SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 0-10888
OLD NATIONAL BANCORP
(Exact name of Registrant as specified in its charter)
INDIANA 35-1539838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
420 Main Street,
Evansville, Indiana 47708
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code, (812) 464-1200
Former name, former address and former fiscal year, if changed since last
reports.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to the filing
requirements for at least the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock. The Registrant has one class of common stock (no par value)
with approximately 27.8 million shares outstanding at March 31, 1998.
OLD NATIONAL BANCORP
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Consolidated Balance Sheet
March 31, 1998 and 1997, and December 31, 1997. . . . . 3
Consolidated Statement of Income
Three months ended March 31, 1998 and 1997. . . . . . . 4
Consolidated Statement of Cash Flows
Three months ended March 31, 1998 and 1997. . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 9
PART II OTHER INFORMATION . . . . . . . . . . . . . . . . . . . 12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . 15
2
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED BALANCE SHEET
March 31, March 31, December 31,
($ in thousands) (unaudited) 1998 1997 1997
Assets
<S> <C> <C> <C>
Cash and due from banks. . . . . . . . . . $137,708 $162,616 $160,813
Money market investments . . . . . . . . . 3,686 3,878 7,868
Investment Securities:
U.S. Treasury . . . . . . . . . . . . . . 105,894 146,148 117,188
U.S. Government agencies
and corporations. . . . . . . . . . . . 936,990 923,583 951,444
Obligations of states and political
subdivisions. . . . . . . . . . . . . . 450,035 450,786 452,933
Other . . . . . . . . . . . . . . . . . . 48,954 42,348 45,411
--------- --------- ---------
Total Investment Securities . . . . . . 1,541,873 1,562,865 1,566,976
--------- --------- ---------
Loans
Commercial. . . . . . . . . . . . . . . . 874,939 794,281 878,690
Commercial real estate. . . . . . . . . . 777,927 679,772 762,505
Residential real estate . . . . . . . . . 1,435,189 1,309,474 1,416,963
Consumer credit, net of unearned income . 739,525 752,016 746,533
Financial . . . . . . . . . . . . . . . . 20,000 -- --
--------- --------- ---------
Total Loans . . . . . . . . . . . . . . 3,847,580 3,535,543 3,804,691
Allowance for loan losses . . . . . . . (49,287) (45,914) (48,655)
--------- --------- ---------
Net Loans . . . . . . . . . . . . . . . 3,798,293 3,489,629 3,756,036
Other assets . . . . . . . . . . . . . . . 281,370 190,240 194,705
--------- --------- ---------
Total Assets. . . . . . . . . . . . . . $5,762,930 $5,409,228 $5,686,398
========= ========= =========
Liabilities
Deposits
Noninterest bearing demand. . . . . . . . $468,294 $465,019 $502,276
Interest bearing:
NOW accounts. . . . . . . . . . . . . . 446,020 452,697 450,381
Savings accounts. . . . . . . . . . . . 468,507 478,855 469,589
Money market accounts . . . . . . . . . 636,270 660,449 660,240
Certificates of deposit
$100,000 and over . . . . . . . . . . . 376,477 287,823 359,695
Other time. . . . . . . . . . . . . . . 1,894,901 1,863,186 1,856,549
--------- --------- ---------
Total Deposits. . . . . . . . . . . . . 4,290,469 4,208,029 4,298,730
--------- --------- ---------
Short-term borrowings. . . . . . . . . . . 388,952 410,656 442,686
Other borrowings . . . . . . . . . . . . . 502,863 274,726 388,832
Accrued expenses and other liabilities . . 87,903 62,462 78,947
--------- --------- ---------
Total Liabilities . . . . . . . . . . . . 5,270,187 4,955,873 5,209,195
Shareholders' Equity
Common stock. . . . . . . . . . . . . . . 27,796 26,560 27,457
Capital surplus . . . . . . . . . . . . . 308,055 257,501 299,988
Retained earnings . . . . . . . . . . . . 139,461 168,199 133,218
Accumulated other comprehensive
income, net of tax . . . . . . . . . . 17,431 1,095 16,540
--------- --------- ---------
Total Shareholders' Equity. . . . . . . . 492,743 453,355 477,203
--------- --------- ---------
Total Liabilities and Shareholders'
Equity. . . . . . . . . . . . . . . . . $5,762,930 $5,409,228 $5,686,398
========= ========= =========
The accompanying notes are an integral part of this statement.
</TABLE>
3
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
($ in thousands except share March 31,
and per share data) (Unaudited) 1998 1997
Interest income
<S> <C> <C>
Loans including fees:
Taxable . . . . . . . . . . . . . . $84,670 $77,676
Non-taxable. . . . . . . . . . . . . 1,244 970
Investment securities:
Taxable. . . . . . . . . . . . . . . 18,449 17,902
Non-taxable. . . . . . . . . . . . . 5,660 5,996
Money market investments . . . . . . . 469 176
------- -------
Total Interest Income. . . . . . . . 110,492 102,720
------- -------
Interest Expense
Savings, NOW and
money market accounts. . . . . . . . 10,816 11,144
Certificates of deposit of $100,000
and over . . . . . . . . . . . . . . 5,349 3,776
Other time deposits. . . . . . . . . . 25,961 25,207
Short-term borrowings. . . . . . . . . 5,185 4,875
Other borrowings . . . . . . . . . . . 7,171 4,142
------- -------
Total Interest Expense . . . . . . . 54,482 49,144
------- -------
Net Interest Income. . . . . . . . . 56,010 53,576
Provision for loan losses. . . . . . . 5,412 3,756
------- -------
Net Interest Income After Provision
For Loan Losses . . . . . . . . . . 50,598 49,820
------- -------
Noninterest Income
Trust fees . . . . . . . . . . . . . . 3,173 2,800
Service charges on deposit accounts. . 3,849 3,922
Loan servicing fees. . . . . . . . . . 1,424 1,405
Securities gains (losses), net . . . . 19 (6)
Other income . . . . . . . . . . . . . 4,144 3,312
------- -------
Total Noninterest Income. . . . . . . 12,609 11,433
------- -------
Noninterest Expense
Salaries and employee benefits . . . . 23,326 22,053
Occupancy expense. . . . . . . . . . . 2,320 2,382
Equipment expense. . . . . . . . . . . 3,124 3,039
FDIC insurance expense . . . . . . . . 179 150
Data processing expense. . . . . . . . 1,286 1,288
Supplies expense . . . . . . . . . . . 1,021 1,086
Communication and transportation expense 1,888 1,739
Other expenses . . . . . . . . . . . . 6,641 6,418
------- -------
Total Noninterest Expense . . . . . . 39,785 38,155
------- -------
Income before income taxes . . . . . . 23,422 23,098
Provision for income taxes . . . . . . 6,968 7,040
------- -------
Net Income. . . . . . . . . . . . . . $16,454 $16,058
======= =======
Net Income Per Common Share
Basic . . . . . . . . . . . . . . . . $ 0.60 $ 0.57
======= =======
Diluted . . . . . . . . . . . . . . . $ 0.58 $ 0.56
======= =======
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . 27,442,040 27,996,001
========== ==========
Diluted . . . . . . . . . . . . . . . 28,988,691 29,590,164
========== ==========
The accompanying notes are an integral part of this statement
</TABLE>
4
<TABLE>
<CAPTION>
OLD NATIONAL BANCORP
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
March 31,
($ in thousands) (unaudited) 1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . $ 16,454 $ 16,058
-------- --------
Adjustments to reconcile net income to cash provided
from operating activities:
Depreciation. . . . . . . . . . . . . . 2,378 2,257
Amortization of intangible assets . . . 342 318
Net premium amortization on investment securities. 498 421
Provision for loan losses . . . . . . . 5,412 3,757
Loss (gain) on sale of investment securities . . . (19) 6
Gain on sale of assets (235) (76)
(Increase)decrease in interest receivable. . . . . 644 (267)
Increase in other assets. (87,294) (5,779)
Increase in accrued expenses and
other liabilities. . . . . . . . . . 8,348 1,184
-------- --------
Total adjustments . . . . . . . . . . (69,926) 1,821
-------- --------
Net cash flows provided (used) by
operating activities. . . . (53,472) 17,879
-------- --------
Cash flows from investing activities:
Purchase of investment securities available-for-sale (121,371) (134,216)
Proceeds from maturities and paydowns of investment
securities available-for-sale . . . . . 98,304 68,916
Proceeds from sales of investment securities available-
for-sale. . . . . . . . . . . . . . . . 49,190 5,339
Net principal collected from (loans made to) customers:
Commercial and financial . . . . . . . (16,216) 2,178
Mortgage. . . . . . . . . . . . . (55,658) (25,381)
Consumer . . . . . . . . . . . . . . . 2,223 1,007
Proceeds from sale of mortgage loans . . 22,139 8,130
Proceeds from sale of premises and equipment. . . . 278 19
Purchase of premises and equipment . . . (3,024) (1,193)
------- --------
Net cash flows used in investing activities. . . . (24,135) (75,201)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits and short-term borrowings:
Noninterest bearing demand. . . . . . . (33,982) (47,262)
NOW Accounts. . . . . . . . . . . . . . . (4,361) 3,211
Savings accounts. . . . . . . . . . . . . (1,082) (1,448)
Money market accounts . . . . . . . . . . (23,970) (53,812)
Certificates of deposit $100,000 and over 16,782 29,835
Other time deposits . . . . . . . . . . . 38,352 9,481
Short-term borrowings . . . . . . . . . . (53,734) 74,671
Other borrowings. . . . . . . . . . . . . 122,420 36,564
Cash dividends paid. . . . . . . . . . . . (6,287) (5,844)
Common stock repurchased . . . . . . . . . (10,507) (10,645)
Common stock reissued, net of shares used to convert
subordinated debentures. . . . . . . . . 6,689 1,962
-------- --------
Net cash flows provided by financing activities. 50,320 36,713
-------- --------
Net decrease in cash and cash equivalents. (27,287) (20,609)
Cash and cash equivalents at beginning of period. . 168,681 187,103
-------- --------
Cash and cash equivalents at end of period . . $141,394 $166,494
======== ========
Total interest paid. . $ 54,904 $ 45,273
======== ========
Total taxes paid. . $ 800 $ 2,041
======== ========
The accompanying notes are an integral part of this statement.
</TABLE>
5
Old National Bancorp
Notes to Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of the
Old National Bancorp and its affiliate entities (ONB). All significant
intercompany transactions and balances have been eliminated. In the opinion
of management, the consolidated financial statements contain all the normal
and recurring adjustments necessary to present fairly the financial position
of ONB as of March 31, 1998 and 1997 and December 31, 1997, and the results of
its operations, and cash flows for the three months ended March 31, 1998 and
1997. All prior period information has been restated for the effects of
business combinations accounted for as pooling-of-interests.
