------
Shares Shares
Issued Amount Issued Amount
------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1993 281 $ 281 275 $ 275 $101,500 $(20,998,831) $(20,896,775)
Net loss for the year ended
April 30, 1994 --- --- --- --- --- (4,082,175) (4,082,175)
----- ------ ----- ------ -------- ------------ -----------
Balance, April 30, 1994 281 281 275 275 101,500 (25,081,006) (24,978,950)
Net loss for the year ended
April 30, 1995 --- --- --- --- --- (5,064,166) (5,064,166)
----- ------ ----- ------ -------- ------------ ------------
Balance, April 30, 1995 281 281 275 275 101,500 (30,145,172) (30,043,116)
Net loss for the year ended
April 30 1996 --- --- --- --- --- (5,631,409) (5,631,409)
----- ------- ----- ------ -------- ------------ -----------
Balance, April 30, 1996 281 $ 281 275 $ 275 $101,500 $(35,776,581) $(35,674,525)
===== ======= ===== ====== ======== ============= =============
<FN>
See accompanying notes
</TABLE>
67
<PAGE>
<PAGE>78
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended April 30,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $(5,631,409) $(5,064,166) $(4,082,175)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation 14,221 7,105 3,293
Amortization of deferred debt
registration expenses 126,533 121,402 120,187
Provision for doubtful
lease receivables 1,055,997 1,635,963 792,879
Effects of changes
in other operating items:
Accrued interest 897,985 608,304 742,864
Amounts payable to
equipment suppliers 325,660 (224,212) 225,129
Other (net), principally
increase in other assets (152,503) (330,663) (130,041)
Net cash used in ----------- ---------- -----------
operating activities (3,363,516) (3,246,267) (2,327,864)
----------- ---------- -----------
INVESTING ACTIVITIES
Excess of cash received over
lease income recorded 6,949,129 7,374,851 6,958,716
Increase (decrease) in
advance payments (11,250) (31,922) 14,282
Purchase of equipment
for lease (7,317,494) (7,567,613) (7,548,795)
Net cash used in investing ----------- ---------- -----------
activities $ (379,615) $ (224,684) $ (575,797)
----------- ----------- -----------
<FN>
See accompanying notes
</TABLE>
68
<PAGE>
<PAGE>79
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
<CAPTION>
For the Years Ended April 30,
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of:
Demand and Fixed Rate
Certificates $9,620,233 $10,983,417 $9,267,808
Senior Thrift Certificates 6,522,341 5,488,212 5,827,132
Redemption of:
Subordinated Debentures (1,858) --- (1,860)
Demand, Fixed Rate and
Money Market Thrift
Certificates (7,734,149) (8,272,533) (5,498,321)
Senior Thrift Certificates (3,911,232) (3,355,304) (3,262,311)
Subordinated Thrift
Certificates (502,248) (13,043) (100,421)
----------- ----------- -----------
Net cash provided by
financing activities 3,993,087 4,830,749 6,232,027
----------- ---------- -----------
Increase in Cash
and Cash Equivalents 249,956 1,359,798 3,328,366
Cash and Cash Equivalents,
Beginning of Year 8,957,949 7,598,151 4,269,785
----------- ---------- -----------
Cash and Cash Equivalents,
End of Year $9,207,905 $8,957,949 $7,598,151
=========== ========== ===========
<FN>
See accompanying notes
</TABLE>
69
<PAGE>
<PAGE>80
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
The Company conducts business in one industry segment, acquiring commercial
equipment for lease throughout the United States.
BASIS OF FINANCIAL STATEMENT PRESENTATION:
The consolidated financial statements of the Company have been prepared on
a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. Accordingly, the
consolidated financial statements do not include any adjustments relating to
the recoverability of recorded assets, or the amount of liabilities that may be
necessary should the Company be unable to continue in the normal course of
business.
During the years ended April 30, 1996, 1995 and 1994, the Company incurred
losses of $5,631,409, $5,064,166, and $4,082,175, respectively, had negative
cash flows from operations during those years, and reported accumulated
deficits of $35,776,581 and $30,145,172 at April 30, 1996 and 1995,
respectively. The Company's current results of operations, financial position
and the uncertainties which exist as to future levels of new business, interest
rates and potential redemptions of senior and subordinated borrowings currently
outstanding, and its ability to sell additional debt securities as may be
required, may result in the Company's inability to continue operating in the
normal course of business. Continuation of the Company's operations in their
present form is dependent upon the achievement of sustained profitable
operations, through increased new business generated by the Company, continued
ability to service debts as they mature, and the ability to generate sufficient
cash resources to support future operations. If the Company continues to incur
losses, or is unable to obtain additional funds, it may be unable to continue
servicing its debts.
Management has attempted to initiate measures to improve the operating
results and business levels through changes in its marketing strategy, and is
placing a high priority in these efforts. In 1986, in an effort to increase
the utilization of its lease origination, administrative, and servicing
capabilities, and to reduce the cost per lease of providing these services, the
Company decided to commence the marketing of these services on a fee basis to
other companies, including ELCOA. To date, this service has generated no
significant revenues from unrelated parties. See also Note 10, below. In
addition, management believes that the Company's cash flow through the sale of
securities, anticipated renewal of existing indebtedness, and from collections
from outstanding lease receivables, will be adequate to meet operating needs
during the ensuing year. See further discussions contained in "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company,
(with its subsidiaries, including ELCOA, the "Company"), all of which are
wholly-owned. All intercompany transactions have been eliminated.
70
<PAGE>
<PAGE>81
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
LEASE ACCOUNTING:
The Company is in the business of leasing equipment which is specifically
acquired for each lease. For financial reporting purposes, the Company
primarily uses the direct financing method and records at the inception of the
lease (a) the estimated unguaranteed residual value of the leased equipment and
the aggregate amount of rentals due under the lease as the gross investment in
the lease, and (b) the unearned income arising from the lease, represented by
the excess of (a) over the cost of the leased equipment. The unearned income
is recognized as income over the term of the lease on the effective or
"interest" method in accordance with Statement of Financial Accounting
Standards No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases" ("SFAS
91"). In addition, under this method, a portion of the initial direct costs as
defined by SFAS 91 are accounted for as part of the investment in direct
financing leases. All the other costs are included as lease origination
expenses in the period when incurred.
Where the lease qualifies as an operating lease pursuant to the
requirements of SFAS No. 13, "Accounting for Leases", the Company recognizes
lease rental payments as income in the period earned and depreciates the cost
of equipment subject to the lease over its estimated useful life using an
accelerated method of depreciation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's
knowledge of current events and actions it may undertake in the future, they
may ultimately differ from actual results.
INCOME TAXES:
The Company computes and records income taxes currently payable based upon
the determination of taxable income using the "operating method" for all
leases, which is different from the method used in the determination of pretax
income for financial statement purposes (as described above). Under the
"operating method" the Company reports as income the amount of rentals received
or accrued and deducts the amount of depreciation (principally under the
Alternative Depreciation System) of the equipment over its estimated useful
life. Other expenses are recognized utilizing the accrual method of
accounting.
The Company utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax bases of
71
<PAGE>
<PAGE>82
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
assets and liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax
assets and liabilities.
The net deferred tax asset as of April 30, 1996 and 1995 includes deferred
tax assets (liabilities) attributable to the following temporary deductible
(taxable) differences:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Operating lease method vs. direct finance method $2,889,500 $3,000,800
Provision for doubtful lease receivables 596,600 473,200
Operating loss carryforward 9,173,000 7,202,000
Other (32,600) (35,000)
---------- ----------
Net deferred tax asset 12,626,500 10,641,000
Valuation allowance (12,626,500) (10,641,000)
---------- ----------
Net deferred tax asset after valuation allowance $ --- $ ---
========== ==========
</TABLE>
A valuation allowance was considered necessary since it is more likely than
not that the Company will not realize the tax benefits of the deductible
differences and operating loss carryforward. As of April 30, 1996 the net
operating loss carryover amounted to approximately $26,979,000 expiring through
2011 and the investment tax credit carryover amounted to approximately
$1,075,000 expiring through 2001.
Both the Company and ELCOA will be included in a consolidated federal
income tax return. If the consolidated group incurs a federal income tax
liability, each company's share will be based upon the tax allocation policy of
the consolidated group. However, the Company and ELCOA will not file a
consolidated income tax return for state income tax purposes. Each company
will be subject to state income taxation on each Company's separate income as
computed for state tax purposes. During the fiscal years ended April 30, 1996,
1995, and 1994, ELCOA recognized provisions for state income taxes in the
amount of $0, $360, and $0, respectively, on its separate income. No
provision for federal income taxes was necessary.
72
<PAGE>
<PAGE>83
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
LATE CHARGES:
Terms of the Company's lease contracts include provisions for assessing a
monthly late charge on any past due amounts. Revenues from late charges
collected were approximately $411,000, $418,000, and $372,000 during the fiscal
years ended April 30, 1996, 1995 and 1994, respectively.
ESTIMATED RESIDUAL VALUES OF EQUIPMENT UNDER DIRECT FINANCE LEASES:
The Company generally offers an option to purchase the leased equipment
upon expiration of the lease term at fair market value, approximately 10% of
the original equipment cost. Residual value of this equipment is generally
established at the anticipated purchase option price. The estimated
unguaranteed residual values are reviewed at least quarterly by the Company.
ALLOWANCE FOR DOUBTFUL LEASE RECEIVABLES:
An allowance for doubtful direct finance lease receivables has been
maintained at a level considered adequate to provide for estimated losses that
will be incurred in the collection of these receivables. The allowance is
increased by provisions charged to operating expense and reduced by
charge-offs.
In accordance with SFAS 91, the allowance was increased by provisions
charged to operating expense based upon a periodic evaluation, performed at
least quarterly, of delinquent finance lease receivables, to reflect losses
anticipated from delinquencies and impairments that have already occurred
rather than ultimate losses expected over the life of the lease portfolio.
Each direct finance lease provides that an event of default occurs when a
lessee fails to remit the required periodic rental payment after 15 days of the
contractual due date. The Company considers the contractual amount impaired
after 90 days past the contractual due date. The contractual amount is
considered to be the past due and accelerated payments to become due through
the end of the contractual lease term.
OTHER ASSETS
Included in other assets at April 30, 1996 and 1995, are deferred expenses
totaling $311,324 and $308,159 net of accumulated amortization, respectively,
representing costs directly related to the Company's registration and sale of
Senior Thrift Certificates. Also included in other assets at April 30, 1996
and 1995 are deferred expenses totaling $452,495 and $423,223, respectively,
net of accumulated amortization, representing costs related to ELCOA's
registration and sale of Demand and Fixed Rate Certificates. Such expenses are
being amortized on a straight-line basis over the estimated average lives of
the debt issued under the registration statements. Amortization of the
Company's deferred expenses charged to income for the years ended April 30,
1996, 1995 and 1994 amounted to approximately $126,500, $121,400, and $120,200,
respectively.
73
<PAGE>
<PAGE>84
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
CASH FLOW STATEMENTS
The Company considers cash invested in short-term, highly liquid
investments with original maturities of three months or less to be cash
equivalents. At April 30, 1996 and 1995 cash equivalents, consisting of U.S.
Government Securities amounted to $8,098,999 and $6,349,693, respectively. The
Company had no cash equivalents at April 30, 1994. Interest paid for the
fiscal years ended April 30, 1996, 1995 and 1994 was $4,431,260, $4,085,326,
$3,522,288, respectively. Income taxes paid were $0, $0, and $411,
respectively.
CONCENTRATION OF CREDIT RISK
The concentration of credit risk is limited since the Company's
small-ticket lease portfolio varies widely as to diversity of equipment types,
lessees, and geographic location.
2. AGGREGATE FUTURE AMOUNTS RECEIVABLE UNDER LEASE CONTRACTS:
Receivables under financing lease contracts at April 30, 1996 are due as
follows:
<TABLE>
<CAPTION>
Year Ending April 30, Amount
--------------------- -----------
<S> <C>
1997 $ 9,359,537
1998 5,370,900
1999 2,614,370
2000 778,285
2001 and beyond 300,724
-----------
$18,423,816
===========
</TABLE>
Future rentals due under operating lease contracts are all due within one
year and, excluding those rentals reflected in operating lease accounts
receivable, total $10,433 and $3,346 at April 30, 1996 and 1995, respectively.
3. DEMAND, FIXED RATE AND MONEY MARKET THRIFT CERTIFICATES:
The Demand, Fixed Rate and Money Market Thrift Certificates outstanding at
April 30, 1996 were issued by ELCOA, with outstanding certificates bearing
interest at rates ranging from 7.0% to 12.75%. Beginning September 1, 1990,
the name of these debt securities was changed from Money Market Thrift
Certificates to Demand and Fixed Rate Certificates. In the event of
liquidation of ELCOA, holders of these debt securities would be senior in
priority in liquidation as respects ELCOA's assets. Holders of ELCOA's debt
securities have no right in liquidation as respects the assets of its parent,
the Company. All of these certificates rank on parity with each other. There
74
<PAGE>
<PAGE>85
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. DEMAND, FIXED RATE AND MONEY MARKET THRIFT CERTIFICATES: (Continued)
are no restrictive covenants relative to this debt, nor is ELCOA restricted
from the payment of cash dividends, loans or advances to the Company. The
certificates at April 30, 1996 are due as follows:
<TABLE>
<CAPTION>
Year Ending April 30, Amount
--------------------- -----------
<S> <C>
1997 $15,203,974
1998 3,934,697
1999 2,815,391
2000 1,759,532
2001 and beyond 2,694,365
-----------
$26,407,959
===========
</TABLE>
Included in the amount due in the year ending April 30, 1997 are $1,331,985
of certificates payable on demand. Additionally, accrued interest of
$2,767,158 at April 30, 1996 is payable upon demand.
4. SENIOR THRIFT CERTIFICATES:
Outstanding Senior Thrift Certificates bear interest at rates ranging from
7.00% to 13.10% at April 30, 1996, and in the event of liquidation are senior
in priority to all outstanding Subordinated Thrift Certificates. Senior Thrift
Certificates at April 30, 1996 are due as follows:
<TABLE>
<CAPTION>
Year Ending April 30, Amount
--------------------- -----------
<S> <C>
1997 $15,544,525
1998 2,483,593
1999 1,633,039
2000 690,746
2001 and beyond 1,042,784
-----------
$21,394,687
===========
</TABLE>
Included in the amount due in the year ending April 30, 1997 are
approximately $816,016 in certificates payable on demand. Accrued interest on
the Senior Thrift Certificates of $1,703,681 at April 30, 1996 is payable on
demand.
75
<PAGE>
<PAGE>86
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. SUBORDINATED THRIFT CERTIFICATES:
Outstanding Subordinated Thrift Certificates bear interest at rates ranging
from 10.00% to 13.10% at April 30, 1996. All thrift certificates are
subordinated to any indebtedness defined by the Trust Indenture as "Senior
Debt" which includes Senior Thrift Certificates, borrowings from banks, trust
companies and other financial institutions, but excludes subordinated
debentures.
Subordinated Thrift Certificates at April 30, 1996 are due as follows:
<TABLE>
<CAPTION>
Year Ending April 30, Amount
--------------------- ----------
<S> <C>
1997 $4,354,626
1998 472,739
1999 363,109
2000 88,019
2001 and beyond 244,625
----------
$5,523,118
==========
</TABLE>
Included in the amount due in the year ending April 30, 1997 are
approximately $481,176 of certificates payable on demand. Accrued interest on
the Subordinated Thrift Certificates of $1,838,895 at April 30, 1996 is payable
on demand.
6. PREFERRED SHARES:
In 1982, the Company authorized the issuance of 1,000 shares of $1 par
value preferred shares of the Company to be referred to as "Adjustable Rate
Cumulative Preferred Shares." The President and members of his immediate
family exchanged $128,900 in principal amount of Subordinated debentures and
$146,100 in principal amount of Subordinated Thrift Certificates for 275 shares
of Preferred Stock in 1982. The issuance of the shares was exempt from federal
and state securities law registration.
The Adjustable Rate Cumulative Preferred Shares, which have a $1,000 per
share liquidation preference, are redeemable at the option of the Company at
$1,000 per share, plus accrued dividends. Distributions are cumulative and
declared and paid monthly at a rate equal to the prime rate but not less than
12% per annum nor greater than 18% per annum. There were no distributions
during the three fiscal years ended April 30, 1996.
"Prime Rate Cumulative Preferred Shares" have a $100 liquidation preference
and are redeemable solely at the option of the Company at $105 per share, plus
accrued dividends. Distributions are cumulative and are declared and paid
monthly at a rate equal to the prime rate of interest but not less than 10% nor
greater than 18% per annum. There were no distributions during the three
fiscal years ended April 30, 1996.
76
<PAGE>
<PAGE>87
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES:
The Company has available for federal income tax purposes net operating
loss carryovers aggregating approximately $26,979,000 ($35,656,581 for
financial statement purposes) at April 30, 1996. Such loss carryovers may be
used to offset future taxable income, if any, until their expiration in varying
amounts from 2001 to 2009. The Company also has investment tax credit
carryovers of approximately $1,075,000 at April 30, 1996 which are available to
reduce federal income tax liabilities, if any. Such carryovers expire, if not
previously utilized, in varying amounts from 1996 through 2002.
8. INITIAL DIRECT COSTS:
Initial direct costs consist principally of commissions, processing, and
credit approval costs. In accordance with SFAS No. 91, initial direct costs
are accounted for as part of the investment in direct financing leases.
Initial direct costs as defined by SFAS No. 91 amounted to $56,921, $52,049 and
$40,222, for the fiscal years ended April 30, 1996, 1995 and 1994,
respectively, consisting principally of commissions paid to outside lease
brokers and salesmen.
9. COMMITMENTS AND CONTINGENCIES:
The Company leases office space and equipment under noncancellable
operating lease agreements. Total rental expense charged to operations for the
years ended April 30, 1996, 1995 and 1994 was approximately $209,000, $235,200,
and $226,700, respectively.
