<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended DECEMBER 31, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11618
HPSC, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-2560004
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 720-3600
Securities registered pursuant to section 12(b) of the Act:
NONE
----
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK-PAR VALUE $.01 PER SHARE
-------------------------------------
(Title of class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any other
amendment to this Form 10-K.
YES X NO
--
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $15,897,314 at February 29, 1996, representing 3,346,803 shares.
The number of shares of common stock, par value $.01 per share, outstanding as
of February 29, 1996 was 4,686,530.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1995 (the "1995 Annual Report") are incorporated by reference into
Parts I, II and IV of this annual report on Form 10-K.
The 1995 Annual Report, except for the parts therein which have been
specifically incorporated by reference, shall not be deemed "filed" as part of
this report on Form 10-K.
2
<PAGE> 3
PART I
Item 1. BUSINESS
GENERAL
HPSC, Inc. (the "Company" or "HPSC") is a financial services company
dedicated to providing financing for healthcare professionals. HPSC formerly
provided financing exclusively to the dental profession, but in mid-1993 it
began to expand into other healthcare markets and through its wholly-owned
subsidiary, American Commercial Finance Corporation ("AACFC"), into asset based
lending which focuses primarily on accounts receivable and inventory financing.
The Company's new business volume in 1995 increased substantially
compared to 1994 - $68,554,000 versus $32,609,000. In 1993, Healthco
International, Inc. (Healthco), the dental equipment supplier which previously
supplied the Company with substantially all of its business, filed for
bankruptcy. The bankruptcy of Healthco initially posed several significant
challenges to the Company. Management has worked to replace its lost business
while at the same time pursuing its plan to diversify into other markets. Within
the dental industry the Company continues its efforts to expand its business by
capitalizing on its reputation for providing a high level of customer service
and innovative and competitive financing programs. Today the Company provides
financing for over 500 different dental distributors and healthcare providers.
While certain of these vendors provide a substantial amount of business for the
Company, the Company is no longer dependent on any single source for its
business. The Company is now also providing financing to the ophthalmic,
podiatry, veterinary and chiropractic professions.
The Company finances dental, medical and other healthcare equipment as
well as leasehold improvements, office furniture, supplies and certain other
costs involved in opening, maintaining or acquiring a healthcare facility or
practice. The Company finances transactions only after a customer's credit has
been approved and a financing agreement has been executed.
The Company does not maintain any inventory. Typically, the manufacturer or
distributor delivers the equipment directly to the customer, and the Company
purchases the equipment from the supplier, at its customary selling price to the
customer, upon installation and customer acceptance.
Substantially all of the Company's agreements with its customers are
non-cancelable and provide for a full payout at a fixed financing rate with a
fixed payment schedule. The majority of the agreements have a term of between
three and seven years. All leases are classified as direct financing leases.
The Company's principal sources of funding include fixed rate
borrowings of varying maturities and a revolving line of credit at variable
rates (see Note B of Notes to Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition Liquidity and
Capital Resources" in the 1995 Annual Report). The Company's income depends, to
a significant extent, upon its ability to maintain a satisfactory spread between
its cost of borrowings and the rates that it charges its customers. In a rising
interest rate environment, the Company's use of variable rate financing could
adversely affect its ability to maintain these margins. Competitive pressures
and other market conditions could hinder the Company's ability to raise the
rates charged to its customers as quickly as its variable rate financing costs
rise.
In July 1995 the Company completed payment for 1,225,182 shares of its
Common Stock that it repurchased from certain secured creditors of Healthco
("Secured Creditors") pursuant to a Purchase and Sale Agreement among the
Company and the Secured Creditors dated as of November 1, 1994. Healthco had
pledged the shares of the Company's Common Stock to secure its obligations to
the Secured Creditors. Upon final payment by the Company, the shares were
released from the pledge and the Secured Creditors also released the Company
from any claims that may arise out of the bankruptcy of Healthco. The Company
has retired 1,125,182 of these shares and holds 100,000 of these shares in its
treasury.
3
<PAGE> 4
Item 1. BUSINESS (continued)
SEGMENT
The Company is principally engaged in providing financing to healthcare
professionals.
MARKETING AND SOURCES OF SUPPLY
The Company obtains its customers principally from equipment vendor
referral programs and from advertising and direct mail brochures targeted to
dentists and other professionals who use equipment in their practices. The
vendor referral programs permit the Company to utilize vendors' sales personnel
operating from retail distribution centers throughout the United States to
generate business for the Company. The Company also sends representatives to
major trade conventions.
The Company advertises its services through industry publications, its
own marketing brochures which it distributes and also through direct mail
advertising. Existing customers and referrals from existing customers of the
Company are also important sources of business.
LEASES AND NOTES RECEIVABLE
At December 31, 1995 the Company's lease, note receivable and asset
based lending portfolio of $140,652,000 consisted of approximately 8,300
accounts and 6,300 customers with a weighted average remaining term of
approximately 36 months. Lease and note terms ranged from 12-72 months, with the
majority having a 36- or 60-month term. No single customer accounted for more
than 1.0% of the Company's total receivables at December 31, 1995.
FINANCING TERMS AND CONDITIONS
The Company generally finances equipment to customers through standard
non-cancelable full payout leases or conditional sales agreements or notes.
Following execution of an agreement, the equipment is delivered from either a
distributor or a manufacturer directly to the customer. Following installation
and customer acceptance of the equipment, the Company purchases the equipment
from the supplier. The Company is the owner of the leased equipment and holds a
security interest in equipment financed with conditional sales agreements or
notes.
The Company makes no warranties to customers as to any matter,
including the condition, performance or suitability of the equipment. In
substantially all cases, customers are obligated to remit to the Company all
amounts due regardless of the performance of the equipment, to maintain and
service the equipment and to insure the equipment against casualty loss.
The Company establishes residual values when the equipment is purchased
and leased. Substantially all the Company's direct financing leases include a
lease purchase option. Historically, because substantially all lessees have
exercised this option at the recorded value, the Company generally does not
incur gains/losses from the sale or releasing of equipment.
4
<PAGE> 5
Item 1. BUSINESS (continued)
CREDIT REVIEW AND LOSS EXPERIENCE
The Company conducts a credit review of each prospective customer,
using both commercial credit bureaus and its own internal credit procedures. The
Company's collection department is responsible for monitoring slow paying
accounts and collection activities when the Company determines such action to be
appropriate. Slow paying accounts are subject to service charges.
<TABLE>
An analysis of changes in the last three fiscal years in the allowance
for uncollectible accounts and other pertinent information follows (in
thousands):
<CAPTION>
==============================================================================================================
Gross Write Offs
Leases and (Net of Provision Delinquent Allowance
Notes Recoveries) for Losses Installments for Losses
Receivable (1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1995 $140,652 $1,379 $1,296 $2,618 $4,512
- --------------------------------------------------------------------------------------------------------------
December 31, 1994 103,531(2) 3,056 754 3,496 4,595
- --------------------------------------------------------------------------------------------------------------
December 25, 1993 126,369 17,423 15,104 4,805 6,897
==============================================================================================================
<FN>
(1) An account is considered delinquent when not paid within 30 days of the
billing due date.
(2) Approximately $1,166,000 of this 1994 amount relates to Credident, Inc.,
the Company's Canadian subsidiary. The Company sold substantially all of
the assets of Credident to a third party in June, 1995. (See Note A of the
"Notes to Consolidated Financial Statements" in the 1994 Annual Report.)
</TABLE>
For discussion of the provision for losses and allowance for losses, see
"Management's Discussion and Analysis of Financial Condition - Results of
Operations, Fiscal 1995 Compared to 1994 and Fiscal 1994 Compared to 1993"
in the 1995 Annual Report.
FUNDING
At December 31, 1995 the Company had financing from fixed rate
securitizations, variable rate revolving lines of credit, and fixed rate bank
loans and asset sales. See Note B of the "Notes to Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition -
Liquidity and Capital Resources" in the 1995 Annual Report.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS
The Company does not have any material patents, trademarks, licenses,
franchises or concessions.
SEASONALITY
The Company's business is not seasonal; however, healthcare
professionals generally tend to purchase more equipment in the fourth quarter,
which may result in a higher volume of equipment purchases to be financed by the
Company in that quarter.
WORKING CAPITAL
The Company does not carry inventory or provide rights of return to its
customers. Its working capital requirements relate directly to its volume of
financing transactions (see "Business - Credit Review and Loss Expedrience" and
"Management's Discussion and Analysis of Financial Condition - Liquidity and
Capital Resources" in the 1995 Annual Report).
5
<PAGE> 6
Item 1. BUSINESS (continued)
MATERIAL CUSTOMERS
No customer or group of related customers accounted for 1.0% or more of
fiscal 1995 revenues. No individual supplier of leased equipment accounted for
more than 8% of the current year's originations.
RAW MATERIALS
The Company's business does not depend on raw materials.
BACKLOG
At December 31, 1995, the Company had a backlog of approximately
$35,000,000, consisting of customer applications which have been approved but
have not yet resulted in a completed transaction, compared to $25,000,000 at the
end of 1994. Not all approved applications will result in financing transactions
for the Company.
GOVERNMENT CONTRACTS OR SUB-CONTRACTS
The Company does not have a material amount of government contracts or
subcontracts.
COMPETITION
The equipment financing business is highly competitive. Participants in
the industry compete through vendor/customer service, product innovation, and
price. Pricing is affected by each participant's ability to control origination
and funding costs, portfolio risk management and operating overhead costs. The
Company's ability to compete effectively in this market depends upon: (i) its
ability to procure financing on attractive terms; (ii) its knowledge of and
experience in its markets; (iii) its flexibility and adaptability in dealing
with the special needs of its clients; (iv) its relationships with equipment
vendors; (v) its ability to continue to expand its business into areas other
than the dental profession and (vi) its ability to manage its portfolio
effectively.
The Company competes with finance divisions, affiliates and
subsidiaries of equipment manufacturers, other leasing and finance companies,
certain banks engaged in leasing and lease brokers. Many of these organizations
are much larger than the Company, have greater financial or other resources than
the Company and have access to funds at more favorable rates and terms than
those available to the Company.
RESEARCH AND DEVELOPMENT
The Company does not have research and development activities.
ENVIRONMENTAL PROTECTION
The Company's compliance with laws and regulations relating to the
protection of the environment will not have a material effect on its capital
expenditures, earnings or competitive position.
EMPLOYEES
At December 31, 1995, the Company and its subsidiaries had 44 full-time
employees, including 23 in general and administration and 21 in sales and
marketing.
6
<PAGE> 7
Item 1. BUSINESS (continued)
FOREIGN OPERATIONS
The Company, through its Canadian subsidiary, Credident, Inc., engaged
in the financing of dental equipment in Canada. In 1994 the Company sold
substantially all of Credident's assets to Newcourt Credit Group, Inc.
Credident, Inc. was in substantially the same business as the Company, (see Note
A of Notes to Consolidated Financial Statements). The Company has ceased to
underwrite any new business in Canada. See "Management's Discussion and Analysis
of Financial Condition" in the 1995 Annual Report.
EXPORT SALES
The Company does not have any export sales.
Item 2. PROPERTIES
The Company leases approximately 8,320 square feet of office space at
60 State Street, Boston, Massachusetts from the Trustees of 60 State Street
Trust. Approximately 2,431 square feet at 433 South Main Street, West Hartford,
Connecticut are leased by its wholly-owned subsidiary, American Commercial
Finance Corporation. The Company also rents space as required for its sales
locations on a short-term basis. (See Note C of the "Notes to Consolidated
Financial Statements" in the 1995 Annual Report.) In March 1996, the Company
executed an agreement to lease an additional 3,000 square feet adjacent to the
current space at 60 State Street.
Item 3. LEGAL PROCEEDINGS
The Company was not subject to any material legal proceedings at
December 31, 1995.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1995.
7
<PAGE> 8
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of HPSC is traded on the NASDAQ National Market
System. The high and low sales prices for the common stock as reported by NASDAQ
for each quarter in the last two fiscal years, as well as the approximate number
of record holders and information with respect to dividend restrictions, are
incorporated by reference from page 17 of the 1995 Annual Report.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for the five years ended December 31, 1995 is
incorporated by reference from page 16 of the 1995 Annual Report.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition of the
Company is incorporated by reference from pages 17 through 19 of the 1995 Annual
Report.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item together with the Report of
Independent Accountants is incorporated by reference from pages 4 through 14 and
page 16 of the 1995 Annual Report. (See also the "Financial Statement Schedule"
filed under Item 14 of this Form 10-K.)
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
8
<PAGE> 9
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the directors, nominees for director and executive
officers of the Company:
NOMINEES FOR CLASS I DIRECTOR
Lowell P. Weicker, Jr., age 64, was elected a director in December
1995. Mr. Weicker began his political career in 1962, when he was elected as a
member of Connecticut's House of Representatives for Town of Greenwich. He
served three terms. Mr. Weicker served concurrently as First Selectman of
Greenwich from 1964 to 1968. He was elected to the U.S. Congress from
Connecticut's 4th District in 1968. He was subsequently elected to the United
States Senate in 1970, 1976 and 1982. Mr. Weicker served in the U. S. Senate
until January 1989. In January 1991, Mr. Weicker was elected Governor of
Connecticut, a position which he held until January 1995. Mr. Weicker has been
associated with the firm of Dresing, Lierman, Weicker since 1995.
Dresing, Lierman, Weicker provides a variety of health care related services.
Thomas M. McDougal, D.D.S., age 56, was elected a director of HPSC in
1991. He has been a practicing dentist for approximately 30 years. He is active
in national, state and local dental organizations and has lectured extensively
throughout the United States. He is a past President of the Dallas County Dental
Society and is past Chairman of its Continuing Education Committee and its
Banking, Nominating and Patient Relations Committee.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS II DIRECTORS (TERM EXPIRES AT THE 1997 ANNUAL MEETING)
Joseph A. Biernat, age 68, became a director of HPSC in December 1993.
Since his retirement in 1987, Mr. Biernat has served as a consultant for several
investment management firms. From 1965 until 1987, he was employed with United
Technologies Corporation, most recently as Senior Vice President -- Treasurer,
and prior thereto as President, Treasurer and Chief Financial Officer of
Philco-Ford Finance Corporation. He is also a director of The Hartford Insurance
Company Mutual Funds and previously has been a director of several financial and
civic organizations.
Raymond R. Doherty, age 50, has been President of HPSC since December
1989 and Chief Operating Officer of HPSC since August 1993. He was Treasurer of
HPSC from December 1988 until May 1994. He was elected a director of HPSC in
June 1991. Mr. Doherty previously served as Chairman and Chief Executive Officer
of HPSC from October 1992 until July 1993, Chief Operating Officer of HPSC from
December 1989 to October 1992, and Chief Financial Officer of HPSC from December
1988 to October 1992. He was Assistant Treasurer of HPSC from June 1986 to
December 1988. He was Vice President and Chief Operating Officer of Healthco
International, Inc., a company engaged in sales of dental equipment and formerly
affiliated with the Company, from October 1992 until August 1993. He was the
Senior Vice President of Finance and Operational Controls of Healthco
International, Inc. from January 1986 to October 1992.
Samuel P. Cooley, age 64, became a director of HPSC in December 1993.
From 1955 until his retirement at the end of 1993, Mr. Cooley was employed with
Shawmut Bank Connecticut, N.A., and its predecessors and affiliates, including
Hartford National Bank and Connecticut National Bank. His most recent position
was Executive Vice President and Senior Credit Approval Officer. Mr. Cooley is
also a director of Lydall, Inc. and the Connecticut Health and Education
Facilities Authority and serves as a director or trustee of numerous nonprofit
organizations in Connecticut.
9
<PAGE> 10
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (cont'd)
CLASS III DIRECTORS (TERM EXPIRES AT THE 1998 ANNUAL MEETING)
John W. Everets, age 49, has been Chairman of the Board and Chief
Executive Officer of HPSC since July 1993 and has been a director of HPSC since
1983. He was Chairman of the Board and Chief Executive Officer of T.O.
Richardson Co., Inc., a financial services company, from January 1990 until July
1993. Previously he was Executive Vice President of Advest, Inc., an investment
banking firm, from 1977 to January 1990. Mr. Everets also served as Chairman of
the Board of Billings and Co., Inc., a real estate investment banking firm, and
Chairman of Advest Credit Corp., both subsidiaries of Advest Group, Inc. Mr.
Everets formerly was Vice Chairman of the Connecticut Development Authority and
Chairman of the Loan Committee of the Connecticut Development Authority. Mr.
Everets is also a director of Dairy Mart Convenience Stores, Inc.,
Crown/Northcorp, and the Eastern Company.
Dollie A. Cole, age 65, a director of HPSC since 1991, has been
involved for many years in the leadership of several business, charitable and
civic organizations. She serves as Chairman of the Dollie Cole Corporation, a
venture capital and industrial consulting firm. For seven years Ms. Cole was an
owner and board member of Checker Motors and Checker Taxi until selling her
interest in 1988. Ms. Cole was also Senior Editor of Curtis Publishing until
1977, and was director of Public Relations for Magnetic Video and Twentieth
Century Fox Video until 1985. She serves as a consultant to the Solar and
Electric 500 Company based in Phoenix, Arizona, and to Separation Dynamics, an
international company involved in the energy and manufacturing industries. In
addition to these business activities, Ms. Cole serves on the boards of Project
Hope -- the World Health Organization, the National Captioning Institute for the
Hearing Impaired, the Smithsonian Institution and on the National Academy of
Science -- President's Circle Board.
J. Kermit Birchfield, age 56, became a director of HPSC in December
1993. He currently serves as a consultant for various businesses. From 1990
until 1994, Mr. Birchfield served as Senior Vice President, Secretary, and
General Counsel with M/A-COM, Inc., a publicly-held manufacturer of
semiconductors and communications equipment based in Wakefield, Massachusetts.
Before joining M/A-COM, he was Senior Vice President for Legal and Governmental
Affairs and General Counsel for the Georgia Pacific Corporation. Mr. Birchfield
is also a Managing Director of Century Partners, Incorporated, a privately-held
investment and operating company, of Darien, Connecticut. He is also a director
of Intermountain Industries Inc. and its wholly-owned subsidiary, Intermountain
Gas Company, a public utility and Dairy Mart Convenience Stores, Inc.
OTHER EXECUTIVE OFFICERS
Rene Lefebvre, age 49, has been Chief Financial Officer, Vice President
of Finance and Treasurer of HPSC since May 1994. From June 1993 until May 1994,
he was Chief Financial Officer of NETTS, Inc., a vocational training
institution. He was an independent financial services consultant from February
1992 through May 1993. He served as interim Chief Financial Officer of the
Business Funding Group from June through November of 1991. From September 1982
until March 1991, Mr. Lefebvre was Chief Financial Officer of Eaton Financial
Corporation, a subsidiary of AT&T Capital Corporation.
10
<PAGE> 11
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
The Summary Compensation Table shows all compensation paid to the Chief
Executive Officer and the other current executive officers for services rendered
in all capacities during the past three years. HPSC has three current executive
officers.
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Restricted
Stock Securities All Other
Other Annual Awards Underlying Compensation
NAME AND PRINCIPAL POSITION YEAR SALARY Bonus Compensation ------ Options ------------
- --------------------------- ---- ------ ----- ------------ (1)(2) ------- (3)
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Everets (4) ............... 1995 $210,000 $ -0- $ -0- $809,375 -0- $18,959
Chief Executive Officer and 1994 210,000 125,000 96,636 (5) -0- -0- 15,904
Chairman of the Board 1993 110,719 -0- 11,054 (6) -0- 175,000 1,135
Raymond R. Doherty (7) ............ 1995 190,000 -0- -0- 393,750 -0- 18,606
President, Chief Operating 1994 190,000 75,000 -0- -0- -0- 22,885
Officer and Director 1993 112,856 -0- 5,095 (8) -0- 90,000 2,404
Rene Lefebvre (9) ................. 1995 125,000 -0- -0- 109,375 -0- 10,905
Chief Financial Officer, 1994 78,731 15,000 -0- -0- 30,000 1,790
Vice President of Finance
and Treasurer
<FN>
- --------------
(1) At the Annual Meeting held May 11, 1995, the stockholders approved the
Company's 1995 Stock Incentive Plan (the "1995 Stock Plan"). The 1995 Stock
Plan provides for the issuance of up to 550,000 options and/or grants of
shares of restricted stock to key employees and non-employee directors. The
1995 Stock Plan is administered by the Compensation Committee of the Board
of Directors. Upon the recommendation of the Compensation Committee , the
Board of Directors has adopted an amendment to the 1995 Plan to provide
service requirements for participation in the 1995 Stock Plan in addition to
the performance conditions which were contained in the 1995 Stock Plan as
adopted.
The 1995 Stock Plan, as amended (the "Amended 1995 Stock Plan") provides
that shares of restricted stock granted under the Amended 1995 Stock Plan
shall vest for participants when (i) certain performance conditions are met
(50% vest if and when during the five-year period from the date of grant
(the "Performance Period") the closing price of a share of the Company's
Common Stock, as reported on the NASDAQ National Market System for a
consecutive ten-day period, equals or exceeds 134.175% of the closing price
on the grant date (the "Partial Performance Condition"), and the remaining
50% vest if and when during the Performance Period the closing price of a
share of the Company's Common Stock, as reported on the NASDAQ National
Market System for a consecutive ten-day period, equals or exceeds 168.35% of
the closing price on the grant date (the "Full Performance Condition") and
(ii) the holder of the restricted stock has completed five (5) years of
continuous service from the grant date.
The Partial Performance Condition for the shares of restricted stock granted
to Messrs. Everets, Doherty and Lefebvre in 1995 is $5.90 per share and the
Full Performance Condition is $7.37 per share. Upon a change of control of
the Company, all awards granted prior to such date become fully vested. Upon
the termination of a participant's employment by the Company without cause
or by reason of death or disability during the Performance Period, any
awards for which the Partial Performance Condition or the Full Performance
Condition shall have been satisfied no later than four monts after the date
of such termination of employment shall become fully vested.
</TABLE>
11
<PAGE> 12
Item 11. EXECUTIVE COMPENSATION (cont'd)
(2) The amounts reported in this column represent the market price of the stock
awarded under the Amended 1995 Stock Plan on the grant date without
diminution in value attributable to the restrictions on such stock. The
aggregate non-vested restricted stock holdings at the end of fiscal 1995
were as follows: for Mr. Everets - 185,000 shares (the value of these shares
at fiscal year end equaled $878,750, which is 108.6% of the value at the
grant date); for Mr. Doherty - 90,000 shares (the value at fiscal year end
for these shares equaled $427,500, which is 108.6% of the value at the grant
date); and for Mr. Lefebvre, 25,000 shares (the value at year end equaled
$118,750, which is 108.6% of the value at the grant date). Dividends on
stock awards will be paid at the same rate as dividends, if any, are paid to
all shareholders.
(3) Includes term life insurance premiums paid by the Company and Company
contributions to the individual's 401(k) retirement plan account,
respectively, in the following amounts for the fiscal year ended December
31, 1995: Mr. Everets, $3,240 and $4,049; Mr. Doherty, $3,240 and $3,696;
and Mr. Lefebvre, $810 and $2,500. Also includes the value of shares of
Common Stock in the Company's ESOP allocated to participants in the fiscal
year ended December 31, 1995 (for services rendered during the previous
fiscal year) in the following amounts: Mr. Everets, $11,670; Mr. Doherty,
$11,670; and Mr. Lefebvre, $7,595. The value of the allocated ESOP shares
was calculated by using the year-end closing price of $4.75 per share for
fiscal 1995. The Company has not allocated shares of Common Stock to
participants in its ESOP for services rendered during the fiscal year ended
December 31, 1995 as of the date of this Proxy Statement.
(4) Mr. Everets' employment with the Company commenced in July 1993. His
compensation is governed by an employment agreement dated July 19, 1993. See
"Employment Agreements" below.
(5) Includes relocation and temporary living expenses of $81,806 paid in fiscal
1994 in connection with Mr. Everets' relocation to the Boston area.
(6) Includes relocation and temporary living expenses of $9,794 paid in fiscal
1993 in connection with Mr. Everets' relocation to the Boston area.
(7) Mr. Doherty's compensation is governed by an employment agreement dated
August 2, 1993. See "Employment Agreements" below.
(8) Includes $3,835 paid by the Company for an automobile for Mr. Doherty.
(9) Mr. Lefebvre's employment with the Company commenced in May 1994. His
compensation is governed by an employment agreement dated April 6, 1994. See
"Employment Agreements" below.
OPTION GRANTS IN LAST FISCAL YEAR
The Company made no option or SAR grants to its executive officers in
its last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides information regarding the exercise of
stock options by the Company's executive officers during fiscal 1995 and the
value of unexercised "in-the-money" options at year-end. The columns showing the
number of options exercised during fiscal 1995 and the value realized thereby
have been omitted because none of the executive officers exercised any options
during fiscal 1995.
12
<PAGE> 13
Item 11. EXECUTIVE COMPENSATION (cont'd)
<TABLE>
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT 1995 IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT 1995 FISCAL YEAR-END
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
John W. Everets ............. 165,000/10,000 $341,250/$15,000
Raymond R. Doherty........... 107,000/43,000 $194,250/$87,000
Rene Lefebvre ............... 12,000/18,000 $42,750/$64,125
<FN>
- --------------
(1) An "in-the-money" option is an option for which the option price of the
underlying stock is less than the December 31, 1995 market price ($4.75 per
share); the value shown reflects stock price appreciation since the date of
grant of the option.
</TABLE>
EMPLOYMENT AGREEMENTS
John W. Everets and Raymond R. Doherty
On July 19, 1993, the Company entered into an employment agreement with
each of John W. Everets and Raymond R. Doherty. The Company agreed to pay a base
annual salary of $210,000 to Mr. Everets and $190,000 to Mr. Doherty as well as
a bonus of up to 100% of base salary to each individual under an incentive plan
developed by the Compensation Committee of the Board in consultation with
management and approved by the full Board of Directors. The Company also granted
options for 150,000 shares of Common Stock to Mr. Everets and 90,000 shares of
Common Stock to Mr. Doherty, each at a price of $2.625 per share, which was the
fair market value of a share of Common Stock on the date of grant. The Company
also agreed to pay Mr. Everets' reasonable expenses incurred in his relocation
to Boston, up to $50,000 on an after-tax basis.
Each employment agreement has a three-year term and thereafter will
automatically renew from year to year unless either party to such agreement
gives notice of intention to terminate the agreement six months in advance of
any anniversary. Either party to each employment agreement may terminate it at
any time for any reason. In the event of decision not to renew by either party
or a termination by the Company which is not "for cause" with respect to either
Mr. Everets or Mr. Doherty (or, in the case of Mr. Everets, in the event of
termination by Mr. Everets), the Company will pay the employee his base monthly
pay plus his maximum monthly bonus for the next 12 months. Upon a termination by
the Company which is not "for cause," all of Mr. Everets' stock options will
fully vest. Each employee agrees not to compete with the business of the Company
while receiving termination payments and to maintain in confidence all of the
Company's confidential information.
If, within three years after a "change of control" of the Company (as
defined in each agreement), either the Company terminates Mr. Everets or Mr.
Doherty other than "for cause" or the employee terminates his employment due to
a "change in employment" (as defined in each agreement), the Company will pay
the employee his base monthly pay plus the maximum monthly bonus for 24 months;
the non-compete provisions will no longer apply; the employee's stock options
will fully vest; and normal employee benefits will continue for 12 months. If,
within three years after a "change of control", the employee terminates his
employment for any reason other than a "change in employment," the Company will
pay the employee his base monthly pay plus the maximum monthly bonus and normal
employee benefits for 12 months.
13
<PAGE> 14
Item 11. EXECUTIVE COMPENSATION (cont'd)
EMPLOYMENT AGREEMENTS (CONT'D)
Rene Lefebvre
During April 1994, the Company entered into an employment agreement
with Rene Lefebvre for employment commencing in May 1994. The Company agreed to
pay Mr. Lefebvre a base annual salary of $125,000 as well as a bonus of up to
50% of base salary at the discretion of the Chief Executive Officer and subject
to approval of the Compensation Committee of the Board. The Company also granted
to Mr. Lefebvre options for 30,000 shares of Common Stock at a price of $3.5625
per share, which was the fair market value of a share of Common Stock on the
date of grant.
The employment agreement has a three-year term and thereafter will
automatically renew from year to year unless either party to such agreement
gives notice of intention to terminate the agreement 60 days in advance of any
anniversary. Either party to Mr. Lefebvre's employment agreement may terminate
it at any time for any reason. The Company is obligated to pay Mr. Lefebvre's
salary for three months after termination, if it does not renew the agreement,
and for six months after termination, if it otherwise terminates his employment
without cause. Mr. Lefebvre has agreed not to compete with the business of the
Company while receiving severance payments and to maintain in confidence all of
the Company's confidential information.
In the event of a "change of control" of the Company (as defined in his
agreement), Mr. Lefebvre's stock options will fully vest.
COMPENSATION OF DIRECTORS
The Company pays each non-employee director a fee of $5,000 per annum
plus $2,500 per annum for each committee of the Board on which he or she serves
and $500 for each meeting attended. In addition, the Company reimburses
directors for their travel expenses incurred in attending meetings of the Board
or its committees. Pursuant to the 1995 Stock Plan, each non-employee continuing
director is granted 1,000 non-qualified stock options on the day of each Annual
Meeting of Stockholders during the term of such Plan.
Mr. Weicker received a non-qualified option grant exercisable for 4,000
shares of Common Stock at $4.75 per share, the fair market value of Common Stock
on the date of grant, at the time that he joined the Board of Directors.
14
<PAGE> 15
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information, as of March 25,
1996, with respect to the beneficial ownership of the Company's Common Stock by
those persons known by the Company to own beneficially more than five percent
(5%) of the Company's outstanding shares of Common Stock as of the record date
and by each of the Company's directors and its executive officers individually,
and by all of the Company's directors and executive officers as a group. The
information in the table and in the related notes has been furnished by or on
behalf of the indicated owners. Unless otherwise noted, HPSC believes the
persons referred to in this table have sole voting and investment power with
respect to the shares listed in this table. The percentage owned is calculated
with respect to each person by treating shares issuable to such person within 60
days of the record date as outstanding, in accordance with rules of the
Securities and Exchange Commission ("SEC").
<CAPTION>
Amount and Nature
of Beneficial
Ownership of HPSC % OF
Name (and Address of Owner of More than 5%) Common Stock(1)(2) CLASS
- ---------------------------------------------------------- ------------------ -----
<S> <C> <C>
Dimensional Fund Advisors, Inc............................ 354,400(3) 7.56%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Fidelity Management and Research Corporation 352,500(4) 7.52%
82 Devonshire Street
Boston, MA 02109-3605
Tweedy, Browne Company, L.P............................... 433,285(5) 9.25%
52 Vanderbilt Avenue
New York, NY 10017
John W. Everets and Raymond R. Doherty 300,000(6) 6.40%
as Trustees of the HPSC, Inc.
Employee Stock Ownership Plan
60 State Street, 35th Floor
Boston, MA 02109-1803
John W. Everets and Raymond R. Doherty 350,000(7) 7.47%
as Trustees of the HPSC, Inc.
Supplemental Employee Stock
Ownership Plan and Trust
60 State Street, 35th Floor
Boston, MA 02109-1803
John W. Everets........................................... 455,414(8)(9)(10)(11) 9.38%
60 State Street, 35th Floor
Boston, MA 02109-1803
Joseph A. Biernat......................................... 7,000 *
J. Kermit Birchfield...................................... 37,667(12) *
Dollie A. Cole............................................ 36,500 *
Samuel P. Cooley.......................................... 8,000 *
Raymond R. Doherty........................................ 220,214(8)(9)(11) 4.59%
Rene Lefebvre............................................. 59,599(9)(11) 1.27%
Thomas M. McDougal........................................ 21,000 *
Lowell P. Weicker, Jr..................................... 4,000 *
All Directors and Executive Officers as a group (9 persons) 849,394(11) 16.80%
<FN>
- ----------
* Percent of class less than 1%.
(Notes continued on following page.)
(1) Includes shares of the Company's Common Stock which the named security
holder has the right to acquire within 60 days of the record date through
the exercise of options granted by the Company to the named individuals or
group as follows: Messrs. Biernat, Birchfield and Cooley, 7,000 shares each;
Ms. Cole and Dr. McDougal, 21,000 shares each; Mr. Weicker, 4,000 shares,
Mr. Everets, 170,000 shares; Mr. Doherty, 114,000 shares; Mr. Lefebvre,
18,000 shares; and such group, 369,000 shares.
</TABLE>
15
<PAGE> 16
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(cont'd)
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONT'D)
(2) Includes allocated shares under the HPSC, Inc. Employee Stock Ownership
Plan (the "ESOP") of 4,714 for Mr. Everets, 6,711 for Mr. Doherty, 1,599
for Mr. Lefebvre and 13,024 for all executive officers and directors as a
group.
(3) Dimensional Fund Advisors, Inc. ("Dimensional") has filed an Amendment No.
5 to Schedule 13G with the SEC reporting that it is a registered investment
adviser and is deemed to have beneficial ownership of 354,400 shares of
Common Stock of the Company as of December 31, 1995, all of which shares
are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, all of which Dimensional serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(4) Fidelity Management and Research Corporation ("FMRC") filed a Form 13G with
the SEC for the year ended December 31, 1995 reporting that it has
investment discretion with respect to 352,500 shares of Common Stock of the
Company. FMRC reports that it has no voting authority with respect to such
shares.
(5) Tweedy, Browne Company L.P. ("TBC"), TBK Partners, L.P. ("TBK") and
Vanderbilt Partners, L.P. ("Vanderbilt") filed an Amendment No. 4 to their
Form 13Ds on October 28, 1995 with the Securities and Exchange Commission.
TBC is the beneficial owner of 408,285 shares of the Company's Common
Stock. TBK owns directly 15,000 shares. Vanderbilt owns directly 10,000
shares. The aggregate number of shares of the Company's Common Stock of
which TBC, TBK and Vanderbilt could be deemed to be beneficial owners is
433,285. TBC has investment discretion with respect to 408,285 shares and
sole power to dispose or direct the disposition of all of such shares. TBC
has shared power to vote or direct the vote of 350,285 shares. TBK has the
sole power to vote or direct the voting of and to dispose or direct the
disposition of the TBK shares. Vanderbilt has the sole power to vote or
direct the voting of and dispose or direct the disposition of the
Vanderbilt shares. The general partners of TBC and Vanderbilt are
Christopher H. Browne, William H. Browne and John D. Spears. The general
partners of TBK are Christopher H. Browne, William H. Browne, Thomas P.
Knapp and John D. Spears. The general partners of TBC, by reason of their
positions as such, may be deemed to have shared power to dispose of or to
direct the disposition of 408,285 shares and shared power to vote or to
direct the vote of 350,285 shares. Each of the general partners of TBK and
Vanderbilt, by reason of his position as such, may be deemed to have shared
power to vote or direct the vote of and to dispose or direct the
disposition of the 15,000 shares held by TBK and the 10,000 shares held by
Vanderbilt, respectively.
(6) 59,652 of these shares have been allocated to the accounts of ESOP
participants and 240,348 shares are unallocated. Messrs. Doherty and
Everets disclaim beneficial ownership of all such shares, other than the
shares allocated to their respective ESOP accounts listed in Note (2)
above.
(7) None of the 350,000 shares have been allocated to the accounts of
participants in the HPSC, Inc. Supplemental Employee Stock Ownership Plan
and Trust (the "SESOP"). Messrs. Doherty and Everets disclaim beneficial
ownership of all such shares.
16
<PAGE> 17
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(cont'd)
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONT'D)
(8) Excludes the 300,000 shares held in the ESOP for the benefit of the
employee participants (other than the shares allocated to the respective
ESOP accounts of Messrs. Doherty and Everets listed in Note (2) above) and
the 350,000 shares held in the SESOP for the benefit of the employee
participants. Although Messrs. Doherty and Everets are the trustees of
both the ESOP and SESOP and accordingly share voting power with respect to
all unallocated shares and share dispositive power with respect to all
shares in the ESOP and the SESOP, they disclaim beneficial ownership of
all such shares, other than the shares allocated to their respective ESOP
accounts listed in Note (2) above.