2. Net Income Per Share
Net income per common share computations are based on the weighted average
number of common shares outstanding during the periods presented. A 5% stock
dividend was paid January 29, 1998 to shareholders of record on January 8,
1998. All share and per share data presented herein have been restated for
the effects of this stock dividend.
Net income on a diluted basis is computed as above and assumes the conversion
of ONB's 8% convertible subordinated debentures (Note 4). For the diluted
computation, net income is adjusted for the assumed reduction in interest
expense, net of income tax effect, and an additional 1.5 million common shares
are assumed to be issued in connection with the conversion of the remaining
outstanding debentures.
<TABLE>
<CAPTION>
Earnings Per Share Reconciliation
($ and shares in thousands except per share data):
For the Three For the Three
months ended months ended
March 31, 1998 March 31, 1997
Per-Share Per-Share
Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders $16,454 27,442 $0.60 $16,058 27,996 $0.57
===== =====
Effect of Dilutive
securities:
Stock options 89 94
8% convertible debentures 348 1,458 368 1,500
------- ------ ------- ------
Diluted EPS
Income available to
Common stockholders
+ assumed conversions $16,802 28,989 $0.58 $16,426 29,590 $0.56
======= ====== ===== ======= ====== =====
</TABLE>
6
3.Investments
The market value and amortized cost of investment securities as of March 31,
1998 are set forth below ($ in thousands):
Market Value Amortized Cost
Available for Sale, at market value $1,541,873 $1,512,811
========== ==========
4. Borrowings
ONB's has outstanding $22.0 million of 8% convertible subordinated debentures
which are due September 15, 2012, unless previously converted or redeemed.
The debentures are convertible at any time prior to maturity into shares of
common stock of ONB at a conversion rate of 49.218 shares for each one
thousand dollars principal amount of debentures. Interest on the debentures
is payable on March 15 and September 15 of each year. The debentures are
redeemable in whole or in part at the option of ONB at a premium to par value.
Beginning September 15, 1998, debenture holders are entitled to an annual
sinking fund of $2.5 million principal amount of debentures annually less
conversions and redemptions. The debentures are subordinated in right of
payment to all senior indebtedness of ONB. As of March 31, 1998, 1.1 million
authorized and unissued common shares were reserved for conversion of the
debentures.
ONB has registered Series A Medium Term Notes in the principal amount of $50
million. The series has been fully issued. As of March 31, 1998, a total of
$34 million of the notes were outstanding, with maturities ranging from one to
five years and fixed interest rates of 6.1% to 7.0%. At March 31, 1997, ONB
had outstanding $44 million of medium term notes. These notes bear interest
at a weighted average rate of 6.73% and mature between 1998 and 2003.
ONB also has registered Medium Term Notes in the principal amount of $150
million. These notes may be issued with maturities of nine months or more and
rates may either be fixed or variable. As of March 31, 1998, a total of $64.3
million of the notes were outstanding, with maturities ranging from four to
nine years and fixed interest rates from 6.4% to 7.0%.
As of March 31, 1998, ONB has $80 million in unsecured lines of credit with
unaffiliated banks. These lines of credit include various informal
arrangements to maintain compensating balances. The compensating balances are
maintained for the benefit of the parent company by affiliate banks which
normally maintain correspondent balances with unaffiliated banks. As of March
31, 1998, $19.0 million was outstanding under these lines bearing interest
rates that averaged 6.34%. As of March 31, 1997, $65.0 million was
outstanding.
5. Interest Rate Contracts
ONB uses interest rate contracts such as interest swaps and caps to manage its
interest rate risk. These contracts are designated as hedges of specific
assets and liabilities. The net interest receivable or payable on swaps is
accrued and recognized as an adjustment to the interest income or expense of
the hedged asset or liability. The premium paid for an interest rate cap is
included in the basis of the hedged item and is amortized as an adjustment to
the interest income or expense on the related asset or liability.
At March 31, 1998, ONB has an interest rate swap with a notional value of $20
million. The contract is an exchange of interest payments with no affect on
the principle amounts of the underlying hedged liability. The fair value of
the swap contract was ($0.3) million as of March 31, 1998. ONB pays the
counterparty a variable rate based on three-month LIBOR and receives a fixed
rate of 6.50%. The contract terminates on or prior to March 13, 2008.
7
At March 31, 1998, ONB has interest rate cap agreements (caps) with notional
amounts of $11 million with a fair value of $0.1 million. These caps are
indexed to LIBOR with a strike price of 5.00% and mature prior to 2000. The
carrying value at March 31, 1998 was $0.1 million.
ONB is exposed to losses if a counterparty fails to make its payments under a
contract in which the ONB is in the receiving position. Although collateral
or other security is not obtained, ONB minimizes its credit risk by monitoring
the credit standing of the counterparties and anticipates that the
counterparties will be able to fully satisfy their obligation under the
agreements.
6. Impact of Accounting Changes
Effective January 1, 1998, ONB adopted Statement of Financial Accounting
Standards (SFAS) No. 130 "Reporting Comprehensive Income" which establishes
standards for reporting and display of comprehensive income and its
components. The new rule requires reporting of comprehensive income, which
includes net income and all other nonowner changes in equity during the
period.
Three Months Ended
March 31, March 31,
1998 1997
($ in Thousands)
Net income $16,454 $16,058
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period, net of tax 902 (6,789)
Less: reclassification adjustment
for (gains) losses realized
in net income, net of tax (11) 4
------- -------
Net unrealized gains (losses) 891 (6,785)
------- -------
Comprehensive income $17,345 $ 9,273
======= =======
ONB also adopted SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information" which establishes standards for reporting information on
operating segments. Segment data will be disclosed starting December 31,
1998, including interim periods. The adoption of the above statement did not
have a material impact on ONB's disclosures.
8
PART I. FINANCIAL INFORMATION
ITEM 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following management's discussion and analysis is presented to provide
information concerning the financial condition of ONB as of March 31, 1998, as
compared to March 31, 1997 and December 31, 1997, and the results of
operations for the three months ended March 31, 1998 and 1997.
Financial Condition
ONB's total assets at March 31, 1998 were $5.763 billion, a 6.5% increase
since March 1997 and a 1.3% increase since December 1997. Earning assets,
which consist primarily of money market investments, investment securities and
loans, grew 5.7% over the prior year. During the past year, the mix of
earning assets reflected loan growth of 8.8% while money market investments
and investment securities decreased 1.4%. Since December 1997, earning assets
increased slightly 0.3% with loans growing 1.1% and investment securities and
money market investments decreasing 1.9%.
At March 31, 1998, total risk assets (defined as loans 90 days or more
past due, nonaccrual and restructured loans and foreclosed properties)
declined slightly to $21.9 million from $23.1 million as of December 31, 1997.
As of these dates, risk assets in total were 0.57% and 0.61%,
respectively, of total loans and forclosed properties.
March 31, December 31,
1998 1997
Nonaccrual loans $14,303 $14,283
Restructured loans 238 248
Foreclosed Properties 3,730 4,124
------- -------
Total Non-Performing Assets 18,271 18,655
Past Due 90 Days or more 3,660 4,405
------- -------
Total Risk Assets $21,931 $23,060
======= =======
Risk assets as a % of total
loans and foreclosed properties 0.57% 0.61%
==== ====
As of March 31, 1998, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 and 118 was $4.4 million
with no related allowance and $43.2 million with $10.3 million of related
allowance.
ONB's policy for recognizing income on impaired loans is to accrue earnings
unless a loan becomes nonaccrual. When loans are classified as nonaccrual,
interest accrued during the current year is reversed against earnings;
interest accrued in the prior year, if any, is charged to the allowance for
loan losses. Cash received while a loan is classified nonaccrual is recorded
to principal.
For the three months ended March 31, 1998, the average balance of impaired
loans was $49.7 million and $0.8 million of interest was recorded.
ONB's consolidated loan portfolio is well diversified and contains no
concentrations of credit in any particular industry exceeding 10% of its
portfolio. ONB has minimal exposure to construction lending or leveraged
buyouts and no exposure in credits to foreign or lesser-developed countries.
9
Total deposits at March 31, 1998, increased $82.4 million or 2.0% compared to
March 1997. Certificates of deposit $100,000 and over increased $88.7 million
and comprised the largest dollar increase. Since December 1997, total
deposits decreased $8.3 million or 0.2% with the decline in all categories,
except certificates of deposit $100,000 and over and other time. Seasonality
contributed to the first quarter deposit decrease.
Short-term borrowings, comprised of Federal funds purchased, securities sold
under agreements to repurchase and other short-term borrowings, decreased
$21.7 million since March 1997 as additional medium term notes were issued and
short-term borrowings were reduced. Since December 1997, ONB's short-term
borrowings decreased $53.7 million and shifted to Federal Home Loan Bank
borrowings included in other borrowings.
Capital
Total shareholders' equity increased $39.4 million since March 1997 and has
increased $15.5 million since December 1997. During the first quarter of
1998, accumulated other comprehensive income, primarily net unrealized gain on
investment securities, increased $0.9 million and $8.3 million of subordinated
debentures converted to common stock.
ONB's consolidated capital position remains strong as evidenced by the
following comparisons of key industry ratios:
<TABLE>
<CAPTION>
Regulatory Guidelines March 31, March 31, December 31,
Minimum Well-Capitalized 1998 1997 1997
<S> <C> <C> <C> <C> <C>
Risk based Capital:
Tier 1 capital to total
avg assets (leverage ratio). . . 4.00% 5.00% 8.13% 8.24% 7.95%
Tier 1 capital to risk-adjusted
total assets . . . . . . . . 4.00 6.00 12.18 12.71 12.16
Total capital to risk-adjusted
total assets . . . . . . . 8.00 10.00 14.01 14.84 14.24
Shareholders' equity to total assets N/A N/A 8.55 8.38 8.39
Each of ONB's affiliate banks have capital ratios which exceed regulatory
minimum and well-capitalized guidelines.
</TABLE>
Liquidity and Asset/Liability Management
ONB continually monitors its liquidity and actively manages its
asset/liability position. The purpose of liquidity management is to match the
sources of funds with anticipated customer borrowings and withdrawals and
other obligations. The primary purpose of asset/liability management is to
minimize the effect on net income of changes in interest rates and to maintain
a prudent match within specified time periods of rate-sensitive assets and
rate-sensitive liabilities.