As of April 30, 1996, the future minimum rental payments under leases are
as follows:
<TABLE>
<CAPTION>
Year Ending April 30, Amount
--------------------- ----------
<S> <C>
1997 $ 212,444
1998 207,784
1999 214,949
2000 222,116
2001 and beyond 664,154
----------
Total $1,521,447
==========
</TABLE>
10. TRANSACTIONS WITH RELATED PARTIES:
The Company is a wholly-owned subsidiary of Walnut Associates, Inc., which
is wholly-owned by Mr. William Shapiro, the President of Walnut Equipment
Leasing Co., Inc.
The President received no salary in fiscal years 1996, 1995 and 1994.
However, the Company paid management fees of $69,000 during each of the fiscal
years ended April 30, 1996, 1995 and 1994, respectively to Walnut Associates,
Inc., primarily to reimburse it for the services of the President.
77
<PAGE>
<PAGE>88
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. TRANSACTIONS WITH RELATED PARTIES: (Continued)
Outstanding Adjustable Rate Cumulative Preferred Shares, Prime Rate
Cumulative Preferred Shares, Subordinated Debentures, Senior and Subordinated
Thrift Certificates and Demand, Fixed Rate and Money Market Thrift
Certificates, including accrued interest, held by the President, members of his
family or companies in which he is the majority shareholder at April 30, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Adjustable Rate Cumulative
Preferred Shares $ 275 $ 275
Prime Rate Cumulative Preferred Shares 281 281
Senior Thrift Certificates 853,640 778,231
Demand, Fixed Rate and
Money Market Thrift Certificates 192,264 181,921
Subordinated Debentures 4,000 4,000
Subordinated Thrift Certificates 507,116 506,311
</TABLE>
For the years ended April 30, 1996, 1995 and 1994, the Company paid Welco
Securities, Inc., ("Welco") an affiliated registered broker/dealer in
securities owned by the President of the Company, $167,138, $135,593, and
$136,848 respectively, for commissions paid in connection with the offering and
sale of Senior Thrift Certificates. The Company pays Welco a commission from
0.2% to 8.0% of the sale price of all Fixed Term Senior Thrift Certificates,
and amortizes this expense over the term of each certificate. ELCOA paid Welco
$182,155, $170,642, and $165,581 for commissions incurred in the solicitation
of Demand, Fixed Rate and Money Market Thrift Certificates during the fiscal
years ended April 30, 1996, 1995 and 1994, respectively. ELCOA pays a
commission to Welco of 0.2% to 8.0% of the sale price on all Demand and Fixed
Rate Certificates sold, and amortizes this expense over the term of each
certificate. During the fiscal year ended April 30, 1996, 1995 and 1994, Welco
paid rentals of approximately $21,000, $8,500 and $10,200, respectively, on
equipment leased from the Company.
The Company expensed $407,160, $354,783, and $342,186 in 1996, 1995 and
1994, respectively, to a law firm in which the President is the principal
shareholder. These payments primarily represent fees for legal services to
associate attorneys, costs and expenditures relating to collections on
defaulted leases.
78
<PAGE>
<PAGE>89
WALNUT EQUIPMENT LEASING CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. TRANSACTIONS WITH RELATED PARTIES: (Continued)
During the fiscal years ended April 30, 1996, 1995 and 1994 the Company
incurred $75,732, $69,943, and $81,965, respectively, in transfer agent
service fees for the issuance and redemption of its Senior and Subordinated
Thrift Certificates. These fees were paid monthly to Financial Data, Inc., a
subsidiary of Walnut Associates, Inc. The monthly amount charged by Financial
Data, Inc. is the sum of $2.00 per certificate holder account maintained,
$1.00 per new or rollover certificate issued during the month, or a minimum of
$1,000 per month, whichever is greater. Prior to January 1, 1994, the monthly
charge per certificate holder was $2.50. During the fiscal years ended April
30, 1996, 1995 and 1994 ELCOA paid $106,589, $99,595 and $105,334,
respectively, to Financial Data, Inc. for similar services rendered in
connection with its outstanding Demand, Fixed Rate and Money Market Thrift
Certificates.
The Company charges Financial Data, Inc. for the use of the Company's
computer facilities, space, telephone, and personnel. The amounts charged to
Financial Data, Inc. during the fiscal years ended April 30, 1996, 1995, and
1994 were $105,780, $111,592 and $111,491, respectively. As of April 30, 1996
and 1995, the Company had a receivable of $59,351 and $88,264, respectively
from Financial Data, Inc. The ability of Financial Data, Inc. to repay this
amount is dependent upon increases in the number of holders of Demand, Fixed
Rate, and Senior Thrift Certificates and related charges therefrom.
On March 6, 1987, the Company entered into a lease agreement with Walnut
Associates, Inc. covering approximately 4,300 square feet of warehouse and
print shop facilities for a five year term, renewable for an additional five
year term, at an annual rental of $3.00 per square foot for the initial term.
This lease was renewed for an additional five year term at the same monthly
rental through March 31, 1997. During the fiscal years ended April 30, 1996,
1995 and 1994, $12,900 in rents each year were paid by the Company to Walnut
Associates, Inc.
11. SUBSEQUENT EVENT
The Board of Directors of the Company have authorized the filing of a new
registration statement for the Company to register an additional $40,000,000
of Senior Thrift Certificates. The current registration statement will expire
August 31, 1996.
79
<PAGE>
<PAGE>90
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
Estimated expenses of this offering are as follows:
<CAPTION>
<S> <C>
Registration fee............................................$12,241.38
NASD Filing Fee............................................. 4,500.00
Accounting.................................................. 15,000.00
Legal....................................................... 5,000.00
Printing.................................................... 2,500.00
State Blue Sky Registration Fees
and Costs (including counsel fees)......................... 7,500.00
Authentication and Delivery of
Certificates and Expenses.................................. 2,500.00
Miscellaneous Expenses (includes
postage of $2,500.00, out-of-pocket
reimbursements of Welco Securities,
Inc. $25,000.00, advertising and
administrative costs of $3,258.62......................... 30,758.62
-----------
Total $ 80,000.00
===========
</TABLE>
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides that a
corporation shall have the power to indemnify any director, officer,
employee or agent of the Company who acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
the Company ("Registrant"). No indemnification shall be made, however, in
respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Company unless and only to the extent that the court
shall determine such person is fairly and reasonably entitled to
indemnity.
Articles IX and X of Registrant's By-Laws provide for indemnification by
the Registrant of all persons whom it may indemnify pursuant to said
Section 145 as amended from time to time. The Company has so agreed to
indemnify its officers and directors.
The Company's Certificate of Incorporation adopts a provision of the
Delaware General Corporation Law which provides that a director of a
corporation will not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty of care as
a director, including breaches which constitute gross negligence.
However, this provision does not eliminate or limit the liability of a
director of a corporation (i) for breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) for acts or omissions not in
80
<PAGE>
<PAGE>91
good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware General Corporation Law
(relating to unlawful payments of dividends or unlawful stock repurchases
or redemptions), (iv) for any personal benefit derived or (v) for breaches
of a director's responsibilities under the federal securities laws.
Reference is made to Item 17 of this Registration Statement for additional
information regarding the indemnification of officers and directors.
ITEM 16 - EXHIBITS
*1.1 Form of Underwriting Agreement to be entered into between Walnut
Equipment Leasing Co., Inc. and Welco Securities, Inc.
*1.2 Form of Selected Dealer's Agreement.
*1.3 Form of Pricing Opinion of J.E. Liss & Company, Inc. to be delivered
to Welco Securities, Inc.
*1.4 Form of Agreement to Act as Qualified Independent Underwriter with
J. E. Liss & Company, Inc. to be delivered to Welco Securities, Inc.
4.1 Specimen of Variable Rate Money Market Subordinated Demand Thrift
Certificate, incorporated by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-1 (File No. 2-78371,
Filed 7/9/82)
4.2 Specimen of Fixed Term Money Market Subordinated Thrift
Certificate, incorporated by reference to Exhibit 4.1 to
Registrant's Registration Statement on Form S-1 (File No. 2-78371,
Filed 7/9/82).
4.3 Specimen of ninety day demand Subordinated Thrift Certificate,
incorporated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form S-18 (Filed October 24, 1979; File
No. 2-65101).
4.4 Specimen of one, three and five year Subordinated Thrift
Certificate, incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form S-18 (Filed October 24,
1979; File No. 2-65101).
4.5 Specimen of Variable Rate Money Market Demand Thrift Certificate,
incorporated by reference to Exhibit 3.6 to Registrant's
Registration Statement on Form S-18 (Filed April 15, 1980; File No.
2-65101).
4.6 Specimen of Fixed Rate Money Market Thrift Certificate,
incorporated by reference to Exhibit 3.7 to Registrant's
Registration Statement on Form S-18 (Filed April 15, 1980; File No.
2-65101).
81
<PAGE>
<PAGE>92
4.7 Specimen of Variable Rate Money Market Subordinated Thrift
Certificate, incorporated by reference to Exhibit 3.1 of
Registrant's Registration Statement on Form S-18 (Filed 12/19/80;
File No. 2-70326).
4.8 Specimen of Fixed Term Money Market Subordinated Thrift
Certificate, incorporated by reference to Exhibit 3.2 to
Registrant's Registration Statement on Form S-18 (Filed 12/19/80;
File No. 2-70326).
4.9 Trust Indenture between Registrant and Fulton Bank, Trustee, dated
October 26, 1979, supplemented by an Amendment April 14, 1980,
incorporated by reference to Exhibit 4.9 to Registrant's
Registration Statement on Form S-2 (Filed 9/5/86; File No.
2-92440).
4.10 Trust Indenture between Registrant and Fulton Bank, Trustee, dated
December 15, 1980, incorporated by reference to Exhibit 4.10 to
Registrant's Registration Statement on Form S-2 (Filed 9/5/86; File
No. 2-92440).
4.11 Trust Indenture between Registrant and Fulton Bank, Trustee, dated
as of June 15, 1982, incorporated by reference to Exhibit 4.11 to
Registrant's Registration Statement on Form S-2 (Filed 9/5/86; File
No. 2-92440).
4.12 Subordination Agreement by William Shapiro and members of his
immediate family, incorporated by reference to Exhibit 3.9 to
Registrant's Registration Statement on Form S-18 (Filed May 19,
1980; File No. 2-65101).
4.13 Company Order dated June 8, 1980, incorporated by reference to
Exhibit 3.10 to Registrant's Registration Statement on Form S-18
(Filed June 9, 1980; File No. 2-65101).
4.14 Specimen Adjustable Rate Cumulative Preferred Share Certificate,
incorporated by reference to Exhibit 4.14 to Form 8-K dated
December 30, 1982 (File No. 2-65101).
4.15 Specimen of Variable Rate Money Market Demand Subordinated Thrift
Certificate, incorporated by reference to Exhibit 4.15 to
Registrant's Registration Statement on Form S-2 (Filed July 27,
1984; File No. 2-92440).
4.16 Specimen of Fixed Term Money Market Subordinated Thrift
Certificate, incorporated by reference to Exhibit 4.16 to
Registrant's Registration Statement on Form S-2 (Filed July 27
1984; File No. 2-92440).
4.17 Supplemental Trust Indenture dated July 24, 1984 to Trust Indenture
between Registrant and Fulton Bank, Trustee, dated June 15, 1982,
incorporated by reference to Exhibit 4.17 to Registrant's
Registration Statement on Form S-2 (Filed July 24, 1984; File No.
2-92440).
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<PAGE>93
4.18 Specimen of Prime Rate Cumulative Preferred Stock Certificate,
incorporated by reference to Exhibit 4.18 to Registrant's
Registration Statement on Form S-2 (Filed July 24, 1984; File No.
2-92440).
4.19 Certificate of designation, relative rights, preferences and
limitations of Prime Rate Cumulative Preferred Stock, incorporated
by reference to Exhibit 4.19 to Registrant's Registration Statement
on Form S-2 (Filed July 24, 1984; File No. 2-92440).
4.20 Second Supplemental Trust Indenture dated September 3, 1986 to
Trust Indenture between Registrant and Fulton Bank, Trustee dated
June 15, 1982, as supplemented July 24, 1984, incorporated by
reference to Exhibit 4.20 to Registrant's Registration Statement on
Form S-2 (Filed September 5, 1986; File No. 2-92440).
4.21 Trust Indenture dated as of October 7, 1987 between Registrant and
First Valley Bank, Bethlehem, Pennsylvania, Trustee, incorporated
by reference to Exhibit 4.21 to Registrant's Registration Statement
on Form S-2 (Filed October 9, 1987; File No. 33-16599).
4.22 Specimen of Demand Senior Thrift Certificate, incorporated by
reference to Exhibit 4.22 to Registrant's Registration Statement on
Form S-2 (Filed October 9, 1987; File No. 33-16599).
4.23 Specimen of Fixed Term Senior Thrift Certificate, incorporated by
reference to Exhibit 4.23 to Registrant's Registration Statement on
Form S-2 (Filed October 9, 1987; File No. 33-16599).
4.24 Form of First Supplemental Trust Indenture dated September 20, 1988
to Trust Indenture dated as of October 7, 1987 between Registrant
and First Valley Bank, Bethlehem, Pennsylvania, Trustee,
incorporated by reference to Exhibit 4.24 to Registrant's
Registration Statement on Form S-2 (File No. 33-23210; Filed July
21, 1988.)
4.25 Form of Specimen of Demand Senior Thrift Certificate incorporated
by reference to Exhibit 4.25 to Registrant's Registration Statement
on Form S-2 (File No. 33-23210; Filed July 21, 1988.)
4.26 Form of Specimen of Fixed Term Senior Thrift Certificate
incorporated by reference to Exhibit 4.26 to Registrant's
Registration Statement on Form S-2 (File No. 33-23210; Filed July
21, 1988.)
4.27 Form of Second Supplemental Trust Indenture dated as of September
13, 1989 to Trust Indenture dated as of October 7, 1987 between
Registrant and First Valley Bank, Bethlehem, Pennsylvania, Trustee,
incorporated by reference to Exhibit 4.27 to Registrant's
Registration Statement on Form S-2 (File No. 33-23210; Filed July
10, 1989.)
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4.28 Form of Specimen of Demand Senior Thrift Certificate, incorporated
by reference to Exhibit 4.28 to Registrant's Registration Statement
on Form S-2 (File No. 33-23210; Filed July 10, 1989.)
4.29 Form of Specimen of Fixed Term Senior Thrift Certificate,
incorporated by reference to Exhibit 4.29 to Registrant's
Registration Statement on Form S-2 (File No. 33-23210; Filed July
10, 1989.)
4.30 Form of Third Supplemental Trust Indenture dated as of August 17,
1990 to Trust Indenture dated as of October 7, 1987 between
Registrant and First Valley Bank, Bethlehem, Pennsylvania, Trustee
(File No. 33-35663; Filed June 29, 1990.)
4.31 Form of Specimen of Demand Senior Thrift Certificate (File No.
33-35663; Filed June 29, 1990.)
4.32 Form of Specimen of Fixed Term Senior Thrift Certificate (File No.
33-35663; Filed June 29, 1990.)
4.33 Fourth Supplemental Trust Indenture dated as August 14, 1992 to
Trust Indenture dated as of October 7, 1987 between Registrant and
First Valley Bank, Bethlehem, Pennsylvania, Trustee. (File No.
33-49278; Filed August 18, 1992.)
4.34 Form of Specimen of Demand Senior Thrift Certificate. (File No.
33-49278; Filed July 6, 1992)
4.35 Form of Specimen of Fixed Term Senior Thrift Certificate. (File No.
33-49278; Filed July 6, 1992)
4.36 Fifth Supplemental Trust Indenture dated as of August 23, 1994 to
Trust Indenture dated as of October 7, 1987 between Registrant and
First Valley Bank, Bethlehem, Pennsylvania, Trustee. (File No.
33-81630; Filed August 25, 1994.)
4.37 Form of Specimen of Demand Senior Thrift Certificate. (File No.
33-81630; Filed July 18, 1994).
4.38 Form of Specimen of Fixed Term Senior Thrift Certificate. (File
No. 33-81630; Filed July 18, 1994).
*4.39 Form of Sixth Supplemental Trust Indenture dated as of August xx,
1996 to Trust Indenture dated as of October 7, 1987 between
Registrant and Summit Bank (successor by merger to First Valley
Bank), Bethlehem, Pennsylvania, as Trustee.
*4.40 Form of Specimen of Demand Senior Thrift Certificate.
*4.41 Form of Specimen of Fixed Term Senior Thrift Certificate.
*5.1 Form of Opinion of Counsel re: legality of issuance of Certificates.
84
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<PAGE>95
10.1 Specimen of existing five-year Subordinated Debenture, incorporated
by reference to Exhibit 11.2 to Registrant's Registration Statement
on Form S-18 (Filed July 26, 1979; File No. 2-65101).
10.2 Form of equipment lease, incorporated by reference to Exhibit 11.3
to Registrant's Registration Statement on Form S-18 (Filed 7/26/79;
File No. 2-65101).
10.3 Agreement with Walnut Associates, Inc. as of February 1, 1979,
incorporated by reference to Exhibit 11.5 to Registrant's
Registration Statement on Form S-18 (Filed 7/26/79; File No.
2-65101).
10.4 Agreement with Walnut Associates, Inc. dated May 16, 1969,
incorporated by reference to Exhibit 11.8 to Registrant's
Registration Statement on Form S-18 (Filed 7/26/79; File No.
2-65101).
10.5 Service Contract dated May 23, 1986 between Registrant and
Equipment Leasing Corporation of America; Incorporated by reference
to Exhibit 10.5 to Equipment Leasing Corporation of America's
Registration Statement on Form S-1 (File No. 33-6259, Filed June 6,
1986).
10.6 Escrow Agreement dated May 23, 1986 between Registrant and
Equipment Leasing Corporation of America re: Segregation of Funds;
Incorporated by reference to Exhibit 10.6 to Equipment Leasing
Corporation of America's Registration Statement on Form S-1 (File
No. 33-6259; Filed June 6, 1986).
10.7 Option Agreement dated May 23, 1986 between Registrant and
Equipment Leasing Corporation of America Incorporated by reference
to Equipment Leasing Corporation of America's Registration
Statement on Form S-1 (File No. 33-6259, Filed June 6, 1986).