(9) Includes 26,133 shares, 10,000 shares and 10,000 shares, respectively, for
Messrs. Everets, Doherty and Lefebvre, purchased under the Stock Loan
Program described in "EXECUTIVE COMPENSATION -- Stock Loan Program." All
such shares are pledged to the Company pursuant to such Program.
(10) Includes 100 shares held by Mr. Everets' son, A. Hale W. Everets. Mr.
Everets disclaims beneficial ownership of such shares.
(11) Includes 185,000, 90,000 and 25,000 restricted shares granted to Messrs.
Everets, Doherty and Lefebvre on May 12, 1995, as described under the
Summary Compensation Table.
(12) Includes 3,000 shares held by Mr. Birchfield's spouse. Mr. Birchfield
disclaims beneficial ownership of such shares.
17
<PAGE> 18
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK LOAN PROGRAM
On January 5, 1995 the Compensation Committee approved a Stock Loan
Program whereby executive officers and other senior personnel of the Company
earning more than $80,000 per year may borrow from the Company an amount equal
to the cost of purchasing two shares of Common Stock, solely for the purpose of
acquiring such stock, for each share of Common Stock purchased by the employee
from sources other than Company funds. Such borrowings may not exceed $200,000
in any fiscal quarter of the Company, $200,000 per employee or $400,000 during
the term of the loan program for all employees. All shares purchased with such
loans are pledged to the Company as collateral for repayment of the loans. The
loans are recourse, bear interest at a variable rate which is one-half of one
percent above the Company's cost of funds, payable monthly in arrears, and are
payable as to principal no later than five (5) years after the date of the loan.
As of the date of this proxy statement, the Company has loans outstanding to
executive officers in the following amounts secured by the number of shares
listed: Mr. Everets, $98,000, secured by 26,133 shares; Mr. Doherty, $37,500,
secured by 10,000 shares; and Mr. Lefebvre, $37,500, secured by 10,000 shares.
REPURCHASE OF SHARES FORMERLY HELD BY HEALTHCO INTERNATIONAL, INC.
In July 1995 the Company completed payment for 1,225,182 shares of the
Company's Common Stock which it repurchased from certain secured creditors of
Healthco International, Inc. ("Healthco"), which was formerly the largest
shareholder of the Company and which declared bankruptcy in June 1993, pursuant
to a Purchase and Sale Agreement between the Company and the Healthco secured
creditors, dated as of November 1, 1994. Healthco had pledged the shares of the
Company's Common Stock to secure its obligations to the secured creditors. The
shares were released from the pledge agreement upon the Company's completion of
the payment. The secured creditors also released the Company from any claims
that may arise out of the bankruptcy of Healthco, effective upon payment by the
Company for the shares. The Company has retired 1,125,182 of these shares and
holds 100,000 of these shares in its treasury.
18
<PAGE> 19
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page Number In
(a) 1. Financial Statements Annual Report
-------------------- -------------
<S> <C>
Incorporated by reference from the Company's
Annual Report to Stockholders for the fiscal
year ended December 31, 1995:
Report of Independent Accountants
Consolidated Balance Sheets at December 31,
1995 and December 31, 1994 4
Consolidated Statements of Income for each
of the three years in the period ended
December 31, 1995 5
Consolidated Statements of Changes in Stock-
holders' Equity for each of the three years in
the period ended December 31, 1995 6
Consolidated Statements of Cash Flows for
each of the three years in the period ended
December 31, 1995 7
Notes to Consolidated Financial Statements 8-13
Page Number in
(a) 2. Financial Statement Schedule Form 10-K
---------------------------- ---------
Included in Part IV of this report:
Schedule II - Valuation and Qualifying
Accounts for each of the three years in
the period ended December 31, 1995 21
</TABLE>
19
<PAGE> 20
<TABLE>
LOCATION OF DOCUMENTS PERTAINING TO EXECUTIVE COMPENSATION PLANS AND
ARRANGEMENTS
<CAPTION>
Item in
Name of Document this Report Cross Reference
---------------- ----------- ---------------
<S> <C> <C>
1. HPSC, Inc. Stock Option 10.2 Incorporated by reference to Exhibit
Plan dated March 5, 1986 10.6 to HPSC's Annual Report on Form
10-K for the fiscal year ended
December 30, 1989
2. Employment Agreement 10.4 Incorporated by reference to Exhibit
between the Company and 10.1 to HPSC's Quarterly Report on
John W. Everets, dated Form 10-Q for the quarter ended
July 19, 1993 September 25, 1993
3. Employment Agreement 10.5 Incorporated by reference to Exhibit
between the Company and 10.2 to HPSC's Quarterly Report on
Raymond R. Doherty dated Form 10-Q for the quarter ended
as of August 2, 1993 September 25, 1993
4. HPSC, Inc. Employee Stock 10.9 Incorporated by reference to Exhibit
Ownership Plan Agreement 10.9 to HPSC's Annual Report on
dated December 22, 1993 Form 10-K for the fiscal year ended
between HPSC, Inc. and John December 25, 1993
Everets and Raymond
Doherty, as trustees
5. HPSC, Inc. 401 (k) Plan dated 10.15 Incorporated by reference to Exhibit
February, 1993 between 10.15 to HPSC's Annual Report on
HPSC, Inc. and Metropolitan Form 10-K for the fiscal year ended
Life Insurance Company December 25, 1993
6. First Amendment effective 10.10 Incorporated by reference to Exhibit
January 1, 1993 to HPSC, Inc. 10.2 to HPSC's Quarterly Report on
Employee Stock Ownership Form 10-Q for the quarter ended
Plan June 25, 1994
7. Second Amendment effective 10.11 Incorporated by reference to Exhibit
January 1, 1994 to HPSC, 10.11 to HPSC's Annual Report on
Inc., Employee Stock Form 10-K for the fiscal year ended
Ownership Plan December 31, 1994
8. Third Amendment effective 10.12 Incorporated by reference to Exhibit
January 1, 1993 to HPSC, Inc. 10.12 to HPSC's Annual Report on
Employee Stock Ownership Form 10-K for the fiscal year ended
Plan December 31, 1994
9. HPSC, Inc. Supplemental 10.13 Incorporated by reference to Exhibit
Employee Stock Ownership 10.3 to HPSC's Quarterly Report on
Plan and Trust dated July 25, Form 10-Q for the quarter ended June
1994 25, 1994
10. HPSC, Inc. 1994 Stock Plan
dated as of March 23, 1994
and related forms of 10.14 Incorporated by reference to Exhibit
Nonqualified Option Grant 10.4 to HPSC's Quarterly Report on
and Option Exercise Form Form 10-Q for the quarter ended June
25, 1994
</TABLE>
20
<PAGE> 21
<TABLE>
LOCATION OF DOCUMENTS PERTAINING TO EXECUTIVE COMPENSATION PLANS AND
ARRANGEMENTS (cont'd)
<CAPTION>
Item in
Name of Document this Report Cross Reference
---------------- ----------- ---------------
<S> <C> <C>
11. Employment Agreement 10.8 Incorporated by reference to Exhibit
between HPSC, Inc. and Rene 10.5 to HPSC's Quarterly Report on
Lefebvre dated April 6, 1994 Form 10-Q for the quarter ended June
25, 1994
12. Amendment dated as of May 10.6 Incorporated by reference to Exhibit
25, 1994 to Employment 10.6 to HPSC's Quarterly Report on
Agreement between HPSC, Form 10-Q for the quarter ended June
Inc. and John W. Everets 25, 1994
13. Amendment dated as of May 10.7 Incorporated by reference to Exhibit
25, 1994 to Employment 10.7 to HPSC's Quarterly Report on
Agreement between HPSC, Form 10-Q for the quarter ended June
Inc. and Raymond R. Doherty 25, 1994
14. Amended and Restated 10.29 File herewith.
HPSC, Inc. 1995 Stock
Incentive Plan
15. Stock Option grant to Lowell 10.30 Filed herewith.
P. Weicker effective
December 7, 1995
</TABLE>
21
<PAGE> 22
<TABLE>
(a) 3 EXHIBITS
<CAPTION>
Exhibit
-------
No. Title Method of Filing
--- ----- ----------------
<S> <C> <C>
3.1 Restated Certificate of Filed herewith
Incorporation of HPSC, Inc.
3.2 Certificate of Amendment to Filed herewith
Restated Certificate of
Incorporation of HPSC, Inc. filed
in Delaware on September 14,
1987
3.3 Certificate of Amendment to Filed herewith
Restated Certificate of
Incorporation of HPSC, Inc. filed
in Delaware on May 22, 1995
3.4 Amended and Restated By-Laws Filed herewith
4.1 Rights Agreement dated as of Incorporated by reference to
August 3, 1993 between the Exhibit 4 to HPSC's Amendment
Company and The First National No. 1 to its Current Report on
Bank of Boston, N.A., including Form 8-K filed August 11, 1993.
as Exhibit B thereto the form of
Rights Certificate
10.1 Lease dated as of March 8, Incorporated by reference to
1994 between the Trustees of Exhibit 10.1 to HPSC's Annual
60 State Street Trust and Report on Form 10-K for the
HPSC, Inc., dated September fiscal year ended December 31,
10, 1970 and relating to the 1994
principal executive offices of
HPSC, Inc. at 60 State Street,
Boston, Massachusetts
10.2 HPSC, Inc. Stock Option Plan, Incorporated by reference to
dated March 5, 1986 Exhibit 10.6 to HPSC's Annual
Report on Form 10-K for the
fiscal year ended December 30,
1989
10.3 Employment Agreement Incorporated by reference to
between the Company and Exhibit 10.1 to HPSC's Quarterly
John W. Everets, dated Report on Form 10-Q for the
July 19, 1993 quarter ended September 25,
1993
10.4 Employment Agreement Incorporated by reference to
between the Company and Exhibit 10.2 to HPSC's Quarterly
Raymond R. Doherty dated Report on Form 10-Q for the
as of August 2, 1993 quarter ended September 25,
1993
10.5 Amendment dated as of May 25, Incorporated by reference to
1994 to Employment Agreement Exhibit 10.6 to HPSC's Quarterly
between HPSC, Inc. and Report on Form 10-Q for the
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C>
John W. Everets quarter ended June 25, 1994
10.6 Amendment dated as of May 25, Incorporated by reference to
1994 to Employment Agreement Exhibit 10.7 to HPSC's Quarterly
between HPSC, Inc. and Report on Form 10-Q for the
Raymond R. Doherty quarter ended June 25, 1994
</TABLE>
23
<PAGE> 24
<TABLE>
(a) 3 EXHIBITS (cont'd)
<CAPTION>
Exhibit
-------
No. Title Method of Filing
--- ----- ----------------
<S> <C> <C>
10.7 Employment Agreement Incorporated by reference to
between HPSC, Inc. and Rene Exhibit 10.5 to HPSC's Quarterly
Lefebvre dated April 6, 1994 Report on Form 10-Q for the
quarter ended June 25, 1994
10.8 HPSC, Inc. Employee Stock Incorporated by reference to
Ownership Plan Agreement Exhibit 10.9 to HPSC's Annual
dated December 22, 1993 Report on Form 10-K for the
between HPSC, Inc. and John fiscal year ended December 25,
W. Everets and Raymond R. 1993
Doherty, as trustees
10.9 First Amendment effective Incorporated by reference to
January 1, 1993 to HPSC, Inc. Exhibit 10.2 to HPSC's Quarterly
Employee Stock Ownership Plan Report on Form 10-Q for the
quarter ended June 25, 1994
10.10 Second Amendment effective Incorporated by reference to
January 1, 1994 to HPSC, Inc. Exhibit 10.11 to HPSC's Annual
Employee Stock ownership Plan Report on Form 10-K for the fiscal
year ended December 31, 1994
10.11 Third Amendment effective Incorporated by reference to
January 1, 1993 to HPSC, Inc. Exhibit 10.12 to HPSC's Annual
Employee Stock Ownership Plan Report on Form 10-K for the
fiscal year ended December 31, 1994
10.12 HPSC, Inc. Supplemental Incorporated by reference to
Employee Stock Ownership Plan Exhibit 10.3 to HPSC's Quarterly
and Trust dated July 25, 1994 Report on Form 10-Q for the
quarter ended June 25, 1994
10.13 HPSC, Inc. 1994 Stock Plan Incorporated by reference to
dated as of March 23, 1994 and Exhibit 10.4 to HPSC's Quarterly
related forms of Nonqualified Report on Form 10-Q for the
Option Grant and Option quarter ended June 25, 1994
Exercise Form
10.14 HPSC, Inc. 401(k) Plan dated Incorporated by reference to
February, 1993 between HPSC, Exhibit 10.15 to HPSC's Annual
Inc. and Metropolitan Life Report on Form 10-K for the
Insurance Company fiscal year ended December 25,
1993
10.15 Indenture and Service Incorporated by reference to
Agreement dated as of Exhibit 10.10 to HPSC's Annual
December 23, 1993 by and Report on Form 10-K for the
among HPSC Funding Corp. I, fiscal year ended December 25,
HPSC, Inc. and State Street 1993
Bank and Trust company of
Connecticut, N.A.
</TABLE>
24
<PAGE> 25
<TABLE>
(a) 3 EXHIBITS (cont'd)
<CAPTION>
Exhibit
-------
No. Title Method of Filing
--- ----- ----------------
<S> <C> <C>
10.16 Sale and Contribution Incorporated by reference to
Agreement dated as of Exhibit 10.11 to HPSC's Annual
December 23, 1993 between Report on Form 10-K for the
HPSC Funding Corp I and fiscal year ended December 25,
HPSC, Inc. 1993
10.17 Note Purchase Agreement Incorporated by reference to
dated as of December 23, 1993 Exhibit 10.12 to HPSC's Annual
among HPSC Funding Corp. I, Report on Form 10-K for the
HPSC, Inc. and the Prudential fiscal year ended December 25,
Life Insurance Company of 1993
America
10.18 Insurance Agreement dated as Incorporated by reference to
of December 23, 1993 among Exhibit 10.13 to HPSC's Annual
Municipal Bond Investors Report on Form 10-K for the
Assurance Corporation, HPSC fiscal year ended December 25,
Funding Corp. I, HPSC, Inc. and 1993
State Street Bank and Trust
Company of Connecticut, N.A.
10.19 Undertaking with respect to Incorporated by reference to
Exhibits to certain Agreements Exhibit 10.14 to HPSC's Annual
Report on Form 10-K for the
fiscal year ended December 25,
1993
10.20 Amended and Restated Incorporated by reference to
Revolving Loan Agreement Exhibit 10.3 to HPSC's Quarterly
dated May 12, 1995, among Report on Form 10-Q for the
HPSC, Inc. The First National quarter ended June 30, 1995
Bank of Boston individually
and as Agent, and Bank of
America Illinois, individually
and as Co-Agent
10.21 First Amendment to Amended Filed herewith
and Restated Revolving Credit
Agreement dated as of
November 13, 1995, by and
among HPSC, Inc., The First
National Bank of Boston
individually and as Agent, and
Bank of America Illinois,
individually and as Co-Agent
</TABLE>
25
<PAGE> 26
<TABLE>
(a) 3 EXHIBITS (cont'd)
<CAPTION>
Exhibit
-------
No. Title Method of Filing
--- ----- ----------------
<S> <C> <C>
10.22 Second Amendment to Filed herewith
Amended and Restated
Revolving Credit Agreement
dated as of December 1, 1995,
by and among HPSC, Inc., The
First National Bank of Boston
individually and as Agent, and
Bank of America Illinois,
individually and as Co- Agent
10.23 Loan Agreement dated 4/13/95 Incorporated by reference to
between HPSC, Inc. and Exhibit 10.1 to HPSC's Quarterly
Springfield Institution for Report on Form 10-Q for the
Savings quarter ended March 31, 1995
10.24 Sale Agreement dated Filed herewith
November 16, 1995 between
HPSC, Inc. and Springfield
Institution for Savings
10.25 Stock Purchase Agreement, Incorporated by reference to
dated as of November 1, 1994, Exhibit 10.3 to HPSC's Quarterly
by and among HPSC, Inc. and Report on Form 10-Q for the
each of Chemical Bank; The quarter ended September 24,
CIT Group/Business Credit, 1994
Inc.; Van Kampen Merritt
Prime Rate Income Trust; the
Nippon Credit Bank, Ltd.;
Union Bank of Finland,
Grand Cayman Branch; HPSC, Inc.;
The Bank of Tokyo Trust Company;
and Morgens, Waterfall, Vintiadis &
Co. Inc., and related Schedules
10.26 Purchase and Contribution Incorporated by reference to
Agreement dated as of Exhibit 10.31 to HPSC's Annual
January 31, 1995 between Report on Form 10-K for the fiscal
HPSC, Inc. and HPSC Bravo year ended December 31, 1994
Funding Corp.
10.27 Credit Agreement dated as of Incorporated by reference to
January 31, 1995 among Exhibit 10.32 to HPSC's Annual
HPSC Bravo Funding Corp., Report on Form 10-K for the fiscal
Triple-A One Funding year ended December 31, 1994
Corporation, as lender, and
CapMAC, as Administrative
Agent and as Collateral Agent
</TABLE>
26
<PAGE> 27
<TABLE>
(a) 3 EXHIBITS (cont'd)
<CAPTION>
Exhibit
-------
No. Title Method of Filing
--- ----- ----------------
<S> <C> <C>
10.28 Agreement to furnish copies of Incorporated by reference to
Omitted Exhibits to Certain Exhibit 10.33 to HPSC's Annual
Agreements with HPSC Bravo Report on Form 10-K for the
Funding Corp. fiscal year ended December 31,
1994
10.29 Amended and Restated HPSC, Filed herewith
Inc. 1995 Stock Incentive Plan
10.30 Stock Option grant to Lowell P. Filed herewith.
Weicker effective December 7,
1995.
13 Annual Report to Stockholders Filed herewith
for the fiscal year ended
December 31, 1995
21 Subsidiaries of HPSC, Inc. Filed herewith
23 Report of Coopers & Lybrand, Filed herewith
L.L.P.
27 HPSC, Inc. Financial Data Filed herewith
Schedule
</TABLE>
Copies of Exhibits may be obtained for a nominal charge by writing to:
INVESTOR RELATIONS
HPSC, INC.
60 STATE STREET
BOSTON, MASSACHUSETTS 02019
(b) Reports on Form 8-K
None
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, HPSC, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HPSC, Inc.
By: /s/ John W. Everets
----------------------------
Dated: March 29, 1996 John W. Everets
Chairman, Chief Executive
Officer and Director
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of HPSC,
Inc. and in the capacities and on the dates indicated.
<CAPTION>
Name Title Dated
- ---- ----- -----
<S> <C> <C>
By: /s/ John W. Everets Chairman, Chief Executive March 29, 1996
-------------------------------------- Officer and Director (Principal
John W. Everets Executive Officer)
By: /s/ Rene Lefebvre Vice President, Chief March 29, 1996
-------------------------------------- Financial Officer and
Rene Lefebvre Treasurer (Principal Financial
Officer)
By: /s/ Raymond R. Doherty President and Director March 29, 1996
--------------------------------------
Raymond R. Doherty
By: /s/ Dennis J. McMahon Vice President, Administration March 29, 1996
-------------------------------------- (Principal Accounting Officer)
Dennis J. McMahon
By: /s/ Dollie A. Cole Director March 29, 1996
--------------------------------------
Dollie A. Cole
By: /s/ Thomas M. McDougal Director March 29, 1996
--------------------------------------
Thomas M. McDougal
By: /s/ Samuel P. Cooley Director March 29, 1996
--------------------------------------
Samuel P. Cooley
By: /s/ Joseph A. Biernat Director March 29, 1996
--------------------------------------
Joseph A. Biernat
By: /s/ J. Kermit Birchfield Director March 29, 1996
--------------------------------------
J. Kermit Birchfield
By: /s/ Lowell P. Weicker, Jr. Director March 29, 1996
--------------------------------------
Lowell P. Weicker, Jr.
</TABLE>
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HPSC, Inc.:
Our report on the consolidated financial statements of HPSC, Inc. has
been incorporated by reference in this Form 10-K from the 1995 Annual Report to
Stockholders of HPSC, Inc. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule listed
in item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND, L.L.P.
Boston, Massachusetts
March 25,1996
<PAGE> 30
SCHEDULE VIII
<TABLE>
HPSC, INC.
VALUATION AND QUALIFYING ACCONTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<CAPTION>
- -------------------------------------------------------------------------------------------
Balance at Charged to
Beginning of Costs and Deductions Balance at
Description Year Expenses (1) end of year
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for losses 1995 $ 4,595 $ 1,296 $ 1,379 $ 4,512
- -------------------------------------------------------------------------------------------
Allowance for losses 1994 4,897 754 3,056 4,595
- -------------------------------------------------------------------------------------------
Allowance for losses 1993 9,216 15,104 17,423 6,897
- -------------------------------------------------------------------------------------------
<FN>
(1) DEDUCTIONS ARE WRITE-OFFS NET OF RECOVERIES.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
HEALTHCO PROFESSIONAL SERVICES CORPORATION
It is hereby certified that:
1. (a) The present name of the corporation (hereinafter called the
"corporation") is Healthco Professional Services Corporation.
(b) The name under which the corporation was originally incorporated is
Healthco Professional Leasing Corporation, and the date of filing the original
Certificate of Incorporation of the corporation with the Secretary of State of
the State of Delaware is January 20, 1975.
2. The Certificate of Incorporation of the corporation is hereby
amended by striking out Articles 1, 2, 4 and 9 thereof and by substituting in
lieu thereof the new Articles 1, 2, 4 and 8 which are set forth in the Restated
Certificate of Incorporation hereinafter provided for.
3. The provisions of the Certificate of Incorporation of the
corporation as heretofore amended and/or supplemented, and as herein amended,
are hereby restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Restated Certificate of
Incorporation of HPSC, Inc., without any further amendments other than the
amendments herein certified and without any discrepancy between the provisions
of the Certificate of Incorporation as heretofore amended and supplemented and
the provisions of the said single instrument hereinafter set forth.
4. The amendments and the restatement of the Certificate of
Incorporation herein certified have been duly adopted by the sole stockholder of
the corporation in accordance with the provisions of Section 242 and of Section
245 of the General Corporation Law of the State of Delaware.
5. The Certificate of Incorporation of the corporation, as amended and
restated herein, shall, upon the effective date of this Restated Certificate of
Incorporation, read as follows:
"Restated Certificate of Incorporation
of
<PAGE> 2
HPSC, Inc.
1. The name of the corporation is HPSC, Inc.
2. The respective names of the County and of the City within the County
in which the registered office of the corporation is to be located in the State
of Delaware are the County of Kent and the City of Dover. The name of the
registered agent of the corporation is The Prentice-Hall Corporation System,
Inc. The street and number of said registered office and the address by street
and number of said registered agent is 229 South State Street, Dover, Delaware.
3. The purposes for which this corporation is organized are:
(a) To manufacture, purchase or otherwise acquire,
invest in, own, mortgage, pledge, lease, sell,
assign and transfer or otherwise dispose of, trade,
deal in and deal with goods, wares and merchandise
and personal property of every class and
description; and
(b) To engage in any lawful act or activity for which
corporations may be organized under the General
Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is twenty million (20,000,000) shares, consisting of (i) five
million (5,000,000) shares of Preferred Stock, having a par value of $1.00 per
share, and (ii) fifteen million (15,000,000) shares of Common Stock, having a
par value of $.01 per share. Any and all such shares issued, and for which the
full consideration has been paid or delivered, shall be deemed fully paid stock
and the holder of such shares shall not be liable for any further call or
assessment or any other payment thereon.
(a) The shares of Preferred Stock may be divided into
and issued in one or more series, and each series
shall be designated so as to distinguish the shares
thereof from the shares of all other series. All
shares of Preferred Stock shall be identical except
in respect of particulars which may be fixed by the
Board of Directors as hereinafter provided pursuant
to authority which is hereby expressly vested in the
Board of Directors. Each share of a series shall be
identical in all respects with all other shares of
such series, except as to the date from which
dividends thereon shall be cumulative on any series
as to which dividends are cumulative.
(b) Before any shares of Preferred Stock of any series
shall be issued, the Board of Directors, pursuant to
authority hereby expressly vested in it, shall fix
by resolution or resolutions the following
provisions in respect of the shares for each such
series so far as the same are not inconsistent with
the provisions of this Article 4 applicable to all
series of Preferred Stock:
-2-
<PAGE> 3
(1) The distinctive designations of each such series
and the number of shares which shall constitute such
series, which number may be increased (except where
otherwise provided by the Board of Directors in
creating such series) or decreased (but not below
the number of shares thereof then outstanding) from
time to time by like action of the Board of
Directors;
(2) the annual rate or amount of dividends payable
on shares of such series, whether such dividends
shall be cumulative or non-cumulative, the
condition, upon which and/or the dates when such
dividends shall be payable and the date from which
dividends on cumulative series shall accrue and be
cumulative on all shares of such series issued prior
to the payment date for the first dividend of such
series;
(3) whether such series shall be redeemable or
callable and, if so, the terms and conditions of
such redemption or call, including the time or times
when and the price or prices at which shares of such
series shall be redeemed or called, and including
the terms and conditions of any retirement or
sinking fund for the purchase or redemption of
shares of such series;
(4) the amount payable on shares of such series in
the event of liquidation, dissolution, or winding up
of the affairs of the corporation;
(5) whether such series shall be convertible into or
exchangeable for shares of any other class, or any
series of the same or any other class and, if so,
the terms and conditions thereof, including the date
or dates when such shares shall be convertible into
or exchangeable for shares of any other class, or
any series of the same or any other class, the price
or prices or the rate or rates at which shares of
such series shall be so convertible or exchangeable,
and any adjustments which shall be made, and the
circumstances in which any such adjustments shall be
made, in such conversion or exchange prices or
rates;
(6) whether such series shall have any voting rights
in addition to those prescribed by law and, if so,
the terms and conditions of exercise of such voting
rights;
(7) the conditions and restrictions, if any, on the
payment of dividends or on the making of other
distributions on, or the purchase, redemption or
other acquisition by the corporation or any
subsidiary of, the Common Stock or of any other
class (or other
-3-
<PAGE> 4
series of the same class) ranking junior to the
shares of such series as to dividends or upon
liquidation, dissolution or winding up;
(8) the conditions and restrictions, if any, on the
creation of indebtedness of the corporation, or any
subsidiary, or on the issue of any additional stock
ranking on a parity with or prior to the shares of
such series as to dividends or upon liquidation,
dissolution or winding up; and
(9) such other powers, preferences and relative,
participating, optional or other special rights,
qualifications, limitations or restrictions as shall
not be inconsistent with any such resolution or
resolutions previously adopted as to shares then
still authorized, with the provisions of this
Restated Certificate of Incorporation or with the
laws of the State of Delaware.
(c) (1) So long as any shares of Preferred Stock of any
series shall be outstanding, the corporation will
not declare or pay any dividends on the Common Stock
(other than dividends payable solely in shares of
Common Stock) or make any distributions of any kind,
either directly or indirectly, in respect of shares
of Common Stock, or make any payment on account of
the purchase, redemption or other acquisition of
Common Stock, unless on the payment, distribution or
redemption date, as the case may be, all dividends
on the then outstanding shares of Preferred Stock of
all series for all past dividend periods shall have
been paid to the full extent of the preference, if
any, to which each series of Preferred Stock is
entitled.
(2) In case the corporation shall not pay in full
all dividends required to be paid on all shares of
all series of cumulative Preferred Stock at the time
outstanding to the full extent of the preference, if
any to which each such cumulative series is
entitled, all cumulative series which are of equal
rank with respect to such dividend preference shall
share ratably in the payment of dividends, including
accumulations thereof, if any, in proportion to the
amounts that would be payable on such series if all
dividends thereof were paid in full. Accumulations
of dividends shall not bear interest.
(3) After the requirements with respect to
preferential dividends (if any) upon all classes of
capital stock, and each series thereof, shall have
been met, then and not otherwise, the holders of
Common Stock shall be entitled to receive such
dividends, out of any remaining net profits or net
assets of the corporation available there for, when,
as and if (subject to the foregoing provisions of
this article 4) such dividends may be declared from
time to time by the Board of Directors. After
distribution in full of the preferential
-4-
<PAGE> 5
amounts to be distributed to the holders of all
classes of stock, and each series thereof, having
more than parity with Common Stock upon liquidation,
dissolution or winding up, then, in the event of the
voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the holders of the
Common Stock shall be entitled to receive all the
remaining assets of the corporation available for
distribution to its stockholders ratably in
proportion to the number of shares of Common Stock
held by them respectively.
(4) A liquidation, dissolution or winding up of the
corporation, as such terms are used in this Article
4, or as may be used in any resolution or
resolutions of the Board of Directors providing for
the issue of any series of this corporation's
capital stock, shall not be deemed to be occasioned
by or to include:
(A) any consolidation or merger of the
corporation with or into any other
corporation, corporations, entity or
entities, or
(B) any sale, lease, exchange or other transfer
of any or all of the assets of the
corporation to another corporation,
corporations, entity or entities pursuant
to a plan which shall provide for the
receipt by the corporation or its
stockholders, as all or the major portion
of the consideration for such sale, lease,
exchange or transfer, of securities of such
other corporation, corporations, entity or
entities or of any company or companies
subsidiary to, controlled by, or affiliated
with such other corporation, corporations,
entity or entities.
(d) The authorized but unissued shares of Common Stock
and the authorized but unissued shares of Preferred
Stock of the corporation may be issued for such
consideration, having a value, not less than the par
value thereof, as is determined from time to time by
the Board of Directors.
(e) (1) Except as otherwise determined pursuant to
authority of the Board of Directors as hereinbefore
provided, or by the General Corporation Law of the
State of Delaware, all voting rights shall be vested
exclusively in the holders of the outstanding shares
of Common Stock and each such holder shall be
entitled to one (1) vote per share for all purposes
for such share of Common Stock held of record by
him.
(2) Except as otherwise determined pursuant to
authority of the Board of Directors as hereinbefore
provided, or by the General
-5-
<PAGE> 6
Corporation Law of the State of Delaware, the
holders of Preferred Stock shall not be entitled to
vote for any purpose nor shall they be entitled to
notice of meetings of stockholders.
(f) The corporation may create and issue securities
convertible into shares of capital stock of the
corporation, of any class or classes and of any
series of any class, and whether or not in
connection with the issue and sale of any shares of
stock or other securities of the corporation, may
create and issue warrants, rights, privileges or
options entitling the holders thereof to purchase
from the corporation any shares of its capital stock
of any class or classes and of any series of any
class, such convertible securities, warrants, rights
privileges or options to be evidenced by or in such
instrument or instruments as shall be approved by
the Board of Directors. The terms upon which, the
time or times (which may be limited or unlimited in
duration) at or within which, and the price or
prices at which any such rights to convert, or other
warrants, rights, privileges or options may be
issued and any such shares may be acquired or
purchased from the corporation upon the exercise of
any such rights to convert, or other warrant, right,
privilege or option shall be such as shall be fixed
and stated in a resolution or resolutions adopted by
the Board of Directors providing for the creation
and issue of such convertible securities, warrants,
privileges options, and, in every case, set forth or
incorporated by reference in the instrument or
instruments evidencing such convertible securities,
warrants, rights, privileges or options. In the
absence of actual fraud in the transaction, the
judgment of the Directors as to the consideration
for the issuance of any such convertible security,
warrant, right, privilege or option and the
sufficiency thereof shall be conclusive. The
conversion price, or other consideration to be
received by the corporation upon the issuance of
shares of capital stock upon the exercise of any
such rights to convert, warrant, right, privilege or
option shall have a value not less than the par
value of the stock so issued, as determined by the
Board of Directors.
5. The corporation is to have perpetual existence.
6. In furtherance and not in limitation of the power conferred by
statute, the Board of Directors is expressly authorized to make, alter or repeal
the by-laws of the corporation.
7. Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the
-6-
<PAGE> 7
by-laws of the corporation. Elections of Directors need not be by written ballot
unless the by-laws of the corporation shall so provide.
8. Whenever a compromise or arrangement is proposed between this
corporation and its creditors of any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code, or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders of this corporation, as the case may be,
and also on this corporation.
Signed and attested to on April 21, 1983.
CORPORATE
SEAL
---------------------------
- ---------------------------
Its Secretary
-7-
<PAGE> 8
COMMONWEALTH OF MASSACHUSETTS)
) ss.
COUNTY OF SUFFOLK )
BE IT REMEMBERED that, on April 21, 1983, before me, a Notary Public
duly authorized by law to take acknowledgment of deeds, personally came
___________, _________________ of HPSC, Inc., who duly signed the foregoing
instrument before me and acknowledged that such signing is his act and deed,
that such instrument as executed is the act and deed of said corporation, and
that the facts stated therein are true.
GIVEN under my hand on April 21, 1983.
NOTARIAL
SEAL
---------------------------
Notary Public
My commission expires:
-8-
<PAGE> 1
EXHIBIT 3.2
HPSC, INC.
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
HPSC, Inc., a Delaware corporation organized on January 20, 1975 under the
name "Healthco Professional Leasing, Inc.", does hereby certify as follows:
1. The Certificate of Incorporation of HPSC, Inc., as most recently amended and
restated on April 25, 1983, has been further amended to add thereto the
following Article 9:
"No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by
such director as a director, except to the extent required by law (i)
for any breach of the director's duty of loyalty to the corporation or
its stockholders, (ii) for acts or omissions not in good faith, or
which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or modification of this Article 9 shall
not increase the personal liability or alleged liability of any
director for any act or omission occurring prior to such repeal or
modification, or otherwise adversely affect any right or protection of
a director existing at the time of such repeal or modification. The
provisions of this Article 9 shall not affect rights of indemnification
under the corporation's by-laws or otherwise."
2. Such amendment has been duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, said HPSC, Inc. has caused this Certificate to be
signed and its corporate seal to be affixed hereto this 7th day of September,
1987.
HPSC, Inc.
By /s/ Marvin Myer Cyker
---------------------
Marvin Myer Cyker
Chairman of the Board
CORPORATE SEAL
Attest:/s/ Irving J. Helman
- ---------------------------
Irving J. Helman
Secretary
Commonwealth of Massachusetts)
County of Suffolk, ) SS
Be it remembered that on September 7, 1987, before me, a Notary Public
duly authorized by law to take acknowledgment of deeds, personally came Marvin
Myer Cyker, Chairman of the Board of HPSC, Inc., who duly signed the foregoing
instrument before me and acknowledged that such instrument is his act and deed
and the act and deed of said corporation, and that the facts stated therein are
true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office on
the day and year aforesaid.
/s/ J. Barry Hawthorne
----------------------
Notary Public
My commission expires: 5/28/93
NOTARIAL SEAL
0211029.01
<PAGE> 1
EXHIBIT 3.3
HPSC, INC.
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
HPSC, Inc., a Delaware corporation organized on January 20, 1975 under
the name "Healthco Professional Leasing Corporation" does hereby certify as
follows:
FIRST: That at a meeting of the Board of Directors held on March 8, 1995,
resolutions were duly adopted setting forth proposed amendments to the Restated
Certificate of Incorporation of said corporation, declaring each such amendment
to be advisable and directing consideration thereof by the stockholders at the
next annual meeting of stockholders of the corporation. The resolutions setting
forth the proposed amendments are as follows:
RESOLVED, that the Restated Certificate of Incorporation of this
corporation be amended to add thereto the following Article 10:
"(a) The number of Directors that shall constitute the entire Board of
Directors of this corporation shall be not less than three (3) nor more than
twelve (12), subject to the provisions of this Article 10. The exact number of
Directors shall be fixed, within the foregoing limitations, by the vote of a
majority of the entire Board of Directors.
(b) The Board of Directors shall be and is divided into three classes:
Class I, Class II and Class III, which shall be as nearly equal in number as
possible; provided, however, that the number of Directors in any one class may
not exceed the number of Directors in any other class by more than one. Each
Director shall serve for a term ending on the date of the third annual meeting
of stockholders following the annual meeting at which the Director was elected;
provided, however, that each initial Director in Class I shall hold office until
the annual meeting of stockholders in 1996; each initial Director in Class II
shall hold office until the annual meeting of stockholders in 1997 and each
initial Director in Class III shall hold office until the annual meeting of
stockholders in 1998. Notwithstanding the foregoing provisions of this Article,
each Director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized number
of Directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of Directors so as to maintain such classes as nearly equal as
possible. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
<PAGE> 2
(d) Newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled
exclusively by the affirmative vote of a majority of the remaining Directors
then in office (and not by stockholders), even if such remaining Directors
constitute less than a quorum of the Board of Directors, or by a sole remaining
Director. Any Director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor is duly elected and qualified or until his death,
resignation or removal.