ONB also uses net interest income simulation modeling to better quantify the
impact of potential interest rate fluctuations on net interest income. With
this understanding management can best determine possible balance sheet
changes, pricing strategies, and appropriate levels of capital and liquidity
which allows ONB to generate strong net interest income while controlling and
monitoring interest rate risk. ONB simulates a gradual change in rates of 200
basis points up or down over 12 months and sustained for an additional 12
months. The policy limit for the maximum negative impact on net interest
income over 12 months is 10%. At March 31, 1998 the model's fluctuation has
not materially changed from December 31, 1997.
Using static gap, ONB's rate-sensitive assets at March 31, 1998 were 76% of
rate-sensitive liabilities in the 1-180 day maturity category and 85% in the
181-365 day category. These figures compared to 79% and 89% on December 31,
1997 and 84% and 92% on March 31, 1997. ONB's funds management committee
meets bi-monthly to closely monitor and effect changes as needed in the
consolidated rate-sensitivity position.
10
Results of Operations
Net Income
Net income for the three months ended March 31, 1998 was $16.5 million, a 2.5%
increase over the same period in 1997. Basic net income per common share for
the first quarter of 1998 was $0.60, compared to $0.57 for the first quarter
of 1997, a 5.3% increase. ONB's return on average assets (ROA) for the first
quarter of 1998 was 1.16%. This compared to 1.21% for the same period in
1997. The decline in ROA is due to the increase in assets combined with small
net income growth.
Net Interest Income
Net interest income on a taxable equivalent basis for the first quarter of
1998 was $59.4 million or 4.2% higher than the same period for the prior year.
Higher levels of earning assets contributed to the net interest income growth.
The tax-equivalent net interest margin was 4.39% in the first quarter of 1998
versus 4.51% in 1997's first quarter. The lower and flatter yield curve
combined with higher deposit rates which have increased since the first
quarter of 1997 have compressed the net interest margin.
Provision for Loan Losses
The provision for loan losses was $5.4 million in the first quarter of 1998
compared to $3.8 million in the first quarter of 1997. Much of this increase
was due to the performance of purchased loans at ONB's finance subsidiary.
The activities of this subsidiary have been significantly curtailed and exit
strategies are being evaluated. ONB's net charge offs were 0.57% of average
loans for the quarter versus 0.30% in the first quarter of 1997. The
allowance for loan losses is continually monitored and evaluated both within
each affiliate bank and at the holding company level so as to provide adequate
coverage for potential losses. The allowance for loan losses to end-of-
period loans of 1.28% at March 31, 1998 compared to 1.28% at year-end in 1997
and 1.30% at March 31, 1997. The allowance for loan losses covers all
underperforming assets by 2.25 times at March 31, 1998 compared to 2.11 times
at December 31, 1997.
Noninterest Income
Total noninterest income increased 10.3% in the three months ended March 31,
1998 as compared to the same period in 1997. In both years security gains
comprised an insignificant portion of noninterest income. All categories,
except service charges experienced increases over 1997. Trust fees increased
13.3%, loan servicing fees increased 1.4%, and other income rose 25.1%. The
growth in other income was mainly from increases in insurance commissions and
investment product fees.
Noninterest Expense
Noninterest expense increased 4.3% in the first quarter of 1998 over the same
period in 1997. Salaries and benefits, together the largest individual
component of noninterest expense, increased 5.8% in the first quarter of 1998
compared to 1997. Approximately 43% of the personnel expense increase related
to ONB's start-up finance subsidiary which grew throughout 1997. Most other
categories of noninterest expense experienced relatively small changes between
the years.
Provision for Income Taxes
The provision for income taxes, as a percentage of pre-tax income, declined
slightly in the first quarter to 29.7% compared to 30.5% in 1997.
11
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
NONE
ITEM 2. Changes in Securities
NONE
ITEM 3. Defaults Upon Senior Securities
NONE
ITEM 4. Submission of Matters to a Vote of Security Holders
At the April 16, 1998 Annual Meeting of Shareholders, the following matters
were submitted to a vote of the shareholders.
Election of Directors - The following directors were elected for a term of one
year.
Vote Count
- -----------------------------------------------------------------------
For Against Abstained Unvoted
David L. Barning 20,591,431 100,345 -- --
Richard J. Bond 20,598,338 93,278 -- --
Alan W. Braun 20,591,192 100,424 -- --
Wayne A. Davidson 20,590,788 100,828 -- --
Larry E. Dunigan 20,602,880 88,742 -- --
David E. Eckerle 20,601,726 89,889 -- --
Thomas B. Florida 20,602,306 89,310 -- --
Phelps L. Lambert 20,598,473 94,205 -- --
Ronald B. Lankford 20,602,862 88,763 -- --
Lucien H. Meis 20,602,520 89,216 -- --
Louis L. Mervis 20,592,877 103,701 -- --
Lawrence Prybil 20,555,164 141,734 -- --
James Risinger 20,591,408 100,217 -- --
John N. Royse 20,579,469 112,156 -- --
Marjorie Z. Soyugenc 20,579,189 116,772 -- --
Charles D. Storms 20,573,975 117,650 -- --
Selection of Independent Public Accountants - Arthur Andersen LLP,
Indianapolis, Indiana Votes For - 20,546,888, Votes Against - 44,508, Votes
Abstained - 108,740, Unvoted - 0.
ITEM 5. Other Information
NONE
12
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
(10) AT&T Credit Corporation Master Equipment Lease.
(27) Financial Data Schedule
(b) ONB did not file a current report on Form 8-K during the quarter
ended March 31, 1998.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OLD NATIONAL BANCORP
(Registrant)
By: s/s Ronald W. Seib
Ronald W. Seib
Vice President
Corporate Controller
Date: May 15, 1998
14
INDEX OF EXHIBITS
Regulation S-K
Reference
(Item 601)
10 AT&T Credit Corporation Master Equipment Lease
27 Financial Data Schedule
15
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<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OLD NATIONAL
BANCORP'S MARCH 31, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 137,708
<INT-BEARING-DEPOSITS> 3,686
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,541,873
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,847,580
<ALLOWANCE> 49,287
<TOTAL-ASSETS> 5,762,930
<DEPOSITS> 4,290,469
<SHORT-TERM> 388,952
<LIABILITIES-OTHER> 87,903
<LONG-TERM> 502,863
0
0
<COMMON> 27,796
<OTHER-SE> 464,947
<TOTAL-LIABILITIES-AND-EQUITY> 5,762,930
<INTEREST-LOAN> 85,914
<INTEREST-INVEST> 24,109
<INTEREST-OTHER> 469
<INTEREST-TOTAL> 110,492
<INTEREST-DEPOSIT> 42,126
<INTEREST-EXPENSE> 54,482
<INTEREST-INCOME-NET> 56,010
<LOAN-LOSSES> 5,412
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 6,641
<INCOME-PRETAX> 23,422
<INCOME-PRE-EXTRAORDINARY> 16,454
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,454
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.58
<YIELD-ACTUAL> 4.39
<LOANS-NON> 14,303
<LOANS-PAST> 3,660
<LOANS-TROUBLED> 238
<LOANS-PROBLEM> 107,356
<ALLOWANCE-OPEN> 48,655
<CHARGE-OFFS> 8,039
<RECOVERIES> 2,570
<ALLOWANCE-CLOSE> 49,287
<ALLOWANCE-DOMESTIC> 49,287
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
Master Equipment Lease Agreement
LESSEE: OLD NATIONAL BANCORP LESSOR: AT&T CREDIT CORPORATION
Street Address Address
420 Main Street - Suite 1100 2 Gatehall Drive
Parsippany, NJ 07054
City/State/Zip Lease Number
Evansville, IN 47708 S115510
1. AGREEMENT. Lessor agrees to lease to Lessee and Lessee agrees
to lease from Lessor the equipment (Equipment) described in any
schedule (Schedule) that incorporates this Master Equipment Lease
Agreement by reference by listing the above-referenced Lease
Number thereon. Such lease shall be governed by the terms and
conditions of this Agreement, as well as by the terms and
conditions set forth in the applicable Schedule. Each Schedule
shall constitute an agreement separate and distinct from this
Agreement and any other Schedule. In the event of a conflict
between the provisions of this Agreement and a Schedule, the
provisions of the Schedule shall govern.
2. ASSIGNMENT OF PURCHASE DOCUMENTS. Lessee shall execute and
deliver to Lessor a writing acceptable to Lessor whereby Lessor
is assigned all of Lessee's rights and interest in and to: (a)
the Equipment described in the applicable Schedule and (b) any
purchase order, contract or other documents (collectively,
Purchase Documents) relating thereto that Lessee has entered into
with the Seller (as specified in the applicable Schedule). If
Seller is not an affiliate of Lessor, Lessee shall deliver to
Lessor a writing acceptable to Lessor whereby Seller
acknowledges, and provides any required consent to, such
assignment. If Lessee has not entered into any Purchase Document
for the Equipment with Seller, Lessee authorizes Lessor to act as
Lessee's agent to issue a purchase order to Seller for the
Equipment and for associated matters, and such purchase order
shall be subject to this Section 2 and all references in this
Agreement to Purchase Documents shall include such purchase
order. By executing the applicable Schedule, Lessee represents
and warrants that Lessee either (y) has reviewed, approved and
received a copy of the applicable Purchase Documents or (z) has
been informed by Lessor (i) of the identity of the Seller, (ii)
that Lessee may have rights under the Purchase Documents and
(iii) that Lessee may contact Seller for a description of such
rights.
3. DELIVERY; ACCEPTANCE. Lessee shall cause the Equipment to be
delivered to Lessee at the Equipment Location (as specified in
the applicable Schedule) and Lessee shall accept the Equipment as
soon as it is delivered or, if acceptance criteria is specified
in the applicable Purchase Documents, as soon as it has met such
criteria. Lessee shall evidence its acceptance of the Equipment
and commencement of the Lease with respect thereto by executing
and delivering to Lessor a commencement certificate (Commencement
Certificate) in a form acceptable to Lessor. By executing and
delivering a Commencement Certificate to Lessor, (a) Lessee
represents and warrants that it has selected the Equipment and
Seller specified on the applicable Schedule and (b) Lessee shall
irrevocably accept such Equipment under lease.
4. PURCHASE OF EQUIPMENT. Provided that no Event of Default (as
defined in Section 19) exists, and no event has occurred and is
continuing that with notice or the lapse of time or both would
constitute an Event of Default, Lessor shall be obligated to
purchase the Equipment from Seller and to lease the Equipment to
Lessee if (and only if) Lessor receives on or before the Latest
Commencement Date (as specified in the applicable Schedule) the
related Commencement Certificate and Schedule (both executed by
Lessee), and such other documents or assurances as Lessor may
reasonably request.