10.8 Lease Agreement dated as of March 6, 1987 between Registrant and
Walnut Associates, Inc. covering the premises located at 15 South
4th Street, Fernwood, PA, incorporated by reference to Exhibit
10.23 to Registrant's Registration Statement on Form S-2 (Filed
7/31/87; File No. 2-92440).
10.9 Service Purchase Contract dated May 18, 1995 between Walnut and the
Pennsylvania Office of Liquidations and Rehabitations regarding
servicing of performing lease files. (Filed as Exhibit 10.11 to
Form 10-K for the fiscal year ended April 30, 1995).
10.10 Master Leasing Program Agreement dated as of June 9, 1995 between
TEC America, Inc. and the Company regarding a "private label
leasing" agreement between the parties. (Filed as Exhibit 10.13 to
Form 10-K for the fiscal year ended April 30, 1995).
10.11 Sublease Agreement dated as of July 7, 1995 between the Company and
Walnut Associates, Inc. covering offices space located at Suite
200, One Belmont Avenue, Bala Cynwyd, Pennsylvania. (File No.
33-81630; Filed September 12, 1995)
85
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<PAGE>96
10.12 Memorandum of Office Building Lease dated as of August 3, 1995
between Walnut Associates, Inc. and WRGSB Associates, covering the
premises located at One Belmont Avenue, Bala Cynwyd, PA. (File No.
33-81630; Filed September 12, 1995)
*12.1 Statement re: Computation of ratios.
13.1 Form 10-K for the fiscal year ended April 30, 1996. (Filed July
26, 1996).
21.1 Subsidiaries of the Registrant. Incorporated by reference to
Exhibit 22.1 to Form 10-K as filed by the Registrant for the fiscal
year ended April 30, 1994.
*23.1 The consent of William Shapiro, Esq., P.C. is filed as part of
their opinion which is filed as Exhibit 5.1, hereof.
*23.2 Consent of J.E. Liss & Company, Inc. is filed as part of their
opinion which is filed as Exhibit 1.3, hereof.
*23.3 Consent of Cogen Sklar LLP, Independent Certified Public
Accountants.
*25.1 Form T-1, Statement of Eligibility and Qualification of Summit Bank
(successor by merger to First Valley Bank), Bethlehem, Pennsylvania
as Trustee under an Indenture to be qualified under the Trust
Indenture Act of 1939. (As amended).
27.1 Financial Data Schedule. See Exhibit 27.1 to Form 10-K filed July
26, 1996.
99.1 Listing of Manufacturers Engaged in Co-Op Manufacturing Marketing
Program. (As of July 1, 1996) (Filed as Exhibit 99.1 to Form 10-K
for the Fiscal Year Ended April 30, 1996; Filed July 26, 1996).
* Filed with this Form S-2
ITEM 17 - UNDERTAKING
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers of sales are being made of
the securities registered, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10 (a)(3) of the
Securities Act of 1933;
86
<PAGE>
<PAGE>97
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona-fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) 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 Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona-fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provision, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a 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 its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
87
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<PAGE>98
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Lower Merion, County of Montgomery,
Commonwealth of Pennsylvania on the 29th day of July, 1996.
WALNUT EQUIPMENT LEASING CO., INC.
By: /s/ William Shapiro
---------------------------------
William Shapiro, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and the dates indicated.
SIGNATURES TITLE DATE
President and Director
/s/ William Shapiro Chief Executive,
- ---------------------------- Financial and
(William Shapiro) Accounting Officer July 29, 1996
/s/ Kenneth S. Shapiro Vice-President and
- ---------------------------- Director July 29, 1996
(Kenneth S. Shapiro)
/s/ Deljean Shapiro Secretary, Treasurer
- ---------------------------- and Director July 29, 1996
(Deljean Shapiro)
/s/ Dr. Thomas Matcovich
- ---------------------------- Director July 29, 1996
(Dr. Thomas Matcovich)
/s/ Philip R. Bagley
- ---------------------------- Director July 29, 1996
(Philip R. Bagley)
/s/ Lester D. Shapiro
- ---------------------------- Director July 29, 1996
(Lester D. Shapiro)
88
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<PAGE>99
As Filed with the Securities and Exchange Commission on July 30, 1996
Registration No. 333-xxxxx
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
----------
WALNUT EQUIPMENT LEASING CO., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-1712443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE BELMONT AVENUE WILLIAM SHAPIRO, ESQ., P.C.
SUITE 200 ONE BELMONT AVENUE, SUITE 202
BALA CYNWYD, PA 19004 BALA CYNWYD, PA 19004
(610) - 668 - 0700 (610) - 668 - 0707
(Address, including zip code, (Name, Address, including zip code and
and telephone number, including telephone number, including area code,
area code, of registrant's of agent for service)
principal executive offices)
COPY OF COMMUNICATIONS TO:
William Shapiro, Esq., P.C. Kenneth S. Shapiro, President
Suite 202, One Belmont Avenue Welco Securities, Inc.
Bala Cynwyd, Pennsylvania 19004 Suite 105, One Belmont Avenue
Telephone Number (610)668-0707 Telephone Number (610)668-0709
EXHIBIT VOLUME
<PAGE>
<PAGE>100
<TABLE>
WALNUT EQUIPMENT LEASING CO., INC.
Exhibit Index
Form S-2
<CAPTION>
Exhibit Sequential Page
Number Description Number
------- ------------------------------------------ ---------------
<S> <C> <C>
1.1 Form of Underwriting Agreement 101
1.2 Form of Selected Dealers' Agreement 117
1.3 Form of Pricing Opinion of J.E. Liss &
Company, Inc. 121
1.4 Form of Agreement to Act as Qualified
Independent Underwriter 122
4.39 Form of Sixth Supplemental Trust Indenture 131
4.40 Form of Specimen of Demand Certificate 142
4.41 Form of Specimen of Fixed Rate Certificate 146
5.1 Form of Opinion of Counsel re: Legality of
Issuance of Certificates 150
12.1 Statement re: Computation of Ratios 152
23.3 Consent of Cogen Sklar, LLP, Independent
Certified Public Accountants 153
"P" 25.1 Statement of Eligibility & Qualification
of Summit Bank (successor by merger to
First Valley Bank) Filed as Form T-1 154
</TABLE>
<PAGE>101
WALNUT EQUIPMENT LEASING CO., INC.
$40,000,000
SENIOR THRIFT CERTIFICATES
August xx, 1996
Welco Securities, Inc.
Suite 105
One Belmont Avenue
Bala Cynwyd, PA 19004
Dear Sirs:
Walnut Equipment Leasing Co., Inc., a Delaware Corporation (the "Company")
hereby confirms its agreement with you (hereinafter called the "Underwriter")
as follows:
1. DESCRIPTION OF SECURITIES. The Company proposes to issue and sell to
the public up to $40,000,000 in principal amount of Senior Thrift Certificates
(the "Certificates"), which are referred to herein as the "Securities." The
offering which will be on a continuous basis until termination will be on a
"best efforts" basis for the Securities through the Underwriter as agent for
the Company pursuant to the Securities Act of 1933, as amended (the "1933 Act")
and in accordance with the terms and subject to the conditions as hereinafter
set forth.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333-xxxx) on Form S-2,
including a preliminary form of prospectus, relating to the offering of the
Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the 1933 Act and the rules and regulations
("Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") promulgated pursuant to the 1933 Act and said registration
statement has been filed with the Commission under the 1933 Act and one or more
amendments to said registration statement, as the case may be, may be similarly
prepared and filed with the Commission. As used in this Agreement and unless
the context indicates otherwise, the term "Registration Statement" refers to
and means said registration statement, including any exhibit, financial
statement, schedule and prospectus included therein, as finally amended and
revised on or prior to the effective date (the "Effective Date") of said
registration statement. The term "Preliminary Prospectus" refers to and means
1
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<PAGE>102
and prospectus filed with the Commission and included in said registration
statement before it becomes effective, and the term "Prospectus" refers to and
means the prospectus included in the Registration Statement at the time it
becomes effective, except that if the prospectus first filed by the Company
pursuant to Rule 424(b) of the Rules and Regulations shall differ from the
Prospectus, the term "Prospectus" shall refer to the prospectus filed pursuant
to Rule 424(b). If the Registration Statement or the Prospectus is amended or
supplemented after the Effective Date and prior to or on the Effective Date (as
defined below), then the terms "Registration Statement" and "Prospectus" shall
refer to such documents as so amended or supplemented.
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary Prospectus and, to the knowledge of the Company, has
not instituted and does not presently plan to institute any proceedings with
respect to such an order: and on the Effective Date and at all times subsequent
thereto, (i) the Registration Statement and the Prospectus will contain all
statements and information which are required to be stated therein by the 1933
Act, the Rules and Regulations or any orders of the Commission under the 1933
Act and will conform in all material respects to the requirements of the 1933
Act, the Rules and Regulations and said orders and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make statements therein not misleading; provided,
however, that the foregoing representations and warranties in this Subsection
(b) will not apply to statements or omissions made in, or omitted form, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use therein.
(c) The Company has been duly incorporated and is now, and at the
Effective Date will be validly existing and in good standing as a corporation
under the laws of the jurisdiction in which it is incorporated, and has full
power and authority to own its properties and conduct its business as presently
conducted and as described in, or contemplated by, the Registration Statement.
The Company and its subsidiaries are duly qualified and in good standing in all
jurisdictions in which the nature of the business transacted by it or the
character or location of its properties make such qualification necessary. To
the best knowledge of the Company and except as set forth in the Registration
Statement, it holds all licenses, certificates and permits from the state,
federal or other regulatory authorities necessary for the conduct of its
business and is in compliance with all laws and regulation and all orders and
decrees applicable to it or its business or assets. The Company does not own
any interest in any other corporation, partnership, joint venture or other
entity, other than is fully disclosed in the Registration Statement.
The Company has an authorized capitalization of 1,000 shares of common
stock ($1.00 par value) and 51,000 shares of preferred stock of which 1,000
shares have been previously designated "Adjustable Rate Cumulative Preferred
Shares" and 50,000 have been designated "Prime Rate Cumulative Preferred
Shares". At the time the Registration Statement becomes effective, 1,000
shares of common stock, 275 shares of Adjustable Rate Cumulative Preferred
Stock and 281 shares of Prime Rate Cumulative Preferred Shares will be issued
and outstanding. On the effective Date of the Registration Statement and
during the offering, there will be no other outstanding options, warrants or
other rights to purchase securities of the company except as disclosed in the
Registration Statement or contemplated thereby.
2
<PAGE>
<PAGE>103
(d) The financial statements and schedules included in the
Registration Statement fairly present the financial position and operations
covered thereby at the respective dates and for the respective periods to which
they apply. Such financial statements and schedules have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved.
(e) The accountants who certified the financial statements and
schedules filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the 1933 Act and the Rules and
Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and prior to the Effective
Date, except as disclosed in or contemplated by the Registration Statement and
Prospectus (i) the Company has not incurred or shall not have incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business; (ii) there
has not been and shall not have been any change in the Common Stock, funded
debt (other than regular borrowings and repayments of principal on
indebtedness) or other securities of the Company, any materially adverse
changes in the condition (financial or other), business, operations, income,
properties or business prospects of the Company, including any loss or damage
to the properties of the company (whether or not such material loss is insured
against), or any default in the performance of any obligation as the Company in
any contract: and (iii) the Company has not and shall not have paid or declared
any dividend or other distribution on its Common Stock and has not increased
the stated rate of dividends on its outstanding Preferred Shares.
(g) This Agreement has been duly and validly authorized executed and
delivered by the Company and, when duly executed and delivered by the Company,
will constitute a valid and binding agreement, enforceable in accordance with
its terms, except as enforceability of any indemnification provision may be
limited under federal securities laws except as enforceability of such
agreements may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or affecting generally the enforcement of
creditors' rights. The Company is not presently in violation of or in default
under, and the execution, delivery and performance of this Agreement and the
consummation of the transactions herein and therein contemplated will not
result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the company pursuant to, or in conflict with,
result in a breach of or constitute a default under, any of the terms,
conditions or provisions of (i) the articles of incorporation, as amended, or
the by-laws of the Company, (ii) any note, loan agreement, indenture, mortgage,
deed of trust, or other agreement or instrument of which the Company is a party
or by which the Company or any of its properties are bound or subject, or (iii)
to the best knowledge of the Company any existing law, order, rule, regulation,
writ, injunction or decree of any government, government instrumentality,
agency, body or court having jurisdiction over the Company or any of its
properties, The consent, approval, authorization, order of any government or
governmental instrumentality, agency, body or court is not required for the
consummation of the transactions herein contemplated, except such as may be
required under the 1933 Act or under the Blue Sky or securities laws of any
state.
3
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<PAGE>104
(h) Except as set forth in the Prospectus, there is neither pending
nor, to the knowledge of the Company, threatened, any action, suit, or
proceeding at law or in equity or any arbitration to which the Company or any
officer, director or principal stockholder thereof is party before or by any
court, arbitration tribunal or governmental instrumentality, agency, or body
which might result in any materially adverse change in the condition (financial
or other), business, operations, income, properties or business prospects of
the Company, or which might materially affect its properties or assets, or
prevent consummation of the transactions contemplated hereby.
(i) There is no contract or other document which is required to be
filed as an exhibit to the Registration Statement by the 1933 Act or by the
Rules and Regulations which has not been so filed, and subsequent to the
respective dates as of which information is given in the Registration
Statement, each contract to which the Company is party and which is filed as an
exhibit to, or incorporated by reference in the Registration Statement is and
shall be in full force and effect at the Effective Date or shall have been
terminated in accordance with its terms or as set forth in the Registration
Statement and Prospectus, and no party to any such contract shall have given
notice of the cancellation of or, to the knowledge of the Company, shall have
threatened to cancel, any such contract and the Company shall not be in
material default thereunder.
(j) Except as set forth in the Registration Statement, the Company
has good and marketable title in fee simple to all its property and assets,
including any licenses, described in the Registration Statement as owned by it
free and clear of all liens, charges, encumbrances and restrictions other than
such as are not materially significant in relation to the business of the
Company; all of the leases and subleases material to the business of the
Company under which the Company holds or uses any real or personal property,
including those described or referred to in the Prospectus, are in full force
and effect, and the Company is not in default in respect of any of the terms or
provisions of any such leases or subleases, and no claim of any sort has been
asserted by anyone adverse to the Company's rights under any such leases or
subleases or affecting or questioning the Company's rights to the continued
possession of the leased or subleased property covered by such lease or
sublease.
(k) The Company has filed all necessary federal, state, local and
foreign income and franchise tax returns and has paid or accrued all taxes and
fees shown therein as due; the Company has no knowledge of any tax deficiency
which might be asserted against the Company which could materially and
adversely affect its business or properties:
(l) The Company or its agent maintains insurance, which is in full
force and effect, of the types and in the amounts adequate for its business and
in line with insurance maintained by similar companies and businesses,
including but not limited to, insurance covering personal injury and property
damage liability, workmen's compensation, employer liability and insurance
covering all personal property owned, leased by or in the care of the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against.
4
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<PAGE>105
(m) The Company knows of no outstanding claims for services either in
the nature of a finder's fee, brokerage fee or otherwise with respect to this
underwriting for which the Company or the Underwriter may be responsible.
(n) The Company has not taken, and will not take, directly or
indirectly, any action designed to constitute or which has constituted or which
might reasonably be expected to cause or result in the stabilization of the
price of the Securities or a violation of Rule 10b-6 of the rules and
regulations promulgated pursuant to the Securities and Exchange Act of 1934, as
amended (the "1934 Act") or in a manipulation of the price of any security
issued by the Company.
(o) The Company will use its best efforts to appoint and continue to
retain as transfer agent Financial Data, Inc., Bala Cynwyd, Pennsylvania (the
"Transfer Agent"), as long as the services by the Transfer Agent are performed
satisfactorily and any Securities are outstanding, and will make arrangements
to have available, at the office of such Transfer Agent, certificates
representing the Securities in such quantities as may form time to time be
necessary.
(p) As of the date the Registration Statement becomes effective (i)
the Indenture and all supplements thereto will have been validly authorized,
executed and delivered by the Company and will constitute the legally binding
obligation of the Company, (ii) the Certificates will have been validly
authorized and, upon payment therefore as provided in this Agreement, will be
validly issued and outstanding, and will constitute legally binding obligations
of the Company, except in the event of bankruptcy, etc., entitled to the
benefits of the Indenture, and (iii) the Certificate and the Indenture will
conform to the descriptions thereof contained in the prospectus.
3. ISSUE, SALE AND DELIVERY OF THE SECURITIES.
(a) The Company hereby appoints the Underwriter as its agent in the
public offering of up to $40,000,000 in principal amount of Senior Thrift
Certificates to be offered on a "best-efforts" basis, subsequent to the
effective date of the Prospectus on a continuous basis until terminated in
accordance with this agreement. The Underwriter on the basis of the
representations and warranties herein contained and subject to the terms and
conditions therein set forth, accepts such appointment and agrees to use its
best efforts to find purchasers for the Securities referred to above. The
minimum denomination in which the underwriter shall sell the Certificate, or
such other minimum denomination as determined by the Company from time to time.
It is understood between the parties hereto that there is no firm commitment by
the Underwriter to purchase any or all of the Securities and the Underwriter
agrees that it will exert its best efforts to sell the Securities as covered by
the Registration Statement on Form S-2 under the Act. In addition, the
foregoing obligation of the Underwriter is subject to receipt of written advice
from the Commission that subject to qualification under applicable state laws
and the absence of any prohibitory action by any governmental body, agency or
official, and subject to the terms and conditions contained in this Agreement
and in the Prospectus covering the offering to which this Agreement relates.
(b) Delivery of and payment for the Securities.
5
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<PAGE>106
(1) All funds received by the Underwriter from the public for the
purchase of Certificates sold shall be made in a form payable to the Company
and shall be promptly forwarded in kind to the Company, along with an
Application for Purchase signed by the purchaser signifying that the purchaser
has received a copy of the Prospectus. The Company, promptly upon receipt of
the funds, will cause the Certificates to be issued, authenticated and mailed
to each purchaser and will maintain sufficient records of such mailing.