(e) Any Director may be removed from office only for cause, and only
upon the affirmative vote of the holders of at least seventy-five percent (75%)
of the voting power of the corporation's stock.
(f) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock issued by this corporation having a preference
over the common stock as to dividends or upon liquidation shall have the right,
voting separately by class or series, to elect Directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies,
terms of removal and other features of such directorships shall be governed by
the terms of Article 4 and the resolution or resolutions establishing such class
or series adopted pursuant thereto and such Directors so elected shall not be
divided into classes pursuant to this Article 10 unless expressly provided by
such terms.
(g) Notwithstanding anything contained in this Certificate of
Incorporation or the corporation's By-Laws to the contrary, this Article 10 and
Sections 2, 3, 5 and 6 of Article II of the corporation's By-Laws shall not be
altered, amended, or repealed, and no provisions inconsistent therewith shall be
adopted, without the affirmative vote of the holders of not less than
seventy-five percent (75%) of the outstanding stock of the corporation entitled
to vote generally in the election of Directors, voting together as a single
class (it being understood that for the purposes of this Article 10, each share
shall have one vote except as otherwise provided in accordance with Article 4)."
FURTHER RESOLVED, that the Restated Certificate of Incorporation of
this corporation be amended to add thereto the following Article 11:
"(a) All actions taken by stockholders shall be taken only at an annual
or special meeting of stockholders. No action by stockholders may be taken by
written consent or otherwise without a meeting.
(b) Notwithstanding anything contained in this Certificate of
Incorporation or the corporation's By-Laws to the contrary, this Article 11 and
Section 11 of Article I of the corporation's By-Laws shall not be altered,
amended or repealed, and no provisions inconsistent therewith shall be adopted,
without the affirmative vote of the holders of not
-2-
<PAGE> 3
less than seventy-five percent (75%) of the outstanding stock of the corporation
entitled to vote generally in the election of Directors, voting together as a
single class."
FURTHER RESOLVED, that each such proposed amendment be presented to the
stockholders of the corporation for approval in accordance with law.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, the
annual meeting of the stockholders of said corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
state of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of each amendment contained in this Certificate.
THIRD: That each amendment contained in this Certificate has been duly adopted
in accordance with Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said HPSC, Inc. has caused this Certificate to be
signed by John W. Everets, its chairman of the board, and Dennis W. Townley, its
secretary, and its corporate seal to be affixed hereto this 19th day of May,
1995.
/S/ John W. Everets
---------------------
John W. Everets
Chairman of the Board
Attest:
/s/ Dennis W. Townley CORPORATE SEAL
- ---------------------
Dennis W. Townley
Secretary
-3-
<PAGE> 1
EXHIBIT 3.4
Effective May 22, 1995
AMENDED AND RESTATED BY-LAWS
OF
HPSC, INC.
ARTICLE I
Stockholders
Section 1. Annual Meeting. An annual meeting of the
stockholders of the corporation, for the election of the Directors to succeed
those whose terms expire and for the transaction of such other business as may
properly come before the meeting, shall be held on the third Tuesday of March in
each year (or if that be a legal holiday in the place where the meeting is to be
held, on the next succeeding full business day) at the hour stated in the notice
of the meeting. If the annual meeting of the stockholders is not held on such
date, the Directors shall cause the meeting to be held as soon thereafter as
convenient.
Section 2. Special Meetings. Special meetings of the
stockholders may be called by the President or by order of the Board of
Directors, and shall be called by the Secretary (or in the case of the death,
absence, incapacity or refusal of the Secretary, by any other officer) upon
written application by one or more stockholders who together hold at least 50
percent in interest of the Capital stock entitled to vote at the meeting.
Section 3. Place and Hour of Meetings. All meetings of
stockholders shall be held at the principal office of the corporation at 10:00
a.m. local time unless a different place or hour is fixed by the person or
persons calling the meeting and stated in the notice of the meeting.
Section 4. Notices of Meetings and Adjourned Meetings. A
written notice of each annual or special meeting of the stockholders stating the
place, date, and hour thereof, shall be given by the Secretary (or the person or
persons calling the meeting), not less than 10 nor more than 60 days before the
date of the meeting, to each stockholder entitled to vote thereat, by leaving
such notice with him or at his residence or usual place of business, or by
depositing it postage prepaid in the United States mail, directed to each
stockholder at his address as it appears on the records of the corporation. The
notice of a special meeting of the stockholders shall state the purpose or
purposes for which the meeting is called. An affidavit of the Secretary,
Assistant Secretary, or transfer agent of the corporation that the notice has
<PAGE> 2
been given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. No notice need be given to any person with whom communication is
unlawful or to any person who has waived such notice (a) in writing (which
writing need not specify the business to be transacted at, or the purpose of,
the meeting) signed by such person before or after the time of the meeting or
(b) by attending the meeting except for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. When a meeting is adjourned to another time
and place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken
except that, if the adjournment is for more than thirty days or if, after the
adjournment, a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given in the manner provided in this Section 4.
Section 5. Quorum. At any meeting of the stockholders, a
quorum for the transaction of business shall consist of one or more individuals
appearing in person or represented by proxy and owning or representing a
majority of the shares of the corporation then outstanding and entitled to vote,
provided that less than such quorum shall have power to adjourn the meeting from
time to time.
Section 6. Voting. Unless otherwise provided in the
Certificate of Incorporation and subject to the provisions of Section 10 of this
Article I, each stockholder shall have one vote for each share of stock entitled
to vote held by him of record according to the records of the corporation.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. Persons whose stock is pledged shall be entitled to vote unless
in the transfer by the pledgor on the books of the corporation he has expressly
empowered the pledgee to vote the pledged shares, in which case only the pledgee
or his proxy shall be entitled to vote. If shares stand of record in the names
of two or more persons or if two or more persons have the same fiduciary
relationship respecting the shares then, unless the Secretary is given written
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided to the
contrary: (a) if only one votes, his act binds all; (b) if more than one vote,
the act of the majority so voting binds all; and (c) if more than one vote and
the vote is evenly split, the effect shall be as provided by law.
Section 7. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or any group of not more
than three persons to act for him by proxy, but no such proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period.
Section 8. Action at Meeting. When a quorum is present at any
meeting, action of the stockholders on any matter properly brought before such
meeting shall require, and may be effected by, the affirmative vote of the
holders of a majority in interest of the
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stock present or represented and entitled to vote and voting on such matter,
except where a different vote is required by law, the Certificate of
Incorporation or these By-Laws. If the Certificate of Incorporation so provides,
no ballot shall be required for any election unless requested by a stockholder
present or represented at the meeting and entitled to vote in the election.
Section 9. Stockholder Lists. The officer who has charge of
the stock ledger of the corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote in person or by proxy at any
meeting of stockholders.
Section 10. Record Date.
In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date which shall
not precede the date such record date is fixed and shall not be more than 60 nor
less than ten days before the date of such meeting, nor more than 60 days prior
to any such other action. If no record is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given. The record date for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 11. Action by Written Consent. All actions taken by
stockholders shall be taken at an annual or special meeting of stockholders in
accordance with the provisions of this Article I. No action by stockholders may
be taken by written consent or otherwise without a meeting.
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Section 12. Notification of Nominations. Subject to the
provisions of Section 5 of Article II of these by-laws which permit a vacancy in
the board of directors to be filled by directors, only a stockholder of record
entitled to vote in the election of directors generally may nominate one or more
persons for election as directors at a meeting of stockholders and only if
written notice of such stockholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the corporation and has been received
by the Secretary in advance of the meeting of stockholders. In no event may such
notice of intention to nominate be made from the floor of the meeting of
stockholders.
Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person and persons
specified in the notice;
(c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; and
(d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors.
To be effective, each notice of intent to make a nomination given
hereunder shall be accompanied by the written consent of each nominee to serve
as a director of the corporation if elected.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not properly brought before the
meeting in accordance with the provisions hereof and, if he should so determine,
he shall declare to the meeting that such nomination was not properly brought
before the meeting and shall not be considered.
Section 13. Advance Notice of Stockholder Business.
At any special meeting of stockholders only such business shall be
conducted as shall have been set forth in the notice of special meeting. At an
annual meeting of stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in
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the notice of meeting (or anysupplement thereto) given by or at the direction of
the Board of Directors, (ii) otherwise properly brought before the meeting by or
at the direction of the Board of Directors, or (iii) otherwise (a) properly
requested to be brought before the meeting by a stockholder of record entitled
to vote in the election of directors generally and (b) constitute a proper
subject to be brought before such meeting.
For business (other than the election of directors, which is addressed
by Section 12 of this Article I) to be properly brought before an annual meeting
by a stockholder, the stockholder must give notice in writing which is either
personally delivered to or mailed and received by the Secretary of the
corporation in advance of such meeting. In no event may such notice be given
from the floor of the meeting of stockholders. A stockholder's notice to the
Secretary shall set forth as to each matter (other than the election of
directors, which is addressed by Section 12 of this Article I) the stockholder
proposes to bring before the annual meeting: (a) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (b) the name and address, as
they appear on the corporation's books, of the stockholder intending to propose
such business, (c) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder, (d) a
representation that the stockholder is a holder of record of capital stock of
the corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to present such business, and (e) any material
interests of the stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at any annual meeting except in accordance with the
procedures set forth in Section 12 and this Section 13. The chairman of the
annual meeting shall, if the facts warrant, determine and declare to the meeting
that (i) the business proposed to be brought before the meeting was not a proper
subject therefor and/or (ii) such business was not properly brought before the
meeting in accordance with the provisions of this Section 13, and, if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting or not a proper subject therefor shall not
be transacted.
ARTICLE II
Directors
Section 1. Powers. The business and affairs of the
corporation shall be managed by or under the direction of the Board of
Directors.
Section 2. Number of Directors. The Board of Directors shall
consist of a number within the limits set forth in Article 10 of the
corporation's Certificate of Incorporation. The number of Directors shall be
fixed by the vote of a majority of the entire Board of Directors in each case
within the limits set forth in Article 10 of the corporation's
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Certificate of Incorporation. Any increase or decrease in the authorized number
of Directors shall be governed by the provisions of Section 5 below.
Section 3. Election, Classes and Tenure. The Board of
Directors shall be and is divided into three classes: Class I, Class II and
Class III, which shall be as nearly equal in number as possible; provided,
however, that the number of Directors in any one class shall not exceed the
number of Directors in any other class by more than one. Each Director shall
serve for a term ending on the date of the third annual meeting of stockholders
following the annual meeting at which the Director was elected; provided,
however, that each initial Director in Class I shall hold office until the
annual meeting of stockholders in 1996; and each initial Director in Class II
shall hold office until the annual meeting of stockholders in 1997; and each
initial Director in Class III shall hold office until the annual meeting of
stockholders in 1998. Notwithstanding the foregoing provisions of this Section
3, each Director shall serve until his successor is duly elected and qualified
or until his death, resignation or removal. Notwithstanding the provisions of
Sections 2, 3, 5 and 6 of this Article II, whenever the holders of any one or
more classes or series of stock issued by the corporation having a preference
over the common stock as to dividends or upon liquidiation shall have the right,
voting separately by class or series, to elect Directors at an annual or special
meeting of stockhoders, the election, term of office, filling of vacancies,
terms of removal and other features of such directorships shall be governed by
the terms of Article 4 of the Corporation's Certificate of Incorporation and the
resolution or resolutions establishing such class or series adopted pursuant
thereto and such Directors so elected shall not be divided into classes pursuant
to this Article II unless expressly provided by such terms.
Section 4. Qualification. No Director must be a stockholder.
Section 5. Vacancies and Newly Created Directorships. In the
event of any increase or decrease in the authorized number of Directors, the
newly created or eliminated directorships resulting from such increase or
decrease shall be apportioned by the Board of Directors among the three classes
of Directors so as to maintain such classes as nearly equal in number as
possible. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director. Newly created
directorships resulting from any increase in the number of Directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled exclusively by the
affirmative vote of a majority of the remaining Directors then in office (and
not by stockholders), even if such remaining Directors constitute less than a
quorum of the Board of Directors, or by a sole remaining Director. Any Director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor is duly elected and qualified or until his death, resignation or
removal.
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Section 6. Removal. Any Director may be removed from office
only for cause, and only upon the affirmative vote of the holders of at least
seventy-five (75%) of the voting power of the corporation's stock.
Section 7. Resignation. Any Director of the corporation may
resign at any time by giving written notice to the Board of Directors, to the
Chairman of the Board, if any, to the President, or to the Secretary, and any
member of a committee may resign therefrom at any time by giving notice as
aforesaid or to the Chairman or Secretary of such committee. Any such
resignation shall take effect at the time specified therein, or, if the time be
not specified, upon receipt thereof; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 8. Annual Meeting. Immediately after each annual
meeting of stockholders and at the place thereof, if a quorum of the Directors
is present, there shall be a meeting of the Directors without notice.
Section 9. Regular Meetings. Regular meetings of the Directors
may be held at such times and places as shall from time to time be fixed by
resolution of the Board, and no notice need be given of regular meetings held at
times and places so fixed, PROVIDED, HOWEVER, that any resolution relating to
the holding of regular meetings shall remain in force only until the next annual
meeting of stockholders and that, if at any meeting of Directors at which a
resolution is adopted fixing the times or place or places for any regular
meetings any Director is absent, no meeting shall be held pursuant to such
resolution without notice to or waiver by such absent Director pursuant to
Section 11 of this Article II.
Section 10. Special Meetings. Special meetings of the
Directors may be called by the Chairman of the Board (if any), the President, or
by any two Directors, and shall be held at the place and on the date and hour
designated in the call thereof.
Section 11. Notices. Notices of any special meeting of the
Directors shall be given by the Secretary or an Assistant Secretary to each
Director, by mailing to him, postage prepaid, and addressed to him at his
address as registered on the books of the corporation, or if not so registered
at his last known home or business address, a written notice of such meeting at
least four days before the meeting or by delivering such notice to him at least
48 hours before the meeting or by sending to him at least 48 hours before the
meeting, by prepaid telegram addressed to him at such address, notice of such
meeting. In the absence of all such officers, such notice may be given by the
officer or one of the Directors calling the meeting. Notice need not be given to
any Director who has waived notice (a) in writing executed by him before or
after the meeting and filed with the records of the meeting, or (b) by attending
the meeting except for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or
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convened. A notice or waiver of notice of a meeting of the Directors
need not specify the business to be transacted at or the purpose of the meeting.
Section 12. Quorum. At any meeting of the Directors a majority
of the total number of Directors shall constitute a quorum for the transaction
of business; provided always that any number of Directors (whether one or more
and whether or not constituting a quorum) present at any meeting or at any
adjourned meeting may adjourn such meeting, provided that all absent Directors
receive or waive notice pursuant to Section 11 of Article II of any such
adjournment that exceeds four business days.
Section 13. Action at Meeting. At any meeting of the Directors
at which a quorum is present, the action of the Directors on any matter brought
before the meeting shall be decided by vote of a majority of those present and
voting, unless a different vote is required by law, the Certificate of
Incorporation, or these By-Laws.
Section 14. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 15. Telephone Meetings. Members of the Board of
Directors, or any committee thereof, may participate in a meeting of such Board
or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 15 shall
constitute presence in person at such meeting.
Section 16. Place of Meetings. The Board of Directors may hold
its meetings, and have an office or offices, within or without the State of
Delaware.
Section 17. Compensation. The Board of Directors shall have
the authority to fix the compensation of Directors.
Section 18. Committees. (a) The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the Directors of the
corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority
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of the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property or
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the By-Laws of the corporation. Such a
committee may, to the extent expressly provided in the resolution of the Board
of Directors, have the power or authority to declare a dividend or to authorize
the issuance of stock.
(b) At any meeting of any committee, a majority of the whole
committee shall constitute a quorum and, except as otherwise provided by
statute, by the Certificate of Incorporation, or by these By-Laws, the
affirmative vote of at least a majority of the members present at a meeting at
which there is a quorum shall be the act of the committee.
(c) Each committee, except as otherwise provided by resolution
of the Board of Directors, shall fix the time and place of its meetings within
or without the State of Delaware, shall adopt its own rules and procedures, and
shall keep a record of its acts and proceedings and report the same from time to
time to the Board of Directors.
ARTICLE III
Officers
Section 1. Officers and Their Election. The officers of the
corporation shall be a President, a Secretary, a Treasurer and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time determine and elect or appoint. The
Board of Directors may appoint one of its members to the office of Chairman of
the Board and another of its members to the office of Vice-Chairman of the Board
and from time to time define the powers and duties of these offices
notwithstanding any other provisions of these By-Laws. The President, the
Secretary and the Treasurer shall be elected by the Board of directors at its
annual meeting or at the first meeting of the Board after the date fixed by
these By-Laws therefor and may, but need not, be members of the Board of
Directors. Two or more offices may be held by the same person.
Section 2. Term of Office. The President, the Treasurer and
the Secretary shall, unless sooner removed under the provisions of these
By-Laws, hold office until the next annual election of officers and thereafter
until their respective successors are elected and qualified or until their
earlier resignation or removal. All other officers shall hold office for such
term as shall be determined from time to time by the Board of Directors.
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Section 3. Vacancies. Any vacancy at any time existing in
any office may be filled by the Directors.
Section 4. President. The President shall be the chief
executive officer of the corporation except as the Board of Directors may
otherwise provide. It shall be his duty and he shall have the power to see that
all orders and resolutions of the Board of Directors are carried into effect. He
shall from time to time report to the Board of Directors all matters within his
knowledge which the interests of the corporation may require to be brought to
its notice. The President, when present, shall preside at all meetings of the
stockholders and of the Board of Directors, unless otherwise provided by the
Board of Directors. The President shall perform such duties and have such powers
additional to the foregoing as the Board of Directors shall designate.
Section 5. Chairman of the Board. The Chairman of the Board
shall have the powers and duties expressly designated in these By-Laws and shall
perform such duties and have such powers additional thereto as the Board of
Directors shall designate.
Section 6. Vice Presidents. In the absence or disability of
the President, his powers and duties shall be performed by the Vice President,
if only one, or, if more than one, by the one designated for the purpose by the
Board of Directors. Each Vice President shall perform such duties and have such
powers additional to the foregoing as the Board of Directors shall designate.
Section 7. Treasurer. The Treasurer shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation and shall deposit all monies and other valuable effects in the name
and to the credit of the corporation in such depositories as shall be designated
by the Board of Directors or in the absence of such designation in such
depositories as he shall from time to time deem proper. He shall disburse the
funds of the corporation as shall be ordered by the Board of Directors, taking
proper vouchers for such disbursements. He shall promptly render to the
President and to the Board of Directors such statements of his transactions and
accounts as the President and Board of Directors respectively may from time to
time require. The Treasurer shall Perform such duties and have such powers
additional to the foregoing as the Board of Directors may designate.
Section 8. Assistant Treasurers. In the absence or disability
of the Treasurer, his powers and duties shall be performed by the Assistant
Treasurer, if only one, or if more than one, by the one designated for the
purpose by the Board of Directors. Each Assistant Treasurer shall perform such
duties and have such powers additional to the foregoing as the Board of
Directors shall designate.
Section 9. Secretary. The Secretary shall issue notices of all
meetings of stockholders, of the Board of Directors and of committees thereof
where notices of such
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meetings are required by law or these By-Laws. He shall
record the proceedings of the meetings of the stockholders and of the Board of
Directors and shall be responsible for the custody thereof in a book to be kept
for that purpose. He shall also record the Proceedings of the committees of the
Board of Directors unless such committees appoint their own respective
secretaries. Unless the Board of Directors shall appoint a transfer agent and/or
registrar, the Secretary shall be charged with the duty of keeping, or causing
to be kept, accurate records of all stock outstanding, stock certificates issued
and stock transfers. He shall sign such instruments as require his signature.
The Secretary shall have custody of the corporate seal and shall affix and
attest such seal on all documents whose execution under seal is duly authorized.
In his absence at any meeting, an Assistant Secretary or the Secretary pro
tempore shall Perform his duties thereat. He shall perform such duties and have
such powers additional to the foregoing as the Board of Directors shall
designate.
Section 10. Assistant Secretaries. In the absence or
disability of the Secretary, his powers and duties shall be performed by the
Assistant Secretary, if only one, or, if more than one, by the one designated
for the purpose by the Board of Directors. Each Assistant Secretary shall
perform such duties and have such powers additional to the foregoing as the
Board of Directors shall designate.
Section 11. Salaries. The salaries and other compensation of
officers, agents and employees shall be fixed from time to time by or under
authority from the Board of Directors. No officer shall be prevented from
receiving a salary or other compensation by reason of the fact that he is also a
Director of the corporation.
Section 12. Removal. The Board of Directors may remove any
officer, either with or without cause, at any time.
Section 13. Bond. The corporation may secure the fidelity of
any or all of its officers or agents by bond or otherwise.
Section 14. Resignations. Any officer, agent or employee of
the corporation may resign at any time by giving written notice to the Board of
Directors, to the Chairman of the Board, if any, to the President or to the
Secretary of the corporation. Any such resignation shall take effect at the time
specified therein, or, if the time be not specified, upon receipt thereof; and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
ARTICLE IV
Capital Stock
Section 1. Stock Certificates. Each stockholder shall be
entitled to have a certificate signed by, or in the name of the corporation by
the Chairman or Vice-Chairman of
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the Board or the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary certifying the
number of shares owned by him in the corporation. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before the certificate is issued, such certificate may nevertheless be issued by
the corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
Section 2. Classes of Stock. If the corporation shall be
authorized to issue more than one class of stock or more than one series of any
class, the face or back of each certificate issued by the corporation to
represent such class or series shall either (a) set forth in full or summarize
the powers, designations, preferences and relative, participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions thereof, or (b) contain a statement
that the corporation will furnish a statement of the same without charge to each
stockholder who so requests.
Section 3. Transfer of Stock. Shares of stock shall be
transferable on the books of the corporation pursuant to applicable law and such
rules and regulations as the Board of Directors shall from time to time
prescribe. The Board of Directors may at any time or from time to time appoint a
transfer agent or agents or a registrar or registrars for the transfer or
registration of shares of stock.
Section 4. Holders of Record. Prior to due presentment for
registration of transfer the corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
Section 5. Lost, Stolen, or Destroyed Stock Certificates. The
Board of Directors may direct a new stock certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates or his legal representative, to give the
corporation a bond sufficient to indemnify it against any claim that may be made
against the corporation on account of the alleged loss, theft, or destruction,
of such certificates or the issuance of such new certificate.
ARTICLE V
Miscellaneous Provisions
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Section 1. Interested Directors and Officers. (a) No contract
or transaction between the corporation and one or more of its Directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
officers are Directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the Director or officer is
present at or participates in the meeting of the Board or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors be less than a
quorum; or
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the shareholders.
(b) Common or interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
Section 2. Indemnification. To the maximum extent permitted by
the Delaware General Corporation Law, as the same may be in effect from time to
time, the corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a Director or officer of the corporation,
or is or was a Director or officer of the corporation serving at the request of
the corporation as a Director or officer of another entity, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with such action, suit, or proceeding. Nothing herein shall be deemed
to limit the power of the corporation to similarly indemnify employees or agents
of the corporation or persons who are serving at the request of the corporation
as a Director or officer of another entity but who are not Directors or officers
of the corporation.
Section 3. Stock in Other Corporations. Subject to any
limitations that may be imposed by the Board of Directors, the President or any
person or persons authorized by the Board of Directors may, in the name and on
behalf of the corporation, (a) call meetings of the
-13-
<PAGE> 14
holders of stock or other securities of any corporation or other organization,
stock or other securities of which are held by this corporation, (b) act, or
appoint any other person or persons (with or without powers of substitution) to
act in the name and on behalf of the corporation, or (c) express consent or
dissent, as a holder of such securities, to corporate or other action by such
other corporation or organization.
Section 4. Checks, Notes, Drafts and Other Instruments.
Checks, notes, drafts and other instruments for the payment of money drawn or
endorsed in the name of the corporation may be signed by any officer or officers
or person or persons authorized by the Board of Directors to sign the same. No
officer or person shall sign any such instrument as aforesaid unless authorized
by the Board of Directors to do so.
Section 5. Corporate Seal. The seal of the corporation shall
be circular in form, bearing the name of the corporation, the word "Delaware",
and the year of incorporation, and the same may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
Section 6. Fiscal Year. The fiscal year of the corporation
shall be the year ending with the 31st day of December.
Section 7. Books and Records. The books, accounts and records
of the corporation, except as may be otherwise required by the laws of the State
of Delaware, may be kept outside of the State of Delaware, at such place or
places as the Board of Directors may from time to time appoint. Except as may
otherwise be provided by law, the Board of Directors shall determine whether and
to what extent the books, accounts, records and documents of the corporation, or
any of them, shall be open to the inspection of the stockholders.
Section 8. Separability. If any term or provision of the
By-Laws, or the application thereof to any person or circumstances or period of
time, shall to any extent be invalid or unenforceable, the remainder of the
By-Laws shall be valid and enforced to the fullest extent permitted by law.
Section 9. Amendments. The By-Laws may be amended or repealed
by the stockholders or, if such power is conferred by the Certificate of
Incorporation, by the Board of Directors, except that any By-law added or
amended by the stockholders may be altered or repealed only by the stockholders
if such By-law expressly so provides.
<PAGE> 1
EXHIBIT 10.21
FIRST AMENDMENT
---------------
TO REVOLVING CREDIT AGREEMENT
-----------------------------
This FIRST AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "First Amendment") dated as of November 13, 1995, by and among HPSC, INC.
(the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON
("FNBB"), BANK OF AMERICA ILLINOIS, CORESTATES BANK, N.A., THE DAIWA BANK,
LIMITED, SHAWMUT BANK, N.A. (collectively, the "Banks"), and THE FIRST NATIONAL
BANK OF BOSTON as Agent for the Banks and BANK OF AMERICA ILLINOIS as co-agent
for the Banks. Capitalized terms used herein without definition shall have the
meanings set forth in the Credit Agreement (as defined below).
WHEREAS, the Borrower, the Agent and the Banks are parties to that
certain Amended and Restated Revolving Credit Agreement dated as of May 15,
1995 (as amended, modified or supplemented and in effect from time to time, the
"Credit Agreement");
WHEREAS, the Borrower requested that the Credit Agreement be amended to
permit the Borrower to enter into that certain sales agreement dated as of
November ___, 1995 by and between the Borrower and Springfield Institution for
Savings substantially in the form of EXHIBIT A attached hereto and made a part
hereof.
NOW, THEREFORE, in consideration of the premises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AMENDMENT TO THE CREDIT AGREEMENT.
1.1 CERTAIN DEFINITIONS. Section 1 of the Credit Agreement
is hereby amended by deleting the definition of SIS Credit Agreement and
inserting in lieu thereof the following definition:
"SIS CREDIT AGREEMENT. Together, (i) the dental practice
receivables-backed credit agreement dated as of April 13, 1995 by
and between the Borrower and SISB and (ii) the sale agreement
dated as of November 3, 1995 by and between the Borrower and
SISB."
<PAGE> 2
-2-
1.2. AMENDMENT TO SECTION 8.2 OF THE CREDIT AGREEMENT. Section 8.2 of
the Credit Agreement is hereby amended by inserting the text "or SCHEDULE
8.2(m-1)" immediately after the text "SCHEDULE 8.2(m)."
1.3. AGENT'S AUTHORIZATION. Section 14.1 of the Credit Agreement is
hereby amended by adding the following new sentence at the end thereof:
"Each of the Banks and the Agent further acknowledge and agree that (i)
the Agent is authorized to release the security interest created by the
Security Documents in the assets listed on SCHEDULE 8.2(m-1) and that
(ii) the Agent is authorized to execute and deliver, on behalf of the
Banks and the Agent, such partial releases under the Uniform Commercial
Code as may be necessary or desirable to accomplish a release of the
security interest created by the Security Documents in the assets
listed on SCHEDULE 8.2(m-1)."
2. CONDITIONS TO EFFECTIVENESS. This First Amendment shall not become
effective unless and until:
(a) the Agent receives counterparts of this First Amendment
executed by each of the Borrower, the Majority Banks, the Agent
and the Guarantor; and
(b) all proceedings in connection with the transactions
contemplated by this First Amendment and all documents incident
hereto, including, without limitation, the SIS Credit Agreement
and related documents, shall be satisfactory in form and substance
to the Agent, and the Agent shall have received all information
and counterpart originals or certified or other copies of such
documents, including, without limitation, the SIS Credit Agreement
and related documents as the Agent may reasonably request.
3. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower
represents and warrants to the Agent and the Banks that (a) each and every one
of the representations and warranties made by the Borrower to the Agent and the
Banks in sec. 6 or elsewhere in the Credit Agreement or in the other Loan
Documents, as amended by this First Amendment, are true and correct in all
material respects on and as of the date hereof except to the extent that any of
such representations and warranties relate, by the express terms thereof,
solely to a date prior hereto; (b) the Borrower has duly and properly
performed, complied with and observed each of its covenants, agreements and
obligations contained in secs. 7 and 8 or elsewhere in the Credit Agreement or
the other Loan Documents, as amended by this First Amendment; and (c) no event
has occurred or is continuing and no condition exists which constitutes a
Default or Event of Default.
<PAGE> 3
-3-
4. RATIFICATION, ETC. Except as expressly amended by this Amendment,
the Credit Agreement and the Loan Documents and all documents, instruments and
agreements related thereto, including, but not limited to the Security
Documents, are hereby ratified and confirmed in all respects and shall continue
in full force and effect. The Borrower confirms and agrees that the Obligations
of the Borrower to the Banks under the Loan Documents, as amended hereby, are
secured by, guarantied under, and entitled to the benefits, of the Security
Documents. The Borrower, the Guarantor, the Agent and the Banks hereby
acknowledge and agree that all references to the Credit Agreement and the
Obligations thereunder contained in any of the Loan Documents shall be
references to the Credit Agreement and the Obligations, as affected and
increased hereby and as the same may be amended, modified, supplemented, or
restated from time to time. The Security Documents and the perfected first
priority security interests of the Agent on behalf of the Banks thereunder
shall continue in full force and effect, and the collateral security and
guaranties provided for in the Security Documents shall not be impaired by this
Amendment. The Credit Agreement and this First Amendment shall be read and
construed as a single agreement.
5. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on
demand by the Agent, all reasonable out-of-pocket costs and expenses incurred
or sustained by the Agent or any of the Banks in connection with the
preparation of this First Amendment and the documents referred to herein
(including reasonable legal fees). Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or any rights of the Agent or either of the Banks consequent
thereon. This First Amendment may be executed in one or more counterparts, each
of which shall be deemed an original but which together shall constitute one
and the same instrument. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute part of this
First Amendment for any other purpose. This First Amendment shall be governed
by, and construed in accordance with, the laws of the Commonwealth of
Massachusetts (without reference to conflict of laws).
<PAGE> 4
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By: /s/ John W. Everets
----------------------------
Name: John W. Everets
Title: Chairman & CEO
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By:
----------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By:
----------------------------
Name:
Title:
SHAWMUT BANK, N.A.
By:
----------------------------
Name:
Title:
<PAGE> 5
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By:
----------------------------
Name:
Title:
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By: /s/ Mitchell B. Feldman
----------------------------
Name: Mitchell B. Feldman
Title: Managing Director
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By:
----------------------------
Name:
Title:
SHAWMUT BANK, N.A.
By:
----------------------------
Name:
Title:
<PAGE> 6
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By:
----------------------------
Name:
Title:
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By:
----------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By: /s/ Mark N. Hurley
----------------------------
Name: Mark N. Hurley
Title: Managing Director
SHAWMUT BANK, N.A.
By:
----------------------------
Name:
Title:
<PAGE> 7
-4-
IN WITNESS WHEREOF, the undersigned have duly executed this First
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By:
----------------------------
Name:
Title:
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By:
----------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By:
----------------------------
Name:
Title:
SHAWMUT BANK, N.A.
By: /s/ Salvatore Salzillo
----------------------------
Name: Salvatore Salzillo
Title: Assistant Vice President
<PAGE> 8
-5-
CORESTATES BANK, N.A.
By: /s/ Verna R. Prentice
----------------------------
Name: Verna R. Prentice
Title: Vice President
THE DAIWA BANK, LIMITED
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
Consented to by the undersigned Guarantor:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By:
------------------------------
<PAGE> 9
-5-
CORESTATES BANK, N.A.
By:
----------------------------
Name:
Title:
THE DAIWA BANK, LIMITED
By: /s/ Alfred DeGemmis
----------------------------
Name: Alfred DeGemmis
Title: Vice President
By: /s/ Daniel G. Eastman
----------------------------
Name: Daniel G. Eastman
Title: Vice President & Manager
Consented to by the undersigned Guarantor:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By:
------------------------------
<PAGE> 10
-5-
CORESTATES BANK, N.A.
By:
----------------------------
Name:
Title:
THE DAIWA BANK, LIMITED
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
Consented to by the undersigned Guarantor:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By: /s/ John R. Everets
------------------------------
John R. Everets
<PAGE> 1
EXHIBIT 10.22
SECOND AMENDMENT
----------------
TO REVOLVING CREDIT AGREEMENT
-----------------------------
This SECOND AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Second Amendment") dated as of December 1, 1995, by and among
HPSC, INC. (the "Borrower"), a Delaware corporation, AMERICAN COMMERCIAL
FINANCE CORPORATION, a Delaware corporation ("ACFC" or the "Guarantor"), THE
FIRST NATIONAL BANK OF BOSTON ("FNBB"), BANK OF AMERICA ILLINOIS ("BOA"),
CORESTATES BANK, N.A. ("CoreStates"), THE DAIWA BANK, LIMITED ("Daiwa"),
NATIONSBANK, N.A. ("NationsBank") (FNBB, BOA, CoreStates, and Daiwa,
collectively, the Existing Banks)(the Existing Banks and NationsBank,
collectively, the "Banks"), and THE FIRST NATIONAL BANK OF BOSTON as Agent for
the Banks and BANK OF AMERICA ILLINOIS as co-agent for the Banks. Capitalized
terms used herein without definition shall have the meanings set forth in the
Credit Agreement (as defined below).
WHEREAS, the Borrower, the Agent and the Banks are parties to that
certain Amended and Restated Revolving Credit Agreement dated as of May 15,
1995, as amended by the First Amendment dated as of November 13, 1995, (as so
amended and as may be further amended, modified or supplemented and in effect
from time to time, the "Credit Agreement");
WHEREAS, the Borrower has requested that NationsBank agree to provide
an additional commitment to make loans to the Borrower in an amount equal to
the amount set forth opposite its name on SCHEDULE 1 subject to the terms and
conditions contained herein and in the Credit Agreement, and NationsBank,
subject to the terms and conditions contained herein and in the Credit
Agreement, has agreed to so provide an additional commitment;
WHEREAS, the Borrower has requested that certain other terms and
provisions of the Credit Agreement be amended and the Agent and the Banks
subject to the terms and conditions contained herein, have agreed to so amend
the Credit Agreement;
NOW, THEREFORE, in consideration of the premises contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. AMENDMENT TO THE CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
<PAGE> 2
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(a) Section 1.1 of the Credit Agreement is hereby amended by deleting
the following definitions in their entirety: "Letter of Credit", "Letter of
Credit Fee", "Letter of Credit Application", "Letter of Credit Participation",
"Maximum Drawing Amount", "Reimbursement Obligation", "Uniform Customs" and
"Unpaid Reimbursement Obligations".
(b) Section 1.1 of the Credit Agreement is hereby amended by inserting
the following new definitions in the appropriate place in the alphabetical
sequence of definitions:
"ACFC CREDIT POLICY." ACFC's criteria for the extension of credit for
receivables and contracts as set forth on EXHIBIT J attached hereto and made a
part hereof.
"ACFC RECEIVABLE." An Account Receivable originated by ACFC pursuant
to ACFC's Credit Policy.
"CONDITIONAL SALES AGREEMENT." Each conditional sales agreement which
evidences any Accounts Receivable included as an Eligible Accounts Receivable
"CONTRACT FILE." With respect to each Contract, the executed original
counterpart of the Contract that constitutes an "instrument" for purposes of
9-105(1)(i) of the UCC, together with a duly executed allonge transferring such
instrument to the Agent.