5. TERM. The initial term of each Schedule (Initial Term) shall
begin on the date specified as the Commencement Date on the
Commencement Certificate with respect to such Schedule and shall
continue for the period specified in such Schedule. Any renewal
term of a Schedule (Renewal Term) shall begin on the expiration
of, as applicable, the Initial Term or any preceding Renewal Term
(collectively, Term).
6. RENT; ADVANCE RENT; LATE CHARGES. Lessee shall pay Lessor the
first Rental Payment (as specified in the applicable Schedule)
for the Equipment on or before the Commencement Date of the
applicable Schedule, and shall pay Lessor the remaining periodic
Rental Payments on or before the periodic payment dates specified
in the applicable Schedule or, if periodic payment dates are not
specified, on or before the corresponding day of each subsequent
period during the Initial Term of the applicable Schedule,
regardless of whether Lessee has received notice that such Rental
Payments are due. Additionally, if pursuant to this Agreement or
the applicable Schedule the Term is extended or a renewal option
exercised. Lessee shall also pay all Rental Payments required
with respect thereto. All Rental Payments will be sent to
Lessor's above-referenced address, or to such other address as
specified by Lessor in writing. Lessee shall also pay Lessor
Advance Rent (as specified in the applicable Schedule) for the
Equipment when it signs the applicable Schedule, and such Advance
Rent shall be refunded without interest to Lessee only if Lessor
declines to sign the applicable Schedule. Advance Rent shall be
credited to Lessee's first Rental Payment under the applicable
Schedule, and any excess Advance Rent shall be credited to
Lessee's final Rental Payment(s). Lessee agrees to pay Lessor a
late charge of 5% of any Rental Payment (or other amount due
hereunder) that is not paid within 10 days of its due date, plus
interest at the rate of 1 1/2% per month on any such amounts (or
such lesser rate as is the maximum rate allowable under
applicable law). Also, in the event that more than one Schedule
is entered into hereunder, the parties will use their best
efforts to implement a common billing date for all Schedules.
7. ADJUSTMENTS. The Total Purchase Price (as specified in the
applicable Schedule) and Rental Payment set forth in each
Schedule are estimates, and if the final invoice from Seller
specifies a Total Purchase Price (including taxes, delivery,
installation and other charges) that is greater or less than such
estimated Total Purchase Price, Lessee hereby authorizes Lessor
to adjust the Total Purchase Price and Rental Payment on the
applicable Schedule to reflect the final invoice amount (Final
Invoice Amount). If Option B in the Schedule has been selected,
Lessee also authorizes Lessor to adjust such purchase and renewal
options to reflect the Final Invoice Amount. However, if the
Final Invoice Amount exceeds the estimated Total Purchase Price
by more than 10%, Lessor will notify Lessee and obtain Lessee's
prior written approval of the aforementioned adjustments;
provided, however that such written approval shall not be
required when such adjustments are caused by Equipment changes or
system reconfigurations requested or caused by Lessee.
Additionally, if Lessor financed any down payment for the
Equipment pursuant to an interim financing agreement (Financing
Agreement) with Lessee, Lessor may also adjust the Total Purchase
Price and Rental Payment with respect to such Equipment to
reflect any accrued interest that Lessee elects to finance. All
reference in this Agreement and in any Schedule to Total Purchase
Price and Rental Payment shall mean the estimates thereof
specified in the applicable Schedule, as adjusted pursuant to
this Section 7.
8. INSURANCE. At its own expense, Lessee shall provide and
maintain the following insurance: (a) insurance against the loss
or theft of or damage to the Equipment for the greater of the
Stipulated Loss Value (computed as described in the applicable
Schedule) or full replacement value thereof, naming Lessor as a
loss payee; and (b) public liability and third party property
damage insurance, naming Lessor as an additional insured. Such
insurance shall be in a form, amount and with companies
reasonably satisfactory to Lessor, shall contain the insurer's
agreement to give Lessor 30 days' prior written notice before
cancellation or material change thereof, and shall be payable to
Lessor regardless of any act, omission or breach by Lessee.
Lessee shall deliver to Lessor the insurance policies or copies
thereof or certificates of such insurance on or before the
Commencement Date of the applicable Schedule, and at such other
times as Lessor may reasonably request. If no Event of Default
exists, and no event has occurred and is continuing that with
notice or the lapse of time or both would constitute an Event of
Default, the proceeds of any insurance required under clause (a)
hereof that have been paid to Lessor shall be applied against
Lessee's obligations to Lessor under Section 13 hereof.
9. TAXES. Lessee shall reimburse Lessor for (or pay directly, but
only if instructed by Lessor) all taxes, fees, and assessments
that may be imposed by any taxing authority on the Equipment or
on its purchase, ownership, delivery, possession, operation,
rental, return to Lessor or purchase by Lessee (collectively,
Taxes); provided, however, that Lessee shall not be liable for
any such Taxes (whether imposed by the United States of America
or by any other domestic or foreign taxing authority) imposed on
or measured by Lessor's net income or tax preference items
Lessee's obligation includes, but is not limited to, the
obligation to pay all license and registration fees and all
sales, use, personal property and other taxes and governmental
charges, together with any penalties, fines and interest thereon,
that may be imposed during the Term of the applicable Schedule.
Lessee is liable for these Taxes whether they are imposed upon
Lessor, Lessee, the Equipment, this Agreement, the applicable
Schedule or any Financing Agreement. If Lessee is required by
law or administrative practice to make any report or return with
respect to such Taxes, Lessee shall promptly advise Lessor
thereof in writing and shall cooperate with Lessor to ensure that
such reports are properly filed and accurately reflect Lessor's
interest in the Equipment. Lessor has no obligation to contest
any such Taxes, however Lessee may do so provided that: (a)
Lessee does so in its own name and at its own expense; (b) the
contest does not and will not result in any lien attaching to any
Equipment or otherwise jeopardize Lessor's right to any
Equipment; and (c) Lessee indemnifies Lessor for all expenses
(including legal fees and costs), liabilities and losses that
Lessor incurs as a result of any such contest.
10. REPAIRS; USE; LOCATION; LABELS. Lessee shall: (a) at its own
expense, keep the Equipment in good repair, condition and working
order and maintained in accordance with the manufacturer's
recommended engineering and maintenance standards; (b) use the
Equipment lawfully and exclusively in connection with its
business operations and for the purpose for which the Equipment
was designed and intended; and (c) without Lessor's prior written
consent, not move the Equipment from the Equipment Location. If
Lessor supplies Lessee with labels stating that the Equipment is
owned by Lessor, Lessee shall affix such labels to the Equipment
pursuant to Lessor's instructions.
11. MAINTENANCE; INSPECTION; ALTERATIONS. At its own expense,
Lessee shall: (a) enter into and maintain a maintenance agreement
for the Equipment with the manufacturer or other party acceptable
to Lessor; (b) maintain the Equipment in the same condition as
when delivered, subject only to ordinary wear and tear, and in
good operating order and appearance; (c) make all alternations or
additions to the Equipment that may be required or supplied by
the Seller or legally necessary; and (d) make no other
alterations or additions to the Equipment (except for alterations
or additions that will not impair the value or performance of the
Equipment and that are readily removable without damage to the
Equipment). Any modifications, alterations or additions that
Lessee makes to the Equipment (except as permitted by Section
11(d) above) shall become Lessor's property and shall also be
deemed to be Equipment. Upon request, Lessor, or any party
designated by Lessor, shall have the right to inspect the
Equipment and Lessee's applicable maintenance agreement and
records at any reasonable time.
12. PERSONAL PROPERTY; LIENS AND ENCUMBRANCES; TITLE. The
Equipment shall at all times remain personal property,
notwithstanding that the Equipment, or any part thereof, may be
(or becomes) affixed or attached to real property or any
improvements thereon. Except for the interest of Lessor, Lessee
shall keep the Equipment free and clear of all levies, liens and
encumbrances of any nature whatsoever. Except as expressly set
forth in this Agreement, the Equipment shall at all times remain
the property of Lessor and Lessee shall have no right, title or
interest therein.
13. RISK OF LOSS. As between Lessor and Lessee, Lessee shall bear
the entire risk of loss, theft, destruction or damage to the
Equipment from any cause whatsoever or requisition of the
Equipment by any governmental entity or the taking of title to
the Equipment by eminent domain or otherwise (collectively,
Loss). Lessee shall advise Lessor in writing within 10 days of
any such Loss. Except as provided below, no such Loss shall
relieve Lessee of the obligation to pay Lessor Rental Payments
and all other amounts owed hereunder. In the event of any such
Loss, Lessor, at its option, may: (a) if the Loss has not
materially impaired the Equipment (in Lessor's reasonable
judgment), require Lessee, upon Lessors' demand, to place the
Equipment in good condition and repair reasonably satisfactory to
Lessor; or (b) if the Loss has materially impaired the Equipment
(in Lessor's reasonable judgment), require Lessee, upon Lessor's
demand, to pay Lessor its anticipated return (Lessor's Return),
which shall consist of the following amounts: (i) the Rental
Payments (and other amounts) then due and owing under the
applicable Schedule; plus (ii) the Stipulated Loss Value
(computed as described in the applicable Schedule) of the
Equipment; plus (iii) all other amounts that become due and owing
under the applicable Schedule, but only to the extent such
amounts are not included in the moneys paid to Lessor pursuant to
clauses (i) and (ii) above. Upon Lessor's full receipt of such
Lessor's Return: (y) the applicable Schedule shall terminate, and
except as provided in Section 25, Lessee shall be relieved of all
obligations under the applicable Schedule; and (z) Lessor shall
transfer all of its interest in the Equipment to Lessee "AS IS,
WHERE IS," and without any warranty, express or implied from
Lessor, other than the absence of any liens or claims by,
through, or under Lessor.
14. NON-CANCELLABLE NET LEASE. ALL LEASES HEREUNDER SHALL BE NON-
CANCELABLE NET LEASES, AND LESSEE AGREES THAT IT HAS AN
UNCONDITIONAL OBLIGATION TO PAY ALL RENTAL PAYMENTS AND OTHER
AMOUNTS WHEN DUE. LESSEE IS NOT ENTITLED TO ABATE OR REDUCE
RENTAL PAYMENTS OR ANY OTHER AMOUNTS DUE, OR TO SET OFF ANY
CHARGES AGAINST THOSE AMOUNTS. LESSEE IS NOT ENTITLED TO
RECOUPMENTS, CROSS-CLAIMS, COUNTERCLAIMS OR ANY OTHER DEFENSES TO
ANY RENTAL PAYMENTS OR OTHER AMOUNTS DUE HEREUNDER, WHETHER THOSE
DEFENSES ARISE OUT OF CLAIMS BY LESSEE AGAINST LESSOR, SELLER,
THIS AGREEMENT, ANY SCHEDULE OR OTHERWISE NEITHER DEFECTS IN
EQUIPMENT, DAMAGE TO IT, NOR ITS LOSS, DESTRUCTION OR LATE
DELIVERY SHALL TERMINATE THIS AGREEMENT OR ANY SCHEDULE, OR
AFFECT LESSEE'S OBLIGATIONS HEREUNDER. UNLESS LESSEE'S
OBLIGATION TO PAY RENTAL PAYMENTS AND OTHER AMOUNTS HAS BEEN
TERMINATED PURSUANT TO THE EXPRESS TERMS OF THIS AGREEMENT, ALL
RENTAL PAYMENTS AND OTHER AMOUNTS SHALL CONTINUE TO BE DUE AND
PAYABLE HEREUNDER.