(2) In consideration of the services to be rendered by the
Underwriter, the Company hereby agrees to reimburse the Underwriter for all
out-of-pocket expenses incurred by the Underwriter in connection with the
offering of Securities as provided for hereunder, provided that the Underwriter
submits written evidence of any expense for which reimbursement is sought.
(3) The Underwriter shall be entitled to a commission on all
sales of Certificates sold equal to 1/15 of 1% per month for each month of all
Fixed Term Certificates issued. Therefore commissions shall range from .4% for
a 6-month certificate sold (being 1/15 of 1% multiplied by 6) to 8.0% for a
120-month certificate (being 1/15 of 1% multiplied by 120).
(4) Only sales made by properly licensed registered securities
agents employed by the Underwriter or by Selected Dealers of the Underwriter
shall be entitled to the commission and concession. It is also agreed, that
commission on certificates shall be paid for certificates issued for cash, and
for any renewal, rollover, or conversion of any outstanding Certificate. No
commissions shall be paid on account of any certificate payable on demand (i.e.
Demand Senior Thrift Certificate) sold by the Underwriter. The Underwriter has
assumed full responsibility for thorough and prior training of its
representatives concerning the selling methods to be used in connection with
the offer and sale of the Company's Securities, giving special emphasis to the
principles of full and fair disclosure to prospective investors, the
prohibitions against "Free-Riding" and "Withholding", and suitability standards
prescribed by applicable securities law.
4. OFFERING OF THE SECURITIES ON BEHALF OF THE COMPANY.
(a) In offering the Securities for sale, the Underwriter shall offer
them solely as agent for the Company, and such offer shall be made upon the
terms and subject to the conditions set forth in the Registration Statement and
Prospectus. The Underwriter shall commence making offers and sales as agent
for the Company as soon after the Effective Date as they may deem advisable.
(b) The Underwriter shall have the right to associate with other
underwriters or dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") as it may determine. The Underwriter shall
have the right to grant to such persons a concession, to be reimbursed by the
Company, as the Underwriter with the consent of the Company may determine, but
not to exceed the amount stated on the front cover of the Prospectus, under and
pursuant to a Selected Dealer Agreement in the form filed as and exhibit to the
registration statement. No commission shall be paid on account of the sale of
any Demand Senior Thrift Certificate.
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5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to (i) cause the
Registration Statement to become effective as promptly as possible (ii) notify
the Underwriter of the effectiveness of the Registration Statement, the receipt
of any comments of the Commission, and the time when the Registration Statement
or any post-effective amendment thereto has become effective or any supplement
to the Prospectus has been filed, (iii) notify the Underwriter promptly of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
proceedings for any of such purposes of which it has knowledge and (iv) use its
best efforts to prevent the issuance of any stop order and if issued, to obtain
as promptly as possible the lifting thereof. The Company will advise the
Underwriter promptly of any request of the Commission for an amendment or
supplement to the Registration Statement or the Prospectus or for any
additional information, and will not at any time, whether before or after the
Effective Date, file any amendment or supplement to the Registration Statement,
(i) which shall not have been previously submitted to the Underwriter a
reasonable time prior to the filing thereof, (ii) to which the Underwriter
shall have objected in writing, or (iii) which is not in compliance with the
1933 Act or the Rules and Regulations.
(b) Within the time during which the Prospectus is required to be
delivered under the 1933 Act, or pursuant to the undertakings of the Company in
the Registration Statement, the Company will comply, at its own expense, with
all requirements imposed upon it by the 1933 Act, the Rules and Regulations,
the 1934 Act, the rules and regulation of the Commission promulgated under the
1934 Act, each as now in effect or hereafter amended or supplemented, and by
any order of the Commission so far as necessary to permit the continuance of
sales of, or dealings in, the Securities, if then issuable. During such period
the Company, at its own expense, shall amend or supplement the Prospectus in
order to make such Prospectus not misleading in light of the circumstances
existing at the time it is delivered to a purchaser or seller.
(c) The Company will deliver to the Underwriter, without charge, (i)
prior to the Effective Date, copies of those Preliminary Prospectus which will
be distributed in accordance with Rule 460 and any which were filed with the
Commission bearing in red ink the statement required by Item 501 (c) (8) of
Regulation S-K of the Rules and Regulations, (ii) on and from time to time
after the Effective Date, copies of the Prospectus and (iii) as soon as they
are available, and from time to time thereafter, copies of each amended or
supplemented prospectus prepared for the purpose of permitting compliance with
Subsections (b) and (c) of this Section 5, and the number of copies to be
delivered in each such case will be such as the Underwriter may reasonably
request. The Company has consented and hereby consents to the use of each
Preliminary Prospectus for the purposes permitted by the 1933 Act and the Rules
and Regulation. The company authorizes the Underwriter and participating
dealers to use the Prospectus in connection with the sale of the Securities for
such period as the Prospectus is required to comply with the applicable
provisions of the 1933 Act and the Rules and Regulations.
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(d) The Company will take such action as may be necessary to qualify
the offer and sale of the Securities under the Blue Sky or securities law of
such states or other jurisdictions as is required and as the Underwriter may
reasonably designate and to continue such qualifications in effect so long as
may be required for the purposes of the distribution of the Securities;
provided, however, that the Company will not be obligated to file any general
consent to service of process or qualify as a foreign corporation under the
laws of any such state or jurisdiction in connection with its obligations under
this Subsection (d). In each state or jurisdiction where the Company shall
qualify the Securities, as above provided, the company will prepare and file
such statements or reports as may be required by the laws of such state or
jurisdiction.
(e) The Company will apply the net proceeds it realizes from the sale
of the Securities in substantially the manner set forth under the caption "Use
of Proceeds" in the Prospectus and subject to qualifications and exceptions
stated herein.
6. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter
represents and warrants as follows:
(a) It is registered as a broker/dealer with the Commission, in good
standing with the appropriate governmental agency in each state in which it
offers or sells the Securities and is a member of the National Association of
Securities Dealers, Inc. ("NASD") and will use its best efforts to maintain
such registrations, qualifications and memberships throughout the term of the
offering.
(b) To the knowledge of the Underwriter, no action or proceeding is
pending against the Underwriter or any of its officers or directors concerning
the Underwriter's activities as a broker or dealer that would affect the
Company's offering of the Securities.
(c) The Underwriter will offer the Securities only in those states and
in the quantities that are identified in the Blue Sky Memorandums to be
delivered from the Company to the Underwriter that the offering of the
Securities has been qualified for sale under the applicable state statutes and
regulations. The Underwriter, however, may offer the Securities in other
states if (i) the transaction is exempt from the registration requirements in
that state, (ii) the Company has received notice ten days prior to the proposed
sale, and (iii) the Company does not object within said ten day period.
(d) The Underwriter, in connection with the offer and sale of the
Securities and in the performance of its duties and obligations under this
Agreement, agrees to use its best efforts to comply with all applicable federal
laws; the laws of the states or other jurisdictions in which the Securities are
offered and sold, and the Rule and Regulations of the NASD.
(e) The Underwriter is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada with all requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
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(f) This Agreement has been duly authorized, executed and delivered by
the Underwriter and is a valid agreement on the part of the Underwriter.
(g) Neither the execution of this Agreement nor the consummation of
the transaction contemplated hereby will result in any breach of any of the
terms or conditions of, or constitute a default under, the articles of
incorporation or by-laws of the Underwriter of any indenture, agreement or
other instrument to which the Underwriter is party or violate any order
directed to the underwriter of any court or any federal or state regulatory
body or administrative agency having jurisdiction over the Underwriter or its
affiliates.
(h) The Underwriter knows of no person who rendered any services in
connection with the introduction of the Company to the Underwriter. No person
acting by, through or under the Underwriter will be entitled to receive from
the Underwriter or from the Company any finder's fees or similar payments.
(i) The written information provided by the Underwriter for inclusion
in ten Registration Statement and Prospectus consists of certain information on
the front and back Prospectus cover pages, and under "Plan of Distribution" in
the Prospectus.
7. EXPENSES OF THE UNDERWRITER.
Subject to the sale of Securities, the Company shall reimburse the
Underwriter, for its out-of-pocket expenses on an accountable basis in an
amount which is not expected to exceed $25,000.00. In the event the offering
is terminated, the Underwriter will be reimbursed only for its actual
accountable out-of-pocket expenses.
8. EXPENSES OF THE COMPANY. The Company agrees that it will pay the
following fees and expenses:
(a) All fees and expenses of its legal counsel who will be engaged to
prepare certain information, documents and papers for filing with the
Commission.
(b) All fees and expenses of its accountants incurred in connection
with the offering of the Securities and the preparation of all documents and
filings made as part of the offering;
(c) All costs in issuing and delivering the Securities;
(d) All costs of printing and delivering to the Underwriter and
dealers as many copies of the Registration Statement and amendments,
preliminary Prospectuses and definitive Prospectuses as reasonably requested by
the Underwriter;
(e) All of the Company's mailing, telephone, travel, clerical and
other office costs incurred or to be incurred in connection with the offering
of the Securities;
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(f) All fees and costs which may be imposed by the Commission, the
various state or local securities authorities and the NASD for review of the
offering of the Securities;
(g) All other expenses incurred by the Company in performance of its
obligations under this Agreement, including, but not limited to, underwriting
re-allowances and concessions to Selected Dealers.
9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 13 of the 1933 Act against any and all losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Underwriter or such controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, and Preliminary Prospectus, the
Prospectus, or in any application or other papers, hereinafter collectively
called Blue Sky applications, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damages or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or in a Blue Sky application, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriter specifically
for use in the preparation thereof, and provided further that the indemnity
agreement contained in this Section 9 (a) shall not inure to benefit of the
Underwriter (or to the benefit of any person controlling the Underwriter) with
respect to any person asserting any such loss, claim, damage or liability and
who purchased the Securities form the Underwriter if the Underwriter failed to
send or give in violation of the 1933 Act or the Rules and Regulations a copy
of the Prospectus to such person at or prior to the written confirmation to
such person of the sale of such Securities, provided such prospectus has been
provided to the Underwriter. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Underwriter agrees, that it will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) or director named in
the Prospectus, each of its officers who has signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act, against any and all losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which
the Company or any such directors, nominee officer or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
10
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<PAGE>111
fact contained in the Registration Statement, any Preliminary Prospectus, or in
any Blue Sky application or the Prospectus or any amendment or supplement
thereof, or arise out of or based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus or
the Prospectus or such amendment or Supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Underwriter may otherwise have.
(c) Within a reasonable time after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party of the
commencement thereof; but the omission to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than solely pursuant to this Section 9. In case
any such action is brought against any indemnified party, which notifies that
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may choose, jointly with
any other indemnifying party similarly notified, reasonably assume the defense
thereof, subject to the provisions herein stated, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof the indemnifying party will not be liable to such indemnified
party under this Section 9 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation unless the indemnifying party shall not
pursue the action to this final conclusion. The indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed the
defense of the action. The indemnifying party shall not be liable to indemnify
the indemnified party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which
consent shall not be unreasonably withheld.
10. SURVIVAL OF AGREEMENTS, ETC. Notwithstanding any investigations made
by or on behalf of the parties to this Agreement, all representations,
warranties, indemnities, and agreements made by the parties to this Agreement
or pursuant hereto shall remain in full force and effect and will survive
delivery of any payment for the Securities, except that, if a party hereto has
actual knowledge as of the Effective Date of facts which would constitute a
breach of the representations and warranties contained herein, such breaches
shall be waived by such party if such party consummates the transactions
contemplated by this Agreement.
(a) Under this Agreement that the Registration Statement or the
Prospectus, or any amendment or supplement thereto, contains and untrue
statement of fact which is material or omits to state a fact which is material
and is required to be stated therein or is necessary to make the statements
therein not misleading.
11
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(b) The underwriter shall have received a certificate dated and
delivered as of the Effective Date, to the President and Chief Financial
Officer of the Company stating that, to the best of their respective knowledge
and belief after diligent investigation, that:
(i) The company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied hereunder at prior to
such date.
(ii) No stop order suspending the effectiveness of the Registration
Statement had been issued, and no proceedings for that purpose have been
instituted or are pending, contemplated or threatened under the 1933 Act.
(iii) The respective signers of the certificates have carefully
examined the Registration Statement and the Prospectus and any supplement or
amendment thereto, each of which contains all statements required to be stated
therein in accordance with the 1933 Act and the Rules and Regulations and
conforms in all material respects to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto omits to state any material fact necessary to make the statements
therein not misleading and does not contain any untrue statement of material
fact, and, since the Effective Date there has occurred no event required to be
set forth in an amended or supplemented prospectus which has not been set
forth.
(iv) As of such date, the representations and warranties of the
Company contained in this Agreement are true and correct with the same effect
as if made on and as of the date hereof, and the Company has complied with all
of its obligations and agreements herein contained and to be completed as of
the date hereof, and certifying as to the matters referred to in Subsections
11(c) and (d).
(v) Subsequent to the respective dates as of which information is
given in the Registration Statements and the Prospectus and except as
contemplated in the Prospectus, the Company has not incurred, except in the
ordinary course of business, any material liabilities or obligations, direct or
contingent, or entered into any material transaction, contract, or agreement,
except in the ordinary course of business, and there has not been any
materially adverse change in the condition (financial or other), business,
operations, income, properties or business prospects, results of operations,
securities, long-term or short-term debt or general affairs of the Company.
(vi) Subsequent to the respective dates of which information is given
in the Registration Statement and the Prospectus, the Company has not sustained
any material loss or damage to its properties, whether or not insured, and
since such respective dates, no dividends or distributions whatever have been
declared or paid, or both, on or with respect to the common stock of the
Company.
(vii) Such officer has not taken and will not take, directly or
indirectly, any action designed to, or which might reasonably be expected to,
cause or result in the stabilization or manipulation of the price of the
Company's Securities to facilitate the sale or resale of the Securities.
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(viii) Except as set forth in the Prospectus, no action, suit or
proceeding, at law or in equity is pending or threatened against the Company
which might be required to be set forth in the Registration Statement, and no
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling or finding might materially and
adversely affect the condition (financial or other), business, operations,
income, properties, business prospects, results of operations or general
affairs of the Company.
(c) The Company shall not be a party to, or be involved in, any
arbitration, litigation, or governmental proceeding, which is then pending or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement, other than that which is disclosed in the
Prospectus.
(d)The Company shall not have sustained any loss on account of fire,
flood, accident or other calamity, whether or not covered by insurance, which
in the reasonable judgment of the Underwriter, materially and adversely affects
the business of the Company.
(e)All of the Securities shall be tendered for delivery in accordance
with the terms and provisions of this Agreement.
(f)As of the Effective Date, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct with the same
effect as if made on the Effective Date and the Company shall have performed
all its obligations due to be performed prior thereto; (ii) the Registration
Statement and the Prospectus and any amendment or supplement thereto shall
contain all statements which are required to be stated herein in accordance
with the 1933 Act and the Rules and Regulations and conform in all material
respects to the requirements thereof, and neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto shall contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no materially adverse change in the condition (financial
or other), business, operations, income, properties, business prospects,
results of operations, securities, long-term or short-term debt or general
affairs of the Company from that set forth in the Registration Statement or the
Prospectus, except changes which the Registrations Statement and the Prospectus
contemplate will occur after the Effective Date, and the Company shall not have
incurred any material liabilities or material obligations, direct or
contingent, or entered into any material transaction, contract or agreement not
in the ordinary course of business other than as referred to in the
Registration Statement and the Prospectus; (iv) except as set forth in the
Prospectus, no action, suit or proceeding, at law or in equity shall be pending
or threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding might materially and adversely affect the condition
(financial or other), business, operations, income, properties, business
prospects, results of operations or general affairs of the Company.
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(g) The Company shall have furnished to the Underwriter such other
certificates, documents, and opinions as the Underwriter may have reasonably
requested (including certificates of officers of the Company) as to the
accuracy, as of the Effective Date, of the representations and warranties of
the Company herein, the performance of the Company of its obligations hereunder
and other conditions concurrent and precedent to the obligations of other
Underwriter hereunder. Any certificate signed by an officer of the Company and
delivered to the Underwriter shall be a certification as to the statements made
therein.
12. EFFECTIVE DATE. This Agreement will become effective after the
execution of this agreement at such time as the registration statement is
ordered effective by the Commission.
13. TERMINATION.
(a) This Agreement may be terminated by the Company at any time by
notice to the Underwriter.
(b) This Agreement may be terminated by the Underwriter by notice to
the Company at any time before this Agreement becomes effective in accordance
with Section 12 hereof, (i) if, prior to the Effective Date, the Company should
have failed or refused to comply fully with any of the provisions of this
Agreement on its part to be performed prior thereto, or if any of the
agreements, conditions, covenants, representations or warranties of the Company
herein contained should not have been performed or fulfilled within the times
specified, (ii) if, prior to the Effective Date, the Congress of the United
States or any state legislative body passes any act or measure,or any order,
rule or regulation is adopted by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is believed
in good faith by the Underwriter to have material impact on the markets for
securities in general, or if a banking moratorium should have been declared by
the United States, New York or Delaware authorities, (iii) if, prior to the
Effective Date, there should have occurred the outbreak of any war or any other
event or calamity which, in the reasonable judgment of the Underwriter
materially disrupts the financial markets of the United States, or (iv) if,
prior to the Effective Date, any materially adverse change occurs, since, the
respective dates as of which information is given in the Registration Statement
and the Prospectus, in the condition (financial or other), business,
operations, income, properties, earnings, affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether not arising
in the ordinary course of business.
14. NOTICES. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed or delivered and confirmed in writing or by telegraph,
addressed as respectively indicated or to such other address as will be
indicated by a written notice similarly given, to the following persons:
(a) If to the Underwriter - addressed to Welco Securities, Inc.,
Suite 105, One Belmont Avenue, Bala Cynwyd, Pennsylvania 19004, Attention:
Kenneth S. Shapiro, President.
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(b) If to the Company - addressed to Walnut Equipment Leasing Co.,
Inc., Suite 200, One Belmont Avenue, Bala Cynwyd, PA 19004, Attention: William
Shapiro, President.
15. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors,
legal representatives and assigns. Nothing expressed or mentioned in this
Agreement is intended, or will be construed, to give any person, corporation
and other entity not mentioned in the preceding sentence any legal or equitable
right, remedy, or claim under or in respect of this Agreement or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties
and indemnities of the Company contained in this Agreement will also be for the
benefit of the directors and officers of the Underwriter and any person or
persons who control the Underwriters within the meaning of Section 15 of the
1933 Act, and except that the indemnities of the Underwriter will also be for
the benefit of the directors and officers of the Company and any person or
persons who control the Company within the meaning of Section 15 of the 1933
Act. No purchaser of any of the Securities from the Underwriter or the Company
will be deemed a successor or assign solely because of such purchase.
16. FINDERS FEES AND HOLDERS OF FIRST REFUSAL RIGHTS. The Company hereby
represents and warrants to the Underwriter that no other person is entitled
directly or indirectly, to compensation of or services as a finder in the
connection with the proposed transactions or holds a right of first refusal or
similar right in connection with the proposed offering, and the Company hereby
agrees to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter within the meaning of Section 15 of the 1933 Act,
from and against any loss, liability, claim, damage or expense whatsoever
arising out of a claim by an alleged finder or alleged holder of a right of
first refusal or similar right in connection with the proposed offering.
17. COMPLIANCE WITH NASD BY-LAWS AND REGULATIONS. The Underwriter as well
as any participating dealer associated with the Underwriter, shall conduct
itself in a manner consistent with the provisions of Section 12 of Schedule E
to the NASD By-Laws, and no transaction in the Securities to be offered will be
executed by any member in a discretionary account without the prior specific
written approval of the customer.
Investors' checks will be transmitted directly to the Company by noon
of the next business day following receipt.
18. APPLICABLE LAW. This Agreement will be construed in accordance with
the laws of the Commonwealth of Pennsylvania.
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If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof, as of the day and year first above written, in the
space provided below for the purpose, whereupon this letter with our acceptance
shall constitute a binding agreement between us.
Very truly yours,
WALNUT EQUIPMENT LEASING CO., INC.
By:
------------------------------------
William Shapiro, President
(Corporate Seal)
ATTEST:
- ----------------------------------- Confirmed and accepted as of the day
Deljean Shapiro, Secretary and year first above written.
WELCO SECURITIES, INC.
(Corporate Seal) By:
------------------------------------
Kenneth S. Shapiro, President
ATTEST:
- -----------------------------------
Irene J. Leahy, Assistant Secretary
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WELCO SECURITIES, INC.
OFFERING OF
$40,000,000
SENIOR THRIFT CERTIFICATES
OF
WALNUT EQUIPMENT LEASING CO., INC.
SELECTED DEALERS AGREEMENT
WELCO SECURITIES, INC., Suite 105, One Belmont Avenue, Bala Cynwyd,
Pennsylvania 19004 (the "Underwriter"), invites your participation as a
Participating Dealer ("Participating Dealer") in an offering of $40,000,000 in
principal amount of Senior Thrift Certificates referred to herein as "the
Certificates" (offered in minimum denominations of $100 per Certificate) which
is also referred to herein as the "Securities", being offered by Walnut
Equipment Leasing Co., Inc. (the "Company"). The Securities are more
particularly described in the enclosed Prospectus, additional copies of which
will be supplied in reasonable quantities upon request. The Company through
the Underwriter is offering the Securities subject to the terms of this
Agreement, the Underwriter's instructions which may be forwarded to the
Participating Dealers from time to time, and is made only to Selected Dealers
who are members in good standing of the National Association of Securities
Dealers, Inc. ("NASD") or foreign dealers who are not eligible for membership
in the NASD and who agree to abide by the Rules of Fair Practice of the NASD,
including Sections 8, 24, 25 and 36 thereof, and the interpretations of the
NASD's Board of Governors with respect to free-riding and withholding in making
sales to purchasers outside the United States and not to effect sales of the
Securities within the United States, its territories or its possessions, or to
persons who are citizens thereof or residents therein. This invitation is made
by the Underwriter only if the Company's Securities may be lawfully offered to
dealers in your state. The terms and conditions of this invitation are as
follows:
1. ACCEPTANCE OF ORDERS. Orders received from the Participating Dealer
will be accepted only at the price, in the amounts, and on the terms which are
set forth in the Company's Prospectus.
2. SELLING CONCESSION. As a Participating Dealer, you will be allowed a
concession of 1/15 of 1% per month for each month of the principal amount of
all Fixed Rate Certificates sold by you.
3. STATUS OF DEALER. The Participating Dealer agrees to purchase the
Company's Securities being offered for its customers only through the
Underwriter, and all such purchases shall be made only upon orders already
received by the Participating Dealer from its customers. In all sales of the
Company's Securities to the public the Participating Dealer shall confirm as
agent for another.
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<PAGE>118
4. DELIVERY OF FUNDS. The Participating Dealer will promptly transmit
directly to the Company, all funds received from the purchasers and a
confirmation of a record of each sale which will set forth the name, address,
and social security number of each individual purchaser, the maturity requested
for each Certificate purchased, and if there is more than one registered owner,
whether the certificate or certificates evidencing the ownership of the
security purchased are to be issued to the purchasers in joint tenancy or
otherwise. Also, each Participating Dealer shall report, in writing, to the
Company the principal amount of Certificates which have been sold in each state
and the number of persons in each such state who purchased the Company's
Securities from the Participating Dealer. Each sale may be rejected by the
Company, and if rejected, the Underwriter as agent for the Company will return
to you all funds paid by the purchaser which have been received by the Company.
In such event, the Participating Dealer will return to the purchaser within
five (5) business days after actual receipt from the Underwriter the full
purchase price paid by the purchaser. For purposes of this Agreement, a
purchaser is a subscriber for the principal amount of Certificates until such
time as his subscription is received and accepted by the Underwriter as agent
for the Company.
5. PAYMENT. Payment for the Company's Securities shall accompany all
confirmations and applications. All checks and other orders for payment of
money shall be made payable to "Walnut Equipment Leasing Co., Inc." Securities
sold by the Participating Dealer shall be available for delivery from the
Company.
6. DEALER'S UNDERTAKINGS. No person is authorized to make any
representations concerning the Company's Securities except those contained in
the Company's Prospectus. The Participating Dealer will not sell the Company's
Securities pursuant to this Agreement unless the Prospectus is furnished to the
purchaser at least 48 hours prior to the mailing of the confirmation of sale,
or is sent to such person under such circumstances that it would be received by
him 48 hours prior to his receipt of a confirmation of the sale. The
Participating Dealer agrees not to use any supplemental sales literature of any
kind without prior written approval of the Company unless it is furnished by
the Company for such purpose. In offering and selling the Company's
Securities, the Participating Dealer will rely solely on the representations
contained in the Company's Prospectus. Additional copies of the Prospectus
will be supplied by the Company in reasonable quantities upon request.
7. CONDITIONS OF OFFERING. All sales will be subject to delivery by the
Company to the purchaser of certificates evidencing the principal indebtedness
of Certificates.
8. FAILURE OF ORDER. If an order is rejected or if a payment is received
which proves insufficient or worthless, any compensation paid to the
Participating Dealer shall be returned either by the Participating Dealer's
remittances in cash or by a charge against the account of the Participating
Dealer, as the Underwriter may elect.
9. REPRESENTATIONS AND AGREEMENTS OF DEALERS. By accepting this
Agreement, the Participating Dealer represents that: it is registered as a
Broker/Dealer under the Securities Exchange Act of 1934, as amended; it is
qualified to act as a dealer in the states or other jurisdictions in which
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<PAGE>119
it offers the Company's Securities; it is a member in good standing of the
National Association of Securities Dealers, Inc.; and it will maintain such
registration, qualifications and memberships throughout the term of this
Agreement. Further, the Participating Dealer agrees to comply with all
applicable federal laws; the laws of the state or other jurisdictions
concerned; and the Rules and Regulations of the National Association of
Securities Dealers, Inc. Further, the Participating Dealer agrees that it will
not offer or sell the Company's Securities in any state or jurisdiction except
where the Securities are qualified for sale. The Participating Dealer shall not
be entitled to any compensation during any period in which it has been
suspended or expelled from membership in the National Association of Securities
Dealers, Inc. The Participating Dealer will be advised concerning the states
where the Certificates have been registered for sale.
10. DEALER'S EMPLOYEES. By accepting this Agreement, the Participating
Dealer has assumed full responsibility for thorough and prior training of its
representatives concerning the selling methods to be used in connection with
the offer and sale of the Company's Securities, giving special emphasis to the
principles of full and fair disclosure to prospective investors and the
prohibition against "Free-Riding and Withholding."
11. PARTICIPATING DEALER'S INDEMNIFICATION. The Participating Dealer
hereby agrees to indemnify and to hold harmless the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15
of the Securities Act of 1933, as amended, from and against any and all losses,
claims, damages, or liabilities to which the Underwriter may become subject
under the Securities Act of 1933, as amended, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon information contained in the Registration Statement,
or other documents filed with the Securities and Exchange Commission to the
extent such information is supplied by the Participating Dealer to the
Underwriter for inclusion therein, or are based upon alleged misrepresentations
or omissions to state material facts in connection with statements made by the
Participating Dealer or the Participating Dealer's salesmen orally or by other
means; and the Participating Dealer will reimburse the Underwriter for any
legal or other expenses reasonably incurred in connection with the
investigation of or the defending of any such action or claim. The Underwriter
shall, after receiving the first Summons or other legal process disclosing the
nature of the action being served upon it, in any proceeding in respect of
which indemnity may be sought by the Underwriter hereunder, promptly notify the
Participating Dealer in writing of the commencement thereof and the
Participating Dealer shall be entitled to participate in (and, to the extent
the Participating dealer shall wish, to direct) the defense, which shall be
conducted by counsel of good standing satisfactory to the Underwriter. If the
Participating Dealer shall fail to provide such defense, the Underwriter may
defend such action at the Participating Dealer's cost and expense. The
Participating Dealer's obligation under this paragraph shall survive the
termination of this Agreement.
12. COMPLIANCE WITH NASD BY-LAWS AND REGULATIONS. Each participating
dealer shall conduct itself in a manner consistent with the provisions of
Section 12 of Schedule E to the NASD By-Laws, and no transaction in the
Securities to be offered will be executed by any member in a discretionary
account without the prior specific written approval of the customer.
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<PAGE>120
Investor's checks will be transmitted directly to the Company by noon of
the next business day following receipt.
13. EXPENSES. No expenses will be charged to Participating Dealers. A
single transfer tax, if any, on the sale of the Securities by the Participating
Dealer to its customer will be paid when such Securities are delivered to the
Participating Dealer for delivery to its customers. However, the Participating
Dealer will pay its proportionate share of any transfer tax or any other tax
(other than the single transfer tax described above) if any such tax shall be
from time to time assessed against the Underwriter and other Participating
Dealers.
14. COMMUNICATIONS. All communications to the Underwriter should be sent
to the address shown in the opening paragraph of this Agreement. Any notice to
the Participating Dealer shall be properly given if mailed or telephone to the
Participating Dealer below. This Agreement shall be construed according to the
laws of the Commonwealth of Pennsylvania.
15. ASSIGNMENT AND TERMINATION. This Agreement may not be assigned by the
Participating Dealer without the Underwriter's consent. This Agreement will
terminate upon the termination of the Offering except that either party may
terminate this Agreement at any time by giving written notice to the other.
Accepted on:---------------------------- WELCO SECURITIES, INC.
Firm Name:------------------------------ -------------------------------
Kenneth S. Shapiro, President
By:-------------------------------------
(Signature)
Address:--------------------------------
Telephone:------------------------------
I.R.S. Employer Identification No.--------------------------
<PAGE>121
August xx, 1996
Kenneth S. Shapiro, President
Welco Securities, Inc.
One Belmont Avenue, Suite 105
Bala Cynwyd, PA 19004
Re: Walnut Equipment Leasing Co., Inc.
Offering of $40,000,000 in Senior Thrift Certificates
Dear Mr. Shapiro:
This letter will serve to confirm our engagement as a "qualified
independent underwriter" as that term is defined in Sections 2(o) (1) - (7) of
Schedule E to the NASD by-laws, as amended ("Schedule E").
Based upon our review of the registration statement, and the performance of
"due diligence" as required in Section 3 (c) (1) to Schedule E, it appears that
the yields on the Certificates (which are based upon the computation set forth
in exhibit A to the Agreement to Act as "Qualified Independent Underwriter"
dated August xx, 1996, which is filed as an Exhibit to the registration
statement referred to hereafter,) being offered as of the date hereof as set
forth on Exhibit B, also attached thereto, are no lower than those which we
would recommend.
We hereby consent to the use of our name as a "qualified independent
underwriter," in the Registration Statement (SEC File No. 333-xxxxx).
Very truly yours,
J.E. Liss & Company, Inc.
By:-------------------------
Jerome E. Liss, President
cc: National Association of Securities Dealers, Inc.
<PAGE>122
This agreement made as of the day of August xx, 1996, by and between Walnut
Equipment Leasing Co., Inc., a Delaware corporation ("Walnut"), Welco
Securities, Inc., a Nevada corporation ("Welco"), and J.E. Liss & Company, Inc.,
a Wisconsin Corporation ("Liss").
WITNESSETH:
WHEREAS, Walnut intends to offer up to $40,000,000 in Certificates
(hereinafter referred to as "Debentures"), which will be offered in reliance on
a registration statement filed as Form S-2, bearing file number 333-xxxxx; and,
WHEREAS, Welco, a member of the National Association of Securities Dealers
("NASD"), will be engaged as the managing selling agent for its affiliate,
Walnut; and,
WHEREAS, pursuant to Section 3 of Schedule E of the By-Laws of the NASD,
Welco, as a NASD member, may participate in such underwriting only if the yield
at which the Debentures offered to the public is not lower than the yield
recommended by a "Qualified Independent Underwriter" as that term is defined in
Section 2(1) (1) through 2(1) (7) of Schedule E to the By-Laws of the NASD, and
who participates in the preparation of the registration statement and
prospectus relating to the offering and exercises customary standards of due
diligence, with respect thereto; and,
WHEREAS, this agreement ("Agreement") describes the terms on which Walnut
is retaining Liss to serve as such a "Qualified Independent Underwriter" in
connection with this offering of Debentures;
NOW, THEREFORE, in consideration of the recitations set forth above, and
the terms, promises, conditions, and covenants herein contained, the parties
hereby contract and agree as follows:
DEFINITIONS
-----------
As hereinafter used, except as the context may otherwise require, the term
"Registration Statement" means the registration statement on Form S-2
(including the related preliminary prospectus, financial statements, exhibits
and all other documents to be filed as a part thereof or incorporated therein)
for the registration of the offer and sale of the debentures under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Act") filed with the Securities and Exchange Commission (the
"Commission"), and any amendment thereto, and the term "Prospectus" means the
prospectus including any preliminary or final prospectus (including the form of
prospectus to be filed with the Commission pursuant to Rule 424(b) under the
Act) and any amendment or supplement thereto, to be used in connection with the
offering.
1. SCHEDULE E REQUIREMENT. Liss hereby confirms its agreement as set
forth in clause (6) of paragraph (1) of Section 2 of Schedule E of the By-Laws
of the NASD and represents that, as appropriate, Liss satisfies or at the times
designated in such paragraph (1) the other requirements set forth therein or
will receive an exemption from such requirements from the NASD.
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<PAGE>123
2. CONSENT. Liss hereby consents to be named in the Registration
Statement and Prospectus as having acted as a "Qualified Independent
Underwriter" solely for the purposes of Schedule E referenced herein. Except
as permitted by the immediately preceding sentence or to the extent required by
law, all references to Liss in the Registration Statement or Prospectus or in
any other filing, report, document, release or other communication prepared,
issued or transmitted in connection with the offering by Walnut or any
corporation controlling, controlled by or under common control with Walnut, or
by any director, officer, employee, representative or agent of any thereof,
shall be subject to Liss' prior written consent with respect to form and
substance.
3. PRICING FORMULA AND OPINION. Liss agrees to render a written opinion
as to the yields below which Walnut's Debentures may not be offered based on
the pricing formula that is set forth in Schedule "A", copies of which are
attached hereto, and incorporated herein by reference. Attached hereto as
Exhibit B are the rates offered on these securities as of the date first
written above. It is understood and agreed by Liss that the securities to
which this Agreement relates will be offered on a continuous, best efforts
basis by Welco, as the managing selling agent of Walnut pursuant to the selling
agreement in effect between Welco and Walnut which are filed as exhibits to the
Registration Statement referred to above. Walnut, through Welco, will continue
to offer the debt securities according to the terms and conditions of said
agreement, including, without limitation, Schedule "A" in accordance with this
Agreement. Liss reserves the right to review and amend its opinion upon the
filing of any post-effective amendment to this Registration Statement or upon
occurrence of any material event which may or may not require such an amendment
to be filed, including without limitation an event which in the opinion of Liss
results in the pricing formula in Schedule A being rendered a less than
accurate prediction of reasonable market rates for the Certificates or at such
time as the offering under this registration shall terminate or otherwise lapse
under operation of law.
4. FEES AND EXPENSE. It is agreed that Liss shall be paid an amount of
Twenty-Five Thousand Dollars ($25,000.00) at the time the pricing opinion and
pricing formula are rendered, concurrent with the closing. Liss agrees to pay
all fees and expenses to any legal counsel whom it may employ to represent it
separately in connection with or on account of its actions contemplated herein.
All mailing, telephone, travel, hotel, meals, clerical, or other office costs
incurred or to be incurred by Liss in conjunction with Walnut's proposed
offering which is the subject of this Agreement shall be reimbursed to Liss by
Walnut at closing on an accountable basis upon receipt of an itemization of
said expenses. Any fees to be paid as a result of an amendment or restatement
of the pricing formula shall be separately negotiated.