"INSTRUMENT OF ADHERENCE." See sec.18.10.
"NEW BANK." See sec.18.10.
"RESERVE AMOUNT." $1,000,000.
"UCC." The Uniform Commercial Code as enacted and in effect from time
to time in the Commonwealth of Massachusetts.
(c) Section 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Borrowing Base" in its entirety and inserting in lieu
thereof the following text:
"BORROWING BASE. At the relevant time of reference thereto, an
amount determined by the Agent by reference to the most recent
Borrowing Base Report delivered to the Banks and the Agent pursuant to
sec.7.4(e), which is equal to the sum of the following:
(i) 80% of Eligible Accounts Receivable; PLUS
<PAGE> 3
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(ii) 50% of the Residual Value of Equipment, PROVIDED, that
the amount included in the Borrowing Base pursuant to
this clause (ii) shall not exceed $1,000,000; MINUS
(iii) the Reserve Amount;
PROVIDED, HOWEVER, that (x) if the Total Commitment is less
than $60,000,000, ACFC Receivables included in the Borrowing Base shall
not comprise more than 25% of the Borrowing Base and (y) if the Total
Commitment is equal to or greater than $60,000,000, ACFC Receivables
included in the Borrowing Base shall not comprise more than 35% of the
Borrowing Base."
(d) Section 1.1 of the Credit Agreement is hereby further amended by
deleting the word "Shawmut"' appearing in the definition of "Banks".
(e) Section 1.1 of the Credit Agreement is hereby further amended by
inserting the text "(other than the purchase of computer software)" immediately
after the text "purchase or lease by the Borrower or any of its Subsidiaries of
Capital Assets" and before the text "that would be required to be capitalized"
appearing in the definition of "Capital Expenditures".
(f) Section 1.1 of the Credit Agreement is hereby further amended by
deleting the text ", and participate in the issuance, extension and renewal of
Letters of Credit for the account of," appearing in the definition of
"Commitment".
(g) Section 1.1 of the Credit Agreement is hereby further amended by
inserting the text "Customer Receivable or Practice Receivable relating to any"
after the text "or instrument which evidences any" and before the text "Account
Receivable included" appearing in the definition of "Contract".
(h) Section 1.1 of the Credit Agreement is hereby further amended by
inserting the text "or inventory or accounts" at the end of the definition of
"Customer".
(i) Section 1.1 of the Credit Agreement is hereby further amended by
deleting subsection (xiii) of the definition of "Eligible Accounts Receivable"
and inserting in lieu thereof the following new subsection (xiii):
"(xiii) that originated in the ordinary course of the
Borrower's or ACFC's business;".
<PAGE> 4
-4-
(j) Section 1.1 of the Credit Agreement is hereby further amended by
inserting the following new subsections (xviii) through (xxii) immediately
after subsection (xvii) of the definition "Eligible Accounts Receivable":
"(xviii) that if an ACFC Receivable, the Contract Files with
respect to the Contracts relating thereto have been delivered to the
Agent; (xix) that with respect to which all the representations and
warranties set forth in sec.6.21 of this Credit Agreement are true and
correct in all material respects on and as of the date hereof except to
the extent that any of such representations and warranties relate, by
the express terms thereof, solely to a date prior to the relevant date;
(xx) that with respect to which the Borrower or ACFC has filed and
maintained the effectiveness of UCC financing statements against the
Obligor in order to perfect any security interest granted in such
Contract in the related collateral of the Obligor; (xxi) that satisfies
all applicable requirements of the Borrower's Credit Policy or if an
ACFC Receivable, the ACFC Credit Policy; and (xxii) that is freely
assignable and arises under a Contract which is also freely
assignable;"
(k) Section 1.1 of the Credit Agreement is hereby further amended by
deleting the amount "$10,000,000" appearing in clause (ii) of the last sentence
of the definition of "Eligible Accounts Receivable" and inserting in lieu
thereof the amount "$12,500,000".
(l) Section 1.1 of the Credit Agreement is hereby further amended by
deleting the text ", the Letter of Credit Applications, the Letters of Credit"
appearing in the definition of "Loan Documents".
(m) Section 1.1 of the Credit Agreement is hereby further amended by
deleting the date "December 31, 1995" appearing in the definition of "Maturity
Date" and inserting in lieu thereof the date "December 31, 1996".
(n) Section 1.1 of the Credit Agreement is hereby further amended by
deleting the text "Letter of Credit Applications, Letters of Credit" appearing
in the definition of "Obligations".
(o) Section 2.1 of the Credit Agreement is hereby amended by deleting
the text "MINUS such Bank's Commitment Percentage of the sum of the Maximum
Drawing Amount and all Unpaid Reimbursement Obligations" and the text "PLUS the
Maximum Drawing Amount and all Unpaid Reimbursement Obligations" appearing in
the first sentence thereof.
<PAGE> 5
-5-
(p) Section 2.2 of the Credit Agreement is hereby amended by deleting
the text "MINUS the sum of the Maximum Drawing Amount and all Unpaid
Reimbursement Obligations" appearing therein.
(q) Section 2.6 of the Credit Agreement is hereby amended by deleting
the time "1:00 p.m." appearing therein and inserting in lieu thereof the time
"12:00 noon (Boston time)".
(r) Section 2.8.1 of the Credit Agreement is hereby amended by
deleting the time "1:00 p.m." appearing therein and inserting in lieu thereof
the time "2:00 p.m.".
(s) Section 3.2 of the Credit Agreement is hereby amended by deleting
the text in its entirety and inserting in lieu thereof the text:
"If at any time the sum of the outstanding amount of the
Revolving Credit Loans exceeds the lesser of (i) the Total Commitment
and (ii) the Borrowing Base, for more than five (5) consecutive
Business Days, then the Borrower shall immediately pay the amount of
such excess to the Agent for the respective accounts of the Banks for
application to the Revolving Credit Loans. Each prepayment of the
Revolving Credit Loans shall be allocated among the Banks, in
proportion, as nearly as practicable, to the respective unpaid
principal amount of each Bank's Revolving Credit Note, with adjustments
to the extent practicable to equalize any prior payments or repayments
not exactly in proportion. In addition, collections of Accounts
Receivable shall be applied to the Revolving Credit Loans pursuant to
cash management arrangements satisfactory to the Agent and the Banks."
(t) Section 3A of the Credit Agreement is hereby amended by deleting
it in its entirety.
(u) Section 4.3.1 of the Credit Agreement is hereby amended by
deleting the text: "Reimbursement Obligations, Letter of Credit Fees" appearing
therein.
(v) Section 4.4 of the Credit Agreement is hereby amended by deleting
the text "and Letter of Credit Fees" appearing therein.
(w) Section 4.7 of the Credit Agreement is hereby amended by deleting
the text "Reimbursement Obligation" each time such text appears therein.
(x) Section 6 of the Credit Agreement is hereby amended by deleting
the text "The Borrower" appearing in the introductory text and inserting the
text "Each of the Borrower and ACFC" in lieu thereof.
(y) Section 6.17 of the Credit Agreement is hereby amended by deleting
the sentence "The Borrower will obtain Letters of Credit solely for the purpose
of complying with the requirements of sec.7.2 of the Stock Purchase Agreement"
appearing therein.
<PAGE> 6
-6-
(z) Section 6.19 of the Credit Agreement is hereby amended by
inserting the sentence "Each of Funding, Credident, and ACFC have no
Subsidiaries" at the end thereof.
(aa) Section 6.21 of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the following
text:
"Each Account Receivable included in Eligible Accounts
Receivable meets the following criteria:
(a) Either the Borrower or ACFC is the sole legal owner of the
Account Receivable, the Contracts and the Equipment (or will have a
first priority security interest in the Equipment), free and clear of
all liens other than Permitted Liens.
(b) Each of the Contracts is a legal, valid and binding full
recourse obligation of the Obligor thereunder, enforceable by the
Borrower or ACFC and their respective assigns against such Obligor in
accordance with the terms thereof, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or similar laws
relating to or affecting the enforcement of creditors' rights generally
and by any and all applicable requirements of any federal, state or
local law including, without limitation, usury, truth-in-lending and
equal credit opportunity laws applicable to each Contract have been
complied with.
(c) The Borrower and ACFC, and to the best of their respective
knowledge, the other parties to such Contract, had all requisite
authority and capacity to enter into such Contract; and no Obligor has
been released, in whole or in part, from any of its obligations in
respect of any Contract.
(d) Except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and by equitable principles,
the obligation of each Obligor to pay all amounts owed under each of
the Contracts to which such Obligor is a party throughout the term
thereof is and will be unconditional, without any right of set-off or
counterclaim or any defense by such Obligor, and without regard to any
event affecting the Equipment, if
<PAGE> 7
-7-
any, subject to such Contract, any claim of such Obligor against the
Borrower or ACFC or any change in circumstance of such Obligor or any
other circumstance whatsoever.
(e) There will be no facts or circumstances existing as of the
relevant time which give rise to any right of rescission, offset,
counterclaim or defense, including the defense of usury, to the
obligations of any Obligor, including the obligation of such Obligor to
pay all amounts due thereunder, with respect to any Contract to which
such Obligor is a party; and neither the operation of any of the terms
of any Contract nor the exercise of any right thereunder will render
such Contract unenforceable in whole or in part or subject to any right
of rescission, offset, counterclaim or defense, including the defense
of usury (other than limitations on enforcement as a result of
bankruptcy, insolvency, reorganization or similar laws relating to or
affecting the enforcement of creditors' rights generally and by general
equitable principles), and no such right of rescission, offset,
counterclaim or defense has been asserted with respect thereto.
(f) No Contract, and no provision of any Contract, has been
amended, terminated, altered, waived or modified since inception in any
respect that is adverse to the interests of the Borrower or ACFC except
for reissues that are consistent with Borrower's past practices, no
Contract has been satisfied, cancelled or subordinated, in whole or in
part, or rescinded, nor has any instrument been executed that would
effect any such satisfaction, cancellation, subordination or
rescission, except for Contracts that have been prepaid in full.
(g) No Obligor has been released by the Borrower or ACFC from
the terms of the related Contract.
(h) Each Contract was originated or acquired in (1) in the
Borrower's ordinary course of business, in accordance with the
Borrower's Credit Policy or (2) in ACFC's ordinary course of business,
in accordance with ACFC's Credit Policy. Each Contract is of a type
<PAGE> 8
-8-
customarily in use in the leasing or financing business and has not
been found, in the Agent's reasonable judgment, to be unacceptable.
(i) Each Obligor is a resident of the United States of America
and is not the Borrower or ACFC or an Affiliate of the Borrower or
ACFC.
(j) Each Lease requires the Obligor to assume all risk of loss
or malfunction of the related Equipment. Each Lease or Conditional
Sales Agreement requires the Obligor to pay all sales, use, property,
excise and other similar taxes imposed on or with respect to the
related Equipment. No Contract permits early termination or
prepayment, unless the amount required to be paid by or on behalf of
Obligor in respect thereof is equal to or greater than the applicable
termination amount as set forth in such Contract. No Contract provides
for the substitution, exchange or addition of any Equipment subject
thereto which would result in any reduction of the amount of payments
or change the timing of payments due under such Contract.
(k) There are no proceedings or investigations pending against
the Borrower or ACFC or, to the best of their respective knowledge,
threatened or otherwise pending before any court, regulatory body,
administrative agency or other tribunal or government instrumentality
(A) asserting the invalidity or unenforceability of any Contract, (B)
seeking to prevent payment and performance of any Contract, or (C)
seeking any determination or ruling that might, in the aggregate,
adversely and materially affect the validity or enforceability of any
Contract.
(l) Each of the Borrower and ACFC has duly performed all
material obligations on its part required to be performed by it under
or in connection with each Contract, and has done nothing to materially
impair its rights thereunder.
(m) Each Contract is either an "account" (as defined in Section
9-106 of the UCC) or "chattel paper" (as defined in Section 9-105 of
the UCC) or an
<PAGE> 9
-9-
"instrument" (as defined in Section 9-105 of the UCC). If the Contract
is chattel paper, then (i) there is only one counterpart of the
Contract that constitutes "chattel paper" for purposes of Section
9-105(b) and 9-308 of the UCC and (ii) either the Borrower or ACFC, as
applicable, has a first priority security interest in the Equipment
that is the subject of the Contract.
(n) Each Lease requires the related Obligor to maintain the
related Equipment, if any, in good and workable order. Each Lease or
Conditional Sales Agreement requires the related Obligor to obtain and
maintain physical damage insurance on the Equipment subject thereto and
to name the lessor or lender thereunder as loss payee and an additional
insured with respect thereto. The Agent is named as loss payee under
all of the Borrower's or ACFC's physical damage insurance on the
Equipment, other than insurance of the Borrower or ACFC maintained
under Borrower's or ACFC's lessee insurance program pursuant to
equipment leases and conditional sales agreements with its lessees. To
the best of the Borrower's and ACFC's knowledge, the Equipment was
properly delivered to the Obligor in good repair, without defects and
in satisfactory order and the related Equipment, if any, is in good
operating condition and repair. To the best of the Borrower's and
ACFC's knowledge, the related Equipment was accepted by the Obligor
after reasonable opportunity to inspect and test the same and no
Obligor has informed the Borrower or ACFC of any defects therein.
(o) No Contract constitutes a "consumer lease" under the UCC.
(p) The Borrower and ACFC have marked their computer records,
to reflect the interest granted to the Agent hereunder.
(q) Each Contract permits the rights with respect to such
Contract, and all collateral related thereto, to be assigned by either
the Borrower or ACFC, as applicable, without the consent of any Person.
<PAGE> 10
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(r) The Borrower or ACFC, as applicable, shall have taken
actions with respect to the collateral in respect of each Contract
related to any Account Receivable which has an outstanding balance
equal to or greater than $5,000 as is necessary to insure that the
Borrower or ACFC, as applicable, maintains, as against the Obligor
thereunder a perfected security interest in any collateral of the
Obligor relating thereto free and clear of adverse claims, or in the
case of any Lease, to ensure that the Borrower or ACFC, as the case may
be, would maintain such a perfected security interest in the event that
a court or other Person were to determine that such Lease purported to
transfer to the Obligor an ownership (rather than a leasehold) interest
in the Equipment subject thereto.
(s) The Borrower or ACFC, as applicable, shall have
taken actions with respect to the Accounts Receivable to ensure that
the Agent, for the benefit of itself and the Banks, has a priority
perfected security interest in such Accounts Receivable free and clear
of any adverse claims, including, without limitation, delivery of any
applicable Contract Files."
(z) Section 7 of the Credit Agreement is hereby amended by
deleting the text "The Borrower" appearing therein and inserting in lieu
thereof the text "Each of the Borrower and ACFC".
(aa) Section 7 of the Credit Agreement is hereby amended mutatis
mutandis to reflect the fact that ACFC is bound, with respect to itself,
by each of the agreements, covenants, and obligations set forth in
Sections 7.3, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14 and
7.15 to the same extent as the Borrower.
(bb) Section 7.1 of the Credit Agreement is hereby amended by
deleting the text ", the Letter of Credit Fees" appearing therein.
(cc) Section 7.2 of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the
text:
"The Borrower will, and will cause each of its Subsidiaries
(other than Credident and ACFC) to maintain its chief executive
office in Boston, Massachusetts or at such other place in the
United States of America as the Borrower shall designate upon
written notice to the Agent, where notices, presentations and
demands to or upon the Borrower and its Subsidiaries in respect
of the Loan Documents may be given or made. ACFC will maintain
its chief executive office in West Hartford, Connecticut, or at
such other place in the United States of America as ACFC shall
designate upon written notice to the Agent, where notices,
presentations and demands to or upon ACFC in respect of the Loan
Documents may be given or made."
(dd) Section 7.4 of the Credit Agreement is hereby amended
mutatis mutandis to reflect the fact that ACFC is required to deliver to
the Banks at the same times and in the same manner, the same reports and
other information with respect to ACFC as is required of the Borrower
pursuant to such Section (other than those set forth in Sections 7.4(a)
and 7.4(b)).
(ee) Section 7.4(a) of the Credit Agreement is hereby amended by
deleting the text: ", together with a written statement from such
accountants to the effect that they have read a copy of this Credit
Agreement, and that, in making the examination necessary to said
certification, they have obtained no knowledge of any Default or Event
of Default, or, if such accountants shall have obtained knowledge of any
then existing Default or Event of Default they shall disclose in such
statement any such Default or Event of Default; provided that such
accountants shall not be liable to the Banks for failure to obtain
knowledge of any Default or Event of Default".
(ff) Section 7.4(h) of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the
text: "within 5 days of receipt of the same by the Borrower copies of
(i) the monthly status reports under the Funding Indenture and (ii)
monthly settlement reports under the Funding II Credit Agreement and
from time to time if the Agent or any Bank so requests copies of (i)
other reports delivered under the Funding Indenture or the Funding II
Credit Agreement and (ii) other financial data and information with
respect to the Borrower or any of its Subsidiaries."
(gg) Section 7.4(i) of the Credit Agreement is hereby amended by
inserting the following text at the end thereof: "if such Schedule has
changed since it was last delivered to the Banks".
(hh) Section 7.4 of the Credit Agreement is hereby amended by
deleting the word "and" appearing at the end of subsection (h), by
inserting a semicolon in place of the period appearing at the end of
subsection (i), and by inserting the following new subsections (j), (k),
(l) and (m) immediately after subsection (i) thereof:
"(j) within fifteen (15) days after the end of each
calendar month or at such earlier time as the Agent may request,
the monthly management report for ACFC;
(k) as soon as practicable, but in any event not later than
one hundred (100) days after the end of each fiscal year of
ACFC, copies of any reports prepared by management with respect
to the financial conditions and results of operation of ACFC;
(l) as soon as practicable, but in any event not later than
forty-eight (48) days after the end of each of the first three
fiscal quarters of the fiscal year of ACFC, copies of any
reports prepared by management with respect to the financial
condition and results of operation of ACFC; and
(m) from time to time, such other information regarding the
financial condition and results of operation of the Borrower or
ACFC as any of the Banks or the Agent shall reasonably request."
(ii) Section 7.12 of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the
text: "The Borrower will use the proceeds of the Loans solely for
working capital purposes."
(jj) Section 7 of the Credit Agreement is hereby amended by
inserting the following new subsections 7.16, 7.17 and 7.18 immediately
following subsection 7.15 thereof:
<PAGE> 11
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"7.16 CREDIT POLICY. The Borrower and ACFC shall comply in all
material respects with the Credit Policy and the ACFC Credit Policy, as
applicable, in regard to each Account Receivable and any related Contracts.
7.17 PERFECTED SECURITY INTEREST UNDER CONTRACTS. The Borrower and
ACFC shall take such actions with respect to each Account Receivable which
has an outstanding balance equal to or greater than $5,000 as is necessary
to insure that the Borrower or ACFC, as applicable, maintains against the
Obligor thereunder a perfected security interest in any collateral of the
Obligor relating thereto free and clear of adverse claims, or in the case
of any Lease, to ensure that the Borrower or ACFC, as the case may be,
would maintain such a perfected security interest in the event that a court
or other Person were to determine that such Lease purported to transfer to
the Obligor an ownership (rather than a leasehold) interest in the
Equipment subject thereto.
7.18 PERFORMANCE AND COMPLIANCE WITH RECEIVABLES AND CONTRACTS. The
Borrower and ACFC, as applicable, shall
<PAGE> 12
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at their own expense timely and fully perform and comply in all material
respects, with all material provisions, covenants and other promises
required to be observed by it under the Contacts."
(kk) Section 8 of the Credit Agreement is hereby amended by deleting
the introductory text in its entirety and inserting in lieu thereof the text:
"The Borrower covenants and agrees that, so long as any Loan or Note is
outstanding or any Bank has any obligation to make any Loans hereunder:"
(ll) Section 8.1(k) of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the text:
"[Intentionally Omitted]".
(mm) Section 8.2(k) of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the text
"[Intentionally Omitted"].
(nn) Section 8.3(e) of the Credit Agreement is hereby amended by
deleting the amount "$7,000,000" appearing therein and inserting in lieu
thereof the amount "$10,000,000" and by inserting the text "and $12,500,000
during fiscal year 1996 and (iii) the aggregate amount of incremental
Investments by the Borrower and its Subsidiaries in Credident does not exceed
$100,000 during fiscal year 1996."
(oo) Section 8.4 of the Credit Agreement is hereby amended by
deleting the text ", PROVIDED, HOWEVER, that the Borrower may make payments
required to be made pursuant to the provisions of the Stock Purchase Agreement
so long as no Default or Event of Default has occurred and is continuing"
appearing therein.
(pp) Section 8 of the Credit Agreement is hereby amended by inserting
the following new subsection 8.12 immediately following subsection 8.11
thereof:
"8.12 CHANGE IN CREDIT POLICY. The Borrower shall not make any
change in the character of its business or in its Credit Policy, which
change would, in either case, impair the collectibility of any Contract.
ACFC shall not make any change in the character of its business or in the
ACFC Credit Policy, which change would, in either case, impair the
collectibility of any Contract."
(qq) Section 9.1 of the Credit Agreement is hereby amended by deleting
the percentage "400%" appearing therein and inserting in lieu thereof the
percentage "480%".
<PAGE> 13
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(rr) Section 9.4 of the Credit Agreement is hereby amended by deleting
the amount "$1,000,000" appearing therein and inserting in lieu thereof the
amount "$1,700,000".
(ss) Section 9.6 of the Credit Agreement is hereby amended by deleting
the percentage "10%" appearing therein and inserting in lieu thereof the
percentage "9%".
(tt) Section 9.8 of the Credit Agreement is hereby amended by
inserting the text "ACFC will, at the end of each fiscal quarter, recognize a
provision for losses on its books for losses with respect to ACFC Receivables
at least equal to one percent (1%) of Net Customer Receivables of ACFC
originated during such fiscal quarter, as reduced by recoveries in such quarter
and otherwise adjusted in accordance with generally accepted accounting
principles" at the end thereof.
(uu) Section 9.9 of the Credit Agreement is hereby amended by deleting
the percent "90%" appearing therein and inserting in lieu thereof the number
"94%".
(vv) Section 10 of the Credit Agreement is hereby amended by deleting
the text "and of the Agent to issue, extend or renew any Letters of Credit"
appearing in the introductory text.
(ww) Section 10.14 of the Credit Agreement is hereby amended by
deleting the text in its entirety and inserting in lieu thereof the text
"[Intentionally Omitted]".
(xx) Section 11.2 of the Credit Agreement is hereby amended by
deleting the text "or to participate in the issuance, extension or renewal of
such Letter of Credit or in the reasonable opinion of the Agent would make it
illegal for the Agent to issue, extend or renew such Letter of Credit"
appearing at the end thereof.
(yy) Section 11.5 of the Credit Agreement is hereby amended by
deleting the text "or the issuance, extension or renewal of the requested
Letter of Credit" appearing at the end thereof.
(zz) Section 12.1(b) of the Credit Agreement is hereby amended by
deleting the text ", any Letter of Credit Fee" appearing therein.
(aaa) Section 12.1 of the Credit Agreement is hereby amended by
deleting the text ", and all Reimbursement Obligations" appearing in the final
paragraph thereof.
<PAGE> 14
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(bbb) Section 12.1 of the Credit Agreement is hereby amended by
inserting the following new subsection (u) immediately following existing
subsection (t):
"(u) the Borrower shall cease to own one hundred percent (100%)
of the outstanding shares of common stock of ACFC."
(ccc) Section 12.3 of the Credit Agreement is hereby amended by
deleting the text: "or the Reimbursement Obligations" and the text "or
purchaser of any Letter of Credit Participation" appearing therein.
(ddd) Section 13 of the Credit Agreement is hereby amended by deleting
the text in its entirety and inserting in lieu thereof the text:
"Regardless of the adequacy of any collateral, during the
continuance of any Event of Default, any deposits or other sums
credited by or due from any of the Banks to the Borrower and any
securities or other property of the Borrower in the possession of such
Bank may be applied to or set off by such Bank against the payment of
Obligations and any and all other liabilities, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, of the Borrower to such Bank. Each of the Banks agrees with
each other Bank that (i) if an amount to be set off is to be applied to
Indebtedness of the Borrower to such Bank, other than Indebtedness
evidenced by the Notes held by such Bank, such amount shall be applied
ratably to such other Indebtedness and to the Indebtedness evidenced by
all such Notes held by such Bank, and (ii) if such Bank shall receive
from the Borrower, whether by voluntary payment, exercise of the right
of setoff, counterclaim, cross action, enforcement of the claim
evidenced by the Notes held by such Bank, by proceedings against the
Borrower at law or in equity or by proof thereof in bankruptcy,
reorganization, liquidation, receivership or similar proceedings, or
otherwise, and shall retain and apply to the payment of the Note or
Notes held by such Bank any amount in excess of its ratable portion of
the payments received by all of the Banks with respect to the Notes
held by such Bank, such Bank will make such disposition and
arrangements with the other Banks with respect to such excess, either
by way of distribution, PRO TANTO assignment of claims, subrogation or
otherwise as shall result in each Bank receiving in respect of the
Notes held by it, its proportionate payment as contemplated by this
Credit
<PAGE> 15
-16-
Agreement; PROVIDED that if all or any part of such excess
payment is thereafter recovered from such Bank, such disposition and
arrangements shall be rescinded and the amount restored to the extent
of such recovery, but without interest unless such Bank is required to
pay interest on the payment recovered from such Bank, in which case
each of the other Banks will pay its pro-rata share of such interest."
(eee) Section 14.5.3 of the Credit Agreement is hereby amended by
deleting the text "or to purchase any Letter of Credit Participation" and the
text ", Unpaid Reimbursement Obligations," and the text "and Unpaid
Reimbursement Obligations" each time any such text appears therein.
(fff) Section 14.6 of the Credit Agreement is hereby amended by
deleting the text "or the purchaser of any Letter of Credit Participation"
appearing therein.
(ggg) Section 18.1 of the Credit Agreement is hereby amended by
deleting the text ", its participating interest in the risk relating to any
Letters of Credit" appearing therein.
(hhh) Section 18.2(i) of the Credit Agreement is hereby amended by
deleting it in its entirety.
(iii) Section 18.2(g) and (h) of the Credit Agreement are hereby
amended by inserting the word "and" at the end of Section 18.2(g) and by
deleting the word "and" appearing at the end of Section 18.2(h) and by
substituting a period for the semicolon appearing at the end of Section 18.2.
(jjj) Section 18.3 of the Credit Agreement is hereby amended by
deleting the text: "and Letter of Credit Participations purchased by" appearing
therein.
(kkk) Section 18.5 of the Credit Agreement is hereby amended by
deleting the text "or Letter of Credit Fees" appearing therein.
(lll) Section 18.7 of the Credit Agreement is hereby amended by
deleting the text "or Reimbursement Obligations" each time such text appears
therein.
(mmm) Section 25 of the Credit Agreement is hereby amended by deleting
the text "or Letter of Credit Fees" each time such text appears therein.
(nnn) SCHEDULE 1 to the Credit Agreement is hereby amended by deleting
such Schedule in its entirety and substituting the SCHEDULE 1 attached hereto
in place thereof.
<PAGE> 16
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2. INTERBANK SETTLEMENTS. The Borrower and the Banks hereby agree
that all amounts paid to any Bank by any other Bank in connection with
interbank settlements with respect to Loans outstanding immediately prior to
the date hereof shall be deemed to constitute Loans under the Credit Agreement
as amended hereby.
3. NEW BANK. By its signature hereinbelow, NationsBank agrees to be
bound (to the extent of its Commitment), as a Bank, by the terms and conditions
of the Credit Agreement and the other Loan Documents, and to make Loans to the
Borrower in accordance with the terms of the Credit Agreement and in accordance
with its Commitment. By its signature hereinbelow, NationsBank further
represents, warrants, acknowledges and agrees as follows:
(a) the Agent and the Banks have made no representation or warranty
and shall have no responsibility with respect to any statements,
warranties or representations made in or in connection with the
Credit Agreement or any of the other Loan Documents or the
execution, legality, validity, enforceability, genuineness,
sufficiency, collectibility or value of the Credit Agreement or
any of the other Loan Documents, any Collateral, or any other
instrument or document furnished pursuant hereto;
(b) the Agent and the Banks have made no representation or warranty
and shall have no responsibility with respect to the financial
condition of the Borrower and its Subsidiaries or any other
Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by the Borrower and
its Subsidiaries or any other Person primarily or secondarily
liable in respect of any of the Obligations of any of their
obligations under the Credit Agreement or any of the other Loan
Documents or any other instrument or document furnished pursuant
hereto or thereto;
(c) NationsBank confirms that it has received a copy of the Credit
Agreement and the other Loan Documents, together with copies of
the most recent financial statements referred to in sec.6.4 and
sec.7.4 of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Amendment;
(d) NationsBank will, independently and without reliance upon the
other Banks or the Agent and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action
under the Credit Agreement;
<PAGE> 17
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(e) NationsBank represents and warrants that it qualifies as an
Eligible Assignee;
(f) NationsBank appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under
the Credit Agreement and the other Loan Documents as are
delegated to the Agent by the terms hereof or thereof, together
with such powers as are reasonably incidental thereto;
(g) NationsBank agrees that it will perform in accordance with
their terms all of the obligations that by the terms of the
Credit Agreement are required to be performed by it as a Bank; and
(h) NationsBank represents and warrants that it is legall authorized
to enter into this Amendment.
4. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall become
effective as of the date hereof (the "Effective Date") upon the satisfaction of
each of the following conditions:
(a) this Second Amendment shall have been executed and delivered by
each of the Borrower, the Banks, the Agent and the Guarantor;
(b) the Borrower shall have executed and delivered to each of the
Banks (i) an Amended and Restated Revolving Credit Note or a
Revolving Credit Note, as the case may be, in substantially the
form of EXHIBIT A attached to the Credit Agreement in an amount
equal to such Bank's Commitment as set forth on SCHEDULE 1
attached to the Credit Agreement, as amended hereby, each such
Note to be in form and substance satisfactory to each Bank
(collectively, the "Replacement Notes").
(c) all corporate action necessary for the valid execution,
delivery and performance by the Borrower of the Credit Agreement,
as amended by this Second Amendment, and the Replacement Notes
shall have been taken, and evidence thereof satisfactory to the
Banks shall have been provided to the Banks; including, without
limitation, copies, certified by the Secretary or Assistant
Secretary of the Borrower as of the date hereof, of the
resolutions of the Borrower approving this Second Amendment; and
copies, certified by the Secretary or Assistant Secretary of the
Guarantor as of the date hereof, of the resolutions of the
Guarantor approving this Second Amendment, in a form satisfactory
to the Agent and all documents incident hereto shall be
satisfactory in form and substance to the Agent, and the Agent
shall have received all information and
<PAGE> 18
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counterpart originals or certified or other copies of such
documents as the Agent may reasonably request in a form
satisfactory to the Agent.
(d) each of the Banks shall have received a certificate of
the Secretary or Assistant Secretary of the Borrower or ACFC, as
applicable, stating (i) that no amendments to the charter
documents of the Borrower or ACFC have been adopted since May
15, 1995 (other than as set forth in such certificate); (ii)
stating that the information set forth in the Perfection
Certificates delivered to the Agent on May 15, 1995 remains true
and complete in all respects; (iii) setting forth the name,
title and specimen signature of each individual who shall be
authorized to (A) sign, in the name and on behalf of the
Borrower and ACFC this Second Amendment and the Replacement
Notes; and (B) to give notices and to take other action under
the Loan Documents, as amended hereby.
(e) the Banks and the Agent shall have received from counsel
to the Borrower and the Guarantor an opinion addressed to the
Banks dated the Effective Date, in form and substance
satisfactory to the Banks, regarding this Second Amendment, the
continuing effectiveness of the Security Documents, and the
Replacement Notes;
(f) the Banks shall have received copies of the projections of the
annual operating budgets for 1995 and 1996 fiscal years of the
Borrower and its Subsidiaries on a consolidated basis.
(g) the Banks shall have received satisfactory evidence that the
Security Documents are effective to create in favor of the
Agent, on behalf of the Banks, a legal, valid and enforceable
first (except for Permitted Liens entitled to priority under
applicable law) security interest in the Collateral, including
without limitation, results of UCC Searches with respect to the
Collateral;
(h) the Banks shall have received from each bank at which the
Borrower or any of its Subsidiaries (other than Funding)
maintains depository accounts an agreement, in form and
substance satisfactory to the Agent, concerning the Agent's
security interest for the benefit of the Banks and the Agent in
such accounts;
(i) the Banks shall have received an officer's certificate, in form
and substance satisfactory to the Agent, of the Borrower dated as
of the Effective Date as to the solvency of the Borrower and its
<PAGE> 19
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Subsidiaries following the consummation of the transactions
contemplated herein;
(j) the Banks shall have received the most recent (i) monthly status
reports under the Funding Indenture and (ii) monthly settlement
reports under the Funding II Credit Agreement delivered to the
Borrower;
(k) the Banks shall have received the most recent Accounts Receivable
aging report of (i) the Borrower and its Subsidiaries and
(ii) ACFC;
(l) the Banks shall have received the most recent Compliance
Certificate required to be delivered by the Borrower pursuant to
sec.7.4(c) of the Credit Agreement;
(m) the Banks shall have received the most recent Borrowing Base
Certificate required to be delivered by the Borrower pursuant
to sec.7.4(e) of the Credit Agreement;
(n) the Borrower shall have paid to the Agent for the pro-rata
accounts of the Banks an amendment fee in an amount equal to
$60,000.
5. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The Borrower
represents and warrants to the Agent and the Banks that:
(a) each and every one of the representations and warranties made
by the Borrower to the Agent and the Banks in sec.6 or elsewhere
in the Credit Agreement or in the other Loan Documents, as
amended by this Second Amendment, are true and correct in all
material respects on and as of the date hereof except to the
extent that any of such representations and warranties relate, by
the express terms thereof, solely to a date prior hereto;
(b) the Borrower has duly and properly performed, complied with and
observed each of its covenants, agreements and obligations
contained in sec.sec.7 and 8 or elsewhere in the Credit Agreement
or the other Loan Documents, as amended by this Second Amendment;
(c) the execution, delivery and performance of this Second
Amendment, the Replacement Notes, and the Credit Agreement, as
amended by this Second Amendment, and the transactions
contemplated hereby and thereby (i) are within the corporate
authority of the Borrower, (ii) have been duly authorized by all
necessary corporate proceedings on the part of the Borrower,
(iii) do not conflict with or result in any material breach or
contravention of any provision of
<PAGE> 20
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law, statute, rule or regulation to which the Borrower is
subject or any judgment, order, writ, injunction, license or
permit applicable to the Borrower so as to materially adversely
affect the assets, business or any activity of the Borrower as a
whole, and (iv) do not conflict with any provision of the
corporate charter or bylaws of the Borrower or any agreement or
other instrument binding upon the Borrower.
(d) the execution, delivery and performance of this Second
Amendment, the Replacement Notes and the Credit Agreement, as
modified by this Second Amendment, will result in valid and
legally binding obligations of the Borrower enforceable against
the Borrower in accordance with the respective terms and
provisions hereof and thereof, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or affecting generally the enforcement of
creditors rights and except to the extent that availability of
the remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any
proceeding therefor may be brought.
(e) the execution, delivery and performance by the Borrower of this
Second Amendment, the Replacement Notes and the Credit Agreement,
as modified by this Second Amendment, and the consummation by the
Borrower of the transactions contemplated hereby and thereby does
not require any approval or consent of, or filing with, any
governmental agency or authority other than those already
obtained.
6. RATIFICATION, ETC. Except as expressly amended by this Amendment,
the Credit Agreement and the Loan Documents and all documents, instruments and
agreements related thereto, including, but not limited to the Security
Documents, are hereby ratified and confirmed in all respects and shall continue
in full force and effect. The Borrower confirms and agrees that the
Obligations of the Borrower to the Banks under the Loan Documents, as amended
and supplemented hereby, are secured by, guarantied under, and entitled to the
benefits, of the Security Documents. The Guarantor confirms and agrees that
its guaranty of the Obligations of the Borrower to the Banks under the Loan
Documents, as amended and supplemented hereby, as set forth in the Guaranty
remains in full force and effect. The Borrower, the Guarantor, the Agent and
the Banks hereby acknowledge and agree that all references to the Credit
Agreement and the Obligations thereunder contained in any of the Loan Documents
shall be references to the Credit Agreement and the Obligations, as affected
and increased hereby and as the same may be amended, modified, supplemented, or
restated from time to time. The Borrower, the Guarantor, the Agent and the
Banks hereby acknowledge and agree that all references to the
<PAGE> 21
-22-
Notes or Revolving Credit Notes contained in any of the Loan Documents
shall be references to the Replacement Notes, as the same may be amended,
modified, supplemented, or restated from time to time. The Security Documents
and the perfected first priority security interests of the Banks thereunder
shall continue in full force and effect, and the collateral security and
guaranties provided for in the Security Documents shall not be impaired by this
Amendment. The Credit Agreement and this Second Amendment shall be read and
construed as a single agreement.