15. LESSOR DISCLAIMERS; LIMITATION OF REMEDIES. IT IS
SPECIFICALLY UNDERSTOOD AND AGREED THAT: (A) LESSOR SHALL NOT BE
DEEMED TO HAVE MADE ANY REPRESENTATION, WARRANTY OR PROMISE MADE
BY SELLER, NEITHER SELLER NOR LESSOR SHALL ACT AS, OR BE DEEMED
TO BE, AN AGENT OF THE OTHER, AND LESSOR SHALL NOT BE BOUND BY,
OR LIABLE FOR, ANY REPRESENTATION OR PROMISE MADE BY SELLER (EVEN
IF LESSOR IS AFFILIATED WITH SELLER); (B) LESSOR SHALL NOT BE
LIABLE FOR ANY FAILURE OF ANY EQUIPMENT OR ANY DELAY IN ITS
DELIVERY OR INSTALLATION; (C) LESSOR SHALL NOT BE LIABLE FOR ANY
BREACH OF ANY WARRANTY THAT SELLER MAY HAVE MADE; (D) LESSEE HAS
SELECTED ALL EQUIPMENT WITHOUT LESSOR'S ASSISTANCE; (E) LESSOR IS
NOT A MANUFACTURER OF ANY EQUIPMENT; AND (F) LESSOR HAS NOT MADE
AND DOES NOT NOW MAKE ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, WITH RESPECT TO THE DESIGN, COMPLIANCE WITH
SPECIFICATIONS, OPERATION, OR CONDITION OF ANY EQUIPMENT (OR ANY
PART THEREOF), THE MERCHANTABILITY OR FITNESS OF EQUIPMENT FOR A
PARTICULAR PURPOSE, OR ISSUES REGARDING PATENT INFRINGEMENT,
TITLE AND THE LIKE. IT IS FURTHER AGREED THAT LESSOR SHALL HAVE
NO LIABILITY TO LESSEE, LESSEE'S CUSTOMERS, OR ANY THIRD PARTIES
FOR ANY DIRECT, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES
ARISING OUT OF THIS AGREEMENT OR ANY SCHEDULE OR CONCERNING ANY
EQUIPMENT, OR FOR ANY DAMAGES BASED ON STRICT OR ABSOLUTE TORT
LIABILITY OR LESSOR'S NEGLIGENCE; PROVIDED, HOWEVER, THAT NOTHING
IN THIS AGREEMENT SHALL DEPRIVE LESSEE OF ANY RIGHTS IT MAY HAVE
AGAINST ANY PERSON OTHER THAN LESSOR. LESSEE SHALL LOOK SOLELY
TO SELLER FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING TO THE
EQUIPMENT. Lessor hereby assigns to Lessee for the Term of the
applicable Schedule the right to enforce, provided no Event of
Default then exists under this Agreement and such enforcement is
pursued in Lessee's name, any representations, warranties and
agreements made by Seller pursuant to the Purchase Documents, and
Lessee may retain any recovery resulting from any such
enforcement efforts. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A
LESSEE BY ARTICLE 2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER
CONFERRED BY STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY
LESSOR'S RIGHTS AS DESCRIBED IN THIS SECTION OR OTHER SECTIONS OF
THIS AGREEMENT.
16. LESSEE WARRANTIES. Lessee represents, warrants and covenants
to Lessor that: (a) unless it is an individual, Lessee is duly
organized, validly existing and in good standing under applicable
law; (b) Lessee has the power and authority to enter into this
Agreement, all Schedules and all other related instruments or
documents hereunder (collectively, Fundamental Agreements); (c)
such Fundamental Agreements are enforceable against Lessee in
accordance with their terms and do not violate or create a
default under any instrument or agreement binding on Lessee; (d)
there are no pending or threatened actions or proceedings before
any court or administrative agency that could have a material
adverse effect on Lessee or any Fundamental Agreement, unless
such actions are disclosed to Lessor and consented to in writing
by Lessor; (e) Lessee shall comply in all material respects with
all Federal, state and municipal laws and regulations the
violation of which could have a material adverse effect upon the
Equipment or Lessee's performance of its obligations under any
Fundamental Agreement; (f) Lessee shall obtain all governmental
approvals necessary for it to enter into and perform each
Fundamental Agreement; (g) each Fundamental Agreement shall be
effective against all creditors of Lessee under applicable law,
including fraudulent conveyance and bulk transfer laws, and shall
raise no presumption of fraud; (h) financial statements and other
related information furnished by Lessee shall be prepared in
accordance with generally accepted accounting principles and
shall present Lessee's financial position as of the dates given
on such statements; (i) Lessee shall furnish Lessor with its
certified financial statements, opinions of counsel, resolutions,
and such other information and documents as Lessor may reasonably
request; (j) ALL EQUIPMENT IS LEASED FOR BUSINESS PURPOSES ONLY,
AND NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES; and (k) all
Equipment is tangible personal property and shall not become a
fixture or real property under Lessee's use thereof. Lessee
shall be deemed to have reaffirmed the foregoing warranties each
time it executes any Fundamental Agreement.
17. GENERAL INDEMNITY. Lessee shall indemnify, hold harmless,
and, if so requested by Lessor, defend Lessor against all claims
(Claims) directly or indirectly arising out of or connected with
the Equipment or any Fundamental Agreement. Claims refers to all
losses, liabilities, damages, penalties, expenses (including
legal fees and costs), claims, actions, and suits, whether based
on a theory of strict liability of Lessor or otherwise, and
includes, but is not limited to, matters regarding: (a) the
selection, manufacture, purchase, acceptance, rejection,
ownership, delivery, lease, possession, maintenance, use,
condition, return or operation of the Equipment; (b) any latent
defects or other defects in any Equipment, whether or not
discoverable by Lessor or by Lessee; (c) any patent, trademark or
copyright infringement; and (d) the condition of any Equipment
arising or existing during Lessee's use.
18. SURRENDER; EXTENSION OF TERM. Unless Lessee purchases the
Equipment or renews the Term pursuant to the applicable Schedule,
or acquires the Equipment pursuant to Section 13 hereof, Lessee
shall, at its expense, deinstall, inspect, test and properly pack
the Equipment at the expiration of the Term, free of all liens
and rights of others, by delivering it on board such common
carrier as Lessor may specify with freight prepaid to any
destination within the United States of America specified by
Lessor. If Lessor so requests, Lessor and its agents shall have
the right to enter upon any premises where Equipment may be
located to perform any of Lessee's tasks noted above in this
Section 18, and Lessee shall reimburse Lessor for all costs and
expenses Lessor incurs in fulfilling such tasks. Lessee agrees
that the Equipment, when returned to Lessor, shall be in the same
condition as when delivered to Lessee, reasonable wear and tear
excepted, and certified as being eligible for Seller's or the
manufacturer's generally available maintenance contract at then
prevailing rates, without Lessor incurring any expense to repair,
rehabilitate or certify such Equipment (Lessee shall be liable
for all costs and expenses Lessor incurs to place the Equipment
in such condition). If requested by Lessor, Lessee, at its
expense, shall store the Equipment on its premises for a
reasonable period, during which period the Equipment shall be
subject to all of the terms and conditions hereof, except for the
obligation to make Rental Payments. In all instances where
Lessee is returning Equipment to Lessor, Lessee shall give Lessor
written notice thereof in accordance with the terms of the
applicable Schedule. If Lessee fails to provide the
aforementioned notice or return the Equipment to Lessor in the
time and manner provided above, the Term shall be extended in
accordance with the terms of the applicable Schedule. If any
Schedule is extended pursuant to the preceding sentence, Lessee
shall continue to pay the higher of the periodic Rental Payments
in effect prior to the expiration of the then existing term of
the applicable Schedule (whether it be the Initial Term or any
Renewal Term (Applicable Term)) or such other periodic rental
payment amount as is specified for such extension period in the
Schedule, and all other provisions of this Agreement shall
continue to apply.
19. EVENTS OF DEFAULT. Any of the following shall constitute an
Event of Default under this Agreement and all Schedules: (a)
Lessee fails to pay any Rental Payment or any other amount
payable to Lessor hereunder within 10 days after its due date; or
(b) Lessee fails to perform or observe any other representation,
warranty, covenant, condition or agreement to be performed or
observed by Lessee hereunder or in any other agreement to be
performed or observed by Lessee hereunder or in any other
agreement with Lessor, or in any agreement with any other person
that in Lessor's sole opinion is a material agreement, and Lessee
fails to cure any such breach within 10 days after notice
thereof; or (c) any representation or warranty made by Lessee
hereunder, or in any other instrument provided to Lessor by
Lessee, proves to be incorrect in any material respect when made;
or (d) Lessee makes an assignment for the benefit of creditors,
whether voluntary or involuntary; or (e) a proceeding under any
bankruptcy, reorganization, arrangement of debts, insolvency or
receivership law is filed by or against Lessee or Lessee takes
any action to authorize any of the foregoing matters; or (f)
Lessee becomes insolvent or fails generally to pay its debts as
they become due, the Equipment is levied against, seized or
attached, or Lessee seeks to effectuate a bulk of sale of
Lessee's inventory or assets; or (g) Lessee voluntarily or
involuntarily dissolves or is dissolved, or terminates or is
terminated; or (h) any guarantor dies or revokes a guaranty
provided to Lessor under this Agreement; or (l) any guarantor
under this Agreement is the subject of an event listed in clauses
(b) through (g) above; or (j) any letter of credit required
pursuant to any Schedule is breached, cancelled, terminated or
not renewed during the Term of any such Schedule.