5. MATERIAL FACTS. Walnut represents and warrants to Liss that at the
time the Registration Statement or any amendment thereto becomes effective, the
Registration Statement and, at the time the Prospectus is filed with the
Commission including any preliminary prospectus and the form of prospectus
filed with the Commission pursuant to Rule 424(b) and at all times subsequent
thereto, to and including the date on which payment for, and delivery of, the
Debentures to be sold in the Offering is made by the underwriter or
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<PAGE>124
underwriters, as the case may be, participating in the Offering and by Walnut
(such date being referred to herein as the "Closing Date"), the Prospectus (as
amended or supplemented if it shall have been so amended or supplemented) will
contain all material statements which are required to be stated therein in
accordance with the Act and will conform to all other requirements of the
federal securities laws, and will not, on such date include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
that all contracts and documents required by the Act to be filed or required as
exhibits to said registration statement have been filed. Walnut further
represents and warrants that any future filing, report, document, release or
communication which in any way refers to Liss or to the services to be
performed by Liss pursuant to this Agreement will not contain any untrue or
misleading statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Walnut further warrants and represents that:
(a) All leases, contracts and agreements referred to in or filed as
exhibits to the Registration Statement to which Walnut or its subsidiaries is a
party or by which any of them is bound are in full force and effect.
(b) Walnut has good and marketable title, except as otherwise
indicated in the Registration Statement and Prospectus, to all of their assets
and properties described therein as being owned by them, free and clear of all
liens, encumbrances and defects except such encumbrances and defects which do
not, in the aggregate, materially affect or interfere with the use made and
proposed to be made of such properties as described in the Registration
Statement and Prospectus; and the Company and its subsidiaries have no material
leased properties except as disclosed in the Prospectus.
(c) Walnut is duly organized under the laws of the State of Delaware
and, as of the effective date of the Registration Statement and at Closing
Walnut will be validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority to own its properties
and conduct its business to the extent described in the Registration Statement
and Prospectus; Walnut and its subsidiaries are duly qualified to do business
as foreign corporations and in good standing in all jurisdictions in which the
nature of the business transacted by them or their ownership of properties or
assets makes their qualification necessary; the authorized and outstanding
capitalization of Walnut is as set forth in the Prospectus and the description
in the Prospectus of the capital stock of Walnut conforms with and accurately
describes the rights set forth in the instruments defining the same;
(d) Walnut is not in violation of its respective certificates of
incorporation or By-Laws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any bond,
debenture, note, or other evidence of indebtedness, contract or lease or in any
indenture or loan agreement to which any of them is party or by which any of
them is bound.
<PAGE>
<PAGE>125
(e) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action on the part of Walnut
and Welco and performance of the foregoing agreement and the consummation of
the transactions contemplated thereby, will not conflict with or result in a
breach of any of the terms or constitute a violation of the respective
certificates of incorporation or By-Laws of Walnut or Welco, or any deed or
trust, lease, sublease, indenture, mortgage, or other agreement or instrument
to which Walnut or Welco is a party or by which any of them or their property
is bound, or any applicable law, rule, regulation, judgment, order or decree of
any government, governmental instrumentality or court, domestic or foreign,
having jurisdiction over Walnut or Welco or their properties or obligations;
and no consent, approval, authorization or order of any court or governmental
agency or body is required for the consummation of the transactions
contemplated herein and in the other agreements previously referred to in this
paragraph except as may be required under the Act or under any state securities
or Blue Sky Laws.
(f) Any certificate signed by an officer of Walnut and delivered to
Liss pursuant to this Agreement shall be deemed a representation and warranty
by Walnut to Liss, to have the same force and effect as stated herein, as to
the matters covered thereby.
(g) If any event relating to or affecting Walnut or any of its
subsidiaries shall occur as a result of which it is necessary, in Liss's
opinion, to amend or supplement the Prospectus in order to make the Prospectus
not misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, Walnut undertakes to inform Liss of such events
within a reasonable time thereafter, and will forthwith prepare and furnish to
Liss, without expense to them, a reasonable number of copies of an amendment or
amendments or a supplement or supplements to the Prospectus (in form and
substance satisfactory to Liss) which will amend or supplement the Prospectus
so that as amended or supplemented it will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein not misleading in light of the circumstances existing at the
time the Prospectus is delivered to a purchaser.
(h) Walnut hereby warrants and represents that it will offer the debt
securities described herein in accordance with the pricing formula set forth in
Schedule "A" which is incorporated by reference herein.
(i) All representations, warrantees and agreements contained in this
Agreement, or contained in certificates of officers of Walnut submitted
pursuant hereto, shall remain operative and in full force and effect, surviving
the date of this Agreement.
6. AVAILABILITY OF INFORMATION. Walnut hereby agrees to provide Liss, at
their expense with all information and documentation with respect to its
business, financial condition and other matters as Welco may deem relevant
based on the standards of reasonableness and good faith and shall request in
connection with Liss's performance under this Agreement, including, without
limitation, copies of all correspondence with the Commission, certificates of
its officers, opinions of its counsel and comfort letters from its auditors.
The above-mentioned certificates, opinions of counsel and comfort letters shall
be provided to Liss as Liss may request on the effective date of the
Registration Statement and on the Closing Date. Walnut will make reasonably
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<PAGE>126
available to Liss, its auditors, counsel, and officers and directors to discuss
with Liss any aspect of Walnut which Liss may deem relevant. In addition,
Walnut, at Liss' request, will cause to be delivered to Liss copies of all
certificates, opinions, letters and reports to be delivered to the underwriter
or underwriters, as the case may be, pursuant to any underwriting agreement
executed in connection with the Offering or otherwise, and shall cause the
person issuing such certificate, opinion, letter or report to authorize Liss to
rely thereon to the same extent as if addressed directly to Liss. Walnut
represents and warrants to Liss that all such information and documentation
provided pursuant to this paragraph 6 will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statement therein misleading. In addition, Walnut will promptly advise Liss of
all telephone conversations with the Commission which relate to or may affect
the Offering.
7. INDEMNIFICATION.
(a) Subject to the conditions set forth below, and in addition to any
rights of indemnification and contribution to which Liss may be entitled
pursuant to any agreement among underwriters, underwriting agreement or
otherwise, and to the extent allowed by law, Walnut hereby agrees that it will
indemnify and hold Liss and each person controlling, controlled by or under
common control with Liss within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations thereunder (individually, an "Indemnified Person")
harmless from and against any and all loss, claim, damage, liability, cost or
expense whatsoever to which such Indemnified Person may become subject under
the Act, the Exchange act, or other federal or state statutory law or
regulation, at common law or otherwise, arising out of, based upon, or in any
way related or attributed to (i) this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or Prospectus or any other filing, report, document, release or
communication, whether oral or written, referred to in paragraph 5 hereof or
the omission or alleged omission to state therein material fact required to be
stated therein or necessary to make the statements therein not misleading,
(iii) any application or other document executed by Walnut or based upon
written information furnished by Walnut filed in any jurisdiction in order to
qualify the Debentures under the securities or Blue Sky Laws thereof, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iv) the breach of any representation or warranty made by Walnut in this
Agreement. Walnut further agrees that upon demand by an Indemnified Person at
any time or from time to time, it will promptly reimburse such Indemnified
Person for, or pay, any loss, claim, damage, liability, cost or expense as to
which Walnut has indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this paragraph 7, any such payment or reimbursement by
Walnut of fees, expenses or disbursement incurred by an Indemnified Person in
any proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against such
Indemnified Person as a direct result of such person's negligence, bad faith or
willful misfeasance will be promptly repaid to Walnut. In addition, anything
in this paragraph 7 to the contrary notwithstanding, Walnut shall not be liable
for any settlement of any action or proceeding effected without its written
consent.
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<PAGE>127
(b) Promptly after receipt by an Indemnified Person under paragraph (a)
above of notice of the commencement of any action, such Indemnified Person
will, if a claim in respect thereof is to be made against Walnut under
paragraph (a), notify Walnut in writing of the commencement thereof; but the
omission to so notify Walnut will not relieve Walnut from any liability which
it may have to any Indemnified Person otherwise than under this paragraph 7 if
such omission shall not have materially prejudiced Walnut's ability to
investigate or to defend against such claim. In case any such action is
brought against any Indemnified Person, and such Indemnified Person notifies
Walnut of the commencement thereof, Walnut will be entitled to participate
therein and, to the extent that it may elect by written notice delivered to the
Indemnified Person promptly after receiving the aforesaid notice from such
Indemnified Person, to assume the defense thereof with counsel reasonable
satisfactory to such Indemnified Person; provided,_however, that if the
defendants in any such action include both the Indemnified Person and Walnut or
any corporation controlling, controlled by or under common control with Walnut,
or any director, officer, employee, representative or agent of any thereof, or
any other "Qualified Independent Underwriter" retained by Walnut in connection
with the Offering and the Indemnified Person shall have reasonably concluded
that there may be legal defenses available to it which are different from or
additional to those available to such other defendant, the Indemnified Person
shall have the right to select separate counsel to represent it. Upon receipt
of notice from Walnut to such Indemnified Person of its election so to assume
the defense of such action and approval by the Indemnified Person of counsel,
Walnut will not be liable to such Indemnified Person under this paragraph 7 for
any fees of counsel subsequently incurred by such Indemnified Person in
connection with the defense thereof (other than the reasonable costs of
investigation subsequently incurred by such Indemnified Person) unless (i) the
Indemnified Person shall have employed separate counsel in accordance with the
provision of the next preceding sentence (it being understood, however, that
Walnut shall not be liable for the expenses of more than one separate counsel
in any one jurisdiction representing the Indemnified Person, which counsel
shall be approved by Liss), (ii) Walnut, within a reasonable time after notice
of commencement of the action, shall not have employed counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person, or
(iii) Walnut shall have authorized in writing the employment of counsel for the
Indemnified Person at the expense of Walnut, and except that, if clause (i) or
(iii) is applicable, such liability shall be only in respect of the counsel
referred to in such clause (i) or (iii).
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph 7 is due
in accordance with its terms but is for any reason held by a court to be
unavailable from Walnut to Liss on grounds of policy or otherwise, Walnut and
Liss shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) to which Walnut and Liss may be subject in
such proportion so that Liss is responsible for that portion represented by
the percentage that its fee under this Agreement bears to the public offering
price appearing on the cover page of the Prospectus and Walnut is responsible
for the balance, except as Walnut may otherwise agree to reallocate a portion
of such liability with respect to such balance with any other person,
including, without limitation, any other "Qualified Independent Underwriter";
provided,_however, that (i) in no case shall Liss be responsible for any
amount
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<PAGE>128
in excess of the fee set forth in paragraph 4 above and (ii) no person guilty
of fraudulent misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (c), any person
controlling, controlled by or under common control with Liss, or any partner,
director, officer, employee, representative or agent thereof, shall have the
same rights to contribution as Liss and each person who controls Walnut within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
officer of Walnut who shall have signed the Registration Statement and each
director of Walnut shall have the same rights to contribution as Walnut,
subject in each case to clause (i) of this paragraph (c). Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against the other party under this paragraph (c),
notify such party from whom contribution may be sought, but the omission to so
notify such party shall not relieve the party from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise
than under this paragraph (c). The indemnity and contribution agreements
contained in this paragraph 7 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Indemnified
Person or termination of this Agreement.
8. AUTHORIZATION BY Walnut. Walnut represents and warrants to Liss that
this Agreement has been duly authorized, executed and delivered by Walnut and
constitutes a valid and binding obligation of Walnut.
9. AUTHORIZATION BY WELCO. Welco represents and warrants to Liss that
this Agreement has been duly authorized, executed and delivered by Welco and
constitutes a valid and binding obligation of Welco.
10. AUTHORIZATION BY LISS. Liss represents and warrants to Walnut that
this Agreement has been duly authorized, executed and delivered by Liss and
constitutes a valid and binding obligation of Liss.
11. NOTICE. Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall be mailed by first class
mail, postage prepaid, addressed (a) if to Welco, at One Belmont Avenue, Suite
105, Bala Cynwyd, PA 19004-9967, Attention: Kenneth S. Shapiro, and (b) if to
Liss, at Pfister Hotel, 424 E. Wisconsin Avenue, Milwaukee, WI 53202,
Attention: Jerome E. Liss.
12. GOVERNING LAW. This Agreement shall be construed (both as to validity
and performance) and enforced in accordance with and governed by the laws of
the Commonwealth of Pennsylvania applicable to agreements made and to be
performed wholly within such jurisdiction.
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<PAGE>129
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above mentioned.
WALNUT EQUIPMENT LEASING CO., INC.
By:
----------------------------------------
William Shapiro, President
By:
----------------------------------------
Deljean Shapiro, Secretary
WELCO SECURITIES, INC.
By:
----------------------------------------
Kenneth S. Shapiro, President
By:
----------------------------------------
William Shapiro, Secretary
J.E. LISS & COMPANY, INC.
By:
----------------------------------------
Jerome E. Liss, President
<PAGE>
<PAGE>130
EXHIBIT_A
The opinion of Liss is conditioned upon Walnut's undertaking to maintain
the rates on its Certificates at least equal to an "assumed floor", based upon
the pricing formula described below:
1. The interest rate to be paid on the Certificates shall be fixed by Walnut
from time to time in accordance with the Prospectus.
2. The "assumed floor" for 6 to 24 month Certificates shall be at least 1%
above the interest rate on the 6 month U.S. Treasury Bills, on a discount
basis, based upon the auction average (which is published widely in
newspapers throughout the country, normally on the day following the
auction.)
3. The "assumed floor" for 25 to 60 month Certificates shall be at least 2%
above the 6-month U.S. Treasury Bill rate.
4. The "assumed floor" for Certificates over 60 months shall be at least 3%
above the U.S. Treasury Bill rates.
5. The "assumed floor" for Demand Certificates shall be at least 1% above the
interest rate on 6 month U.S. Treasury Bills.
6. The manner in which the 6-month U.S. Treasury Bill rate is to be
determined is to be disclosed in the "DESCRIPTION OF SECURITIES" section
of the Prospectus.
<PAGE>131
WALNUT EQUIPMENT LEASING CO., INC.
Obligor
AND
SUMMIT BANK
(successor by merger to First Valley Bank)
Indenture Trustee
SIXTH SUPPLEMENTAL INDENTURE
Dated as of
August xx, 1996
SUPPLEMENTAL TO INDENTURE
Dated as of October 7, 1987
and Supplements thereto dated
September 20, 1988,
September 13, 1989,
August 17, 1990,
August 14, 1992,
and
August 23, 1994
---------------
DEMAND CERTIFICATES
-------------------
FIXED RATE CERTIFICATES
<PAGE>
<PAGE>132
SIXTH SUPPLEMENTAL INDENTURE dated as of August xx, 1996, between WALNUT
EQUIPMENT LEASING CO., INC., a Delaware Corporation (hereinafter called the
"Company"), having its principal executive office at One Belmont Avenue, Suite
200, Bala Cynwyd, Pennsylvania 19004, and Summit Bank (successor by merger to
First Valley Bank), a Pennsylvania Corporation, as Trustee (hereinafter called
the "Trustee").
WHEREAS, the Company has heretofore executed and delivered its Indenture,
dated as of October 7, 1987 (hereinafter called the "Original Indenture"), and
supplements thereto dated September 20, 1988, September 13, 1989, August 17,
1990, August 14, 1992, and August 23, 1994 to the Trustee in connection with an
issue of certain senior debt obligations; and
WHEREAS, the Company, pursuant to appropriate resolutions of its Board of
Directors desires to create under the Original Indenture and supplement thereto
an additional series of senior debt obligations to be known as Demand Senior
Thrift Certificates and Fixed Term Senior Thrift Certificates (hereinafter
collectively called the "Certificates" or the "Debentures" as those terms may
be used interchangeably) ranking pari passu to all previously authorized and
outstanding Senior Thrift Certificates; and
WHEREAS, the Company in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture and
supplements thereto and pursuant to appropriate resolutions of its Board of
Directors has duly resolved and determined to make, execute and deliver to the
Trustee, this Sixth Supplemental Indenture in the form hereof for the purposes
herein provided.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Certificates by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders, without preference,
priority or distinction of any of the Certificates over any of the others by
reason of difference in priority in time of issuance, negotiation or maturity
thereof, or otherwise, except as otherwise provided in the Original Indenture
and supplements thereto or this Supplemental Indenture, as follows:
DEFINITIONS
ss1.01 through 1.04
Sections ss1.01 through 1.04 of the Original Indenture are specifically
incorporated by reference herein.
THE SECURITIES
s2.01 FORM AND DATING
The Certificates and the Trustee's Certificates of Authentication shall be
in substantially the forms set forth in Exhibit A, attached hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this and the Original Indenture and supplement
thereto, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon, as may be required to comply
with the rules of any securities exchange, or as may, consistently herewith, be
determined by the officers executing such Certificate as evidenced by their
execution of the Certificate.
<PAGE>
<PAGE>133
The definitive Certificate shall be printed, lithographed or engraved or
produced by any combination of these methods on a steel engraved border or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Certificate may be listed, all as determined by the
officers executing such Certificate, as evidenced by their execution of such
Certificate.
SECTION 2.02 EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Security
has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in Section 10.02. The aggregate principal
amount of Securities outstanding at any time may not exceed that amount except
as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. An Authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
Authenticating agent has the same rights as an Agent to deal with the Company
or an Affiliate.
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange ("Registrar"), an office
or agency where Securities may be presented for payment ("Paying Agent") and an
office or agency where Securities may be presented for conversion ("Conversion
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars, one
or more additional paying agents and one or more additional conversion agents.
The term "Paying Agent" includes any additional paying agent; the term
"Conversion Agent" includes any additional conversion agent. The Company shall
notify the Trustee of the name and address of any agent not a party to this
Indenture. The Company designates Financial Data, Inc., a Pennsylvania
corporation, as "Registrar", "Paying Agent", and "Conversion Agent" for all
Securities issued under the Indenture and all Supplements thereto. If the
Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the
Trustee shall act as such.
<PAGE>
<PAGE>134
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the Trustee
of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent shall have no further liability for the money. If the Company
acts as Paying Agent, it shall segregate and hold as a separate trust fund all
money held by it as Paying Agent.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders pursuant to Section 2.06. If the Trustee is not the Registrar,
the Company shall furnish to the Trustee on or before each interest payment
date and at such other times as the Trustee may request in writing a list in
such form and as of such date as the Trustee may reasonably require of the
names and addresses of Securityholders.