7. MISCELLANEOUS. The Borrower hereby agrees to pay to the Agent, on
demand by the Agent, all reasonable out-of-pocket costs and expenses incurred
or sustained by the Agent or any of the Banks in connection with the
preparation of this Second Amendment and the documents referred to herein
(including reasonable legal fees). Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or the Guarantor or any rights of the Agent or either of the Banks
consequent thereon. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument. Section headings in this Second
Amendment are included herein for convenience of reference only and shall not
constitute part of this Second Amendment for any other purpose. This Second
Amendment shall be governed by, and construed in accordance with, the laws of
the Commonwealth of Massachusetts (without reference to conflict of laws).
8. JOINDER BY GUARANTOR. The Guarantor is hereby joined to the Credit
Agreement for the purpose of making the representations and warranties set
forth in Section 6 and being made bound by the covenants set forth in Sections
7 (other than Section 7.1 and 7.2).
<PAGE> 22
-23-
IN WITNESS WHEREOF, the undersigned have duly executed this Second
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By:
------------------------------
Name:
Title:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By:
------------------------------
Name:
Title
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By:
------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By:
------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By:
------------------------------
Name:
Title:
<PAGE> 23
-24-
THE DAIWA BANK, LIMITED
By:
------------------------------
Name:
Title:
By:
------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
------------------------------
Name:
Title:
<PAGE> 24
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
<TABLE>
Schedule 1
----------
Banks; Addresses; Commitments; Commitment Percentages
dated as of December 1, 1995
<CAPTION>
BANK'S NAME AND ADDRESS COMMITMENT PERCENTAGE
----------------------- ---------- ----------
<S> <C> <C>
The First National Bank of Boston $15,000,000 25%
100 Federal Street
Boston, MA 02110
Attn.: Mitchell B. Feldman, Director
Phone: 617-434-5760
Fax: 617-434-0637
NationsBank, N.A. $15,000,000 25%
8 Fanueil Hall Market Place
Boston, MA 02109
Attn.: Mr. Guy Simmons
Phone: 617-973-6430
Fax: 617-973-6431
Bank of America Illinois $12,000,000 20%
231 South LaSalle Street
Chicago, IL 60697
Attn.: Nelson Albrecht, Assistant Vice President
Phone: 312-828-3166
Fax: 312-828-1997
CoreStates Bank, N.A. $12,000,000 20%
1339 Chestnut Street, FC-1-8-11-24
Philadelphia, PA 19107
Attn.: Verna R. Prentice, Vice President
Phone: 215-973-5866
Fax: 215-786-7704
The Daiwa Bank, Limited $ 6,000,000 10%
One Post Office Square, Suite 3820
Boston, MA 02109
Attn.: Alfred DeGemmis, Vice President
Phone: 617-451-3200
Fax: 617-423-4884
TOTAL $60,000,000 100%
</TABLE>
<PAGE> 25
EXHIBIT J
------- -
AMERICAN COMMERCIAL FINANCE CORPORATION - CREDIT POLICY
- -------------------------------------------------------
SUBJECT: Asset Based Lending - General Lending Policy
PURPOSE:
To define the parameters of our asset-based lending services.
SCOPE:
American Commercial Finance Corporation, ("ACFC") a subsidiary of HPSC, Inc.
POLICY STATEMENT:
- -----------------
ACFC provides secured asset-based loans to businesses for commercial
purposes. Its trading area is New England and upper New York state for loans
ranging in size from $500,000 to $3,000,000. The trading area for borrowers
engaged in the manufacture or distribution of medical equipment or supplies is
the United States.
PRODUCT TYPE:
- -------------
ACCOUNTS RECEIVABLE FINANCING
- -----------------------------
ACFC provides revolving accounts receivable financing secured by
eligible trade accounts. Advances generally will not exceed 80% of accounts
not more than 90 days (or less) in age from date of sale.
INVENTORY FINANCING
- -------------------
ACFC provides both revolving and "term like" inventory financing under
appropriate terms. Loans will not exceed 50% of borrower's active inventory,
at cost or market, whichever is lower.
TERM FINANCING
- --------------
ACFC provides term financing secured by all machinery & equipment. The
term portion generally does not exceed 50% of overall lines of credit. All
term loans have a repayment schedule, generally will not exceed 75% of
appraised liquidation value, and are cross-defaulted to all other loans.
PAGE 1 OF 5
<PAGE> 26
AMERICAN COMMERCIAL FINANCE CORPORATION - CREDIT POLICY
- -------------------------------------------------------
SUBJECT: Asset Based Lending - Credit Authority
PURPOSE:
To establish credit authority within ACFC.
SCOPE:
American Commercial Finance Corporation, ("ACFC") a subsidiary of HPSC, Inc.
POLICY STATEMENT:
- -----------------
ACFC's credit committee approval is required of all asset-based loans.
PAGE 2 OF 5
<PAGE> 27
AMERICAN COMMERCIAL FINANCE CORPORATION - CREDIT POLICY
- -------------------------------------------------------
SUBJECT: Asset Based Lending - Concentration of Credit
PURPOSE:
To establish guidelines for loan portfolio nix.
SCOPE:
American Commercial Finance Corporation, ("ACFC") a subsidiary of HPSC, Inc.
POLICY STATEMENT:
- ----------------
ACFC will maintain a portfolio in which no single borrower equals 10% of the
portfolio, nor will any single industry comprise more than 25% of the entire
portfolio, except the medical industry, which may be 50%.
The aforementioned goals will be implemented during the next 3-5 years of
portfolio development.
PAGE 3 OF 5
<PAGE> 28
AMERICAN COMMERCIAL FINANCE CORPORATION - CREDIT POLICY
- -------------------------------------------------------
SUBJECT: Asset Based Lending -- Loan Administration
PURPOSE:
To establish administrative responsibilities for monitoring loans and
collateral at ACFC.
SCOPE:
American Commercial Finance Corporation, ("ACFC") a subsidiary of HPSC, Inc.
POLICY STATEMENT:
- -----------------
The Loan Administration officer of ACFC is responsible for maintaining lending
standards and for loan and collateral monitoring.
AUDITS
- ------
ACFC will perform, prior to commitment, examinations of proposed borrower's
books and records. Subsequent to a loan closing, and at a minimum, annual
examinations and semiannual examinations will be performed on loans rated less
than 6, and greater than 6 respectively. Reference is made to ACFC's
examination forms for scope.
RISK RATING
- -----------
Loan officers are responsible for risk rating each loan. ACFC's rating
matrix is the standard for establishing the rating. Each account relationship
is rated on the occasion of the receipt of a financial statement or 90 days
have elapsed since the date of the last rating.
LOAN LOSS RESERVES
- ------------------
Loan loss reserves at ACFC are based on the risk grades generated utilizing the
allocation percentages approved by the parent's Chief Financial Officer.
PROBLEM LOAN ADMINISTRATION
- ---------------------------
* NON-ACCRUAL - a borrower's inability to service debt as collateral
deteriorates is criteria for placing the account in a non-accrual status. The
president of ACFC can recommend a discretionary non-accrual to the parent's
Chief Financial Officer.
* CHARGE-OFFS - the President of ACFC will recommend charge-offs to the
parent's Chief Financial Officer.
PAGE 4 OF 5
<PAGE> 29
AMERICAN COMMERCIAL FINANCE CORPORATION -- CREDIT POLICY
- --------------------------------------------------------
SUBJECT: Factoring Policy
PURPOSE:
To define ACFC's credit policy with respect to its factoring program.
SCOPE:
American Commercial Finance Corporation, ("ACFC") a subsidiary of HPSC, Inc.
POLICY STATEMENT:
- -----------------
ACFC's factoring program provides for the purchase of commercial invoices with
full recourse. Overall factoring program constraints are established by ACFC's
credit committee. Program guidelines which are subject to loan officer
modification are as follows:
1. The geographical territory is New England and upper New York state.
2. Excluded credits are retail/consumer and construction related businesses.
3. The maximum advance rate is 80% of invoice value. The minimum retainage is
15% of invoice value plus known dilution.
4. Each client debtor is notified of the invoice purchase.
5. Each invoice is confirmed with the client debtor prior to advance.
6. No overadvances are permitted.
LOAN LOSS RESERVES:
- -------------------
Loan loss reserve is approved by the parent's Chief Financial Officer.
COMMERCIAL INVOICES PAST DUE:
- -----------------------------
The factoring agreement provides for replacement or reimbursement for invoices
past due sixty days subject to loan officer modification. Once an invoice is
deemed uncollectible in the ordinary course, replacement or reimbursement is
mandatory.
CHARGE OFFS:
- -----------
The president of ACFC will recommend charge offs to the parent's Chief
Financial Officer.
Page 5 of 5
<PAGE> 1
EXHIBIT 10.24
SALE AGREEMENT BETWEEN
HPSC, INC. AND
SPRINGFIELD INSTITUTION FOR SAVINGS
THIS SALE AGREEMENT dated November 16, 1995 by and between HPSC, INC.,
whose principal place of business is at 60 State Street, Boston, Massachusetts
02109 (the "Seller") and SPRINGFIELD INSTITUTION FOR SAVINGS, whose principal
place of business is at 1441 Main Street, Springfield, Massachusetts 01103 (the
"Buyer").
BACKGROUND: Seller is engaged in the business of making third party
loans to individuals and companies in the medical industry and has offered to
sell certain of such loans to Buyer. This Agreement sets forth the terms and
conditions which will be applicable to such sale.
1. CERTAIN DEFINITIONS.
------- -----------
1.1 The capitalized terms used herein shall have the meanings set forth
in this Section 1 or elsewhere in this Agreement:
"Balance of Payments" means the total of all unpaid Payments due and to
become due under the Underlying Loans.
"Collateral Documents" means the contracts, notes, security agreements,
loan agreements, guaranties, mortgages, landlord's waivers, subordination
agreements, UCC financing statements, assignments, chattel paper and other
documents and instruments evidencing and/or securing the Underlying Loans in
which the Seller has sold this day to Buyer, as described in EXHIBIT A-1 to the
Security Agreement.
"Default" shall mean an event or condition which with the passage of
time or the giving of notice or both would become an Event of Default.
"Documentation" means any and all documents which evidence or secure
the Obligations, including but not limited to the following documents, as the
same may be amended from time to time: (i) this Agreement, the Security
Agreement, and any affidavit and/or certificate delivered this date by the
Seller to Buyer and (ii) the Loan Agreement, the Note and the Security
Agreement and associated documents delivered by Seller to Buyer dated April 13,
1995 as the same may be amended from time to time.
"Event of Default" shall have the meaning set forth in Section 9
hereof.
<PAGE> 2
2
"Float Payment" shall mean the amount due from Seller to Buyer for each
day in which a payment is not made as required hereunder, such payment to equal
the product of the amount of the late payment times eight and one-quarter
(8.25%) per cent per annum divided by 360.
"Gross Underlying Loan Payment or Payments" shall mean the entire
monthly loan payment hereafter due from time to time from each Underlying Debtor
on its Underlying Loan, which amounts are set forth on attached EXHIBIT 1 under
the column entitled "Gross Monthly Payment by Customer."
"Obligations" means any and all amounts due from time to time from
Seller to Buyer hereunder, including any Float Payments, plus any and all other
Indebtedness of Seller to Buyer, no matter how or when arising and whether under
this Agreement or under any other agreement, guaranty or instrument, including,
without limitation, the obligations of Seller to Buyer under the Loan Agreement
dated April 13, 1995 and all associated documents, and including the obligation
to perform acts or to refrain from acting.
"Payment(s)" means the Gross Underlying Loan Payments.
"Permitted Liens" means "none," as there are no liens permitted as to
the Collateral Documents.
"Repurchase Price" of an Underlying Loan means, at any time, the net
present value of the SIS Monthly Pass Through Payments remaining until the
earlier of the SIS Final Payment Date or the Maturity Date of such Underlying
Loan, using a discount rate of eight and 25/100 (8.25%) per cent per annum, plus
any outstanding Float Payments due as described in Section 6.2(b) plus Buyer's
costs of maintaining the Collateral and any other costs incurred with respect to
the Underlying Loans as provided hereunder and under the Security Agreement,
including its costs of collection and its reasonable attorneys' fees.
"Revolving Credit Agreement" means the Amended and Restated Revolving
Credit Agreement dated May 15, 1995 by and among Seller, The First National Bank
of Boston, Bank of America Illinois, Shawmut Bank, N.A., CoreStates Bank, N.A.
and The Daiwa Bank, Limited, attached hereto as EXHIBIT 3, which is hereby
incorporated herein by reference.
"Security Agreement" means the Security Agreement of even date herewith
from Seller to Buyer as amended from time to time in which Seller grants to
Buyer a perfected first security interest in the Collateral Documents.
"SIS Final Payment Date" shall mean December 1, 2000.
<PAGE> 3
3
"SIS Monthly Pass Through Payments" shall mean that portion of the
Gross Underlying Loan Payments hereafter due from the Underlying Debtors which
is payable to the Bank from month to month until the SIS Final Payment Date,
which amounts are set forth with respect to each Underlying Debtor and in the
aggregate on attached EXHIBIT 1 under the columns entitled 11/1/95 through and
including 12/01/2000. The total of all SIS Monthly Pass Through Payments are set
forth at the bottom of each such column on EXHIBIT 1, and such total is also
set forth on attached EXHIBIT 2, under the column entitled "Total SIS Payment."
"Underlying Debtor or Debtors" as the case may be, means the borrower
or borrowers from the Seller under any one or more of the Underlying Loans.
"Underlying Debtor Default" means: (i) failure of an Underlying Debtor
under any Collateral Document to make a Payment within sixty (60) days of the
due date of that Payment; (ii) failure of an Underlying Debtor to perform any of
its material obligations under any Collateral Documents other than its failure
to make timely Payments which is not cured within the period provided therein;
(iii) insolvency of an Underlying Debtor, inability of an Underlying Debtor to
pay its debts as they mature, the making by an Underlying Debtor of an
assignment for the benefit of creditors, or institution of any proceeding by or
against an Underlying Debtor alleging that it is insolvent or unable to pay its
debts as they mature if such proceeding is not withdrawn or dismissed within
sixty (60) days after its institution; (iv) entry of any final judgment against
an Underlying Debtor remaining unsatisfied for a period of thirty (30) days if
such judgment is reasonably deemed by Buyer to be a material factor in the
creditworthiness of the Underlying Debtor; (v) death of an Underlying Debtor who
is a natural person or of any general partner of a Lessee which is a partnership
and whom Buyer reasonably deems to be material to the creditworthiness of the
Underlying Debtor; (vi) dissolution, merger, consolidation or transfer of a
substantial part of the property of an Underlying Debtor which is a corporation
or a partnership, if such dissolution, merger consolidation or transfer is
reasonably deemed by Buyer to be a material factor in determining the
creditworthiness of such Underlying Debtor; or (vi) falsity in any material
respect as of the date made in any material statement, representation or
warranty of an Underlying Debtor in connection with any Collateral Document.
"Underlying Loans" means the loans from Seller to certain of Seller's
customers, referred to herein as the Underlying Debtors, which constitute a part
of the Collateral Documents. The Underlying Loans are summarized in attached
EXHIBIT 1.
1.2 Capitalized terms used in the provisions of the Revolving Credit
Agreement that are incorporated herein by reference
<PAGE> 4
4
shall have the meanings ascribed to such terms in this Agreement, except as set
forth below:
(a) the following capitalized terms used in the incorporated
provisions of the Revolving Credit Agreement shall have the definitions
ascribed to such terms in the Revolving Credit Agreement, which definitions are
hereby incorporated herein in their entirety by reference:
"ACFC, Capital Assets, Capital Expenditures, Capitalized Leases, Code,
Consolidated, Consolidated Earnings Before Interest and Taxes, Consolidated Net
Income (or Deficit), Consolidated Tangible Capital Funds, Consolidated Tangible
Net Worth, Consolidated Total Assets, Consolidated Total Interest Expense,
Consolidated Total Liabilities, Credit, Credit Policy, Customer, Customer
Receivable, Delinquent, Distribution, Employee Benefit Plan, Equipment, ERISA,
ERISA Affiliate, ERISA Reportable Event, Funding, generally accepted accounting
principles, Gross Customer Receivables, Guaranteed Pension Plan, Hazardous
Substances, Indebtedness, Interest Ratio, Investments, Multiemployer Plan,
Obligor, PBGC, Person, Reissued Customer Receivables, Rental Obligations,
Reserves, Residual Value of Equipment, Subordinated Debt, Subsidiary, Unearned
Income."
(b) the following capitalized terms as used in the Revolving Credit
Agreement shall have the following meanings herein:
"Accounts Receivable," and "Eligible Accounts Receivable" as used in
the provisions of the Revolving Credit Agreement incorporated herein, shall be
deleted herein.
"Agent" or "Banks" as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to the "Buyer."
"Contract," as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to the "Collateral
Documents."
"Credit Agreement" as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to this "Agreement."
"Loan Documents" as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to the "Documentation."
2. THE SALE.
--------
2.1 Sale. Subject to the conditions set forth in Section 3 below,
Seller hereby sells and assigns to Buyer and Buyer hereby
<PAGE> 5
5
purchases, (i) all of Seller's right, title and interest in and to the
Underlying Loans, the Collateral Documents, and all Payments now and hereafter
due thereunder, and (ii) all of Seller's right, title and interest in and to the
Equipment covered by such Collateral Documents.
2.2 PRICE. The purchase price of the Collateral Documents
(the "Price"), shall be $1,669,156.25.
2.3 PAYMENT OF THE PRICE. $1,515,496.53 of the Price shall be paid by
Buyer to Seller by cash or a bank check on the date of this Agreement. Such
portion of the Price constitutes the total of the amounts listed on page one of
attached EXHIBIT 1 under the column entitled "Principal Balance," minus
$24,429.51, the November 1, 1995 monthly principal payment. The balance of the
Price (the "Remaining Price") shall be paid in consecutive monthly payments in
the amounts set forth in the column entitled "HPSC, INC. PAYMENT" on attached
EXHIBIT 2. The Buyer shall have no personal obligation to pay to Seller the
Remaining Price, it being agreed that the Seller's sole source of payment of the
Remaining Price shall be from payments made from time to time by the Underlying
Debtors on the Underlying Loans. As set forth below, however, Seller's right to
receive the Remaining Price from the Underlying Debtors or the Collateral
Documents is subordinated to all amounts to from Seller to Buyer for the
Obligations.
3. CONDITIONS OF SALE. The obligation of the Buyer to purchase the
Underlying Loans and Collateral Documents is subject to the following
conditions precedent:
3.1 (i) The Seller shall be in compliance with all the terms, covenants
and conditions of this Agreement which are binding upon it directly or
indirectly, (ii) there shall exist no Default hereunder, and (iii) the
representations and warranties contained in this Agreement shall be true as of
such date.
3.2 The Buyer shall have received from counsel for the Seller, a
favorable opinion as to the validity and enforceability of the Documentation,
and as to such other matters as the Buyer may reasonably request.
3.3 The Buyer shall have received a certificate of the Secretary or an
Assistant Secretary of the Seller which shall certify the names of the officers
of the Seller authorized to sign this Agreement and all other documents
contemplated hereby or referred to herein together with the true signatures of
such officers, upon which such certificate the Buyer may rely until it shall
receive a further signed certificate of the Secretary or an Assistant Secretary
of the Seller canceling or amending its prior certificate and setting forth the
signatures of the officers named in such further certificate.
<PAGE> 6
6
3.4 No law, regulation, executive order or judicial order (including,
without limitation, Regulations U or X of the Board of Governors of the Federal
Reserve System), ruling, other governmental action or guideline shall be in
effect or shall have occurred, the effect of which in the Buyer's judgment would
be to prevent the Buyer from fulfilling its obligations hereunder.
3.5 All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement shall be
satisfactory in form and substance to the Buyer and the Buyer shall have
received all information and all documents (including, but not limited to,
copies of corporate votes and copies of the Articles of Organization and bylaws
of the Seller, each as amended to date and each certified by the Secretary),
including records of corporate proceedings, which the Buyer may reasonably have
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or govern mental authorities. The acceptance by
the Seller of each advance shall constitute a representation by the Seller to
the Buyer that all of the applicable conditions specified in this Section exist
as of the time of the making of such borrowing.
3.6 The Buyer shall have received all of the Collateral Documents
described in this Agreement and the Security Agreement.
4. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
4.1 OUTSTANDING PRINCIPAL OF UNDERLYING LOANS. Seller represents to
Buyer that the attached EXHIBIT 1 contains a full, complete and accurate
description of the Underlying Loans and that the amount listed under the column
"Principal Balance" on EXHIBIT 1 represents the outstanding principal balance of
each of the Underlying Loans as of October 31, 1995, without inclusion of any
interest, whether future, accrued or otherwise. The Seller further represents
that the Collateral Documents as described on EXHIBIT A-1 to the Security
Agreement contains a full and complete description of the Collateral Documents
in effect as to each Underlying Loan.
4.2 UNDERLYING LOANS. In addition to the representations and warranties
set forth in Section 6.21 of the Revolving Credit Agreement as incorporated by
reference herein, the Seller represents and warrants that it entered into all
of the Underlying Loans on its own, without participation from the Buyer, prior
to requesting the Buyer to enter into this Agreement and that the Seller is the
owner of the Collateral Documents free and clear of any liens or encumbrances.
4.3 REVOLVING CREDIT AGREEMENT REPRESENTATIONS AND WARRANTIES
INCORPORATED HEREIN BY REFERENCE. Subject to the provisions set forth in Section
1 above as to the interpretation of capital-
<PAGE> 7
7
ized terms used herein, the parties hereby incorporate by reference each and
every one of the provisions contained in the following sections of the
Revolving Credit Agreement as if such entire sections were set forth herein,
with such changes as set forth below, and Seller hereby represents and warrants
to the Buyer that each of the representations and warranties so incorporated
herein are true as of the date of this Agreement. Seller hereby represents that
any schedules referenced in the following sections, which schedules are hereby
incorporated herein by reference, are accurate as of the date of this Agreement
and need not be updated.
"6.1 Corporate Authority.
-------------------
6.1.1 Incorporation; Good Standing.
----------------------------
6.1.2 Authorization.
-------------
6.1.3 Enforceability.
--------------
6.2 Governmental Approvals.
----------------------
6.3 Title to Properties; Leases.
---------------------------
6.4 Financial Statements
--------------------
6.4.1 Financial Statements.
--------------------
6.5 No Material Adverse Change, etc.
-------------------------------
6.6 Franchises, Patents, Copyrights, etc.
------------------------------------
6.7 Litigation.
----------
6.8 No Materially Adverse Contracts.
-------------------------------
6.9 Compliance With Other Instruments, Laws, etc.
--------------------------------------------
6.10 Tax Status.
----------
6.11 NO EVENT OF DEFAULT. No Default or Event of Default
has occurred or is continuing under this Agreement or under the
Revolving Credit Agreement.
6.12 Holding Company and Investment Company.
--------------------------------------
6.13 Absence of Financing Statements, etc.
------------------------------------
6.14 Perfection of Security Interest.
-------------------------------
6.15 Certain Transactions.
--------------------
<PAGE> 8
8
6.16 Employee Benefit Plans.
----------------------
6.17 Regulations U and X.
-------------------
6.18 Environmental Compliance.
------------------------
6.19 Subsidiaries, etc.
-----------------
6.21 Eligible Accounts Receivable, Equipment and Contracts.
-----------------------------------------------------
(Specific reference is made to Section 1(b) of this Agreement for the
meanings of capitalized terms used in section 6.21, as such section is
incorporated herein).
EXHIBIT D - Compliance Certificate."
----------------------------------
5. COVENANTS. Seller does hereby covenant and agree with the Buyer that
it will during the term of this Agreement:
5.1 Conduct of Business.
-------------------
(a) Seller will do all things necessary to preserve, renew, and
keep in force and effect its corporate existence, and all rights and franchises
necessary to conduct its business, and will comply with all laws and
regulations of any governmental authority which may be applicable to it or its
business.
(b) Seller will pay all taxes, assessments and charges assessed
against it or payable by it at such times and in such manner to prevent any
penalty from accruing or any lien or charge from attaching to its properties,
unless Seller in good faith contests the same and has set aside adequate
reserves, in which case Seller shall, in any event, pay all such taxes,
assessments, charges, or levies prior to foreclosure on such properties.
(c) Seller will pay, when due, or in conformity with customary
trade terms but not later than sixty (60) days from the due date (subject to
agreements modifying such terms) all lease obligations, all trade debt, and all
other Indebtedness incident to the operations of the Seller, except such as are
being contested in good faith and by proper proceedings if the Seller shall
have set aside on its books adequate reserves with respect thereto.
5.2 ACCOUNTS AND REPORTS. The Buyer is hereby authorized to examine
and make copies of any of Seller's books or records, as deemed necessary or
desirable by the Buyer. The Buyer shall have the right from time to time to
discuss Seller's affairs directly with Seller's accountants after notice to
Seller and opportunity of Seller to be present at such discussions.
5.3 NOTICE OF CLAIMS. The Seller shall immediately notify the Buyer
of all cases involving loss or damage of to the Collat-
<PAGE> 9
9
eral Documents; of any request for credit or adjustments or of any of the
Underlying Loans or other dispute arising with respect to any of the
Collateral Documents; and generally of all happenings and events affecting the
Collateral Documents.
5.4 MAINTENANCE OF BOOKS. The Seller shall maintain its books and
records in a manner and form satisfactory to the Buyer, but not contrary to
sound accounting practice or regulatory requirements, and at all reasonable
times, and from time to time, allow the Buyer, by or through any of its
officers, agents, attorneys or accountants, to examine, inspect or make extracts
from the Seller's books and records and to arrange for physical inspection of
and for verification of the records as to the Collateral Documents.
5.5 VERIFICATION OF BALANCES. The Buyer shall have the right to
instruct the Seller's accountants to verify the balances outstanding on any or
all of Underlying Loans. On instructions of the Buyer, the accountants will send
notices to the Underlying Debtors in the customary manner without revealing the
security interest of the Buyer therein, and such verifications shall be
transmitted by said accountants to the Buyer, not the Seller, but at the expense
of the Seller. The Buyer shall have the right to verify the balances outstanding
of any or all of the Underlying Loans.
5.6 NOTICE OF LITIGATION. Seller will give immediate notice to the
Buyer of any litigation in which Seller is a party, involving claims against
Seller in excess of $100,000, and of the institution of any administrative
proceeding which might adversely affect Seller's operations, financial
condition, property or business.
5.7 APPOINTMENT OF BUYER AS ATTORNEY. To facilitate the exercise by
Buyer of any right or remedies set forth in this Agreement and the
Documentation, the Seller hereby constitutes Buyer or its agents, or any other
person whom Buyer may designate, as attorney-in-fact for the Seller, at the
Seller's own cost and expense, to exercise, upon and after an Event of Default,
all or any of the following powers; which, being coupled with an interest, shall
be irrevocable, shall continue until all obligations have been paid in full, and
shall be in addition to any other rights and remedies that Buyer may have: (i)
to remove from any premises where the same may be located, any and all
documents, instruments, files and records, and any receptacles and cabinets
containing the same, relating to Collateral Documents; and the Buyer may, at
the Seller's cost and expense, use such of the personnel, supplies, and space of
the Seller at its place of business as may be necessary to properly administer
and control the Collateral Documents or the handling of collections and
realizations thereon; and (ii) to take or bring, in the Buyer's name or in the
name of the Seller, all steps, actions,
<PAGE> 10
10
suits, or proceedings deemed by Buyer necessary or desirable to effect
collection of or to realize upon Collateral Documents; and (iv) to settle,
compromise, or adjust any of the Underlying Loans.
5.8 MAINTENANCE OF PROPERTY AND LEASES. The Seller and any Subsidiary
will maintain its properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time to the extent required
by the exercise of sound business judgment will make all necessary and proper
repairs, renewals, replacements, additions and improvements thereto; and the
Seller will at all times comply with the provisions of all leases to which the
Seller is a party or under which it occupies property so as to prevent any
material loss or forfeiture thereof or thereunder except to the extent that if
there is a bona fide dispute between the parties under any outstanding lease,
the Seller may contest such matter by appropriate means if there shall have been
set aside on the books of the corporation involved adequate reserves with
respect thereto. The Seller will comply in all material respects with all laws
and with all rules, regulations and orders made by governmental authority and
applicable to their respective properties or any part thereof.
5.9 Insurance.
---------
(a) The Seller will keep all of its properties which are
customarily insured by companies owning similar property or engaged in the same
or similar business, insured by financially sound and reputable insurers against
loss or damage by fire, explosion, and other hazards customarily covered by
extended coverage in amounts not less than one hundred (100%) percent of the
full insurable value of the property insured. The Seller will maintain with
financially sound and reputable insurers, comprehensive general liability
insurance of at least $1,000,000.00 per occurrence and such other reasonable and
proper insurance against other hazards, risks and liability to persons and
property to the extent and in the manner customary for companies operating like
properties in similar businesses similarly situated, including without
limitation, fire, extended coverage, vandalism and malicious mischief to include
all risk physical loss.
(b) Seller will furnish to the Buyer such evidence ofinsurance as
the Buyer may reasonably require.
5.10 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Seller will
deliver to the Buyer the following:
(a) As soon as available, and, in any event, within forty-eight
(48) days after the end of the first three quarterly fiscal periods in each
fiscal year (i) a copy of all Form 10-Q filings and (ii) a completed compliance
certificate as to
<PAGE> 11
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Seller's compliance with the Financial Covenants described in Section 5.13(a) of
this Agreement, addressed to Buyer and making reference to this Agreement,
substantially in the form attached to the Revolving Credit Agreement as EXHIBIT
D.
(b) As soon as available, and in any event, within ninety-three
(93) days after the end of each fiscal year, (i) a copy of each Form 10-K
filing and (ii) a completed compliance certificate in the form to the Revolving
Credit Agreement.
The Buyer shall have the right from time to time to discuss Seller's
affairs directly with Seller's independent certified public accountants after
notice to Seller and with the opportunity of Seller to be present at said
discussions.
(c) A report indicating the date and amount of any payments made
as to the Underlying Loans shall be delivered to Buyer on the fifth of each
month.
5.11 RESTRICTIONS ON LIENS. The Seller shall not create or incur or
suffer to be created or incurred or to exist any mortgage, pledge, lien,
charge, security interest or encumbrance of any kind upon any of the Collateral
Documents nor shall the Seller transfer any of its interest in such Collateral
Documents.
5.12 NOTICE OF DEFAULT. Seller will notify the Buyer immediately if it
becomes aware of the occurrence of any Default or Event of Default hereunder, or
of any fact, condition, or event which only with the giving of notice, or
passage of time would become an Event of Default.
5.13 Revolving Credit Agreement Covenants Incorporated Herein By
Reference. The parties hereby incorporate by reference the following entire
sections of the Revolving Credit Agreement, as of this date, as if such
provisions were set forth herein:
(a) Each and every one of the following Financial Covenants:
"Sections 9.1, 9.2, 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10 and 9.11 of the
Revolving Credit Agreement."
(b) Each and every one of the following general provisions of the
Revolving Credit Agreement:
"Section 4.3.2. No Offset.
---------
Section 4.7 Additional Costs, etc.
---------------------
Section 4.8 Capital Adequacy.
----------------
Section 4.9 Certificate."
------------
<PAGE> 12
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(c) Each and every one of the following Negative Covenants contained
in the Revolving Credit Agreement:
Section 8.5 Merger, Consolidation and Disposi
tion of Assets. ---------------------------------
- --------------
Section 8.7 Compliance with Environmental Laws.
----------------------------------
Section 8.9 Employee Benefit Plans.
----------------------
5.14 INTEREST COVERAGE. The Borrower will not permit the ratio of (i)
Consolidated Earnings Before Interest and Taxes for any period of four
consecutive fiscal quarters (treated as a single accounting period), to (ii)
Consolidated Total Interest Expense for such period, as such terms are defined
in the Revolving Credit Agreement, to be less than 1.15 to 1.00 at any time.
5.15 INDEMNITY. Buyer assumes no obligation or liability to the
Underlying Debtors under the Collateral Documents and no assignment of
Collateral Documents shall impose any such obligation or liability on Buyer.
Seller agrees to indemnify and save Buyer harmless from and against any losses,
damages, penalties, forfeitures, claims, costs, expenses (including court costs
and reasonable attorneys' fees) or liabilities (excepting however, those arising
solely as a result of Buyer's gross negligence or willful misconduct) which may
at any time be brought, incurred, assessed or adjudged against Buyer related to
or arising from the Collateral Documents and the related Equipment, including,
without limitation, those arising or resulting from; any alleged failure of any
Collateral Documents or the related Equipment to comply with any applicable law,
rule, regulation or contractual specification; any alleged failure on Seller's
part to keep or perform any of its obligations, express or implied, with respect
to any Collateral Documents or the related Equipment; any alleged injury to
persons or property or any violation or invasion of any patent or invention
rights; any governmental fees, charges, taxes or penalties levied or imposed in
respect to any Collateral Documents or any related Equipment; any breach by
Buyer or any of its representations, warranties, covenants or other obligations
or agreements contained in this Agreement, in any Collateral Documents or in any
agreement related hereto or thereto; or any inaccuracy in any information
provided to Buyer by Seller.
Buyer and Seller will each give the other notice of any event or
condition which requires indemnification by Seller hereunder, or any allegation
that such event or condition exits, promptly upon obtaining knowledge thereof.
Seller agrees to pay all amounts due hereunder promptly on notice thereof from
Buyer. All of the indemnities and agreements contained in this Section shall
survive and continue in full force and effect notwithstanding termination of
this Agreement or of any Collateral Documents.
<PAGE> 13
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5.16 CERTIFICATE OF GOOD STANDING. Seller agrees that in the event it
does not deliver to Buyer a certificate of tax good standing at closing, that it
will deliver such a certificate within thirty days after closing.
6. COLLECTIONS AND ADMINISTRATION, ADDITIONAL PAYMENTS.
----------------------------------------------------
6.1 COLLECTIONS. Subject to Section 6.8 herein, and provided Seller is
not in Default, Seller at its sole cost and expense shall be responsible for the
billing and collecting of the payments due under the Underlying Loans. All
billing with respect to the Underlying Loans shall be accomplished by separate
invoices (i.e., not included in invoices to the same Underlying Debtor for other
payments due under any other agreement between Seller and such Underlying
Debtor).
6.2 PAYMENTS.
(a) REGULAR PAYMENTS. On or before first day of each month
commencing December 1, 1995, Seller shall pay to Buyer the total of all SIS
Monthly Pass Through Payments due that month, whether or not such amounts have
been remitted by the Underlying Debtors. In the event that the Seller collects
amounts from Underlying Debtors in any month which exceed the SIS Monthly Pass
Through Payments due through that month at a time in which the Seller is not in
Default hereunder, such excess shall be applied first to the "HPSC Service Fee"
as described on attached EXHIBIT 2, second to reduce the Remaining Price and any
excess shall be paid to the Buyer and applied to reduce the amount of SIS
Monthly Pass Through Payments due hereunder, in inverse order of maturity. In
the event that Seller is in Default hereunder, all amounts received from the
Underlying Debtors shall be paid to the Buyer and applied to reduce the amount
of SIS Monthly Pass Through Payments due hereunder, in inverse order of
maturity.
(b) FLOAT AMOUNTS. Any payment not paid when due by Seller to
Buyer hereunder shall be payable after the due date plus the Float Payment for
each late day. Said Float Payment shall be due and payable without notice or
demand and shall constitute additional Obligations as defined hereunder and
secured by the Documentation.