20. REMEDIES. If an Event of Default occurs, Lessor may, in its
sole discretion, exercise one or more of the following remedies:
(a) terminate this Agreement or any or all Schedules; or (b) take
possession of, or render unusable, any Equipment wherever the
Equipment may be located, without demand notice, without any
court order or other process of law and without liability to
Lessee for any damages occasioned by such action, and no such
action shall constitute a termination of any Schedule; or (c)
require Lessee to deliver the Equipment at a location designated
by Lessor; or (d) declare the Lessor's Return (as defined in
Section 13 hereof and calculated by Lessor as of the date of the
Event of Default) for each applicable Schedule due and payable as
liquidated damages for loss of a bargain and not as a penalty and
in lieu of any further Rental Payments under the applicable
Schedule; or (e) proceed by court action to enforce performance
by Lessee of any Schedule and/or to recover all damages and
expenses incurred by Lessor by reason of any Event of Default; or
(f) terminate any other agreement that Lessor may have with
Lessee; or (g) exercise any other right or remedy available to
Lessor at law or in equity. Also, Lessee shall pay Lessor all
costs and expenses (including legal fees and costs and fees of
collection agencies) incurred by Lessor in enforcing any of the
terms, conditions or provisions of this Agreement. Upon
repossession or surrender of any Equipment, Lessor shall lease,
sell or otherwise dispose of the Equipment in a commercially
reasonable manner, with or without notice and at public or
private sale, and apply the net proceeds thereof (after deducting
all expenses (including legal fees and costs) incurred in
connection therewith) to the amounts owed to Lessor hereunder;
provided, however, that Lessee shall remain liable to Lessor for
any deficiency that remains after any sale or lease of such
Equipment. Lessee agrees that with respect to any notice of a
sale required by law to be given, 10 days' notice shall
constitute reasonable notice. These remedies are cumulative of
every other right or remedy given hereunder or now or hereafter
existing at law or in equity or by statute or otherwise, and may
be enforced concurrently therewith or from time to time.
21. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails
to perform any of its obligations hereunder, Lessor may perform
any act or make any payment that Lessor deems reasonably
necessary for the maintenance and preservation of the Equipment
and Lessor's interests therein; provided, however, that the
performance of any act or payment by Lessor shall not be deemed a
waiver of, or release Lessee from, the obligation at issue. All
sums so paid by Lessor, together with expenses (including legal
fees and costs) incurred by Lessor in connection therewith, shall
be paid to Lessor by Lessee immediately upon demand.
22. FINANCING OF ADDITIONS. If, under any Schedule, Lessee
intends to make any addition to the Equipment, Lessee shall, in
writing, request Lessor to finance the costs of such addition.
Lessee shall provide Lessor with the terms under which it hopes
to obtain the financing, and upon receiving such a request Lessor
shall determine, in its sole discretion, whether to provide such
financing. If Lessor does not, within 20 days after receiving
Lessee's request, offer to finance the addition, upon the terms
requested by Lessee, Lessee may obtain offers from third parties
for financing the addition, and Lessee shall notify Lessor of the
details of any third party financing offer Lessee would like to
accept (Third Party Offer). If Lessor has not made a financing
offer to Lessee on terms substantially similar to the Third Party
Offer within 20 days of receiving Lessee's notice, Lessee may
accept the Third Party Offer unless: (a) the aggregate cost to
Lessee of obtaining financing from the Third Party Offer is
greater than the aggregate cost under Lessor's financing offer;
(b) the Third Party Offer would create a security interest in, or
a lien on, the Equipment; or (c) the addition is not permitted
under Section 11(d) hereof.
23. ASSIGNMENT BY LESSOR. Lessor shall have the unqualified right
to assign, pledge, transfer, mortgage or otherwise convey any of
its interests hereunder or in any Schedule or any Equipment, in
whole or in part, without notice to, or consent of, Lessee. If
any Schedule is assigned, Lessee shall: (a) unless otherwise
specified by the Lessor and the assignee (Assignee) specified by
Lessor, pay all amounts due under the applicable Schedule to such
Assignee, notwithstanding any defense, set off or counterclaim
whatsoever that Lessee may have against Lessor or Assignee; (b)
not permit the applicable Schedule to be amended or the terms
thereof waived without the prior written consent of the Assignee;
(c) not require the Assignee to perform any obligations of
Lessor, other than those that are expressly assumed in writing by
such Assignee; and (d) execute such acknowledgments thereto as
may be requested by Lessor. It is further agreed that: (x) each
Assignee shall be entitled to all of Lessor's rights, powers and
privileges under the applicable Schedule, to the extent assigned;
(y) any Assignee may reassign its rights and interests under the
applicable Schedule with the same force and effect as the
assignment described herein; and (z) any payments received by the
Assignee from Lessee with respect to the assigned portion of the
Schedule shall, to the extent thereof, discharge the obligations
of Lessee to Lessor with respect to the assigned portion of the
Schedule. LESSEE ACKNOWLEDGES THAT ANY ASSIGNMENT OF TRANSFER BY
LESSOR OR ANY ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S
OBLIGATIONS UNDER THE ASSIGNED SCHEDULE.
24. ASSIGNMENT OR SUBLEASE BY LESSEE. WITHOUT LESSOR'S PRIOR
WRITTEN CONSENT, LESSEE SHALL NOT ASSIGN THIS AGREEMENT OR ANY
SCHEDULE OR ASSIGN ITS RIGHTS IN OR SUBLET THE EQUIPMENT OR ANY
INTEREST THEREIN; provided, however, that Lessee may sublease or
assign a Schedule to an affiliate or a wholly-owned subsidiary of
Lessee if: (a) Lessee and such sublessee or assignee execute and
deliver to Lessor a writing (to be provided by Lessor) whereby
the sublessee or assignee agrees to assume joint and several
liability with Lessee for the full and prompt payment, observance
and performance when due of all of the obligations of the Lessee
under such Schedule; and (b) Lessor consents to such sublease or
assignment, which consent shall not be unreasonably withheld. In
no event, however, shall any such sublease or assignment
discharge or diminish any of Lessee's obligations to Lessor under
such Schedule.
25. SURVIVAL; QUIET ENJOYMENT. All representatives, warranties
and covenants made by Lessee hereunder shall survive the
termination of this Agreement and shall remain in full force and
effect. All of Lessor's rights, privileges and indemnities, to
the extent they are fairly attributable to events or conditions
occurring or existing on or prior to the termination of this
Agreement, shall survive such termination and be enforceable by
Lessor any successors and assigns. So long as no Event of
Default exists, and no event has occurred and is continuing that
with notice or the lapse of time or both would constitute an
Event of Default, neither Lessor nor any Assignee will interfere
with Lessee's quiet enjoyment of the Equipment.
26. FILING FEES; FURTHER ASSURANCES; NOTICES. Lessee will
promptly reimburse Lessor for any filing or recordation fees or
expenses (including lien search fees, legal fees and costs)
incurred by Lessor in perfecting or protecting its interests in
the Equipment and under this Agreement. Lessee shall promptly
execute and deliver to Lessor such documents and take such
further action as Lessor may from time to time reasonably request
in order to carry out the intent and purpose of this Agreement
and to protect the rights and remedies of Lessor created or
intended to be created hereunder. All notices under this
Agreement shall be sent to the respective party at its address
set forth on the front page of this Agreement or on the
applicable Schedule or at such other address as the parties may
provide to each other in writing from time to time. Any such
notice mailed to said address shall be effective when deposited
in the United States mail, duly addressed and with first class
postage prepaid.
27. WAIVER OF JURY TRIAL; SUCCESSORS. LESSEE AND LESSOR EACH
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION OR PROCEEDING
UPON, ARISING OUT OF , OR RELATED TO THIS AGREEMENT, ANY OTHER
FUNDAMENTAL AGREEMENT, OR THE DEALINGS OR RELATIONSHIP BETWEEN OR
AMONG LESSOR, LESSEE, SELLER OR ANY OTHER PERSON. This Agreement
and all Schedules inure to the benefit of and are binding upon
the permitted successors or assigns of Lessor and Lessee.
28. NO WAIVER; LESSOR APPROVAL. Any failure of Lessor to require
strict performance by Lessee, or any written waiver by Lessor of
any provision hereof, shall not constitute consent or waiver of
any other breach of the same or any other provision hereof.
Neither this Agreement nor any other Fundamental Agreement shall
be binding upon Lessor unless and until executed by Lessor.
29. CAPTIONS; COUNTERPARTS; LESSOR'S AFFILIATES. The captions
contained in this Agreement are for convenience only and shall
not affect the interpretation of this Agreement. Only one
counterpart of the Schedule shall be marked "Original"
(Original), and all other counterparts thereof shall be marked
as, and shall be, duplicates. To the extent that any Schedule
constitutes chattel paper (as such term is defined in the Uniform
Commercial Code in effect in any applicable jurisdiction), no
security interest in such Schedule may be created through the
transfer or possession of any counterpart other than the
Original. Lessee understands and agrees that AT&T Capital
Corporation or any affiliate or subsidiary thereof may, as
lessor, execute Schedules under this Agreement, in which event
the terms and conditions of the applicable Schedule and this
Agreement as it relates to the lessor under such Schedule shall
be binding upon and shall inure to the benefit of such entity
executing such Schedule as lessor, as well as any successors or
assigns of such entity.
30. CHOICE OF LAW; INTEGRATION; ENTIRE AGREEMENT. EACH LEASE
UNDER THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAWS (AS
OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW
JERSEY (STATE). If any provision of this Agreement or such
Schedule shall be prohibited by or invalid under that law, such
provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement or
such Schedule. Lessor and Lessee consent to the jurisdiction of
any local, state or Federal court located within the State, and
waive any objection relating to improper venue or forum non
conveniens to the conduct of any proceeding in any such court.
This Agreement and all other Fundamental Agreements executed by
both Lessor and Lessee constitute the entire agreement between
Lessor and Lessee relating to the leasing of the Equipment, and
supersede all prior agreements relating thereto whether written
or oral, and may not be amended or modified except in a writing
signed by the parties hereto.
OLD NATIONAL BANCORP AT&T CREDIT CORPORATION
Lessee
By: s/s Ronald B. Lankford By: s/s Sandra Rivenburg
Lessee Authorized Signature Lessor Authorized Signature
Ronald B. Lankford, President & COO Sandra Rivenburg, Account Mgr
Print Name & Title Print Name & Title
November 18, 1997 11/21/97
Date Date
AT&T
Capital Corporation
Master Equipment
Lease Agreement
Schedule
LESSEE: Old National Bancorp
Address 420 Main Street - Suite 1100
City/State/Zip Evansville, IN 47708
LESSOR: AT&T Credit Corporation
2 Gatehall Drive, Parsippany, NJ 07054
Lease Number S115510
Schedule Number Various
SELLER: Old National Bancorp
Description of Items to be Leased (the Equipment)
Various Telephone equipment
Total Price Including Installation/One-Time Charges $1,977,148
Total This Page $1,977,148
Sub Total(s) from Attached ( ) Additional Pages 0
Total Purchase Price (Sum of total prices including
installation/one-time charges) $1,977,148
Advance Rent 0
Rental Payment: $34,772.21
Rental Payment Period: Monthly
Latest Commencement Date: 10/97
Length of Initial Term: 60 months
Option A
Yes [X] No [ ]
Lessee selects a fair market value purchase option and a fair
rental value renewal option.