SECTION 2.06. REGISTRATION, TRANSFER AND EXCHANGE.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (herein sometimes referred to as the "Certificate Register")
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of Certificates and of transfers of
Certificates. Financial Data, Inc., a Pennsylvania corporation, is hereby
appointed "Certificate Registrar" for the purpose of the registration of
transfer of Certificates in such Certificate Register as herein provided.
Upon surrender for registration of transfer of any Certificate at any
office or agency of the Company maintained for such purpose pursuant to Section
12.10, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of any authorized denominations of a like aggregate principal
amount.
At the option of the Holder, Certificates may be renewed at maturity
through an exchange for other Certificates of any authorized denominations, of
a like aggregate principal amount, upon surrender of the Certificates to the
exchanged at any such office or agency. Whenever any Certificates are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Certificates which the Holder making the exchange
is entitled to receive. This right shall not apply to any exchange of
Certificates for other Certificates with a longer maturity or a higher interest
rate except with the consent of the Company.
<PAGE>
<PAGE>135
All Certificates issued upon any transfer or exchange of Certificates shall
be the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Certificates surrendered upon
such transfer or exchange.
Every Certificate presented or surrendered for transfer or exchange shall
(if so required by the Company or the Certificate Registrar) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Certificate Registrar duly executed, by the Holder thereof
or his attorney duly authorized in writing.
No service charge shall be made for any transfer or exchange of
Certificates, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Certificates, other than exchanges not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer of or
exchange of any Certificate during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Certificates selected for redemption under Article 3 and ending at the close of
business on the day of such mailing, or (ii) to register the transfer of or
exchange of any Certificate so selected for redemption in whole or in part,
except, in the case of any Certificate to be redeemed in part, the portion
thereof not to be redeemed.
ss2.07 through 2.16
Sections ss2.07 through 2.16 of the Original Indenture are herein
incorporated as ss2.07 through ss2.16 hereof respectively.
ARTICLE THREE
REDEMPTION OF CERTIFICATES
ss3.01 through 3.08
Sections ss3.01 through 3.08 of the Original Indenture are herein
incorporated as ss3.01 through ss3.08 hereof respectively.
ARTICLE FOUR
COVENANTS
ss4.01 through 4.03
Sections ss4.01 through 4.03 of the Original Indenture are herein
incorporated as ss4.01 through ss4.03 hereof respectively.
ARTICLE FIVE
SUCCESSORS
s5.01
Section s5.01 of the Original Indenture is herein incorporated as s5.01
hereof.
<PAGE>
<PAGE>136
ARTICLE SIX
DEFAULTS AND REMEDIES
ss6.01 through 6.11
Sections ss6.01 through 6.11 of the Original Indenture are herein
incorporated as ss6.01 through 6.11 hereof respectively.
ARTICLE SEVEN
TRUSTEE
ss7.01 through 7.11
Sections ss7.01 through 7.11 of the Original Indenture are herein
incorporated as ss7.01 through 7.11 hereof respectively.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
ss8.01 through 8.03
Sections ss8.01 through 8.03 of the Original Indenture are herein
incorporated as ss8.01 through 8.03 hereof respectively.
ARTICLE NINE
AMENDMENTS
ss9.01 through 9.06
Sections ss9.01 through 9.06 of the Original Indenture are herein
incorporated as ss9.01 through 9.06 hereof respectively.
ARTICLE TEN
ADDITIONAL CLASSES OF SECURITIES
s10.01
Section s10.01 of the Original Indenture is herein incorporated as s10.1
hereof.
10.02 ADDITIONAL CERTIFICATES
The aggregate principal amount of Senior Thrift Certificates which may be
authenticated and delivered under this Sixth Supplemental Indenture is limited
to an additional $35,500,000 in principal amount of Certificates, which may be
offered in conjuction with those previously authorized under terms of the
Original Indenture and supplemental Indentures dated September 20, 1988,
September 13, 1989, August 17, 1990, August 14, 1992 and August 23, 1994 (not
to exceed $4,500,000 in Certificates as previously authorized thereto.)
The Certificates shall bear interest from and commencing with their
respective dates of issue.
<PAGE>
<PAGE>137
One type of Certificates shall be known and designated as "Demand Senior
Thrift Certificates". Interest on these Certificates shall be at least 1%
above the annualized interest rate paid on 6-month United States Treasury Bills
sold on the first day of the month or, if there is no auction on that day, the
interest rate established at the last auction prior to the first day of the
month. Interest is to be paid monthly on the 10th calendar day of the next
month, with an option on the part of the Holder to have interest retained and
compounded monthly by the Company. In addition, the Holder may elect to
receive accrued interest in cash bimonthly; quarterly, semi-annually or
annually. The percentage above the 6-month United States Treasury Bill is to
be determined at the beginning of the month by Company Order (or, in the
absence of any such order, such percentage shall be deemed to be 1%). The
minimum purchase shall be $100.00. In the event that the 6-month United States
Treasury Bill rate, as set forth above, shall fall below 6% per annum or in the
event that there is no such U.S. Treasury Bill in effect, then the rate of such
6-month U.S. Treasury Bill shall be deemed to be 6% per annum.
Another type of Certificates shall be known and designated as "Fixed Term
Senior Thrift Certificates". Interest on these Certificates shall be fixed
each week by the Company at a rate equal to at least 1% above the annualized
rate paid on 6-month United States Treasury Bills for certificates with
maturities 30 months or less in term, and 2% above the U.S. Treasury Bills rate
for certificates with maturities exceeding 30 months. The annualized rate paid
on 6-month U.S. Treasury Bills shall be determined by reference to such rate in
effect on the day that the money representing the purchase price of a
certificate is received if such date is the date when 6-month U.S. Treasury
Bills are issued, or the date of the most recently issued 6-month U.S. Treasury
Bill if the money is not received on an issue date of 6-month U.S. Treasury
Bills. The minimum purchase shall be $100.00 per Certificate. Interest shall
be payable monthly on the 10th calendar day of the month for the preceding
calendar month, with an option on the part of the Holder to have interest
retained and compounded monthly by the Company. In addition, the Holder may
elect to have interest paid in cash at bimonthly, quarterly, semi-annually, or
annual periods. Fixed Term Senior Thrift Certificates shall consist of
Certificates with maturities ranging from three to one hundred twenty months.
The purchaser shall designate to the Company the term selected, which such term
shall be computed in monthly increments.
In the event that any of the aforesaid types of Certificates is purchased
during a calendar month, interest will be computed to the end of the month on a
365 day basis, and the first payment of interest will be made by the 10th
calendar day of the next month.
Any of the above described Fixed Term Senior Thrift Certificates will be
redeemed by the Company as of the end of a calendar month, provided notice of
request for early payment is received by the fifth day of the following
calendar month (or such shorter period of time as determined by Company Order)
on the following conditions: A penalty computed by multiplying the number of
months remaining to maturity by 1/8% and then multiplying said product by the
principal amount being redeemed prior to maturity, will be deducted from the
principal amount being redeemed; however, the penalty shall not be less than
$30 or such other minimum amount as directed by Company Order. However, the
Company need not redeem any such Certificates or Demand Senior Thrift
Certificates in excess of $250,000 in principal amount in any month.
<PAGE>
<PAGE>138
The principal of (and premium, if any) and interest on all of the
Certificates shall be payable at the office or agency of the Company maintained
for such purpose; PROVIDED, HOWEVER, that interest may be payable at the option
of the Company by check mailed to the address of the Person entitled thereto at
such address as shall appear on the Certificate Register.
The Certificates shall be redeemable as provided in Article Three.
Any holder of Certificates may request partial payment of the principal
amount of any Certificate issued hereunder, subject to the terms and conditions
stated above. Upon partial redemption, a Certificate shall be issued for the
unredeemed portion of the same terms and conditions as the original
Certificate.
The Holder of Fixed Senior Thrift Certificates may elect prior to maturity
to extend the principal and any accrued interest on such a Certificate for an
additional like term. In such event, interest payable for the additional term
will be at the rate offered on the original maturity date for Certificates of
like term.
The Certificates shall be issued, and additional purchases of Certificates
may be made, in such denominations as the Company shall specify from time to
time by Company Order.
Notwithstanding anything to the contrary, the term of each Fixed Term
Senior Thrift Certificate is subject to extension as hereinafter set forth.
If, after its maturity date, any Fixed Term Senior Thrift Certificate is not
presented for payment by the holder, and the Company does not tender payment to
the holder, such Certificate shall be automatically treated as having been
converted, as of its maturity date into a Demand Senior Thrift Certificate, and
the rate and other terms shall be as set forth with respect to such
Certificate.
All of the Certificates shall be on a parity with each other and with the
Certificates (represented by Demand Senior Thrift Certificates and Fixed Rate
Demand Senior Thrift Certificates) issued under the Original Indenture and
supplement thereto.
ARTICLE ELEVEN
SENIOR DEBT
ss11.01 through 11.05
Section ss11.01 through 11.05 of the Original Indenture are herein
incorporated as ss11.01 through 11.05 hereof respectively.
ARTICLE TWELVE
MISCELLANEOUS
ss12.01 through 12.11
Section ss12.01 through 12.11 of the Original Indenture are herein
incorporated as ss12.01 through 12.11 hereof respectively.
<PAGE>
<PAGE>139
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
WALNUT EQUIPMENT LEASING CO., INC.
(Corporate Seal)
BY:-------------------------------
PRESIDENT
ATTEST:
- ------------------------------
SECRETARY
SUMMIT BANK (successor by merger to
First Valley Bank)
(Corporate Seal)
BY:--------------------------------
ASSISTANT VICE-PRESIDENT
ATTEST:
- ------------------------------
TRUST OFFICER
<PAGE>
<PAGE>140
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF MONTGOMERY :
On the xxth day of August, 1996 before me personally came WILLIAM SHAPIRO,
to me known, who, being by me duly sworn, did depose and say that he is
President of WALNUT EQUIPMENT LEASING CO., INC., one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation, and that he signed his name thereto by like authority.
(Notorial Seal) ------------------------------------
Notary Public
STATE OF NEW JERSEY :
: ss.
COUNTY OF BERGEN :
On the xxth day of August, 1996 before me personally came Debra A. Schwalb,
to me known, who, being by me duly sworn, did depose and say that she is an
Assistant Vice President of SUMMIT BANK (successor by merger to First Valley
Bank), one of the corporations described in and which executed the foregoing
instrument; that she knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by authority
of the Board of Directors of said Corporation, and that she signed her name
thereto by like authority.
(Notorial Seal) ------------------------------------
Notary Public
<PAGE>
<PAGE>141
EXHIBIT_A
Attached hereto are the following documents, which are specifically
incorporated by reference herein.
1. Specimen of Demand Senior Thrift Certificate, including
Trustee's authentication thereof.
2. Specimen Fixed Term Senior Thrift Certificate, including
Trustee's authentication thereof.
<PAGE>142
(Form of Face of Certificate)
WALNUT EQUIPMENT LEASING CO., INC.
DEMAND SENIOR THRIFT CERTIFICATE
CERTIFICATE NO. ISSUE DATE
Walnut Equipment Leasing Co., Inc., a Delaware corporation (hereinafter
called the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to
, or its registered assigns, the principal sum of
Dollars on the fifth business day of the month after the month during which
demand by Holder is received by the Company to pay or, at the election of the
Holder named above, accrue interest thereon at the rate of at least 1% above
the annualized interest rate paid on six-month United States Treasury Bills
sold on the first day of the month, or if there is no auction on that day, the
interest rate established at the last auction prior to the first day of the
month. Interest is to be paid or accrued monthly on the 10th calendar day of
the month for the prior month or part thereof. The percentage above the six
month United States Treasury Bill is to be determined at the beginning of the
month by Company Order (or in the absence of any such order, such percentage
shall be deemed to be 6%), until the principal hereof and accumulated interest
thereon is paid or made available for payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to Registered Holder of this Thrift
Certificate (or one or more Predecessor Thrift Certificates, as defined in such
Indenture) at the close of business on the Regular Record Date for such
interest payment which shall be the fifteenth of the preceding month (whether
or not a Business Day), as the case may be, next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the registered holder on such Regular
Record Date of and may be paid to the Registered Holder of this Thrift
Certificate (or one or more Predecessor Thrift Certificates) at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Thrift
Certificates not less than 10 days prior to such special record date, or may be
paid any time in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Thrift Certificates may be listed, and
upon such notice as may be required by such exchange, all as more fully
provided in such Indenture. Payment of the principal of (and premium, if any)
and interest on this Thrift Certificate will be made at the office or agency of
the Company maintained for that purpose in the City of Bethlehem, Commonwealth
of Pennsylvania, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
PROVIDED, HOWEVER, that payment of interest may be made at the option of the
Company by check mailed to the address of the Registered Holder as such address
shall appear in the Thrift Certificate Register.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
<PAGE>143
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee referred to on the reverse hereof by manual signature,
this Thrift Certificate shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Thrift Certificate to be
duly executed under its corporate seal.
This is one of the Thrift WALNUT EQUIPMENT LEASING CO., INC.
Certificates referred to in
within-mentioned indenture. Dated:
SUMMIT BANK (successor by merger to
First Valley Bank) as Trustee
By:------------------------------- By:-------------------------------------
Authorized Officer President
SEAL Attest:---------------------------------
Secretary
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(NAME AND ADDRESS OF TRANSFEREE MUST BE PRINTED OR TYPEWRITTEN)
the within Thrift Certificate of WALNUT EQUIPMENT LEASING CO., INC., and hereby
constitutes and
appoints --------------------------------------------------- Attorney
to transfer the same on the books of said Company.
Dated:------------------------------ -------------------------------
WITNESS:----------------------------
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
<PAGE>
<PAGE>144
(Form of Reverse of Certificate)
WALNUT EQUIPMENT LEASING CO., INC.
DEMAND SENIOR THRIFT CERTIFICATE
This Thrift Certificate is one of a duly authorized issue of Thrift
Certificates of the Company (herein called the "Thrift Certificates") issued
and to be issued under an Indenture dated August xx, 1996 (herein called the
"Indenture") supplemental to an indenture dated as of October 7, 1987, as
supplemented September 13, 1989, September 20, 1988, August 17, 1990, August
14, 1992 and August 23, 1994 between the Company and Summit Bank (successor by
merger to First Valley Bank) of Bethlehem, Pennsylvania as Trustee (herein
called the "Trustee" which term includes any successor trustee under the
Indenture). Reference is hereby made to the Indenture for a statement of the
respective rights thereunder of the Company, the Trustee and the holders of the
Thrift Certificates, and for the terms upon which the Thrift Certificates are,
and are to be, authenticated and delivered.
The Thrift Certificates are subject to redemption at any time by the
Company, upon not less than 60 days' notice by mail (or such shorter period as
directed by Company Order), at a Redemption Price equal to their principal
amount, together with accrued interest to the Redemption Date (but interest
installments whose Stated Maturity is on the Redemption Date will be payable to
the Holders of such Thrift Certificate, or one or more Predecessor Thrift
Certificates, of record at the close of business on the relevant Record Date
referred to on the face hereof), all as provided in the Indenture.
In the event of redemption of this Thrift Certificate in part only, this
Thrift Certificate shall be reissued for the unredeemed portion hereof in the
name of the Holder hereof under the same terms and conditions contained herein,
and the Company shall make such necessary entry or entries on its books of
record to record any partial redemption hereof.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Registered Holders of the Thrift Certificates
under the Indenture at any time by the Company and the Trustee. No such
amendment, without the consent of each of the holders of the aggregate
principal amount of the Thrift Certificates at the time Outstanding, as defined
in the Indenture, shall reduce the principal amount of or interest on any
Thrift Certificate, change the maturity date of the principal, the interest
payment dates or other terms of payment, reduce the percentage of holders
necessary to modify or alter the Indenture, or waive any default under the
Indenture. The Indenture also contains provisions permitting the holders of
specified percentages in aggregate principal amount of the Thrift Certificates
at the time outstanding, as defined in the Indenture, on behalf of the holders
of all the Thrift Certificates, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the holder of this Thrift
Certificate shall be conclusive and binding upon such holder and upon all
future holders of this Thrift Certificate and of any Thrift Certificate issued
upon the transfer hereof or in exchange herefor or in lieu hereof whether or
not notation of such consent or waiver is made upon this Thrift Certificate.
No reference herein to the Indenture and no provision of this Thrift
Certificate or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Thrift Certificate at the times, places
and rate, and in the coin or currency, herein prescribed.
<PAGE>
<PAGE>145
As provided in the Indenture and subject to certain limitations therein set
forth, this Thrift Certificate is transferable on the Thrift Certificate
Register of the Company, upon Surrender of this Thrift Certificate for
registration of transfer at the office or agency of the Company in the
Commonwealth of Pennsylvania, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Thrift
Certificate Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Thrift Certificates of
authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees.
The Thrift Certificates are issuable only in registered form without
coupons in a minimum denomination of $100 and any additional amount as approved
by the Company. As provided in the Indenture and subject to certain
limitations therein set forth Thrift Certificates are exchangeable for a like
aggregate principal amount of Thrift Certificates of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Thrift Certificate is registered as the
owner hereof for all purposes, whether or not this Thrift Certificate is
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
<PAGE>146
(Form of Face of Certificate)
WALNUT EQUIPMENT LEASING CO., INC.
FIXED TERM SENIOR THRIFT CERTIFICATE
CERTIFICATE NO. ISSUE DATE
MATURITY DATE
RATE OF INTEREST
Walnut Equipment Leasing Co., Inc., a Delaware corporation (hereinafter
called the "Company", which term includes any successor corporation under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to
, or its registered assigns, the principal sum of
after the date hereof and to pay or, at the election of the
Holder named above, accrue interest thereon at the rate of % per
annum, with interest to be paid or accrued monthly on the 10th calendar day of
the month for the prior month or part thereof, until the principal hereof and
any accumulated interest, if any, is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the registered
Holder of this Thrift Certificate (or one or more Predecessor Thrift
Certificates, as defined in such Indenture) at the close of business on the
Regular Record Date for such interest payment, which shall be the fifteenth of
the preceding month (whether or not a Business day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the registered
holder on such Regular Record Date, and may be paid to the registered Holder of
this Thrift Certificate (or one or more predecessor Thrift Certificates) at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to holders
of Thrift Certificates not less than 10 days prior to such Special Record Date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Thrift Certificates may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in such Indenture. Payment of the principal of (and premium, if
any) and interest on this Thrift Certificate will be made at the office or
agency of the Company maintained for that purpose in the Commonwealth of
Pennsylvania, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
PROVIDED, HOWEVER, that payment of interest may be made at the option of the
Company by check mailed to the address of the registered Holder entitled
thereto as such address shall appear in the Thrift Certificate Register.