(c) SIS FINAL PAYMENT DATE; REASSIGNMENT. Notwithstanding any
provision herein to the contrary, the total of all SIS Monthly Pass Through
Payments due through the SIS Final Payment Date shall be paid in full on or
before the SIS Final Payment Date. In the event Buyer receives payment in full
of all SIS Monthly Pass Through Payments on or before the SIS Final Payment
Date, and provided that there is no then outstanding Default, the Buyer shall
reassign any remaining Underlying Loans and Collateral Documents to the Seller
for a repurchase price of One ($1.00) Dollar.
<PAGE> 14
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6.3 POWER OF ATTORNEY. Seller hereby irrevocably constitutes and
appoints Buyer as its true and lawful attorney with full power of substitution,
for Seller and in its name, place and stead, to ask, demand, collect, receive,
receipt for, sue for, compound and give acquittance for any and all payments
assigned hereunder, and to endorse, in writing or by Seller's name or otherwise
on all checks, collections, receipts or instruments given in payment or part
payment thereof and to execute any and all assignments to evidence the sale and
agreements contained in this Sale Agreement, including, without limitation, any
UCC-3 Assignments and other assignments of the Collateral Documents from Seller
to Buyer.
6.4 SUBORDINATION. Seller hereby subordinates any claim it may have
from time to time for payment or reimbursement from an Underlying Debtor or
guarantor to payment of amounts due from time to time to Buyer by the Seller
under this Agreement or any other Obligation.
6.5 COLLECTIONS HELD IN TRUST. Provided Seller's right to collect
Payments has not been terminated in accordance with the provisions of paragraph
6.8 herein, Seller will hold in trust for Buyer's benefit all payments made to
it by Underlying Debtors under the Underlying Loans and will remit such funds to
Buyer pursuant to the terms of this Agreement.
6.6 COLLECTION REPORTS. So long as Seller shall administer the
Underlying Loans, Seller shall maintain books and records pertaining to all such
Underlying Loans and provide Buyer with summaries of monthly billings to the
Underlying Debtors involved and summaries of the status of each Underlying Loans
all in form satisfactory to Buyer, and, from time to time, furnish Buyer with
aforementioned summaries as prepared. Seller shall give Buyer and its
representatives at all reasonable times access to all records, files, books of
account, databases and information pertaining to all Underlying Loans,
Payments, and Equipment purchased by Buyer under this Agreement and shall
permit such representatives to inspect, audit, and to make extracts therefrom at
Seller's expense.
6.7 TAXES. Seller will make all filings in respect of, and pay and
discharge when due, any and all personal property taxes, license fee, sales,
use, excise, or similar taxes now or hereafter imposed by any state, Federal or
other governmental or agency on any Underlying Loans, Equipment or Payments,
whether the same shall be payable by or billed or assessed to the Underlying
Debtor or to Buyer, together with any penalties and/or interest in connection
therewith, PROVIDED however, that Seller's duty to pay and discharge such
obligations shall be suspended to the extent that Seller is contesting such
obligation in good faith by appropriate and timely proceedings and have
established and adequate reserves for the payment thereof.
<PAGE> 15
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6.8 TERMINATION OF COLLECTION. Upon Seller's failure to bill and
collect for and to remit Payments, or Seller's failure to administer Collateral
Documents herein, or upon an Event of Default hereunder, Buyer may, in addition
to such other rights and remedies provided in the Documentation and at law and
equity (i) terminate Seller's authority to bill and collect for Payments due and
to become due under any or all of the Underlying Loans (ii) bill for amounts due
under the Underlying Loans. If, despite such termination, Seller subsequently
receives a Payment, Seller agrees to hold such Payment in trust and to
immediately forward the Payment to Buyer. If Buyer assumes billing and
collection responsibility, Seller shall not interfere, attempt to interfere, or
initiate communication in any way with Underlying Debtors concerning the
notices, billing and collection of Pay ments and other amounts as provided in
this Section shall be specifically enforceable by Buyer.
6.9 BILLING AND COLLECTING. Upon Buyer's undertaking to bill and
collect for Payments under any Contracts, Buyer may take or fail to take
whatever action with respect to the collection of such Payments as Buyer in its
sole but reasonable discretion, shall deem proper. Seller hereby waives any
objection to and hereby consents that, without affecting any of Seller's
liabilities or obligations hereunder or under any assignment, Buyer may, after
Buyer's undertaking to bill and collect, agree with any Underlying Debtor under
any Underlying Loan as to any modification, alteration, release, compromise,
extension, waiver, consent, or other similar of dissimilar indulgence of or
with respect to any such Underlying Loan.
7. PREPAYMENT, REPURCHASE.
----------------------
7.1 MANDATORY REPURCHASE OR REPAYMENT. Seller shall upon
Buyer's demand, repurchase the Underlying Loans and\or make
payments, as the case may be, under the following circumstances:
(a) In the event that any Underlying Debtor is at any time
sixty (60) days delinquent in making payments under its Underlying Loan, or in
the event any Underlying Debtor's loan is terminated or rejected, or in the
event of an Underlying Loan Default, the Seller shall repurchase the Underlying
Loan forthwith by paying to Buyer the Repurchase Price. In the event of such a
repurchase, the amount of the SIS Monthly Pass Through Payments due from the
Seller to the Buyer under Section 6.2 above, shall be reduced by an amount equal
to the SIS Monthly Pass Through Payment due with respect to such Underlying Loan
for such month as described on attached EXHIBIT 1.
(b) In the event that any Underlying Debtor suffers an insurance
loss as to the Collateral Documents or the Equipment in the amount of fifty
(50%) per cent or more of the then outstanding principal amount of the
Underlying Loan to such Underlying
<PAGE> 16
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Debtor or if a loss is suffered of less than fifty (50%) percent and the
Collateral Documents or the Equipment is not restored in full within thirty
days of such damage, then the Seller shall forthwith repurchase such
Underlying Loan for the Repurchase Price. In the event of such a repurchase,
the amount of the monthly payments due from the Seller to the Buyer under
Section 6.2 above, shall be reduced by an amount equal to the SIS Monthly Pass
Through Payment due as to such Underlying Loan as described on attached
EXHIBIT 2.
Upon receipt of the Repurchase Price, Buyer will reassign to Seller all
of Buyer's title and interest in the repurchased Collateral Documents and the
Payments due thereunder and release its security interest in the Collateral
Documents related thereto, all on an "AS IS", WITHOUT RECOURSE basis, without
any representations or warranties of any kind whatsoever, as provided in the
Security Agreement.
8. SECURITY. To secure the Obligations, the Seller has executed or caused
to be executed the Security Agreement as of this date.
9. DEFAULT. With respect to the Seller and any endorser, guarantor or
surety for the Seller, the occurrence of any of the following shall constitute
a default ("Event of Default") hereunder:
9.1 Failure to pay any Obligation within three (3) days of the date
that such payment shall be due and payable.
9.2 Failure to perform any term, condition, or covenant contained in
this Agreement not cured within fifteen (15) days of written notice thereof by
the Buyer, other than failure to perform under Sections 5.10 or 5.13(a) of this
Agreement or Section 8.5 of the Revolving Credit Agreement as incorporated
herein by Section 5.13(c) of this Agreement, for which there shall be no cure
period.
9.3 An Event of Default of or under any of the Documentation.
9.4 An event of default under the Revolving Credit Agreement as the
same may be amended from time to time, unless such default is waived by the
parties to such Revolving Credit Agreement within thirty (30) days of breach.
No such waiver shall be considered a waiver of any provision of the Revolving
Credit Agreement to the extent that such provision is incorporated herein by
reference. To the extent any such provision is incorporated herein by
reference, it becomes a part of this Loan Agreement as if set forth herein and
may not be waived or amended except pursuant to an amendment to this Loan
Agreement.
<PAGE> 17
17
9.5 Any financial statement, representation, warranty, or certificate
made or furnished to the Buyer if materially incorrect or materially incomplete
when furnished.
9.6 The involvement in any financial difficulty as evidenced by:
(a) an assignment, composition, or similar device for the benefit
of creditors, or
(b) inability to pay debts when due, or
(c) the commencement of a voluntary proceeding in bankruptcy or
the failure to have dismissed within ninety (90) days any involuntary
proceeding in bankruptcy or the voluntary institution or the failure to have
dismissed within ninety (90) days any involuntary institution of any other
proceedings under the law relating to bankruptcy reorganization, insolvency or
relief of debtors, or
(d) the voluntary appointment of a receiver or trustee, or the
failure to have dismissed within ninety (90) days any involuntary appointment,
the institution of proceedings for the dissolution, or full or partial
liquidation, or the change in nature or discontinuance of its business.
(e) Entry of Judgment in excess of $100,000.00 not satisfied,
discharged or appealed in good faith within thirty (30) days of the entry
thereof.
(f) Any event which results in the acceleration of any
indebtedness in excess of $100,000.00 to any others under any instrument,
agreement, or undertaking.
10. REMEDIES UPON DEFAULT.
---------------------
10.1 Upon the occurrence of any Event of Default, the Buyer at its
option may declare any or all Obligations immediately due and payable, and shall
have all rights and remedies of a secured party under the laws of The
Commonwealth of Massachusetts and as otherwise provided by law and by the
Documentation.
10.2 Without limiting the generality of the foregoing, upon the
occurrence of any Event of Default, the Seller shall, upon demand by Buyer,
repurchase all of the Underlying Loans and the Collateral Documents at the
Repurchase Price. Upon such demand, Seller shall immediately pay the Repurchase
Price to Buyer. Payments not made by Seller when due shall bear interest at the
rate of ten and one-quarter (10.25%) per cent per annum. Upon payment in full of
the Repurchase Price as to all of the Underlying Loans, plus interest for any
late payments, Buyer shall assign the Underlying Loans and the Collateral
Documents to
<PAGE> 18
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Seller as provided in the Security Agreement. Until the Repurchase Prices as to
all Underlying Loans are paid in full, plus interest for any late payments, the
Buyer shall be under no obligation to reassign any of the Underlying Loans or
Collateral Documents to Seller.
10.3 Proceeds actually received by the Buyer from any Collateral
Documents may be applied by the Buyer to principal or interest of any or all of
the Obligations, after deducting therefrom any expenses reasonably incurred by
the Buyer in enforcing its rights hereunder, including reasonable attorney's
fees incurred by the Buyer.
11. MISCELLANEOUS PROVISIONS.
------------------------
11.1 WAIVER AND MODIFICATION. The Buyer shall not be deemed to have
waived any of its rights hereunder or under any other Obligations unless such
waiver is in writing and signed by the Buyer. No delay or omission on the part
of the Buyer in exercising any right shall operate as a waiver of such right or
any other right. A waiver on one occasion shall not be construed as a bar to or
a waiver of any right or remedy on any future occasion. The Seller hereby waives
presentment, demand, protest, and notice of nonpayment or default. The Seller
consents to and waives notice of the granting of any extension of time for
payment or other indulgence granted to any account debtor or any other party,
the taking and releasing by the Buyer of any security, or the compromise or
settlement of any accounts.
11.2 NOTICES. Except for any notice required under applicable law to
be given in another manner, all notices to be given pursuant to this Agreement
shall be sufficient if mailed postage prepaid, certified or registered mail,
return receipt requested or by a recognized overnight delivery service for which
evidence of delivery is provided to the addresses of the parties below, or to
such other address as a party may direct by notice given as herein provided. Any
time period provided in the giving of any notice hereunder shall commence upon
the date such notice is deposited in the mail unless otherwise expressly
provided in this Agreement.
To Seller:
HPSC, Inc.
60 State Street
Boston, MA 02109
with a copy to:
Hill & Barlow
1 Institution Place
Boston, MA 02110
<PAGE> 19
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Attn: Dennis W. Townley, Esquire
To Buyer:
Springfield Institution for Savings
1441 Main Street
Springfield, MA 01103
Attention: Imran Riaz
with a copy to:
Gary S. Fentin, Esquire
Shatz, Schwartz and Fentin, P.C.
1441 Main Street
Springfield, MA 01103
11.3 PAYMENTS; INTEREST. All payments which are due on a day on which
the Buyer is not open for business shall be due and payable on the next business
day such Buyer is open for business. All payments made shall be made in
immediately available funds, and shall be applied first to the payment of
prepayment premium and late charges, if any, second to interest accrued and due
on the unpaid principal balance under this Agreement and the remainder shall be
applied to the reduction of the unpaid principal. All interest hereunder shall
be calculated on the basis of a three hundred sixty (360) day year over the
actual number of days elapsed.
11.4 COSTS. Seller will pay, upon demand, all reasonable counsel fees
and expenses incurred by the Buyer in connection with the financing being
concluded as of this date, as well as all reasonable fees and expenses,
including reasonable counsel fees, which the Buyer may hereafter incur in
protecting and enforcing any of the Buyer's rights. Seller specifically
authorizes the Buyer to pay all such fees and expenses and charge the same to
its loan account with the Buyer.
11.5 CERTAIN DEFINITIONS. Except as otherwise herein expressly
provided, all terms shall have the meanings assigned to such terms under the
Uniform Commercial Code and generally accepted accounting principles.
11.6 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
11.7 PARTIAL INVALIDITY. In the event any clause or provision of the
Documentation shall be invalid or void for any reason, such invalid or void
clause or provision shall not affect the remainder of the Documentation, and the
balance of the provisions thereof shall remain in full force and effect.
<PAGE> 20
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11.8 RESOLUTION OF CONFLICTS. In the case of conflict or ambiguity
between any covenants and/or conditions under this Loan Agreement and any other
instrument signed in connection therewith then the Buyer may, at its option,
have the right to elect the provision that controls.
11.9 POWER OF ATTORNEY. Seller hereby grants the Buyer a power of
attorney to endorse the name of the Seller on any documents reasonably deemed
necessary by the Buyer to effectuate the purpose of this Agreement.
11.10 DEPOSITS. Any deposits or other sums at any time credited by or
due from the Buyer to the Seller and any securities or other personal property
of the Seller hereof in the possession of the Buyer may at all times be held and
treated as collateral security for the payment of the Obligations and of any and
all other liabilities, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, of said Seller to the Buyer. The
Buyer on or after an Event of Default hereof may sell any such securities or
other property at public or private sale without demand, notice or advertisement
of any kind, all of which are hereby expressly waived. To the extent permitted
by law, the Buyer may apply or set off such deposits or other sums against said
liabilities at any time.
11.11 CUMULATIVE RIGHTS. The rights and remedies of the Buyer as
provided in this Agreement and in the Documentation shall be cumulative and
concurrent, and may be pursued singly, successively, or together against Seller,
the property described in the Documentation, any guarantor hereof, and any other
funds, property or security held by Buyer for the payment hereof or otherwise at
the sole discretion of the Buyer. The failure to exercise any such right or
remedy shall in no event be construed as a waiver or release of said rights or
remedies or of the right to exercise them at any later time. The acceptance by
Buyer of payment of any sum payable hereunder after the due date of such payment
shall not be a waiver of Buyer's right to either require prompt payment when due
of all other sums payable hereunder or to declare a default for failure to make
prompt payment.
11.12 CERTAIN WAIVERS. The Seller and all other persons liable or to
become liable for all or any part of this indebtedness, jointly and severally
waive diligence in collection, presentment, protest and demand, notice of
protest, demand, nonpayment, dishonor and maturity, and recourse to suretyship
defenses generally and the benefit of any exemption under any homestead laws, if
applicable; and hereby jointly and severally hereby consent to (i) any and all
renewals, extensions or modifications of the terms hereof and of the
Documentation,including the terms or time for payment of this Agreement; (ii)
the release or surrender, exchange or substitution, failure to preserve or
<PAGE> 21
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protect all or any part of any collateral security hereof or of the
Documentation, whether real or personal or direct or indirect, (iii) the
granting of any other indulgences of Seller; and (iv) the taking or releasing of
other or additional parties primarily or contingently liable hereunder. Any such
renewal, extension, modification, release, surrender, exchange or substitution
may be made without notice to any of the parties without affecting the liability
of said parties hereunder.
11.13 ILLEGALITY OF CERTAIN PROVISIONS. In the event that any one or
more of the provisions of this Note shall for any reason be held to be invalid,
illegal or unenforceable, in whole or in part, or in any respect, or in the
event that any one or more of the provisions of this Agreement shall operate, or
would respectively operate, to invalidate this Agreement, then, and in any such
event such provision or provisions only shall be deemed to be null and void and
of no force or effect and shall not affect any other provision of this Note, and
the remaining provisions of this Agreement shall remain operative and in full
force and effect, shall be valid, legal and enforceable, and shall in no way be
affected, prejudiced or disturbed thereby.
12. GOVERNING LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE
OF MASSACHUSETTS APPLICABLE TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE
STATE OF MASSACHUSETTS. SELLER DOES HEREBY SUBMIT, AT SELLER'S ELECTION, TO
THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURTS (FEDERAL, STATE OF LOCAL)
HAVING A SITUS WITHIN THE COUNTY OF HAMPDEN AND THE STATE OF MASSACHUSETTS
WITH RESPECT TO ANY DISPUTE, CLAIM, OR SUIT WHETHER DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY RELATED ASSIGNMENT OF ANY
OF SELLER'S OBLIGATIONS OR INDEBTEDNESS HEREUNDER. SELLER EXPRESSLY WAIVES
PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE
PREPAID, DIRECTED TO ITS LAST KNOWN ADDRESS, WHICH SERVICE SHALL BE DEEMED
COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF. SELLER
HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT THE COUNTY HAMPDEN, STATE OF
MASSACHUSETTS, IS AND INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF
VENUE AS WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH
ACTION OF PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF FORUM
NON CONVENIENS OR OTHERWISE. THE EXCLUSIVE CHOICE OF FORUM SET FORTH HEREIN
SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT BY BUYER OR ANY JUDGEMENT
OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION BY BUYER TO ENFORCE THE SAME
IN ANY OTHER APPROPRIATE JURISDICTION.
12.1 WAIVER OF JURY TRIAL. SELLER HEREBY WAIVES ITS RIGHT TO A JURY
TRIAL OF ANY CLAIM OR OF ACTION BASE UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY OTHER RELATED DOCUMENT. SELLER ALSO WAIVES ANY BOND OR SURETY OR SECURITY
UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF BUYER. THIS
WAIVER IS
<PAGE> 22
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INTENDED TO BE EFFECTIVE WITH RESPECT TO ALL DISPUTES WHICH ARISE OUT
OF THIS AGREEMENT OR PERTAIN TO THE TRANSACTIONS CONTEMPLATED THEREBY. SELLER
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO BUYER'S ENTERING INTO
THIS BUSINESS RELATIONSHIP, THAT BUYER ALREADY HAS RELIED ON SUCH WAIVER IN
ENTERING INTO THIS BUSINESS RELATIONSHIP, THAT BUYER ALREADY HAD RELIED ON SUCH
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT BUYER WILL CONTINUE TO RELY ON
SUCH WAIVER IN IT S FUTURE DEALINGS. SELLER FURTHER WARRANTS AND REPRESENTS THAT
IT KNOWINGLY AND VOLUNTARILY HAS WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, AND MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND SUCH WAIVER SET FORTH HEREIN SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRIT TEN CONSENT TO AT TRIAL BY THE COURT.
12.2 OTHER PROVISIONS. Any provisions contained in any Exhibit
annexed hereto are hereby incorporated by reference into this Agreement.
IN WITNESS WHEREOF, the parties have on the date first-above written
executed this Agreement as a sealed instrument.
WITNESS: HPSC, INC.
Illegible By: Bruce Libel
- ------------------------- --------------------------------
Its Chief Financial Office
SPRINGFIELD INSTITUTION FOR SAVINGS
Illegible By: Illegible
- ------------------------- --------------------------------
Its Assistant Vice President
<PAGE> 23
Exhibit A
SALE AGREEMENT BETWEEN
HPSC, INC. AND
SPRINGFIELD INSTITUTION FOR SAVINGS
THIS SALE AGREEMENT dated November 16, 1995 by and between HPSC, INC.,
whose principal place of business is at 60 State Street, Boston, Massachusetts
02109 (the "Seller") and SPRINGFIELD INSTITUTION FOR SAVINGS, whose principal
place of business is at 1441 Main Street, Springfield, Massachusetts 01103 (the
"Buyer").
BACKGROUND: Seller is engaged in the business of making third party loans
to individuals and companies in the medical industry and has offered to sell
certain of such loans to Buyer. This Agreement sets forth the terms and
conditions which will be applicable to such sale.
1. CERTAIN DEFINITIONS.
-------------------
1.1 The capitalized terms used herein shall have the meanings set forth in
this Section 1 or elsewhere in this Agreement:
"Balance of Payments" means the total of all unpaid Payments due and to
become due under the Underlying Loans.
"Collateral Documents" means the contracts, notes, security agreements,
loan agreements, guaranties, mortgages, landlord's waivers, subordination
agreements, UCC financing statements, assignments, chattel paper and other
documents and instruments evidencing and/or securing the Underlying Loans in
which the Seller has sold this day to Buyer, as described in Exhibit A-1 to the
Security Agreement.
"Default" sha11 mean an event or condition which with the passage of time
or the giving of notice or both would become an Event of Default.
"Documentation" means any and all documents which evidence or secure the
Obligations, including but not limited to the following documents, as the same
may be amended from time to time: (i) this Agreement, the Security Agreement,
and any affidavit and/or certificate delivered this date by the Seller to Buyer
and (ii) the Loan Agreement, the Note and the Security Agreement and associated
documents delivered by Seller to Buyer dated April 13, 1995 as the same may be
amended from time to time.
"Event of Default" shall have the meaning set forth in Section 9 hereof.
<PAGE> 24
2
"Float Payment" shall mean the amount due from Seller to Buyer for each day
in which a payment is not made as required hereunder, such payment to equal the
product of the amount of the late payment times eight and one-quarter (8.25%)
per cent per annum divided by 360.
"Gross Underlying Loan Payment or Payments" shall mean the entire monthly
loan payment hereafter due from time to time from each Underlying Debtor on its
Underlying Loan, which amounts are set forth on attached EXHIBIT 1 under the
column entitled "Gross Monthly Payment by Customer."
"Obligations" means any and all amounts due from time to time from Seller
to Buyer hereunder, including any Float Payments, plus any and all other
Indebtedness of Seller to Buyer, no matter how or when arising and whether under
this Agreement or under any other agreement, guaranty or instrument, including,
without limitation, the obligations of Seller to Buyer under the Loan Agreement
dated April 13, 1995 and all associated documents, and including the obligation
to perform acts or to refrain from acting.
"Payment(s)" means the Gross Underlying Loan Payments.
"Permitted Liens" means "none," as there are no liens permitted as to the
Collateral Documents.
"Repurchase Price" of an Underlying Loan means, at any time, the net
present value of the SIS Monthly Pass Through Payments remaining until the
earlier of the SIS Final Payment Date or the Maturity Date of such Underlying
Loan, using a discount rate of eight and 25/100 (8.25%) per cent per annum, plus
any outstanding Float Payments due as described in Section 6.2(b) plus Buyer's
costs of maintaining the Collateral and any other costs incurred with respect to
the Underlying Loans as provided hereunder and under the Security Agreement,
including its costs of collection and its reasonable attorneys' fees.
"Revolving Credit Agreement" means the Amended and Restated Revolving
Credit Agreement dated May 15, 1995 by and among Seller, The First National Bank
of Boston, Bank of America Illinois, Shawmut Bank, N.A., CoreStates Bank, N.A.
and The Daiwa Bank, Limited, attached hereto as EXHIBIT 3, which is hereby
incorporated herein by reference.
"Security Agreement" means the Security Agreement of even date herewith
from Seller to Buyer as amended from time to time in which Seller grants to
Buyer a perfected first security interest in the Collateral Documents.
"SIS Final Payment Date" shall mean December 1, 2000.
<PAGE> 25
3
"SIS Monthly Pass Through Payments" shall mean that portion of the Gross
Underlying Loan Payments hereafter due from the Underlying Debtors which is
payable to the Bank from month to month until the SIS Final Payment Date, which
amounts are set forth with respect to each Underlying Debtor and in the
aggregate on attached EXHIBIT 1 under the columns entitled 11/1/95 through and
including 12/01/2000. The total of all SIS Monthly Pass Through Payments are set
forth at the bottom of each such column on EXHIBIT 1, and such total is also set
forth on attached EXHIBIT 2, under the column entitled "Total SIS Payment."
"Underlying Debtor or Debtors" as the case may be, means the borrower or
borrowers from the Seller under any one or more of the Underlying Loans.
"Underlying Debtor Default" means: (i) failure of an Underlying Debtor
under any Collateral Document to make a Payment within sixty (60) days of the
due date of that Payment; (ii) failure of an Underlying Debtor to perform any of
its material obligations under any Collateral Documents other than its failure
to make timely Payments which is not cured within the period provided therein;
(iii) insolvency of an Underlying Debtor, inability of an Underlying Debtor to
pay its debts as they mature, the making by an Underlying Debtor of an
assignment for the benefit of creditors, or institution of any proceeding by or
against an Underlying Debtor alleging that it is insolvent or unable to pay its
debts as they mature if such proceeding is not withdrawn or dismissed within
sixty (60) days after its institution; (iv) entry of any final Judgment against
an Underlying Debtor remaining unsatisfied for a period of thirty (30) days if
such judgment is reasonably deemed by Buyer to be a material factor in the
creditworthiness of the Underlying Debtor; (v) death of an Underlying Debtor who
is a natural person or of any general partner of a Lessee which is a partnership
and whom Buyer reasonably deems to be material to the creditworthiness of the
Underlying Debtor; (vi) dissolution, merger, consolidation or transfer of a
substantial part of the property of an Underlying Debtor which is a corporation
or a partnership, if such dissolution, merger consolidation or transfer is
reasonably deemed by Buyer to be a material factor in determining the
creditworthiness of such Underlying Debtor; or (vi) falsity in any material
respect as of the date made in any material statement, representation or
warranty of an Underlying Debtor in connection with any Collateral Document.
"Underlying Loans" means the loans from Seller to certain of Seller's
customers, referred to herein as the Underlying Debtors, which constitute a part
of the Collateral Documents. The Underlying Loans are summarized in attached
EXHIBIT 1.
1.2 Capitalized terms used in the provisions of the Revolving Credit
Agreement that are incorporated herein by reference
<PAGE> 26
4
shall have the meanings ascribed to such terms in this Agreement, except as set
forth below:
(a) the following capitalized terms used in the incorporated
provisions of the Revolving Credit Agreement shall have the definitions ascribed
to such terms in the Revolving Credit Agreement, which definitions are hereby
incorporated herein in their entirety by reference:
"ACFC, Capital Assets, Capital Expenditures, Capitalized Leases, Code,
Consolidated, Consolidated Earnings Before Interest and Taxes, Consolidated Net
Income (or Deficit), Consolidated Tangible Capital Funds, Consolidated Tangible
Net Worth, Consolidated Total Assets, Consolidated Total Interest Expense,
Consolidated Total Liabilities, Credit, Credit Policy, Customer, Customer
Receivable, Delinquent, Distribution, Employee Benefit Plan, Equipment, ERISA,
ERISA Affiliate, ERISA Reportable Event, Funding, generally accepted accounting
principles, Gross Customer Receivables, Guaranteed Pension Plan, Hazardous
Substances, Indebtedness, Interest Ratio, Investments, Multiemployer Plan,
Obligor, PBGC, Person, Reissued Customer Receivables, Rental Obligations,
Reserves, Residual Value of Equipment, Subordinated Debt, Subsidiary, Unearned
Income."
(b) the following capitalized terms as used in the Revolving Credit
Agreement shall have the following meanings herein:
"Accounts Receivable," and "Eligible Accounts Receivable" as used in
the provisions of the Revolving Credit Agreement incorporated herein, shall be
deleted herein.
"Agent" or "Banks" as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to the "Buyer."
"Contract," as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to the "Collateral Documents."
"Credit Agreement" as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to this "Agreement."
"Loan Documents" as used in the provisions of the Revolving Credit
Agreement incorporated herein, shall refer herein to the "Documentation."
2. THE SALE.
--------
2.1 SALE. Subject to the conditions set forth in Section 3 below, Seller
hereby sells and assigns to Buyer and Buyer hereby
<PAGE> 27
5
purchases, (i) all of Seller's right, title and interest in and to the
Underlying Loans, the Collateral Documents, and all Payments now and hereafter
due thereunder, and (ii) all of Seller's right, title and interest in and to the
Equipment covered by such Collateral Documents.
2.2 PRICE. The purchase price of the Collateral Documents (the "Price"),
shall be $1,669,156.25.
2.3 PAYMENT OF THE PRICE. $1,515,496.53 of the Price shall be paid by Buyer
to Seller by cash or a bank check on the date of this Agreement. Such portion of
the Price constitutes the total of the amounts listed on page one of attached
EXHIBIT 1 under the column entitled "Principal Balance," minus $24,429.51, the
November 1, 1995 monthly principal payment. The balance of the Price (the
"Remaining Price") shall be paid in consecutive monthly payments in the amounts
set forth in the column entitled "HPSC, INC. PAYMENT" on attached EXHIBIT 2. The
Buyer shall have no personal obligation to pay to Seller the Remaining Price, it
being agreed that the Seller's sole source of payment of the Remaining Price
shall be from payments made from time to time by the Underlying Debtors on the
Underlying Loans. As set forth below, however, Seller's right to receive the
Remaining Price from the Underlying Debtors or the Collateral Documents is
subordinated to all amounts to from Seller to Buyer for the Obligations.
3. CONDITIONS OF SALE. The obligation of the Buyer to purchase the Underlying
Loans and Collateral Documents is subject to the following conditions precedent:
3.1 (i) The Seller shall be in compliance with all the terms, covenants and
conditions of this Agreement which are binding upon it directly or indirectly,
(ii) there shall exist no Default hereunder, and (iii) the representations and
warranties contained in this Agreement shall be true as of such date.
3.2 The Buyer shall have received from counsel for the Seller, a favorable
opinion as to the validity and enforceability of the Documentation, and as to
such other matters as the Buyer may reasonably request.
3.3 The Buyer shall have received a certificate of the Secretary or an
Assistant Secretary of the Seller which shall certify the names of the officers
of the Seller authorized to sign this Agreement and all other documents
contemplated hereby or referred to herein together with the true signatures of
such officers, upon which such certificate the Buyer may rely until it shall
receive a further signed certificate of the Secretary or an Assistant Secretary
of the Seller canceling or amending its prior certificate and setting forth the
signatures of the officers named in such further certificate.
<PAGE> 28
6
3.4 No law, regulation, executive order or judicial order (including,
without limitation, Regulations U or X of the Board of Governors of the Federal
Reserve System), ruling, other governmental action or guideline shall be in
effect or shall have occurred, the effect of which in the Buyer's judgment would
be to prevent the Buyer from fulfilling its obligations hereunder.
3.5 All corporate and legal proceedings and all instruments in connection
with the transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Buyer and the Buyer shall have received all
information and all documents (including, but not limited to, copies of
corporate votes and copies of the Articles of Organization and bylaws of the
Seller, each as amended to date and each certified by the Secretary), including
records of corporate proceedings, which the Buyer may reasonably have requested
in connection therewith, such documents where appropriate to be certified by
proper corporate or governmental authorities. The acceptance by the Seller of
each advance shall constitute a representation by the Seller to the Buyer that
all of the applicable conditions specified in this Section exist as of the time
of the making of such borrowing.
3.6 The Buyer shall have received all of the Collateral Documents described
in this Agreement and the Security Agreement.
4. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
--------------------------------------------------
4.1 OUTSTANDING PRINCIPAL OF UNDERLYING LOANS. Seller represents to Buyer
that the attached EXHIBIT 1 contains a full, complete and accurate description
of the Underlying Loans and that the amount listed under the column "Principal
Balance" on EXHIBIT 1 represents the outstanding principal balance of each of
the Underlying Loans as of October 31, 1995, without inclusion of any interest,
whether future, accrued or otherwise. The Seller further represents that the
Collateral Documents as described on EXHIBIT A-1 to the Security Agreement
contains a full and complete description of the Collateral Documents in effect
as to each Underlying Loan.
4.2 UNDERLYING LOANS. In addition to the representations and warranties set
forth in Section 6.21 of the Revolving Credit Agreement as incorporated by
reference herein, the Seller represents and warrants that it entered into all of
the Underlying Loans on its own, without participation from the Buyer, prior to
requesting the Buyer to enter into this Agreement and that the Seller is the
owner of the Collateral Documents free and clear of any liens or encumbrances.
4.3 REVOLVING CREDIT AGREEMENT REPRESENTATIONS AND WARRANTIES INCORPORATED
HEREIN BY REFERENCE. Subject to the provisions set forth in Section 1 above as
to the interpretation of capitalized terms used herein, the parties hereby
incorporate by refer-
<PAGE> 29
7
ence each and every one of the provisions contained in the following sections of
the Revolving Credit Agreement as if such entire sections were set forth herein,
with such changes as set forth below, and Seller hereby represents and warrants
to the Buyer that each of the representations and warranties so incorporated
herein are true as of the date of this Agreement. Seller hereby represents that
any schedules referenced in the following sections, which schedules are hereby
incorporated herein by reference, are accurate as of the date of this Agreement
and need not be updated.
6.1 Corporate Authority.
-------------------
6.1.1 Incorporation; Good Standing
----------------------------
6.1.2 Authorization.
-------------
6.1.3 Enforceability.
--------------
6.2 Governmental Approvals.
----------------------
6.3 Title to Properties; Leases.
---------------------------
6.4 Financial Statements.
--------------------
6.4.1 Financial Statements.
--------------------
6.5 No Material Adverse Change, etc.
--------------------------------
6.6 Franchises, Patents, Copyrights, etc.
------------------------------------
6.7 Litigation.
----------
6.8 No Materially Adverse Contracts.
-------------------------------
6.9 Compliance With Other Instruments, Laws, etc.
---------------------------------------------
6.10 Tax Status.
----------
6.11 No EVENT OF DEFAULT. No Default or Event of Default has occurred or is
continuing under this Agreement or under the Revolving Credit Agreement.
6.12 Holding Company and Investment Company.
--------------------------------------
6.13 Absence of Financing Statements, etc.
------------------------------------
6.14 Perfection of Security Interest.
-------------------------------
6.15 Certain Transactions.
--------------------
6.16 Employee Benefit plans.
----------------------
<PAGE> 30
8
6.17 Regulations U and X.
-------------------
6.18 Environmental Compliance.
------------------------
6.19 Subsidiaries, etc.
-----------------
6.21 ELIGIBLE ACCOUNTS RECEIVABLE, EQUIPMENT AND CONTRACTS.
(Specific reference is made to Section 1(b) of this Agreement for the
meanings of capitalized terms used in section 6.21, as such section is
incorporated herein).
Exhibit D - Compliance Certificate."
----------------------------------
5. COVENANTS. Seller does hereby covenant and agree with the Buyer that it
will during the term of this Agreement:
5.1 Conduct of Business.
-------------------
(a) Seller will do all things necessary to preserve, renew, and keep
in force and effect its corporate existence, and all rights and franchises
necessary to conduct its business, and will comply with all laws and regulations
of any governmental authority which may be applicable to it or its business.
(b) Seller will pay all taxes, assessments and charges assessed
against it or payable by it at such times and in such manner to prevent any
penalty from accruing or any lien or charge from attaching to its properties,
unless Seller in good faith contests the same and has set aside adequate
reserves, in which case Seller shall, in any event, pay all such taxes,
assessments, charges, or levies prior to foreclosure on such properties.
(c) Seller will pay, when due, or in conformity with customary trade
terms but not later than sixty (60) days from the due date (subject to
agreements modifying such terms) all lease obligations, all trade debt, and all
other Indebtedness incident to the operations of the Seller, except such as are
being contested in good faith and by proper proceedings if the Seller shall have
set aside on its books adequate reserves with respect thereto.
5.2 ACCOUNTS AND REPORTS. The Buyer is hereby authorized to examine and
make copies of any of Seller's books or records, as deemed necessary or
desirable by the Buyer. The Buyer shall have the right from time to time to
discuss Seller's affairs directly with Seller's accountants after notice to
Seller and opportunity of Seller to be present at such discussions.
5.3 NOTICE OF CLAIMS. The Seller shall immediately notify the Buyer of all
cases involving loss or damage of to the Collateral Documents; of any request
for credit or adjustments or of any of the Underlying Loans or other dispute
arising with respect
<PAGE> 31
9
to any of the Collateral Documents; and generally of all happenings and events
affecting the Collateral Documents.