Option B
Yes [ ] No [X]
Lessee selects (i) a fixed price purchase option of either $
or % of the periodic Rental Payment.
THE TERMS AND CONDITIONS OF THE FOREGOING OPTIONS AND OTHER
IMPORTANT PROVISIONS ARE SET FORTH ON THE BACK OF THIS SCHEDULE.
Equipment Location: Various Old National Bancorp Affiliates
THIS SCHEDULE SHALL BE GOVERNED BY THE TERMS AND CONDITIONS OF
THE MASTER EQUIPMENT LEASE AGREEMENT REFERENCED BY THE LEASE
NUMBER SPECIFIED ABOVE (AGREEMENT) BY AND BETWEEN LESSEE, AS
LESSEE, AND LESSOR OR AT&T CAPITAL CORPORATION OR ANY AFFILIATE
OR SUBSIDIARY THEREOF, AS LESSOR, AND BY THE TERMS AND CONDITIONS
SET FORTH ON THE FRONT AND BACK OF THIS SCHEDULE. PURSUANT TO
SUCH TERMS AND CONDITIONS (WHICH LESSEE ACKNOWLEDGES THAT IT HAS
READ AND UNDERSTANDS), LESSEE AGREES TO LEASE FROM LESSOR (AS
SPECIFIED BELOW) AND LESSOR AGREES TO LEASE TO LESSEE THE ABOVE
REFERENCED EQUIPMENT, IT IS UNDERSTOOD AND AGREED THAT THE TERMS
AND CONDITIONS OF THIS SCHEDULE MAY BE DIFFERENT FROM THE TERMS
AND CONDITIONS OF PRIOR SCHEDULES AND THAT ANY ASSIGNMENT OR
TRANSFER PURSUANT TO SECTION 23 OF THE AGREEMENT BY LESSOR OR ANY
ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS
HEREUNDER. LESSEE REPRESENTS AND WARRANTS THAT IT SHALL LOOK
ONLY TO THE SELLER FOR ANY AND ALL CLAIMS AND WARRANTIES RELATING
TO THE EQUIPMENT AND THAT IT EITHER HAS REVIEWED, APPROVED AND
RECEIVED A COPY OF THE APPLICABLE PURCHASE DOCUMENTS OR HAS BEEN
INFORMED BY LESSOR THAT IT MAY HAVE RIGHTS UNDER THE PURCHASE
DOCUMENTS AND MAY CONTACT SELLER FOR A DESCRIPTION OF SUCH
RIGHTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE WAIVES
ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY ARTICLE
2A OF THE UCC AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY THE LESSOR'S RIGHTS
AS DESCRIBED IN THE AGREEMENT, THIS SCHEDULE OR ANY OTHER
FUNDAMENTAL AGREEMENT (AS DEFINED IN THE AGREEMENT).
Lessee
By: s/s Ronald W. Seib
Lessee Authorized Signature
Ronald W. Seib VP/Corporate Controller
Print Name and Title
3/30/98
Date
AT&T CREDIT CORPORATION
By: s/s Sandra Rivenburg
Lessor Authorized Signature
Sandra Rivenburg, Account Mgr
Print Name and Title
4/2/98
Date
The terms and conditions set forth below shall apply to Options A
and B on the front of this Schedule; provided, however, that
Lessee may select only one of the two aforementioned options. If
Lessee selects Option A, the Tax Indemnity provision set forth
below (Section 4) shall apply to this Schedule. If no selection
is indicated on the front of this Schedule, Lessee shall be
deemed to have selected Option A.
Capitalized terms used in this Schedule that are not otherwise
defined herein shall have the meanings ascribed to them in the
Master Equipment Lease Agreement (Agreement) identified by the
Lease Number specified on the front of this Schedule. References
in this Schedule to Total Purchase Price and Rental Payment shall
mean the estimates thereof specified on the front of this
Schedule, as adjusted pursuant to Section 7 of the Agreement.
With respect to the Equipment described on the front of this
Schedule, the terms and conditions of this Schedule shall prevail
over any conflicting or inconsistent terms and conditions in the
Agreement and/or any amendments thereto entered into prior to the
execution of this Schedule.
1. OPTION A-FAIR MARKET VALUE PURCHASE AND RENEWAL OPTIONS. (a)
If Option A has been selected, no Event of Default exists, no
event has occurred and is continuing that with notice or the
lapse of time or both would constitute an Event of Default, and
Lessee delivers to Lessor an irrevocable written election notice
at least 90 days prior to the expiration of the Applicable Term
(as defined in Section 3 below), Lessee shall have the following
purchase and renewal options: (i) Lessee may purchase all (but
not less than all) of the Equipment at the end of the Applicable
Term at Fair Market Value (as defined below), or (ii) Lessee may
renew this Schedule for a Renewal Term of not less than 12 months
to be agreed upon by Lessor and Lessee at Fair Rental Value (as
defined below); provided, however, that the foregoing renewal
option may not be exercised if Lessor reasonably determines that
there has been a material adverse change in Lessee's business or
financial condition since the Commencement Date. If Lessee
decides not to purchase the Equipment or renew this Schedule at
the end of the Applicable Term, it shall provide Lessor with
irrevocable written notice thereof at least 90 days prior to the
expiration of the Applicable Term and return the Equipment to
Lessor in accordance with Section 18 of the Agreement.
(b) If Lessee elects to purchase the Equipment, Lessee shall pay
Lessor the Fair Market Value at least 45 days prior to the
expiration of the Applicable Term and shall make all other
payments required hereunder during the remaining Term of this
Schedule. If Lessee elects to renew this Schedule, Lessee and
Lessor shall enter into a supplement to this Schedule to confirm
the applicable Fair Rental Value and the length of the applicable
Renewal Term. Throughout the Renewal Term, Lessee shall pay
Lessor the Fair Rental Value on the same date each period that
the Rental Payment was due during the Initial Term.
(c) If Lessee fails to: (i) provide Lessor with the 90 day notice
required above; or (ii) pay Lessor the Fair Market Value as
specified above; or (iii) return the Equipment to Lessor in
accordance with Section 18 of the Agreement, the Applicable Term
shall be extended for successive 90 day periods until Lessee
returns the Equipment to Lessor in accordance with Section 18 of
the Agreement or Lessor terminates this Schedule by 10 days'
written notice to Lessee. If this Schedule is extended pursuant
to the preceding sentence, Lessee shall continue to pay Lessor
the periodic Rental Payments in effect prior to the expiration of
the Applicable Term and all other provisions of the Agreement and
this Schedule (including Lessee's purchase and renewal options)
shall continue to apply.
(d) Fair Rental Value and Fair Market Value for the Equipment
shall be determined by agreement of Lessor and Lessee, or, at
Lessee's sole expense, by an independent appraiser selected by
Lessor. Fair Rental Value means the periodic amount that would
be payable for the Equipment in an arm's length transaction
between an informed and willing lessee and an informed and
willing lessor, neither under compulsion to lease. Fair Market
Value means the total price that would be paid for the Equipment
in an arm's length transaction between an informed and willing
buyer (other than a used equipment dealer) under no compulsion to
buy and an informed and willing seller under no compulsion to
sell. In determining Fair Rental Value or Fair Market Value, the
costs of removing the Equipment from the Equipment Location and
moving it to a new location shall not be deducted from its value.
(e) If Lessee elects to purchase the Equipment and has completely
fulfilled the terms and conditions of the Agreement and this
Section 1, then on the last day of the Applicable Term: (i) this
Schedule shall terminate and, except as provided in Section 25 of
the Agreement, Lessee shall be relieved of all obligations under
this Schedule; and (ii) Lessor shall transfer all of its interest
in the Equipment to Lessee "AS IS, WHERE IS," and without any
warranty, express or implied from Lessor, other than the absence
of any liens or claims by, through, or under Lessor.
2. OPTION B-FIXED PRICE PURCHASE AND RENEWAL OPTIONS. (a) If
Option B has been selected, no Event of Default exists, no event
has occurred and is continuing that with notice or the lapse of
time or both would constitute an Event of Default, and Lessee
delivers to Lessor an irrevocable written election notice at
least 90 days prior to the expiration of the Applicable Term (as
defined in Section 3 below), Lessee shall have the following
fixed price purchase and renewal options: (i) Lessee may purchase
all (but not less than all) of the Equipment at the end of the
Applicable Term for the amount specified in Option B on the front
of this Schedule (Sale Price); or (ii) Lessee may renew this
Schedule for a Renewal Term of not less than 12 months at the
periodic Rental Payment amount specified in Option B on the front
of this Schedule or, if no such amount is specified, at Fair
Rental Value (Renewal Rental Payment); provided, however, that
the foregoing renewal option may not be exercised if Lessor
reasonably determines that there has been a material adverse
changes in Lessee's business or financial condition since the
Commencement Date. If Lessee decides not to purchase the
Equipment or renew this Schedule at the end of the Applicable
Term, it shall provide Lessor with irrevocable written notice
thereof at least 90 days prior to the expiration of the
Applicable Term and return the Equipment to Lessor in accordance
with Section 18 of the Agreement.
(b) If Lessee elects to purchase the Equipment, Lessee shall pay
Lessor the Sale Price at least 45 days prior to the expiration of
the Applicable Term and shall make all other payments required
hereunder during the remaining Term of this Schedule. If Lessee
elects to renew this Schedule, Lessee and Lessor shall enter into
a supplement to this Schedule to confirm the length of the
applicable Renewal Term. Throughout the Renewal Term, Lessee
shall pay Lessor the Renewal Rental Payment on the same date each
period that the Rental Payment was due during the Initial Term.
(c) If Lessee fails to: (i) provide Lessor with the 90 day notice
required above; or (ii) pay Lessor the Sale Price as specified
above; or (iii) return the Equipment to Lessor in accordance with
Section 18 of the Agreement, the Applicable Term shall be
extended for successive 90 day periods until Lessee returns the
Equipment to Lessor in accordance with Section 18 of the
Agreement or Lessor terminates this Schedule by 10 days' written
notice to Lessee. If this Schedule is extended pursuant to the
preceding sentence, Lessee shall continue to pay Lessor the
periodic Rental Payments in effect prior to the expiration of the
Applicable Term and all other provisions of the Agreement and
this Schedule (including Lessee's purchase and renewal options)
shall continue to apply.