Reference is hereby made to the further provisions of this Thrift
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
<PAGE>
<PAGE>147
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee referred to on the reverse hereof by manual signature,
this Thrift Certificate shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Thrift Certificate to be
duly executed under its corporate seal.
This is one of the Certificates WALNUT EQUIPMENT LEASING CO., INC.
referred to in the within-mentioned
indenture. Dated:
SUMMIT BANK (successor by merger to
First Valley Bank) as Trustee
By:-------------------------------- By:-------------------------------------
Authorized Officer President
SEAL Attest:---------------------------------
Secretary
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(NAME AND ADDRESS OF TRANSFEREE MUST BE PRINTED OR TYPEWRITTEN)
the within Thrift Certificate of WALNUT EQUIPMENT LEASING CO., INC., and
hereby constitutes and
appoints --------------------------------------------------------- Attorney
to transfer the same on the books of said Company.
Dated:------------------------------- -------------------------------
WITNESS:-----------------------------
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
<PAGE>
<PAGE>148
(Form of Reverse of Certificate)
WALNUT EQUIPMENT LEASING CO., INC.
FIXED TERM SENIOR THRIFT CERTIFICATE
This Thrift Certificate is one of a duly authorized issue of Thrift
Certificates of the Company (herein called the "Thrift Certificate") issued and
to be issued under an Indenture dated as of August xx, 1996 (herein called the
"Indenture") supplemental to an indenture dated as of October 7, 1987, as
supplemented September 13, 1989, September 20, 1988, August 17, 1990, August
14, 1992, and August 23, 1994 between the Company and Summit Bank (successor by
merger to First Valley Bank) of Bethlehem, Pennsylvania, as Trustee (herein
called the "Trustee" which term includes any successor trustee under the
Indenture). Reference is hereby made to the Indenture for a statement of the
respective rights thereunder of the Company, the Trustee and the holders of the
Thrift Certificates, and for the terms upon which the Thrift Certificates are,
and are to be, authenticated and delivered.
The Thrift Certificates are subject to redemption by the Company at any
time upon not less than 60 days notice by mail or such period as directed by
Company Order, at a Redemption Price equal to their principal amount, together
with accrued interest to the Redemption Date (but interest installments whose
Stated Maturity is on the Redemption Date will be payable to the holders of
such Thrift Certificate, or one or more Predecessor Thrift Certificates, of
record at the close of business on the relevant Record Date referred to on the
face hereof), all as provided in the Indenture.
In the event of redemption of this Thrift Certificate in part only, this
Thrift Certificate shall be reissued for the unredeemed portion hereof in the
name of the holder hereof under the same terms and conditions contained herein,
and the Company shall make such necessary entry or entries on its books of
record to record any partial redemption hereof.
If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of all the Thrift Certificates may be declared due
and payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holder of the Thrift Certificates under the
Indenture at any time by the Company and the Trustee. No such amendment,
without the consent of each of the holders of the aggregate principal amount of
the Thrift Certificates at the time Outstanding, as defined in the Indenture,
shall reduce the principal amount of or interest on any Thrift Certificate,
change the maturity date of the principal, the interest payment dates or other
terms of payment, reduce the percentage of holders necessary to modify or alter
the Indenture, or waive any default under the Indenture. The Indenture also
contains provisions permitting the Holders of specified percentages in
aggregate principal amount of the Thrift Certificates at the time Outstanding,
as defined in the Indenture, on behalf of the holders of all the Thrift
Certificates, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Thrift Certificate shall be
conclusive and binding upon such Holder and upon all future Holders of this
Thrift Certificate and of any Thrift Certificate issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waivers is made upon this Thrift Certificate.
<PAGE>
<PAGE>149
No reference herein to the Indenture and no provision of this Thrift
Certificate or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of (and
premium, if any) and interest on this Thrift Certificate at the times, places
and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, this Thrift Certificate is transferable on the Thrift Certificate
Register of the Company, upon surrender of this Thrift Certificate for
registration of transfer at the office or agency of the Company in the
Commonwealth of Pennsylvania, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Thrift
Certificate Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing and thereupon one or more new Thrift Certificates of
authorized denominations and for the same aggregate principal amount will be
issued to the designated transferee or transferees.
The Thrift Certificates are issuable only in registered form without
coupons in a minimum denomination of $100 and any additional amount as approved
by the Company. As provided in the Indenture and subject to certain
limitations therein set forth, Thrift Certificates are exchangeable for a like
aggregate principal amount of Thrift Certificates of a different authorized
denomination, as requested by the Holder surrendering the same.
The Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Thrift Certificate is registered as the
owner hereof for all purposes, whether or not this Thrift Certificate is
overdue, and neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
The Holder, at his option, shall have the right to earlier or partial
payment of the principal and accrued interest herein by the Company. A service
charge or penalty may be made for any such election, as set forth in the
Indenture.
If, after its Maturity Date, this Thrift Certificate is not presented for
payment by the Holder, and if the Company does not tender payment to the
holder, this Thrift Certificate shall be automatically converted into a Demand
Senior Thrift Certificate and the rate and other terms shall be as set forth in
the Indenture with respect to such Thrift Certificate. Prior to the maturity
dates, the Holder may, at his election, request an extension of the terms and
conditions herein for a like period, and interest shall continue to accrue and
be payable from the first day of such extended period. This Thrift
Certificate, as extended, will continue in all of its provisions except that
the interest rate payable during any extended terms shall be the interest rate
being offered by the Company as of this Thrift Certificate's maturity on newly
issued Thrift Certificates of like term.
<PAGE>150
August xx, 1996
Walnut Equipment Leasing Co., Inc.
Suite 200
One Belmont Avenue
Bala Cynwyd, PA 19004
Re: Walnut Equipment Leasing Co., Inc.
Registration Statement on Form S-2
(Registration No. 333-xxxxx)
Gentlemen:
We have acted as counsel to Walnut Equipment Leasing Co., Inc. (the
"Company") in connection with the preparation and filing with the Securities
and Exchange Commission of a registration statement on Form S-2 and amendment
thereto under the Securities Act of 1933 (No. 333-xxxxx) (the "Registration
Statement"), relating to the issuance and sale of an aggregate of $40,000,000
in principal amount of Senior Thrift Certificates (the "Certificates") pursuant
to the form of a sixth supplemental indenture to a trust indenture entered into
as of August xx, 1996, to an Indenture entered into as of October 7, 1987 as
supplemented September 20, 1988, September 13, 1989, August 17, 1990, August
14, 1992, and August 23, 1994 between the Company and Summit Bank (successor by
merger to First Valley Bank) of Bethlehem, Pennsylvania, as trustee (the
"Indenture"), filed as Exhibit 4.39 to the Registration Statement, to be issued
and sold by the Company on the continuous, best-efforts basis.
In this connection, we have reviewed originals or copies, certified or
otherwise identified to our satisfaction, of the Company's Certificate of
Incorporation, the Company's By-laws, the Indenture, resolutions of its Board
of Directors and such other documents and corporate records as we deem
appropriate for the purpose of rendering this opinion.
Based on the foregoing, it is our opinion that the Certificates, when
issued and sold pursuant to the Indenture and in the manner contemplated by the
Registration Statement, will be valid and binding obligations of the Company.
The opinion expressed herein is subject in all respects to the following
qualifications: (a) no opinion is rendered as to the availability of equitable
remedies including, but not limited to specific performance and injunctive
relief, (b) the effect of bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium and other similar laws or equitable principles affecting
creditors' rights or remedies; and (c) the effect of applicable laws and court
decisions which may now or hereafter limit or render unenforceable certain
rights and remedies.
<PAGE>
<PAGE>151
We do hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to reference to our firm under the caption "Legal
Opinion" in the Prospectus, which is part of the Registration Statement.
Very truly yours,
WILLIAM SHAPIRO, ESQ., P.C.
By:
---------------------------------
Kenneth S. Shapiro, Esq.
For: William Shapiro, Esq., P.C.
<PAGE>152
<TABLE>
Walnut Equipment Leasing Co., Inc.
Statement re: Computation of Ratios
<CAPTION>
Fiscal Years Ended April 30,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Rent Expense $ 209,397 $ 235,224 $ 226,711 $ 216,522 $ 220,264
x.30 (A) x.3 x.3 x.3 x.3 x.3
----------- ----------- ----------- ----------- -----------
Assumed Fixed Charges
Included in Rent Expense 62,819 70,567 68,013 64,957 66,079
Preferred Dividend
Requirements --- --- --- 2,193 2,809
Interest Expense (B) 4,971,065 4,434,655 4,214,376 3,754,765 3,304,793
----------- ----------- ----------- ----------- -----------
Total Fixed Charges 5,033,884 4,505,222 4,282,389 3,821,915 3,273,681
Less: Pre-Tax Loss (5,631,409) (5,064,166) (4,082,175) (3,864,576) (3,075,213)
----------- ----------- ----------- ----------- -----------
Pre-Tax Loss Plus
Fixed Charges --- --- 200,214 --- 298,468
Pre-Tax Loss Plus
Fixed Charges divided
by Fixed Charges (rounded) --- --- .05 --- .09
<FN>
(A) Assumed percentage of interest included in rental expense.
(B) Includes amortization of deferred registration costs related to the Company's offer and sale of senior and
subordinated debt in the amounts of $62,153, $54,904, $56,817, $56,857, and $47,261, charged to expense during the
fiscal years ended April 30, 1996, 1995, 1994, 1993, and 1992, respectively. ELCOA's amortization of deferred
registration costs related to its offer and sale of Demand, Fixed Rate and Money Market Thrift Certificates are also
included in the amounts of $64,380, $66,498, $63,370, $60,000, and $52,411, respectively, for the fiscal years ended
April 30, 1996, 1995, 1994, 1993, and 1992.
</TABLE>
<PAGE>153
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "EXPERTS" and to the
use of our reports dated July 1, 1996 incorporated by reference or included in
Form S-2 and related Prospectus of Walnut Equipment Leasing Co., Inc. for the
registration of Certificates.
/S/ COGEN SKLAR LLP
COGEN SKLAR LLP
Bala Cynwyd, Pennsylvania
July 26, 1996
<PAGE>154
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
- -------------------------------------------------------------------------------
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
-------------------
SUMMIT BANK
(Successor by Merger to First Valley Bank)
(Exact Name of Trustee as Specified in Its Charter)
Pennsylvania 24-0525884
(State of Incorporation (I.R.S. Employer
if not a National Bank) Identification No.)
100 Brodhead Rd.
Newpointe Office Center
Princeton, New Jersey 18017
(215)-865-8459
(Address of Principal Executive Offices) (Zip Code)
------------------
WALNUT EQUIPMENT LEASING CO., INC.
(Exact Name of Obligor as Specified in Its Charter)
Delaware 23-1712443
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Suite 200, One Belmont Avenue
Bala Cynwyd, PA 19004
(Address of Principal Executive Officer) (Zip Code)
-------------------
DEMAND SENIOR THRIFT CERTIFICATES
FIXED TERM SENIOR THRIFT CERTIFICATES
(Title of the Indenture Securities)
-------------------
<PAGE>
<PAGE>155
1. GENERAL INFORMATION. Furnish the following information as to the trustee---
(a) Name and address of each examining or supervising authority to which
it is subject.
FEDERAL DEPOSIT INSURANCE CORPORATION
452 Fifth Avenue
New York, NY 10018
PENNSYLVANIA DEPARTMENT OF BANKING
333 Market Street
16th Floor
Harrisburg, PA 17101-2290
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
No such affiliation exists.
3. VOTING SECURITIES OF THE TRUSTEE. Furnish the following information as to
each class of voting securities of the trustee:
---------------------
As of June 30, 1996
Col. A Col. B
Title of Class Amount Outstanding
-------------- ------------------
Common Stock All Held by Summit Bancorp
---------------------
4. TRUSTEESHIPS UNDER OTHER INDENTURES. If the trustee is a trustee under
another indenture under which any other securities, or certificates of
interest or participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other indenture.
None
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1)
of the Act arises as a result of the trusteeship under any such other
indenture, including a statement as to how the indenture securities
will rank as compared with the securities used under such other
indenture.
Not Applicable
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS. If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee, appointee, or
representative of the obligor, identify each such person having any such
connection and state the nature of each such connection.
None.
<PAGE>
<PAGE>156
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner and
executive officer of the obligor.
As of June 30, 1996
Col. A Col. B Col. C Col. D
Name of Title Amount Owned Percentage of Voting
Owner of Class Beneficially Securities Represented
by Amount Given in Col. C
------- -------- ------------ -------------------------
None
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner and executive officer of each such underwriter.
As of June 30, 1996
Col. A Col. B Col. C Col. D
Name of Title Amount Owned Percentage of Voting
Owner of Class Beneficially Securities Represented
by Amount Given in Col. C
------- -------- ------------ -------------------------
None
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE. Furnish the
following information as to securities of the obligor owned beneficially or
held as collateral security for obligations in default by the trustee:
As of June 30, 1996
Col. A Col. B Col. C Col. D
Title of Whether the Amount Owned Percent of
Class Securities Beneficially or Held Class Represented
are Voting as Collateral Security by Amount Given
or Nonvoting for Obligations in Col. C
Securities in Default
-------- ------------ ---------------------- -----------------
None
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE. If the trustee
owns beneficially, or holds as collateral security for obligations in
default any securities of an underwriter for the obligor, furnish the
following information as to each class of securities of such underwriter
any of which as so owned or held by the trustee.
<PAGE>
<PAGE>157
As of June 30, 1996
Col. A Col. B Col. C Col. D
Title of Amount Amount Owned Beneficially Percent of
Issuer and Outstanding or Held as Collateral Class Represented
Title of Security for Obligations by Amount Given
Class in Default by Trustee in Col. C
---------- ----------- ------------------------- -----------------
None
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR. If the trustee owns
beneficially or holds as collateral security for obligations in default
voting securities of a person who, to the knowledge of the trustee (1) owns
10% or more of the voting securities of the obligor or (2) is an affiliate,
other than a subsidiary, of the obligor, furnish the following information
as to the voting securities of such person.
As of June 30, 1996
Col. A Col. B Col. C Col. D
Title of Amount Amount Owned Beneficially Percent of
Issuer and Outstanding or Held as Collateral Class Represented
Title of Security for Obligations by Amount Given
Class in Default by Trustee in Col. C
---------- ----------- ------------------------- -----------------
None
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50% OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR. If the trustee owns
beneficially or holds as collateral security for obligations in default any
securities of a person who, to the knowledge of the trustee, owns, 50% or
more of the voting securities of the obligor, furnish the following
information as to each class of securities of such person any of which are
so owned or held by the trustee.
As of June 30, 1996
Col. A Col. B Col. C Col. D
Title of Amount Amount Owned Beneficially Percent of
Issuer and Outstanding or Held as Collateral Class Represented
Title of Security for Obligations by Amount Given
Class in Default by Trustee in Col. C
---------- ----------- ------------------------- -----------------
None
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE. If the obligor is indebted to
the trustee, furnish the following information.
Col. A. Col. B Col. C.
Nature of Amount Date
Indebtedness Outstanding Due
------------ ----------- -------
None
<PAGE>
<PAGE>158
13. DEFAULTS BY THE OBLIGOR
a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the indenture, state
whether there has been a default under any such indenture or series,
identity the indenture or series affected, and explain the nature of any
such default.
None.
14. AFFILIATIONS WITH THE UNDERWRITERS. If any underwriter is an affiliate of
the trustee, describe each such affiliation.
None
15. FOREIGN TRUSTEE. Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures qualified or
to be qualified under the Act.
Inapplicable
16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
statement of eligibility and qualification. Exhibits identified in
parenthesis, on file with the Commission, are incorporated herein by
reference as exhibits hereto.
1. Articles of Association and By-laws of Summit Bank (successor by merger
to First Valley Bank). Filed as Exhibit 12(1) to Form T-1, Registration
#22-19569, Filed July 10, 1989.
2. Certificate of Incorporation of Summit Bank (successor by merger to
First Valley Bank). (Filed as Exhibit 12(2) to Form T-1, Registration
#22-19569, Filed July 10, 1989).
3. Authorization of the trustee to exercise corporate trust powers. (Filed
as Exhibit 12(3) to Form T-1, Registration #22-19569, Filed July 10,
1989).
4. By-Laws of Trustee. Filed as Exhibit 12(4) to Form T-1, Registration
#22-19569, Filed July 10, 1989.
5. There are no indentures referred to in Item 4.
6. Consents of the Trustee under Section 321(b) of the Trust Indenture Act.
"P" 7. Report of Condition of Summit Bank (successor by merger to First Valley
Bank), Trustee, Filed as its Annual Report for the year ended December
31, 1995.
8. Inapplicable
9. Inapplicable
<PAGE>
<PAGE>159
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
Summit Bank (successor by merger to First Valley Bank), a national banking
association organized under the Laws of the United States, has duly caused this
statement of eligibility and qualification to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hackensack, State of
New Jersey, on the 26th day of July, 1996.
SUMMIT BANK (successor by merger to
First Valley Bank)
/s/ Debra Schwalb
By:--------------------------------
Debra Schwalb
Assistant Vice President
<PAGE>
<PAGE>160
Securities and Exchange Commission
Washington, D.C. 20549
RE: Summit Bank (successor by merger to First Valley Bank), Trustee
Walnut Equipment Leasing Co., Inc.
Trust Indenture under SEC File No. 333-
________________________________________________________________
Gentlemen:
Pursuant to Section 321 (b) of the Trust Indenture Act, we consent that
reports of examinations by Federal, State, Territorial of District authorities
may be furnished by such authorities to the Commission upon request therefor.
SUMMIT BANK (successor by merger to
First Valley Bank)
/s/ Debra Schwalb
Dated: July 26, 1996 By:--------------------------------
Debra Schwalb
Title: Assistant Vice President