5.4 MAINTENANCE OF BOOKS. The Seller shall maintain its books and records
in a manner and form satisfactory to the Buyer, but not contrary to sound
accounting practice or regulatory requirements, and at all reasonable times, and
from time to time, allow the Buyer, by or through any of its officers, agents,
attorneys or accountants, to examine, inspect or make extracts from the Seller's
books and records and to arrange for physical inspection of and for verification
of the records as to the Collateral Documents.
5.5 VERIFICATION OF BALANCES. The Buyer shall have the right to instruct
the Seller's accountants to verify the balances outstanding on any or all of
Underlying Loans. On instructions of the Buyer, the accountants will send
notices to the Underlying Debtors in the customary manner without revealing the
security interest of the Buyer therein, and such verifications shall be
transmitted by said accountants to the Buyer, not the Seller, but at the expense
of the Seller. The Buyer shall have the right to verify the balances outstanding
of any or all of the Underlying Loans.
5.6 NOTICE OF LITIGATION. Seller will give immediate notice to the Buyer
of any litigation in which Seller is a party, involving claims against Seller in
excess of $100,000, and of the institution of any administrative proceeding
which might adversely affect Seller's operations, financial condition, property
or business.
5.7 APPOINTMENT OF BUYER AS ATTORNEY. To facilitate the exercise by Buyer
of any right or remedies set forth in this Agreement and the Documentation, the
Seller hereby constitutes Buyer or its agents, or any other person whom Buyer
may designate, as attorney-in-fact for the Seller, at the Seller's own cost and
expense, to exercise, upon and after an Event of Default, all or any of the
following powers; which, being coupled with an interest, shall be irrevocable,
shall continue until all obligations have been paid in full, and shall be in
addition to any other rights and remedies that Buyer may have: (i) to remove
from any premises where the same may be located, any and all documents,
instruments, files and records, and any receptacles and cabinets containing the
same, relating to Collateral Documents; and the Buyer may, at the Seller's cost
and expense, use such of the personnel, supplies, and space of the Seller at its
place of business as may be necessary to properly administer and control the
Collateral Documents or the handling of collections and realizations thereon;
and (ii) to take or bring, in the Buyer's name or in the name of the Seller, all
steps, actions, suits, or proceedings deemed by Buyer necessary or desirable to
effect collection of or to realize upon Collateral Documents; and
<PAGE> 32
10
(iv) to settle, compromise, or adjust any of the Underlying Loans.
5.8 MAINTENANCE OF PROPERTY AND LEASES. The Seller and any Subsidiary will
maintain its properties in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time to the extent required by the
exercise of sound business judgment will make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto; and the Seller will
at all times comply with the provisions of all leases to which the Seller is a
party or under which it occupies property so as to prevent any material loss or
forfeiture thereof or thereunder except to the extent that if there is a bona
fide dispute between the parties under any outstanding lease, the Seller may
contest such matter by appropriate means if there shall have been set aside on
the books of the corporation involved adequate reserves with respect thereto.
The Seller will comply in all material respects with all laws and with all
rules, regulations and orders made by governmental authority and applicable to
their respective properties or any part thereof.
5.9 Insurance.
---------
(a) The Seller will keep all of its properties which are customarily
insured by companies owning similar property or engaged in the same or similar
business, insured by financially sound and reputable insurers against loss or
damage by fire, explosion, and other hazards customarily covered by extended
coverage in amounts not less than one hundred (100%) percent of the full
insurable value of the property insured. The Seller will maintain with
financially sound and reputable insurers, comprehensive general liability
insurance of at least $1,000,000.00 per occurrence and such other reasonable and
proper insurance against other hazards, risks and liability to persons and
property to the extent and in the manner customary for companies operating like
properties in similar businesses similarly situated, including without
limitation, fire, extended coverage, vandalism and malicious mischief to include
all risk physical loss.
(b) Seller will furnish to the Buyer such evidence of insurance as the
Buyer may reasonably require.
5.10 FINANCIAL STATEMENTS AND OTHER INFORMATION. The Seller will deliver to
the Buyer the following:
(a) As soon as available, and, in any event, within forty-eight (48)
days after the end of the first three quarterly fiscal periods in each fiscal
year (i) a copy of all Form 10-Q filings and (ii) a completed compliance
certificate as to Seller's compliance with the Financial Covenants described in
Section 5.13(a) of this Agreement, addressed to Buyer and making
<PAGE> 33
11
reference to this Agreement, substantially in the form attached to the Revolving
Credit Agreement as EXHIBIT D.
(b) As soon as available, and in any event, within ninety-three (93)
days after the end of each fiscal year, (i) a copy of each Form 10-K filing and
(ii) a completed compliance certificate in the form to the Revolving Credit
Agreement.
The Buyer shall have the right from time to time to discuss Seller's
affairs directly with Seller's independent certified public accountants after
notice to Seller and with the opportunity of Seller to be present at said
discussions.
(c) A report indicating the date and amount of any payments made as to
the Underlying Loans shall be delivered to Buyer on the fifth of each month.
5.11 RESTRICTIONS ON LIENS. The Seller shall not create or incur or suffer
to be created or incurred or to exist any mortgage, pledge, lien, charge,
security interest or encumbrance of any kind upon any of the Collateral
Documents nor shall the Seller transfer any of its interest in such Collateral
Documents.
5.12 NOTICE OF DEFAULT. Seller will notify the Buyer immediately if it
becomes aware of the occurrence of any Default or Event of Default hereunder, or
of any fact, condition, or event which only with the giving of notice, or
passage of time would become an Event of Default.
5.13 REVOLVING CREDIT AGREEMENT COVENANTS INCORPORATED HEREIN BY
REFERENCE. The parties hereby incorporate by reference the following entire
sections of the Revolving Credit Agreement, as of this date, as if such
provisions were set forth herein:
(a) Each and every one of the following Financial Covenants: "Sections
9.1, 9.2, 9.4, 9.5, 9.6, 9.7, 9.8, 9.9, 9.10 and 9.11 of the Revolving Credit
Agreement."
(b) Each and every one of the following general provisions of the
Revolving Credit Agreement:
"Section 4.3.2. No Offset.
---------
Section 4.7 Additional Costs, etc.
---------------------
Section 4.8 Capital Adequacy.
----------------
Section 4-9 Certificate."
-----------
(c) Each and every one of the following Negative Covenants contained
in the Revolving Credit Agreement:
<PAGE> 34
12
Section 8.5 Merger, consolidation and Disposition of Assets.
-----------------------------------------------
Section 8.7 Compliance with Environmental Laws.
----------------------------------
Section 8.9 Employee Benefit Plans.
----------------------
5.14 INTEREST COVERAGE. The Borrower will not permit the ratio of (i)
Consolidated Earnings Before Interest and Taxes for any period of four
consecutive fiscal quarters (treated as a single accounting period), to (ii)
Consolidated Total Interest Expense for such period, as such terms are defined
in the Revolving Credit Agreement, to be less than 1.15 to 1.00 at any time.
5.15 INDEMNITY. Buyer assumes no obligation or liability to the Underlying
Debtors under the Collateral Documents and no assignment of Collateral Documents
shall impose any such obligation or liability on Buyer. Seller agrees to
indemnify and save Buyer harmless from and against any losses, damages,
penalties, forfeitures, claims, costs, expenses (including court costs and
reasonable attorneys' fees) or liabilities (excepting however, those arising
solely as a result of Buyer's gross negligence or willful misconduct) which may
at any time be brought, incurred, assessed or adjudged against Buyer related to
or arising from the Collateral Documents and the related Equipment, including,
without limitation, those arising or resulting from; any alleged failure of any
Collateral Documents or the related Equipment to comply with any applicable law,
rule, regulation or contractual specification; any alleged failure on Seller's
part to keep or perform any of its obligations, express or implied, with respect
to any Collateral Documents or the related Equipment; any alleged injury to
persons or property or any violation or invasion of any patent or invention
rights; any governmental fees, charges, taxes or penalties levied or imposed in
respect to any Collateral Documents or any related Equipment; any breach by
Buyer or any of its representations, warranties, covenants or other obligations
or agreements contained in this Agreement, in any Collateral Documents or in any
agreement related hereto or thereto; or any inaccuracy in any information
provided to Buyer by Seller.
Buyer and Seller will each give the other notice of any event or condition
which requires indemnification by Seller hereunder, or any allegation that such
event or condition exits, promptly upon obtaining knowledge thereof. Seller
agrees to pay all amounts due hereunder promptly on notice thereof from Buyer.
All of the indemnities and agreements contained in this Section shall survive
and continue in full force and effect notwithstanding termination of this
Agreement or of any Collateral Documents.
5.16 CERTIFICATE OF GOOD STANDING. Seller agrees that in the event it does
not deliver to Buyer a certificate of tax good
<PAGE> 35
13
standing at closing, that it will deliver such a certificate within thirty days
after closing.
6. COLLECTIONS AND ADMINISTRATION, ADDITIONAL PAYMENTS.
---------------------------------------------------
6.1 COLLECTIONS. Subject to Section 6.8 herein, and provided Seller is not
in Default, Seller at its sole cost and expense shall be responsible for the
billing and collecting of the payments due under the Underlying Loans. All
billing with respect to the Underlying Loans shall be accomplished by separate
invoices (i.e., not included in invoices to the same Underlying Debtor for other
payments due under any other agreement between Seller and such Underlying
Debtor).
6.2 Payments.
--------
(a) REGULAR PAYMENTS. On or before first day of each month commencing
December 1, 1995, Seller shall pay to Buyer the total of all SIS Monthly Pass
Through Payments due that month, whether or not such amounts have been remitted
by the Underlying Debtors. In the event that the Seller collects amounts from
Underlying Debtors in any month which exceed the SIS Monthly Pass Through
Payments due through that month at a time in which the Seller is not in Default
hereunder, such excess shall be applied first to the "HPSC Service Fee" as
described on attached EXHIBIT 2, second to reduce the Remaining Price and any
excess shall be paid to the Buyer and applied to reduce the amount of SIS
Monthly Pass Through Payments due hereunder, in inverse order of maturity. In
the event that Seller is in Default hereunder, all amounts received from the
Underlying Debtors shall be paid to the Buyer and applied to reduce the amount
of SIS Monthly Pass Through Payments due hereunder, in inverse order of
maturity.
(b) FLOAT AMOUNTS. Any payment not paid when due by Seller to Buyer
hereunder shall be payable after the due date plus the Float Payment for each
late day. Said Float Payment shall be due and payable without notice or demand
and shall constitute additional Obligations as defined hereunder and secured by
the Documentation.
(c) SIS FINAL PAYMENT DATE; REASSIGNMENT. Notwithstanding any
provision herein to the contrary, the total of all SIS Monthly Pass Through
Payments due through the SIS Final Payment Date shall be paid in full on or
before the SIS Final Payment Date. In the event Buyer receives payment in full
of all SIS Monthly Pass Through Payments on or before the SIS Final Payment
Date, and provided that there is no then outstanding Default, the Buyer shall
reassign any remaining Underlying Loans and Collateral Documents to the Seller
for a repurchase price of One ($1.00) Dollar.
<PAGE> 36
14
6.3 POWER OF ATTORNEY. Seller hereby irrevocably constitutes and appoints
Buyer as its true and lawful attorney with full power of substitution, for
Seller and in its name, place and stead, to ask, demand, collect, receive,
receipt for, sue for, compound and give acquittance for any and all payments
assigned hereunder, and to endorse, in writing or by Seller's name or otherwise
on all checks, collections, receipts or instruments given in payment or part
payment thereof and to execute any and all assignments to evidence the sale and
agreements contained in this Sale Agreement, including, without limitation, any
UCC-3 Assignments and other assignments of the Collateral Documents from Seller
to Buyer.
6.4 SUBORDINATION. Seller hereby subordinates any claim it may have from
time to time for payment or reimbursement from an Underlying Debtor or guarantor
to payment of amounts due from time to time to Buyer by the Seller under this
Agreement or any other Obligation.
6.5 COLLECTIONS HELD IN TRUST. Provided Seller's right to collect Payments
has not been terminated in accordance with the provisions of paragraph 6.8
herein, Seller will hold in trust for Buyer's benefit all payments made to it by
Underlying Debtors under the Underlying Loans and will remit such funds to Buyer
pursuant to the terms of this Agreement.
6.6 COLLECTION REPORTS. So long as Seller shall administer the Underlying
Loans, Se11er shall maintain books and records pertaining to all such Underlying
Loans and provide Buyer with summaries of monthly billings to the Underlying
Debtors involved and summaries of the status of each Underlying Loans all in
form satisfactory to Buyer, and, from time to time, furnish Buyer with
aforementioned summaries as prepared. Seller shall give Buyer and its
representatives at all reasonable times access to all records, files, books of
account, databases and information pertaining to all Underlying Loans, Payments,
and Equipment purchased by Buyer under this Agreement and shall permit such
representatives to inspect, audit, and to make extracts therefrom at Seller's
expense.
6.7 TAXES. Seller will make all filings in respect of, and pay and
discharge when due, any and all personal property taxes, license fee, sales,
use, excise, or similar taxes now or hereafter imposed by any state, Federal or
other governmental or agency on any Underlying Loans, Equipment or Payments,
whether the same shall be payable by or billed or assessed to the Underlying
Debtor or to Buyer, together with any penalties and/or interest in connection
therewith, PROVIDED however, that Seller's duty to pay and discharge such
obligations shall be suspended to the extent that Seller is contesting such
obligation in good faith by appropriate and timely proceedings and have
established and adequate reserves for the payment thereof.
<PAGE> 37
15
6.8 TERMINATION OF COLLECTION. Upon Seller's failure to bill and collect
for and to remit Payments, or Seller's failure to administer Collateral
Documents herein, or upon an Event of Default hereunder, Buyer may, in addition
to such other rights and remedies provided in the Documentation and at law and
equity (i) terminate Seller's authority to bill and collect for Payments due and
to become due under any or all of the Underlying Loans (ii) bill for amounts due
under the Underlying Loans. If, despite such termination, Seller subsequently
receives a Payment, Seller agrees to hold such Payment in trust and to
immediately forward the Payment to Buyer. If Buyer assumes billing and
collection responsibility, Seller shall not interfere, attempt to interfere, or
initiate communication in any way with Underlying Debtors concerning the
notices, billing and collection of Payments and other amounts as provided in
this Section shall be specifically enforceable by Buyer.
6.9 BILLING AND COLLECTING. Upon Buyer's undertaking to bill and collect
for Payments under any Contracts, Buyer may take or fail to take whatever action
with respect to the collection of such Payments as Buyer in its sole but
reasonable discretion, shall deem proper. Seller hereby waives any objection to
and hereby consents that, without affecting any of Seller's liabilities or
obligations hereunder or under any assignment, Buyer may, after Buyer's
undertaking to bill and collect, agree with any Underlying Debtor under any
Underlying Loan as to any modification, alteration, release, compromise,
extension, waiver, consent, or other similar of dissimilar indulgence of or with
respect to any such Underlying Loan.
7. PREPAYMENT, REPURCHASE.
----------------------
7.1 MANDATORY REPURCHASE OR REPAYMENT. Seller shall upon Buyer's demand,
repurchase the Underlying Loans and\or make payments, as the case may be, under
the following circumstances:
(a) In the event that any Underlying Debtor is at any time sixty (60)
days delinquent in making payments under its Underlying Loan, or in the event
any Underlying Debtor's loan is terminated or rejected, or in the event of an
Underlying Loan Default, the Seller shall repurchase the Underlying Loan
forthwith by paying to Buyer the Repurchase Price. In the event of such a
repurchase, the amount of the SIS Monthly Pass Through Payments due from the
Seller to the Buyer under Section 6.2 above, shall be reduced by an amount equal
to the SIS Monthly Pass Through Payment due with respect to such Underlying Loan
for such month as described on attached EXHIBIT 1.
(b) In the event that any Underlying Debtor suffers an insurance loss
as to the Collateral Documents or the Equipment in the amount of fifty (50%) per
cent or more of the then outstanding principal amount of the Underlying Loan to
such Underlying
<PAGE> 38
16
Debtor or if a loss is suffered of less than fifty (50%) percent and the
Collateral Documents or the Equipment is not restored in full within thirty days
of such damage, then the Seller shall forthwith repurchase such Underlying Loan
for the Repurchase Price. In the event of such a repurchase, the amount of the
monthly payments due from the Seller to the Buyer under Section 6.2 above, shall
be reduced by an amount equal to the SIS Monthly Pass Through Payment due as to
such Underlying Loan as described on attached EXHIBIT 2.
Upon receipt of the Repurchase Price, Buyer will reassign to Seller all of
Buyer's title and interest in the repurchased Collateral Documents and the
Payments due thereunder and release its security interest in the Collateral
Documents related thereto, all on an "AS IS", WITHOUT RECOURSE basis, without
any representations or warranties of any kind whatsoever, as provided in the
Security Agreement.
8. SECURITY. To secure the Obligations, the Seller has executed or caused to
be executed the Security Agreement as of this date.
9. DEFAULT. with respect to the Seller and any endorser, guarantor or surety
for the Seller, the occurrence of any of the following shall constitute a
default ("Event of Default") hereunder:
9.1 Failure to pay any Obligation within three (3) days of the date that
such payment shall be due and payable.
9.2 Failure to perform any term, condition, or covenant contained in this
Agreement not cured within fifteen (15) days of written notice thereof by the
Buyer, other than failure to perform under Sections 5.10 or 5.13(a) of this
Agreement or Section 8.5 of the Revolving Credit Agreement as incorporated
herein by Section 5.13(c) of this Agreement, for which there shall be no cure
period.
9.3 An Event of Default of or under any of the Documentation.
9.4 An event of default under the Revolving Credit Agreement as the same
may be amended from time to time, unless such default is waived by the parties
to such Revolving Credit Agreement within thirty (30) days of breach. No such
waiver shall be considered a waiver of any provision of the Revolving Credit
Agreement to the extent that such provision is incorporated herein by reference.
To the extent any such provision is incorporated herein by reference, it becomes
a part of this Loan Agreement as if set forth herein and may not be waived or
amended except pursuant to an amendment to this Loan Agreement.
<PAGE> 39
17
9.5 Any financial statement, representation, warranty, or certificate made
or furnished to the Buyer if materially incorrect or materially incomplete
when furnished.
9.6 The involvement in any financial difficulty as evidenced by:
(a) an assignment, composition, or similar device for the benefit of
creditors, or
(b) inability to pay debts when due, or
(c) the commencement of a voluntary proceeding in bankruptcy or the
failure to have dismissed within ninety (90) days any involuntary proceeding in
bankruptcy or the voluntary institution or the failure to have dismissed within
ninety (90) days any involuntary institution of any other proceedings under the
law relating to bankruptcy reorganization, insolvency or relief of debtors, or
(d) the voluntary appointment of a receiver or trustee, or the
failure to have dismissed within ninety (90) days any involuntary appointment,
the institution of proceedings for the dissolution, or full or partial
liquidation, or the change in nature or discontinuance of its business.
(e) Entry of Judgment in excess of $100,000.00 not satisfied,
discharged or appealed in good faith within thirty (30) days of the entry
thereof.
(f) Any event which results in the acceleration of any indebtedness in
excess of $100,000.00 to any others under any instrument, agreement, or
undertaking.
10. REMEDIES UPON DEFAULT.
---------------------
10.1 Upon the occurrence of any Event of Default, the Buyer at its option
may declare any or all Obligations immediately due and payable, and shall have
all rights and remedies of a secured party under the laws of The Commonwealth of
Massachusetts and as otherwise provided by law and by the Documentation.
10.2 Without limiting the generality of the foregoing, upon the occurrence
of any Event of Default, the Seller shall, upon demand by Buyer, repurchase all
of the Underlying Loans and the Collateral Documents at the Repurchase Price.
Upon such demand, Seller shall immediately pay the Repurchase Price to Buyer.
Payments not made by Seller when due shall bear interest at the rate of ten and
One-quarter (10.25%) per cent per annum. Upon payment in full of the Repurchase
Price as to all of the Underlying Loans, plus interest for any late payments,
Buyer shall assign the Underlying Loans and the Collateral Documents to
<PAGE> 40
18
Seller as provided in the Security Agreement. Until the Repurchase Prices as to
all Underlying Loans are paid in full, plus interest for any late payments, the
Buyer shall be under no obligation to reassign any of the Underlying Loans or
Collateral Documents to Seller.
10.3 Proceeds actually received by the Buyer from any Collateral Documents
may be applied by the Buyer to principal or interest of any or all of the
Obligations, after deducting therefrom any expenses reasonably incurred by the
Buyer in enforcing its rights hereunder, including reasonable attorney's fees
incurred by the Buyer.
11. MISCELLANEOUS PROVISIONS.
------------------------
11.1 WAIVER AND MODIFICATION. The Buyer shall not be deemed to have waived
any of its rights hereunder or under any other Obligations unless such waiver is
in writing and signed by the Buyer. No delay or omission on the part of the
Buyer in exercising any right shall operate as a waiver of such right or any
other right. A waiver on one occasion shall not be construed as a bar to or a
waiver of any right or remedy on any future occasion. The Seller hereby waives
presentment, demand, protest, and notice of nonpayment or default. The Seller
consents to and waives notice of the granting of any extension of time for
payment or other indulgence granted to any account debtor or any other party,
the taking and releasing by the Buyer of any security, or the compromise or
settlement of any accounts.
11.2 NOTICES. Except for any notice required under applicable law to be
given in another manner, all notices to be given pursuant to this Agreement
shall be sufficient if mailed postage prepaid, certified or registered mail,
return receipt requested or by a recognized overnight delivery service for which
evidence of delivery is provided to the addresses of the parties below, or to
such other address as a party may direct by notice given as herein provided. Any
time period provided in the giving of any notice hereunder shall commence upon
the date such notice is deposited in the mail unless otherwise expressly
provided in this Agreement.
To Seller:
HPSC, Inc.
60 State Street
Boston, MA 02109
with a copy to:
Hill & Barlow
1 International Place
Boston, MA 02110
<PAGE> 41
19
Attn: Dennis W. Townley, Esquire
To Buyer:
Springfield Institution for Savings
1441 Main Street
Springfield, MA 01103
Attention: Imran Riaz
with a copy to:
Gary S. Fentin, Esquire
Shatz, Schwartz and Fentin, P.C.
1441 Main Street
Springfield, MA 01103
11.3 PAYMENTS; INTEREST. All payments which are due on a day on which the
Buyer is not open for business shall be due and payable on the next business day
such Buyer is open for business. All payments made shall be made in immediately
available funds, and shall be applied first to the payment of prepayment premium
and late charges, if any, second to interest accrued and due on the unpaid
principal balance under this Agreement and the remainder shall be applied to the
reduction of the unpaid principal. All interest hereunder shall be calculated on
the basis of a three hundred sixty (360) day year over the actual number of days
elapsed.
11.4 COSTS. Seller will pay, upon demand, all reasonable counsel fees and
expenses incurred by the Buyer in connection with the financing being concluded
as of this date, as well as all reasonable fees and expenses, including
reasonable counsel fees, which the Buyer may hereafter incur in protecting and
enforcing any of the Buyer's rights. Seller specifically authorizes the Buyer to
pay all such fees and expenses and charge the same to its loan account with the
Buyer.
11.5 CERTAIN DEFINITIONS. Except as otherwise herein expressly provided,
all terms shall have the meanings assigned to such terms under the Uniform
Commercial Code and generally accepted accounting principles.
11.6 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
11.7 PARTIAL INVALIDITY. In the event any clause or provision of
the Documentation shall be invalid or void for any reason, such invalid or
void clause or provision shall not affect the remainder of the
Documentation, and the balance of the provisions thereof shall remain in
full force and effect.
<PAGE> 42
20
11.8 RESOLUTION OF CONFLICTS. In the case of conflict or ambiguity between
any covenants and/or conditions under this Loan Agreement and any other
instrument signed in connection therewith then the Buyer may, at its option,
have the right to elect the provision that controls.
11.9 POWER OF ATTORNEY. Seller hereby grants the Buyer a power of attorney
to endorse the name of the Seller on any documents reasonably deemed necessary
by the Buyer to effectuate the purpose of this Agreement.
11.10 DEPOSITS. Any deposits or other sums at any time credited by or due
from the Buyer to the Seller and any securities or other personal property of
the Seller hereof in the possession of the Buyer may at all times be held and
treated as collateral security for the payment of the Obligations and of any and
all other liabilities, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, of said Seller to the Buyer. The
Buyer on or after an Event of Default hereof may sell any such securities or
other property at public or private sale without demand, notice or advertisement
of any kind, all of which are hereby expressly waived. To the extent permitted
by law, the Buyer may apply or set off such deposits or other sums against said
liabilities at any time.
11.11 CUMULATIVE RIGHTS. The rights and remedies of the Buyer as provided
in this Agreement and in the Documentation shall be cumulative and concurrent,
and may be pursued singly, successively, or together against Seller, the
property described in the Documentation, any guarantor hereof, and any other
funds, property or security held by Buyer for the payment hereof or otherwise at
the sole discretion of the Buyer. The failure to exercise any such right or
remedy shall in no event be construed as a waiver or release of said rights or
remedies or of the right to exercise them at any later time. The acceptance by
Buyer of payment of any sum payable hereunder after the due date of such payment
shall not be a waiver of Buyer's right to either require prompt payment when due
of all other sums payable hereunder or to declare a default for failure to make
prompt payment.
11.12 CERTAIN WAIVERS. The Seller and all other persons liable or to become
liable for all or any part of this indebtedness, jointly and severally waive
diligence in collection, presentment, protest and demand, notice of protest,
demand, nonpayment, dishonor and maturity, and recourse to suretyship defenses
generally and the benefit of any exemption under any homestead laws, if
applicable; and hereby jointly and severally hereby consent to (i) any and all
renewals, extensions or modifications of the terms hereof and of the
Documentation, including the terms or time for payment of this Agreement; (ii)
the release or surrender, exchange or substitution, failure to preserve or
<PAGE> 43
21
protect all or any part of any collateral security hereof or of the
Documentation, whether real or personal or direct or indirect, (iii) the
granting of any other indulgences of Seller; and (iv) the taking or releasing
of other or additional parties primarily or contingently liable hereunder. Any
such renewal, extension, modification, release, surrender, exchange or
substitution may be made without notice to any of the parties without affecting
the liability of said parties hereunder.
11.13 ILLEGALITY OF CERTAIN PROVISIONS. In the event that any one or more
of the provisions of this Note shall for any reason be held to be invalid,
illegal or unenforceable, in whole or in part, or in any respect, or in the
event that any one or more of the provisions of this Agreement shall operate, or
would respectively operate, to invalidate this Agreement, then, and in any such
event such provision or provisions only shall be deemed to be null and void and
of no force or effect and shall not affect any other provision of this Note, and
the remaining provisions of this Agreement shall remain operative and in full
force and effect, shall be valid, legal and enforceable, and shall in no way be
affected, prejudiced or disturbed thereby.
12. GOVERNING LAW, CONSENT TO JURISDICTION AND SERVICE OF PROCESS. THIS
AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE
OF MASSACHUSETTS APPLICABLE TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE
STATE OF MASSACHUSETTS. SELLER DOES HEREBY SUBMIT, AT SELLER'S ELECTION, TO THE
EXCLUSIVE JURISDICTION AND VENUE OF ANY COURTS (FEDERAL, STATE OR LOCAL) HAVING
A SITUS WITHIN THE COUNTY OF HAMPDEN AND THE STATE OF MASSACHUSETTS WITH RESPECT
TO ANY DISPUTE, CLAIM, OR SUIT WHETHER DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT, OR ANY RELATED ASSIGNMENT OF ANY OF SELLER'S
OBLIGATIONS OR INDEBTEDNESS HEREUNDER. SELLER EXPRESSLY WAIVES PERSONAL SERVICE
OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED
TO ITS LAST KNOWN ADDRESS, WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN
(10) DAYS AFTER THE DATE OF MAILING THEREOF. SELLER HEREBY IRREVOCABLY WAIVES
ANY CLAIM THAT THE COUNTY HAMPDEN, STATE OF MASSACHUSETTS, IS AN INCONVENIENT
FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE AS WELL AS ANY RIGHT IT MAY
NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OF PROCEEDING, ONCE COMMENCED,
TO ANOTHER COURT ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE. THE
EXCLUSIVE CHOICE OF FORUM SET FORTH HEREIN SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT BY BUYER OR ANY JUDGEMENT OBTAINED IN SUCH FORUM OR THE TAKING OF
ANY ACTION BY BUYER TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION.
12.1 WAIVER OF JURY TRIAL. SELLER HEREBY WAIVES ITS RIGHT TO A JURY TRIAL
OF ANY CLAIM OR OF ACTION BASE UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
OTHER RELATED DOCUMENT. SELLER ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF BUYER. THIS WAIVER IS
<PAGE> 44
22
INTENDED TO BE EFFECTIVE WITH RESPECT TO ALL DISPUTES WHICH ARISE OUT OF THIS
AGREEMENT OR PERTAIN TO THE TRANSACTIONS CONTEMPLATED THEREBY. SELLER
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO BUYER'S ENTERING INTO
THIS BUSINESS RELATIONSHIP, THAT BUYER ALREADY HAS RELIED ON SUCH WAIVER IN
ENTERING INTO THIS BUSINESS RELATIONSHIP, THAT BUYER ALREADY HAD RELIED ON SUCH
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT BUYER WILL CONTINUE TO RELY ON
SUCH WAIVER IN ITS FUTURE DEALINGS. SELLER FURTHER WARRANTS AND REPRESENTS THAT
IT KNOWINGLY AND VOLUNTARILY HAS WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, AND MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND SUCH WAIVER SET FORTH HEREIN SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO AT TRIAL BY THE COURT.
12.2 OTHER PROVISIONS. Any provisions contained in any Exhibit annexed
hereto are hereby incorporated by reference into this Agreement.
IN WITNESS WHEREOF, the parties have on the date first-above written
executed this Agreement as a sealed instrument.
WITNESS: HPSC, INC.
______________________________ By: Rene Lefabure
Its CFO
SPRINGFIELD INSTITUTION FOR SAVINGS
______________________________ By: Imran Riaz
Its AVP
<PAGE> 45
EXHIBIT 3
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
dated as of May 15, 1995
between
HPSC, INC.
and
THE FIRST NATIONAL BANK OF BOSTON
individually and as Agent
and
Bank of America Illinois
Shawmut Bank, N.A.
CoreStates Bank, N.A.
The Daiwa Bank, Limited
- --------------------------------------------------------------------------------
<PAGE> 46
<TABLE>
EXHIBIT 2
- -----------------------------------------------------------------------------------------------------------------------------
HPSC, INC. (POOL 2)
MONTHLY PAYMENT BREAKDOWN
<CAPTION>
PAYMENT PRINCIPAL SIS PRINCIPAL SIS INTEREST TOTAL SIS HPSC SERVICE HPSC, INC.
NUMBER PAYMENT DATE BALANCE PORTION PORTION PAYMENT FEE PAYMENT
<S> <C> <C> <C> <C> <C> <C> <C>
0 10/01/95 1,515,496.53 - - - - -
0 11/01/95 1,515,496.53 24,597.46 10,419.04 35,016.50 376.81 2,287.46
1 12/01/95 1,490,899.07 24,766.57 10,249.93 35,016.50 376.81 2,287.46
2 01/01/96 1,466,132.50 24,936.84 10,079.66 35,016.50 376.81 2,287.46
3 02/01/96 1,441,195.66 25,108.28 9,908.22 35,016.50 376.81 2,287.46
4 03/01/96 1,416,087.38 25,280.90 9,735.60 35,016.50 376.81 2,287.46
5 04/01/96 1,390,806.48 25,454.71 9,561.79 35,016.50 376.81 2,287.46
6 05/01/96 1,365,351.77 25,629.71 9,386.79 35,016.50 376.81 2,287.46
7 06/01/96 1,339,722.06 25,805.91 9,210.59 35,016.50 376.81 2,287.46
8 07/01/96 1,313,916.15 25,983.33 9,033.17 35,016.50 376.81 2,287.46
9 08/01/96 1,287,932.82 26,161.96 8,854.54 35,016.50 376.81 2,287.46
10 09/01/96 1,261,770.86 26,341.83 8,674.67 35,016.50 376.81 2,287.46
11 10/01/96 1,235,429.03 26,522.93 8,493.57 35,016.50 376.81 2,287.46
12 11/01/96 1,208,906.10 26,705.27 8,311.23 35,016.50 376.81 2,287.46
13 12/01/96 1,182,200.83 26,888.87 8,127.63 35,016.50 376.81 2,287.46
14 01/01/97 1,155,311.96 27,073.73 7,942.77 35,016.50 376.81 2,287.46
15 02/01/97 1,128,238.23 27,259.86 7,756.64 35,016.50 376.81 2,287.46
16 03/01/97 1,100,978.37 27,447.27 7,569.23 35,016.50 376.81 2,287.46
17 04/01/97 1,073,531.10 27,635.97 7,380.53 35,016.50 376.81 2,287.46
18 05/01/97 1,045,895.13 27,825.97 7,190.53 35,016.50 376.81 2,287.46
19 06/01/97 1,018,069.16 28,017.27 6,999.23 35,016.50 376.81 2,287.46
20 07/01/97 990,051.89 28,209.89 6,806.61 35,016.50 376.81 2,287.46
21 08/01/97 961,842.00 28,403.84 6,612.66 35,016.50 376.81 2,287.46
22 09/01/97 933,438.16 28,599.11 6,417.39 35,016.50 376.81 2,287.46
23 10/01/97 904,839.05 28,795.73 6,220.77 35,016.50 376.81 2,287.46
24 11/01/97 876,043.32 28,993.70 6,022.80 35,016.50 376.81 2,287.46
25 12/01/97 847,049.62 29,193.03 5,823.47 35,016.50 376.81 2,287.46
26 01/01/98 817,856.59 29,393.74 5,622.76 35,016.50 376.81 2,287.46
27 02/01/98 788,462.85 29,595.82 5,420.68 35,016.50 376.81 2,287.46
28 03/01/98 758,867.03 29,799.29 5,217.21 35,016.50 376.81 2,287.46
29 04/01/98 729,067.74 30,004.16 5,012.34 35,016.50 376.81 2,287.46
30 05/01/98 699,063.58 30,210.44 4,806.06 35,016.50 376.81 2,287.46
31 06/01/98 668,853.14 30,418.13 4,598.37 35,016.50 376.81 2,287.46
32 07/01/98 638,435.01 30,627.26 4,389.24 35,016.50 376.81 2,287.46
33 08/01/98 607,807.75 27,684.06 4,178.68 31,862.74 343.64 2,157.73
34 09/01/98 580,123.69 27,874.39 3,988.35 31,862.74 343.64 2,157.73
35 10/01/98 552,249.30 28,066.03 3,796.71 31,862.74 343.64 2,157.73
36 11/01/98 524,183.27 28,258.98 3,603.76 31,862.74 343.64 2,157.73
37 12/01/98 495,924.29 28,453.26 3,409.48 31,862.74 343.64 2,157.73
38 01/01/99 467,471.03 28,648.88 3,213.86 31,862.74 343.64 2,157.73
39 02/01/99 438,822.15 28,845.84 3,016.90 31,862.74 343.64 2,157.73
40 03/01/99 409,976.31 29,044.15 2,818.59 31,862.74 343.64 2,157.73
41 04/01/99 380,932.16 29,243.83 2,618.91 31,862.74 343.64 2,157.73
42 05/01/99 351,688.33 29,444.88 2,417.86 31,862.74 343.64 2,157.73
43 06/01/99 322,243.45 27,333.55 2,215.42 29,548.97 318.98 2,029.92
44 07/01/99 294,909.90 27,521.46 2,027.51 29,548.97 318.98 2,029.92
45 08/01/99 267,388.44 27,710.67 1,838.30 29,548.97 318.98 2,029.92
46 09/01/99 239,677.77 27,901.19 1,647.78 29,548.97 318.98 2,029.92
47 10/01/99 211,776.58 28,093.01 1,455.96 29,548.97 318.98 2,029.92
48 11/01/99 183,683.57 26,323.96 1,262.82 27,586.78 298.29 1,943.50
49 12/01/99 157,359.61 26,504.93 1,081.85 27,586.78 298.29 1,943.50
50 01/01/00 130,854.68 26,687.15 899.63 27,586.78 298.29 1,943.50
</TABLE>
Page 1 of 2
<PAGE> 47
<TABLE>
EXHIBIT 2
- -----------------------------------------------------------------------------------------------------------------------------
HPSC, INC. (POOL 2)
MONTHLY PAYMENT BREAKDOWN
<CAPTION>
PAYMENT PRINCIPAL SIS PRINCIPAL SIS INTEREST TOTAL SIS HPSC SERVICE HPSC, INC.