(d) If Lessee elects to purchase the Equipment and has completely
fulfilled the terms and conditions of the Agreement and this
Section 2, then on the last day of the Applicable Term: (i) this
Schedule shall terminate and, except as provided in Section 25 of
the Agreement, Lessee shall be relieved of all obligations under
this Schedule; and (ii) Lessor shall transfer all of its interest
in the Equipment to Lessee "AS IS, WHERE IS," and without any
warranty, express or implied from Lessor, other than the absence
of any liens or claims by, through, or under Lessor.
3. LESSOR'S RETURN. (a) Stipulated Loss Value. If Section 13 of
the Agreement provides that Stipulated Loss Value is a component
of Lessor's Return, for purpose of this Schedule the Stipulated
Loss Value of the Equipment shall equal the sum of (i) an amount
calculated by Lessor that is the present value (discounted at 5%
per annum compounded monthly) of all Rental Payments from the
date of the Loss or Event of Default in question to the
originally anticipated date of expiration of the then existing
term of this Schedule (whether it be the Initial Term or any
Renewal Term (Applicable Term)); plus (ii) if Option A of this
Schedule has been selected, the present value (computed as
described above and calculated by Lessor as of the date of the
Loss or Event of Default in question) of the casualty value
(determined as set forth below) of the Equipment; plus (iii) if
Option B of this Schedule has been selected, the present value
(computed as described above and calculated by Lessor as of the
date of the Loss or Event of Default in question) of the purchase
option amount set forth on the front of this Schedule. The
casualty value of the Equipment shall be determined by
multiplying the applicable Casualty Percentage (as specified
below) by the Total Purchase Price.
(b) Casualty Percentage. For purposes of this Schedule, the
applicable Casualty Percentage shall be (unless otherwise
specified on the front of this Schedule) 65% for a Term of less
than 36 months; 50% for a Term of 36 months or greater, but less
than 48 months; 40% for a Term of 48 months or greater, but less
than 60 months; 30% for a Term of 60 months or greater, but less
that 72 months; and 20% for a Term of 72 months or greater.
4. TAX INDEMNITY. (a) If Option A has been selected, Lessor
intends to take accelerated cost recovery deductions (Recovery
Deductions) under sections 167(a) and 168(b) (1) of the Internal
Revenue Code of 1986, as amended (Code), and accelerated
depreciation deductions under applicable state law (Depreciation
Deductions). Accordingly, Lessee makes the following
representations, warranties and covenants; (i) at the time Lessee
accepts the Equipment pursuant to Section 3 of the Agreement, the
Equipment will have been "placed in service" within the meaning
of sections 167 and 168 of the Code; (ii) the Total Purchase
Price shall qualify for Recovery Deductions and Depreciation
Deductions (with the exception of any items that are excluded by
specific language on the front of this Schedule and any increase
in the Total Purchase Price that is attributable to any accrued
interest under a Financing Agreement); (iii) neither Lessee, any
of its affiliates, nor any of its successors, sublessees or
assigns was, is, or will become a tax-exempt entity described in
section 168 (h) (2) of the Code at any time during the Term of
this Schedule or the five years preceding the Commencement Date;
and (iv) at no time during the Term of this Schedule will Lessee
(or any of its successors, sublessees or assigns) take any action
or fail to take any action (whether or not such act or omission
is otherwise required by the Agreement) that results in a loss,
reduction, deferral, recapture or other unavailability to Lessor
of any part of the Recovery Deductions or Depreciation
Deductions. If, because of a breach of this Section 4(a),
Recovery Deductions or Depreciation Deductions are lost, reduced,
deferred, recaptured or otherwise made unavailable to Lessor (Tax
Loss), Lessee shall, upon demand by Lessor, promptly pay damages
to Lessor. The amount of such damages shall be the amount
necessary to provide Lessor with a Net Economic Return (as
defined in Section 4(c) below) equal to the Net Economic Return
that Lessor would have realized if it had not suffered a Tax
Loss. A Loss or damage to the Equipment will constitute a breach
of this Section 4(a) if it does not result in the payment of the
Lessor's Return described in Section 13 of the Agreement.
(b) The amount of each periodic Rental Payment remaining to be
paid during the Applicable Term (as previously adjusted pursuant
to this Section 4(b)) shall be adjusted, upwards or downwards, if
changes are made to the Code (including changes in the corporate
income tax rates) or any regulations promulgated thereunder that
affect the federal income tax consequences to Lessor that were
contemplated by Lessor when it determined the amount of the
periodic Rental Payment then in effect (Tax Law Change). The net
effect of any adjustment under this Section 4(b) shall be to
provide Lessor a Net Economic Return equal to the Net Economic
Return that Lessor would have realized if no Tax Law Change had
occurred.
(c) Any damages required by Section 4(a) above and any adjustment
required by Section 4(b) above shall be in the amount necessary
to provide Lessor a net after-tax yield, net after-tax cash flow
and net after-tax book earnings (Net Economic Return) equal to
the Net Economic Return Lessor would have realized with respect
to the transaction contemplated by this Schedule if a Tax Loss or
Tax Law Change (as applicable) had not occurred, assuming Lessee
would fulfill all of its obligations hereunder, and shall be
based upon the same assumptions and pricing analysis used by
Lessor in determining the amount of the periodic Rental Payment
then in effect, except to the extent such assumptions are
affected by the Tax Loss or Tax Law Change (as applicable) at
issue. Without limiting the generality of the foregoing, it
shall be irrebuttably presumed that all income of Lessor for any
year is subject to tax at the highest then applicable federal
income tax rate generally applicable to corporations and that
Lessor has sufficient taxable income to offset deductions arising
hereunder.
(d) With respect to any damages or adjustments calculated by
Lessor as set forth above (Calculation Amount), at the request
and expense of Lessee, Lessor shall submit the assumptions and
calculations underlying any such Calculation Amount to Lessor's
independent certified public accountants for verification of the
maintenance of Lessor's Net Economic Return. Such accountants'
determination that the Calculation Amount does or does not
maintain Lessor's Net Economic Return (and, in the case of the
latter, such accountants' determination of the adjusted amount
that would so maintain such Net Economic Return) shall be binding
upon Lessor and Lessee. Lessee agrees that any information
provided to such accountants by Lessor constitutes private,
proprietary and confidential property of Lessor and that no
person other than Lessor and such accountants shall be entitled
access thereto.
5. SECURITY INTEREST. If Option A has been selected, Lessor and
Lessee intend the transaction described in this Schedule to be a
true lease, and Lessee hereby authorizes Lessor to file a
financing statement to give public notice of Lessor's ownership
of the Equipment. If such transaction is deemed by a court of
competent jurisdiction to be a lease intended for security or if
Option B has been selected, to secure payment and performance of
Lessee's obligations under the Agreement and this Schedule,
Lessee grants Lessor and its assigns a purchase money security
interest in the Equipment and in all attachments, accessories,
additions, substitutions, products, replacements, rentals and
proceeds (including insurance proceeds) therefrom as well as a
security interest in any other equipment financed pursuant to the
Agreement or any other agreement between Lessor and Lessee
(collectively, Collateral). Lessee shall execute and timely
deliver to Lessor financing statements or any other documents
Lessor deems necessary to perfect or protect Lessor's security
interest in the Collateral. Lessor or Lessor's agent may file as
a financing statement any lease document (or copy thereof, where
permitted by law) lessor deems necessary to perfect or protect
Lessor's security interest in the Collateral. If Lessee fails to
execute any such document, Lessor or Lessor's agent is hereby
authorized to file any of the foregoing signed only by Lessor or
Lessor's agent.
6. LEASING ADDITIONAL EQUIPMENT. Lessee may request Lessor to
finance the costs of any additional equipment by sending Lessor a
purchase order or by contacting Lessor or the Seller by telephone
or in writing. If the total cost of such additional equipment
(Additional Equipment) is Twenty-Five Thousand Dollars or less
and if Lessor agrees to lease such Additional Equipment to
Lessee, Lessor will signify its agreement by preparing and
sending to Lessee a writing (Additional Lease) describing the
Additional Equipment and specifying the amount and frequency of
the Rental Payments, the Length of Initial Term, the applicable
purchase and renewal options and such other terms and conditions
that apply to such lease. LESSEE AGREES THAT IF LESSOR DOES NOT
RECEIVE A WRITTEN OBJECTION TO THE ADDITIONAL LEASE FROM LESSEE
WITHIN 10 DAYS AFTER THE DATE OF THE ADDITIONAL LEASE, LESSEE
SHALL BE DEEMED TO HAVE (a) IRREVOCABLY ACCEPTED THE ADDITIONAL
EQUIPMENT, (b) AUTHORIZED LESSOR TO PAY THE SELLER FOR THE
ADDITIONAL EQUIPMENT AND (c) AGREED THAT, EXCEPT AS OTHERWISE
SPECIFIED IN THE ADDITIONAL LEASE, SUCH ADDITIONAL LEASE SHALL BE
GOVERNED BY ALL OF THE TERMS AND CONDITIONS OF THIS SCHEDULE. If
Lessee objects in the manner and within the timeframe set forth
above, the Additional Lease shall be null and void and Lessee
shall be responsible for fulfilling the obligations of the
purchaser under the applicable Purchase Documents.
7. ASSIGNMENT OF PURCHASE DOCUMENTS. Lessee hereby assigns to
Lessor all of Lessee's right and interests in and to (a) the
Equipment described in this Schedule and (b) and Purchase
Documents (including any purchase order issued by Lessor as
Lessee's agent)relating thereto. Except for the obligation to
pay Seller for the Equipment if (and only if) the Equipment is
accepted by Lessee pursuant to the Agreement, such assignment
shall not include any of the obligations of the purchase under
the Purchase Documents and Lessee shall at all times remain
liable to Seller to perform all of the duties and obligations of
the purchaser under the Purchase Documents to the same extent as
if an assignment had not occurred. If Seller is not an affiliate
of Lessor, Lessee shall obtain Seller's written consent to such
assignment and written agreement that upon any return of the
Equipment to Lessor, at no additional fee or charge Seller will
either (y) grant Lessor any applicable license relating to the
use of any software, technical information, confidential business
information or other documentation (collectively, License) and
permit Lessor to assign such License to any subsequent end-user
of the Equipment; or (z) grant any subsequent end-user of the
Equipment an applicable License, subject to Seller's then-current
licensing provisions. Lessee shall at all times remain liable to
Seller as the licensee under the License, and Lessor shall not
have any obligation thereunder unless and until such License is
provided to Lessor in accordance herewith.