NUMBER PAYMENT DATE BALANCE PORTION PORTION PAYMENT FEE PAYMENT
<S> <C> <C> <C> <C> <C> <C> <C>
51 02/01/00 104,167.53 25,840.37 716.15 26,556.52 287.19 1,875.16
52 03/01/00 78,327.16 20,517.62 538.50 21,056.12 227.82 1,497.95
53 04/01/00 57,809.54 15,983.02 397.44 16,380.46 177.33 1,174.97
54 05/01/00 41,826.52 12,531.64 287.56 12,819.20 138.82 924.09
55 06/01/00 29,294.88 9,706.01 201.40 9,907.41 107.15 700.80
56 07/01/00 19,588.87 8,800.24 134.67 8,934.91 96.61 629.63
57 08/01/00 10,788.63 2,669.02 74.17 2,743.19 29.25 152.29
58 09/01/00 8,119.61 2,687.37 55.82 2,743.19 29.25 152.29
59 10/01/00 5,432.24 2,705.84 37.35 2,743.19 29.25 152.29
60 11/01/00 2,726.40 2,724.45 18.74 2,743.19 29.25 152.29
61 12/01/00 1.95 0.00 0.01 0.01 0.00 2,924.73
62 01/01/01 0.00 0.00 0.00 - 0.00 2,924.73
63 01/30/01 0.00 0.00 0.00 - 0.00 0.00
----------
126,304.80
</TABLE>
Page 2 of 2
<PAGE> 1
EXHIBIT 10.29
3/8/96
HPSC, INC.
1995 STOCK INCENTIVE PLAN
AS ADOPTED MARCH 8, 1995
AND AMENDED AND RESTATED MARCH 14, 1996
<PAGE> 2
<TABLE>
<CAPTION>
-iv-
TABLE OF CONTENTS
<S> <C>
1. PURPOSE; RESTRICTIONS.................................................... 1
2. EFFECTIVE DATE........................................................... 1
3. STOCK COVERED BY THE PLAN................................................ 1
4. ADMINISTRATION........................................................... 2
5. ELIGIBLE RECIPIENTS; AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS.......... 2
(A) KEY EMPLOYEES........................................................ 2
(B) NON-EMPLOYEE DIRECTORS............................................... 2
(I) PRICE............................................................. 3
(II) EXERCISE......................................................... 3
(III) EXPIRATION...................................................... 3
(IV) OTHER TERMS...................................................... 3
6. DURATION OF THE PLAN..................................................... 3
7. TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED STOCK AWARDS.............. 3
(A) PRICE................................................................ 4
(B) NUMBER OF SHARES..................................................... 4
(C) VESTING AND OTHER TERMS OF RESTRICTED STOCK AWARDS................... 4
(I) VESTING........................................................... 4
(II) FORFEITURE OF UNVESTED SHARES.................................... 5
(III) ESCROW OF UNVESTED SHARES....................................... 6
(IV) STOCKHOLDER RIGHTS............................................... 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
(V) OTHER TERMS.......................................................... 6
(D) EXERCISE OF OPTIONS.................................................. 6
(E) PAYMENT.............................................................. 6
(F) WITHHOLDING TAXES; DELIVERY OF SHARES................................ 7
(G) NON-TRANSFERABILITY.................................................. 7
(H) TERMINATION OF PURCHASE AUTHORIZATIONS AND OPTIONS................... 7
(I) RIGHTS AS STOCKHOLDER................................................ 8
(J) REPURCHASE OF SHARES BY THE COMPANY................................. 8
(K) 10% STOCKHOLDER...................................................... 8
(L) CONFIDENTIALITY AGREEMENTS........................................... 9
(M) AGGREGATE LIMITATION................................................. 9
(N) RIGHT TO TERMINATE................................................... 9
8. RESTRICTIONS ON INCENTIVE OPTIONS........................................ 9
9. SUSPENSION OF RIGHTS PRIOR TO A DISSOLUTION, REORGANIZATION, ETC........ 10
10. ADJUSTMENT IN SHARES................................................... 10
11. INVESTMENT REPRESENTATIONS; TRANSFER RESTRICTIONS...................... 10
12. DEFINITIONS............................................................ 11
(A) "BOARD................................................................. 11
(B) "CHANGE IN CONTROL.................................................... 11
(C) "CODE.................................................................. 11
(D) "COMMITTEE............................................................. 11
(E) "COMMON STOCK.......................................................... 11
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
(F) "COMPANY" AND "COMPANY GROUP".......................................... 11
(G) "DIRECTOR OPTION....................................................... 11
(H) "DISABILITY............................................................ 11
(I) "EFFECTIVE DATE........................................................ 11
(J) "EMPLOYEE.............................................................. 11
(K) "EVENT................................................................. 11
(L) "EXCHANGE ACT.......................................................... 11
(M) "INCENTIVE OPTION...................................................... 11
(N) "MARKET PRICE"......................................................... 11
(O) "NON-EMPLOYEE DIRECTOR................................................. 12
(P) "NON QUALIFIED OPTION.................................................. 12
(Q) "OPTION................................................................ 12
(R) "PARTICIPANT........................................................... 12
(S) "PERFORMANCE CONDITIONS................................................ 12
(T) "PERFORMANCE PERIOD.................................................... 12
(U) "PLAN.................................................................. 12
(V) "PURCHASE AUTHORIZATION............................................... 12
(W) "SERVICE............................................................... 12
(X) "SERVICE REQUIREMENT".................................................. 12
(Y) "SHARES................................................................ 12
(Z) "SUBSIDIARY............................................................ 12
13. TERMINATION OR AMENDMENT OF PLAN....................................... 12
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
14. CHANGE IN CONTROL...................................................... 13
</TABLE>
-iv-
<PAGE> 6
As adopted 3/8/95
and amended and restated 3/14/96
HPSC, INC.
1995 STOCK INCENTIVE PLAN
1. PURPOSE; RESTRICTIONS. The purpose of this HPSC, Inc. 1995 Stock
Incentive Plan (the "Plan") is to advance the interests of HPSC, Inc., a
Delaware corporation (the "Company"), and of its shareholders by strengthening
the ability of the Company to attract, retain and motivate key employees of the
Company or any present or future Subsidiary1 of the Company (the Company and all
such Subsidiaries shall be collectively referred to as the "Company Group") by
providing such employees with an opportunity to purchase or receive as bonuses
stock of the Company and to attract, retain and motivate non-employee directors
of the Company by providing such directors with an opportunity to purchase stock
of the Company, thereby permitting such employees and directors to share in the
Company's success while aligning their interests with those of the Company's
shareholders. It is intended that this purpose will be effected by granting (i)
incentive stock options ("Incentive Options"), which are intended to qualify
under the provisions of Section 422 of the Code, and non-statutory stock options
("Nonqualified Options"), which are not intended to meet the requirements of
Section 422 of the Code and which are intended to be taxed upon exercise under
Section 83 of the Code (both Incentive Options and Nonqualified Options shall be
collectively referred to as "Options") and (ii) restricted stock awards that are
subject to performance-vesting requirements ("Restricted Stock Awards").
Notwithstanding the foregoing, no Incentive Options shall be granted
under this Plan unless this Plan shall have been approved by the stockholders of
the Company within twelve (12) months after the Effective Date.
2. EFFECTIVE DATE. This Plan was adopted on March 8, 1995, which is
also the Effective Date of the Plan. This Plan has been amended and restated on
March 14, 1996, effective as of March 8, 1995.
3. STOCK COVERED BY THE PLAN. Subject to adjustment as provided in
Sections 9 and 10 below, the shares that may be made subject to Options or
Restricted Stock Awards under this Plan ("Shares") shall not exceed in the
aggregate 550,000 shares of the common stock, $.01 par value, of the Company
("Common Stock"). Any Shares subject to an Option or Restricted Stock Award
which for any reason expires or is terminated unexercised as to such Shares and
any Shares withheld or reacquired by the Company pursuant to withholding,
payment, forfeiture or a repurchase right hereunder may again be the subject of
an Option or Restricted Stock Award under the Plan. The Shares
- -------------
(1) Capitalized terms not otherwise defined herein are
defined in Section 12 below.
<PAGE> 7
purchased or issued under the Plan may, in whole or in part, be either
authorized but unissued Shares or issued Shares reacquired by the Company.
4. ADMINISTRATION. This Plan shall be administered by the
Compensation Committee of the Board (the "Committee"); provided that each of the
members of the Committee shall be a person who in the opinion of counsel to the
Company is (i) a "disinterested person" as such term is used in Rule 16b-3
promulgated under the Exchange Act and (ii) an "outside director" as such term
is used in proposed regulation Section 1.162.27(e)(3) under Section 162(m) of
the Code. The Committee shall have authority, subject to the express provisions
of the Plan, to construe the Plan and the respective Options, Restricted Stock
Awards, and related agreements, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine, within the limits of the Plan,
the amounts, times, forms, terms, conditions and status (as Incentive or
Nonqualified Options) of the respective Options, Restricted Stock Awards, and
related agreements (other than the terms and conditions of Director Options set
forth in Section 5(b)), and to make all other determinations in the judgment of
the Committee necessary or desirable for the administration of the Plan. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option, Restricted Stock Award, or related
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect, and it shall be the sole and final judge of such expediency.
Notwithstanding the foregoing, the Committee shall have authority to
establish guidelines for the grant of Options and Restricted Stock Awards to key
employees of the Company Group who are not executive officers of the Company and
to delegate to the Company's chief executive officer authority to grant Options
and Restricted Stock Awards, within such guidelines, to such eligible
non-executive key employees.
No member of the Committee and no delegate of the Committee shall be
liable for any action or determination under the Plan taken or made in good
faith.
5. ELIGIBLE RECIPIENTS; AUTOMATIC GRANTS TO NON-EMPLOYEE
DIRECTORS.
(a) KEY EMPLOYEES. Subject to the restrictions of this Plan, Options
and Restricted Stock Awards may be granted to such key employees of the Company
Group ("Employees"), including without limitation directors of the Company who
are Employees, as are selected by the Committee or (except as to Employees who
are Company executive officers) by the Committee's delegate pursuant to Section
4 above (an "Employee Participant" or a "Participant").
(b) NON-EMPLOYEE DIRECTORS. Subject to the restrictions of this Plan,
Nonqualified Options will be granted annually pursuant to this Section 5(b) to
each director of the Company who is a director on the date of grant and who is
not an Employee ("Non-Employee Directors"). Each Non-Employee Director who is
such at the conclusion of any regular annual meeting of the Company's
stockholders while this Plan is in effect and who will continue to serve on the
Board thereafter (a "Director
-2-
<PAGE> 8
Participant" or, unless the context otherwise requires, a "Participant") shall
receive on such date a Nonqualified Option to purchase 1,000 Shares, subject to
adjustment as provided in Section 10 below (a "Director Option"). Each Director
Option shall be subject to the following terms and conditions:
(i) PRICE. The purchase price per Share payable upon the
exercise of a Director Option shall be one hundred percent (100%) of the Market
Price per Share on the date of grant of the Director Option.
(ii) EXERCISE. Each Director Option shall be exercisable for
the full amount or for any part thereof immediately on the date of grant. Any
unexercised portion of a Director Option may be subsequently exercised for the
full amount or for any part thereof at any time and from time to time (until
exhausted) prior to the expiration or other termination of the Option.
(iii) EXPIRATION. Each Director Option shall terminate and
may no longer be exercised upon the earliest of (1) ten years after the date of
grant, (2) six months after termination of the Participant's Service due to
death or Disability, (3) three months after termination of the Participant's
Service for any other reason except termination for cause, and (4) immediately
upon termination of the Participant's Service for cause. The Board's good faith
determination of whether the termination of a Director Participant's Service was
for cause shall be binding for purposes of the Plan.
(iv) OTHER TERMS. Each Director Option shall be subject to
all other terms of the Plan (including without limitation the terms of Sections
7, 9, 10 and 11) except to the extent that such terms are inconsistent with the
express provisions of this Section 5(b).
6. DURATION OF THE PLAN. This Plan shall terminate ten years from the
Effective Date hereof, unless terminated earlier pursuant to Section 13 below,
and no Options or Restricted Stock Awards may be granted or made thereafter.
7. TERMS AND CONDITIONS OF OPTIONS AND RESTRICTED STOCK AWARDS. Options
and Restricted Stock Awards granted or made under this Plan shall be evidenced
by grant forms or agreements in such form and containing such terms and
conditions as the Committee or (except as to grants and awards to Employees who
are Company executive officers) the Committee's delegate shall determine;
provided, however, that such grant forms and agreements shall evidence among
their terms and conditions the following:
(a) PRICE. The purchase price per Share payable
upon the exercise of each Option (other than a Director Option) or the
consideration (if any) in addition to services of the Participant required
pursuant to each Restricted Stock Award granted or made hereunder shall be
determined by the Committee at the time the Option or Restricted Stock Award is
granted or made subject to the following restrictions. Subject to Section
7(k)(i), if applicable, the purchase price per Share payable upon the exercise
of each Incentive Option granted hereunder shall not be less than one hundred
percent
-3-
<PAGE> 9
(100%) of the Market Price per Share on the day the Incentive Option is granted.
The purchase price per Share payable upon the exercise of each Nonqualified
Option granted hereunder shall be not less than eighty-five percent (85%) of the
Market Price per Share on the date of the grant. Restricted Stock Awards may be
issued in consideration of services to be rendered, which shall be valued for
such purposes by the Committee. No Share shall be issued for less than its par
value, if any, paid in cash, property or services.
(b) NUMBER OF SHARES. Each grant or award form or agreement
shall specify the number of Shares to which it pertains.
(c) VESTING AND OTHER TERMS OF RESTRICTED STOCK AWARDS. All
Shares covered by a Restricted Stock Award will be issued promptly after the
date of grant of the award, subject to the following terms and conditions:
(i) VESTING. Such Shares shall remain unvested and
subject to the restrictions of this Section 7(c) until such time (if at all) as
(I) one or both of the following performance conditions (the "Performance
Conditions") are met within the period of five years beginning on the date of
grant of the Restricted Stock Award (the "Performance Period") and (II) the
Service requirement (the "Service Requirement") is also met with respect to a
Participant throughout the Performance Period.
The Partial Performance Condition is met when the
closing price of a share of the Common Stock as reported on the NASDAQ National
Market System for a consecutive ten-day period equals or exceeds 134.175% of the
Market Price of a share on the first day of the Performance Period. If the
Partial Performance Condition is met for a Restricted Stock Award, then fifty
percent (50%) of the Shares covered by the award shall vest in the Participant
who holds the award, and the restrictions of this Section 7(c) shall terminate
with respect to such vested Shares (but not with respect to the remaining
unvested Shares), as follows: (I) on the fifth anniversary of the date of grant
of the Restricted Stock Award, provided that the Participant meets the Service
Requirement described below on such fifth anniversary; or (II) upon the later of
(A) termination of the Participant's Service by the Company without cause or by
reason of death or Disability and (B) the date that the Partial Performance
Condition is met, provided that the Partial Performance Condition is met no
later than the last day that the Participant is deemed to still meet the Service
Requirement; and (III) subject in each case to payment by the Participant of any
additional consideration required under the Restricted Stock Award.
The Service Requirement is met by continuous Service
from the date of grant of a Restricted Stock Award; provided that if a
Participant's Service is terminated by the Company without cause or by reason of
death or Disability prior to the date that both Performance Conditions are met,
the Participant shall be deemed to meet the Service Requirement until the first
day of the fifth month following such termination. The Committee's good faith
determination of whether the termination of a Participant's Service (other than
a Director Participant's Service) was without cause or for cause shall be
binding for purposes of the Plan.
-4-
<PAGE> 10
The Full Performance Condition is met when the
closing price of a share of the Common Stock as reported on the NASDAQ National
Market System for a consecutive ten-day period equals or exceeds 168.35% of the
Market Price of a share on the first day of the Performance Period. If the Full
Performance Condition is met for a Restricted Stock Award, then the remaining
fifty percent (50%) or, if the Partial Performance Condition was not previously
met, one hundred percent (100%) of the Shares covered by the award shall vest in
the Participant who holds the award, and the restrictions of this Section 7(c)
shall terminate with respect to such vested Shares, as follows: (I) on the fifth
anniversary of the date of grant of the Restricted Stock Award, provided that
the Participant meets the Service Requirement described above on such fifth
anniversary; or (II) upon the later of (A) termination of the Participant's
Service by the Company without cause or by reason of death or Disability and (B)
the date that the Full Performance Condition is met, provided that the Full
Performance Condition is met no later than the last day that the Participant is
deemed to still meet the Service requirement; and (III) subject in each case to
payment by the Participant of any additional consideration required under the
Restricted Stock Award.
Notwithstanding any of the foregoing, if a Change in
Control of the Company occurs while any Shares covered by a Restricted Stock
Award remain unvested pursuant to the foregoing provisions of this Section 7(c),
but before the date of forfeiture pursuant to this Section 7(c) of such Shares,
all such unvested but unforfeited Shares covered by the award shall thereupon
vest in the Participant and the restrictions of this Section 7(c) shall
terminate, subject to payment by the Participant of any additional consideration
required (without regard to the occurrence of a Change in Control) in the
Restricted Stock Award.
(ii) FORFEITURE OF UNVESTED SHARES. If the
Performance Condition applicable to Shares covered by a Restricted Stock Award
to a Participant has not been met by the end of the Performance Period or if any
such Shares remain unvested at a time when the Participant fails to meet the
Service Requirement, the Shares as to which the Performance Condition has not
been met or the Shares which remain unvested when the Participant fails to meet
the Service requirement (as the case may be) shall thereupon be forfeited to the
Company without any further action by the Company or the Participant and for no
consideration other than the amount (if any) of cash or other property paid by
the Participant for such Shares. A Participant shall be deemed to fail to meet
the Service Requirement on the first day of the fifth month following
termination of his or her Service without cause or by reason of death or
Disability and on the date of termination of his or her Service for any other
reason (including without limitation, termination for cause and any voluntary
termination by the Participant).
(iii) ESCROW OF UNVESTED SHARES. While Shares
covered by a Restricted Stock Award remain unvested, they shall be held in
escrow by the Company in certificate or book-entry form and they may not be
sold, hypothecated, or otherwise disposed of by the Participant or anyone
claiming through him or her.
-5-
<PAGE> 11
(iv) STOCKHOLDER RIGHTS. Subject to the
restrictions of this Section 7(c), each Participant shall enjoy all the benefits
of ownership with respect to all Shares covered by a Restricted Stock Award
(including the rights to vote such Shares and to receive dividends thereon),
regardless of whether such Shares are vested or unvested; provided that all such
rights shall immediately cease with respect to any unvested Shares upon the
forfeiture of such Shares.
(v) OTHER TERMS. Each Restricted Stock Award shall
be subject to all other terms of the Plan (including without limitation the
other terms of this Section 7 and of Sections 9, 10 and 11) and of any form or
agreement embodying the award, except to the extent that such terms are
inconsistent with the express provisions of this Section 7(c).
(d) EXERCISE OF OPTIONS. Each Option (other than a
Director Option) shall be exercisable for the full amount or for any part
thereof at such time or at such intervals and in such installments as the
Committee (or its delegate, if applicable) may determine at the time it grants
such Option; provided, however, that no Option shall be exercisable with respect
to any Shares later than ten years after the date of the grant of such Option
(or five years in the case of Incentive Options to which Section 7(k)(ii)
applies) and provided, further, that each outstanding Option shall become
immediately exercisable for the full amount or any part thereof upon the
occurrence of a Change in Control of the Company. An Option shall be exercisable
only by delivery of a written notice to the Company's Treasurer, or any other
officer of the Company designated by the Committee to accept such notices on its
behalf, specifying the number of Shares for which the Option is exercised and
accompanied by either (i) payment or (ii) if permitted by the Committee,
irrevocable instructions to a broker to promptly deliver to the Company full
payment in accordance with Section 7(e)(ii) below of the amount necessary to pay
the aggregate exercise price. With respect to an Incentive Option, the
permission of the Committee referred to in clause (ii) of the preceding sentence
must be granted at the time the Incentive Option is granted.
(e) PAYMENT. Payment shall be made in full (i)at the
time the Option is exercised, (ii) promptly after the Participant forwards the
irrevocable instructions referred to in Section 7(d)(ii) above to the
appropriate broker, if exercise of an Option is made pursuant to Section
7(d)(ii) above, or (iii) at the time specified in the Restricted Stock Award if
any payment is required pursuant to the Award. Payment shall be made either (I)
in cash, (II) by check, (III) if permitted by the Committee (with respect to an
Incentive Option, such permission to have been granted at the time of the
Incentive Option grant), by delivery and assignment to the Company of shares of
Company stock having a fair market value (as determined by the Committee) equal
to the exercise or purchase price, or (IV) by a combination of one or more of
the foregoing methods. If shares of Company stock are to be used to pay the
exercise price of an Incentive Option, the Company prior to such payment must be
furnished with evidence satisfactory to it that the acquisition of such shares
and their transfer in payment of the exercise price satisfy the requirements of
Section 422 of the Code and other applicable laws.
-6-
<PAGE> 12
(f) WITHHOLDING TAXES; DELIVERY OF SHARES. The
Company's obligation to deliver Shares upon exercise of an Option or pursuant to
a Restricted Stock Award shall be subject to the Participant's satisfaction of
all applicable federal, state and local income and employment tax withholding
obligations. Without limiting the generality of the foregoing, the Company shall
have the right to deduct from payments of any kind otherwise due to the
Participant any federal, state or local taxes of any kind required by law to be
withheld with respect to any Shares issued upon exercise of Options or pursuant
to Restricted Stock Awards. Furthermore, to the extent possible, each
Participant shall satisfy such obligations by having the Company withhold vested
and unrestricted Shares or by delivering to the Company already owned
unrestricted Shares, having a value equal to the amount required to be withheld,
as determined by the Committee.
(g) NON-TRANSFERABILITY. No Option or Restricted
Stock Award shall be transferable by the Participant otherwise than by will or
the laws of descent or distribution, and each Option shall be exercisable during
the Participant's lifetime only by the Participant.
(h) TERMINATION OF RESTRICTED STOCK AWARDS AND
OPTIONS. Each Restricted Stock Award shall be subject to the termination and
forfeiture provisions of Section 7(c) above. Except to the extent the Committee
provides specifically in a grant form or Option agreement for a lesser period
(or a greater period, in the case of Nonqualified Options only), each Option
(other than a Director Option) shall terminate and may no longer be exercised if
the Participant ceases for any reason to render continuous Service, in
accordance with the following provisions:
(i) if the Participant ceases to render Service for
any reason other than death, Disability or termination for
cause, the Participant may, at any time within a period of
three months after the date of such cessation of Service,
exercise the Option to the extent that the Option was
exercisable on the date of such cessation;
(ii) if the Participant ceases to render Service
because of termination for cause, the Option shall terminate
immediately and may no longer be exercised on and after the
date of such termination for cause;
(iii) if the Participant ceases to render Service
because of Disability, the Participant may, at any time within
a period of six months after the date of such cessation of
Service, exercise the Option to the extent that the Option was
exercisable on the date of such cessation; and
(iv) if the Participant ceases to render Service
because of death, the Option, to the extent that the
Participant was entitled to exercise it on the date of death,
may be exercised within a period of six months after the
Participant's death by the person or persons to whom the
Participant's
-7-
<PAGE> 13
rights under the Option pass by will or by the laws of descent or
distribution;
provided, however, that no Option may be exercised to any extent by anyone after
the date of its expiration; and provided, further, that Options may be exercised
at any time only as to Shares which at such time are available for acquisition
pursuant to the terms of the applicable grant form or agreement.
(i) RIGHTS AS STOCKHOLDER. A Participant shall have no rights
as a stockholder with respect to any Shares covered by an Option until the date
of issuance of a stock certificate in the Participant's name for such Shares. A
Participant shall have such rights as a stockholder with respect to any Shares
covered by a Restricted Stock Award as are provided in Section 7(c) above.
(j) REPURCHASE OF SHARES BY THE COMPANY. Any Shares acquired
upon exercise of an Option (other than a Director Option) may in the discretion
of the Committee be subject to repurchase by or forfeiture to the Company if and
to the extent and at the repurchase price, if any, specifically set forth in the
Option grant form or agreement pursuant to which the Shares were acquired.
Certificates representing Shares subject to such repurchase or forfeiture may be
subject to such escrow and stock legending provisions as may be set forth in the
Option grant form or agreement pursuant to which the Shares were acquired. Any
Shares issued pursuant to a Restricted Stock Award shall be subject to such
forfeiture to the Company and to such escrow provisions as are specified in
Section 7(c) above and may be subject to such additional repurchase and
forfeiture rights and escrow and stock legending provisions as the Committee (in
its discretion) may set forth in any form or agreement embodying the award.
(k) 10% STOCKHOLDER. If any Participant to whom an Incentive
Option is granted pursuant to the provisions of the Plan is on the date of grant
the owner of stock (as determined under Section 424(d) of the Code) possessing
more than ten percent (10%) of the total combined voting power or value of all
classes of stock of the Company, its parent, if any, or Subsidiaries, then the
following special provisions shall be applicable:
(i) The exercise price per Share subject to such
Option shall not be less than one hundred and ten percent
(110%) of the Market Price of each Share on the date of
grant; and
(ii) The Option shall not have a term in excess of
five years from the date of grant.
(l) CONFIDENTIALITY AGREEMENTS. Each Participant shall
execute, prior to or contemporaneously with the grant of any Option or
Restricted Stock Award hereunder, the Company's then standard form of agreement,
if any, relating to nondisclosure of confidential information, assignment of
inventions and related matters.
-8-
<PAGE> 14
(m) AGGREGATE LIMITATION. The maximum number of Shares with
respect to which any Options and Restricted Stock Awards may be granted under
the Plan to any individual during each successive twelve-month period commencing
on the Effective Date of the Plan shall not exceed 200,000 shares.
(n) RIGHT TO TERMINATE. Nothing contained in the Plan or in
any Option or Restricted Stock Award granted hereunder shall restrict the right
of any member of the Company Group to terminate the employment of any
Participant or other Service by the Participant at any time and for any reason,
with or without notice. Nothing contained in the Plan or in any Option granted
hereunder shall give any Non-Employee Director the right to continue in Service
as a director.
8. RESTRICTIONS ON INCENTIVE OPTIONS. Incentive Options granted under
this Plan shall be specifically designated as such and shall be subject to the
additional restriction that the aggregate Market Price, determined as of the
date the Incentive Option is granted, of the Shares with respect to which
Incentive Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000. If an Incentive Option which exceeds
the $100,000 limitation of this Section 8 is granted, the portion of such Option
which is exercisable for Shares in excess of the $100,000 limitation shall be
treated as a Nonqualified Option pursuant to Section 422(d) of the Code. In the
event that such Participant is eligible to participate in any other stock
incentive plans of the Company, its parent, if any, or a Subsidiary which are
also intended to comply with the provisions of Section 422 of the Code, such
annual limitation shall apply to the aggregate number of shares for which
options may be granted under all such plans.
9. SUSPENSION OF RIGHTS PRIOR TO A DISSOLUTION, REORGANIZATION,ETC.
Prior to any dissolution, liquidation, merger, consolidation or reorganization
of the Company as to which the Company will not be the surviving corporation, or
the sale or exchange of substantially all of the Common Stock or the sale of
substantially all of the assets of the Company (the "Event"), unless such Event
would constitute a Change in Control of the Company, the Board or the Committee
may decide to terminate each outstanding Option and Restricted Stock Award. If
the Board or the Committee so decides, each Option (including Director Options)
and Restricted Stock Award shall terminate as of the effective date of the
Event, but the Board or the Committee shall suspend the exercise of all
outstanding Options a reasonable time prior to the Event, giving each person
affected thereby not less than fourteen days written notice of the date of
suspension, prior to which date such person may purchase in whole or in part the
Shares otherwise available to him or her as of the date of purchase. If the
Event is not consummated, the suspension shall be removed and all Options and
Restricted Stock Awards shall continue in full force and effect, subject to
their terms.
10. ADJUSTMENT IN SHARES. Appropriate adjustment shall be made by the
Committee in the maximum number of Shares subject to the Plan and in the number,
kind, and exercise or purchase price of Shares covered by outstanding Options
and Restricted Stock Awards granted hereunder and in the number and kind of
Shares in each
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<PAGE> 15
Director Option subsequently granted pursuant to Section 5(b) to
give effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Company after the Effective Date of the Plan. In the event of a change of the
Common Stock resulting from a merger or similar reorganization as to which the
Company is the surviving corporation, the number and kind of Shares which
thereafter may be purchased pursuant to an Option or issued pursuant to a
Restricted Stock Award under the Plan and the number and kind of Shares then
subject to Options or Restricted Stock Awards granted hereunder and the price
per Share thereof shall be appropriately adjusted in such manner as the
Committee may deem equitable to prevent dilution or enlargement of the rights
available or granted hereunder.
11. INVESTMENT REPRESENTATIONS; TRANSFER RESTRICTIONS. The Company may
require Participants, as a condition of purchasing Shares pursuant to the
exercise of an Option or of receiving Shares pursuant to a Restricted Stock
Award, to give written assurances in substance and form satisfactory to the
Company to the effect that such person is acquiring the Shares for the
Participant's own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate (including without limitation
confirmation that the Participant is aware of any applicable restrictions on
transfer of the Shares, as specified in the by-laws of the Company or otherwise)
in order to comply with federal and applicable state securities laws.
12. DEFINITIONS.
(a) "BOARD" means the Board of Directors of the Company.
(b) "CHANGE IN CONTROL" has the meaning defined in Section 14
below.
(c) "CODE" means the Internal Revenue Code of 1986, as
heretofore and hereafter amended, and the regulations promulgated thereunder.
(d) "COMMITTEE" has the meaning defined in section 4 above.
(e) "COMMON STOCK" has the meaning defined in Section 3
above.
(f) "COMPANY" AND "COMPANY GROUP" have the meanings defined in
Section 1 above.
(g) "DIRECTOR OPTION" has the meaning defined in Section
5(b)above.
(h) "DISABILITY" has the meaning defined in Section 22(e)(3)
of the Code.
(i) "EFFECTIVE DATE has the meaning defined in Section 2
above.
(j) "EMPLOYEE" has the meaning defined in Section 5(a) above.
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<PAGE> 16
(k) "EVENT" has the meaning defined in Section 9 above.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as heretofore and hereafter amended.
(m) "INCENTIVE OPTION" has the meaning defined in Section 1
above.
(n) "MARKET PRICE" means the closing price of the Common Stock
as reported on the NASDAQ National Market System for the relevant date (or, if
such date is not a trading date or if no trades took place on such date, then
such closing price for the last previous trading date or the last previous date
on which a trade occurred, as the case may be); provided that if the Common
Stock is no longer traded on the NASDAQ National Market System on the relevant
date, then the Market Price as of such date shall be as determined by the Board.
(o) "NON-EMPLOYEE DIRECTOR" has the meaning defined in Section
5(b) above.
(P) "NONQUALIFIED OPTION" has the meaning defined in Section 1
above.
(q) "OPTION" has the meaning defined in Section 1 above.
(r) "PARTICIPANT" has the meaning defined in Section 5 above.
(s) "PERFORMANCE CONDITIONS", "Partial Performance Condition"
and "Full Performance Condition" have the meanings defined in Section 7(c)
above.
(t) "PERFORMANCE PERIOD" has the meaning defined in Section
7(c) above.
(u) "PLAN" has the meaning defined in Section 1 above.
(v) "RESTRICTED STOCK AWARD" has the meaning defined in
Section 1 above.
(w) "SERVICE" means the performance of work for one or more
members of the Company Group as an Employee or service as a Non-Employee
Director of the Company.
(x) "SERVICE REQUIREMENT" has the meaning defined in Section
7(c)
(y) "SHARES" has the meaning defined in Section 3 above.
(z) "SUBSIDIARY" has the meaning defined in Section 424(f) of
the Code.
-11-
<PAGE> 17
13. TERMINATION OR AMENDMENT OF PLAN. The Board may by written action
at any time terminate the Plan or make such changes in or additions or deletions
to the Plan as it deems advisable without further action on the part of the
stockholders of the Company, provided:
(a) that no such termination or amendment shall adversely
affect or impair any then outstanding Option or Restricted Stock Award or
related agreement without the consent of the Participant holding such Option or
Restricted Stock Award or related agreement; and
(b) that no such amendment which (i) increases the maximum
number of Shares subject to this Plan (except to the extent provided in Sections
9 and 10), (ii) materially increases the benefits accruing to Participants,
(iii) materially modifies the requirements as to eligibility for participation
in the Plan, (iv) changes any of the terms governing Director Options expressly
set forth in Section 5(b) of this Plan, or (v) makes any other change which,
pursuant to the Code or regulations thereunder or Section 16(b) of the Exchange
Act and the rules and regulations thereunder, requires action by the
stockholders may be made without obtaining, or being conditioned upon,
stockholder approval; and
(c) that no such amendment which would change the amount,
timing or price of the Director Option grants made to Non-Employee Directors
hereunder may be made more often than once every six months except to comport
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the applicable rules and regulations thereunder.
With the consent of the Participant affected, the Committee may amend
outstanding Options or Restricted Stock Awards or related agreements in a manner
not inconsistent with the Plan. The Committee shall have the right to amend or
modify the terms and provisions of the Plan and of any outstanding Incentive
Options granted under the Plan to the extent necessary to qualify any or all
such Options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code.
14. CHANGE IN CONTROL. A change in control of the Company (a "Change in
Control") will occur upon:
(a) The acquisition by any individual, entity or group (within the
meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either (i) the then outstanding shares of
the Common Stock or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
the directors (the "Outstanding Company Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (A)
any acquisition directly from the Company (excluding an acquisition by virtue of
the exercise of a conversion privilege); (B) any acquisition by the Company or
by
-12-
<PAGE> 18
any corporation controlled by the Company; (C) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company; or (D) any acquisition by any
corporation pursuant to a consolidation or merger, if, following such
consolidation or merger, the conditions described in clauses (i), (ii), and
(iii) of paragraph (c) of this Section 14 are satisfied; or
(b) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") ceasing for any reason to constitute at least two-thirds
of the Board over any period of 24 consecutive months or less; provided,
however, that any individual becoming a director subsequent to the Effective
Date whose election, or nomination for election by the Company's shareholders,
was approved by a vote or resolution of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
(c) Adoption by the Board of a resolution approving an agreement of
consolidation of the Company with or merger of the Company into another
corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 60 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Company Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the Company, any
employee benefit plan (or related trust) of the Company or such corporation or
other business entity resulting from such consolidation or merger and any Person
beneficially owning, immediately prior to such consolidation or merger, directly
or indirectly, 35 percent or more of the Common Stock and/or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 35 percent or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such consolidation or merger or
the combined voting power of the then outstanding voting securities of such
corporation or business entity entitled to vote generally in the election of its
directors (or other persons having the general power to direct the affairs of
such entity) and (iii) at least two-thirds of the members of the board of
directors (or other group of persons having the general power to direct the
affairs of the corporation or other business entity) resulting from such
consolidation or merger were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such consolidation or merger;
provided that any right which shall vest by reason of the action of the Board
pursuant to this paragraph (c) shall be
-13-
<PAGE> 19
divested, with respect to any such right not already exercised, upon (A) the
rejection of such agreement of consolidation or merger by the stockholders of
the Company or (B) its abandonment by either party thereto in accordance with
its terms; or
(d) Adoption by the requisite majority of the whole Board, or by the
holders of such majority of stock of the Company as is required by law or by the
Certificate of Incorporation or By-Laws of the Company as then in effect, of a
resolution or consent authorizing (i) the dissolution of the Company or (ii) the
sale or other disposition of all or substantially all of the assets of the
Company, other than to a corporation or other business entity with respect to
which, following such sale or other disposition, (A) more than 60 percent of,
respectively, the then outstanding shares of common stock of such corporation
and/or the combined voting power of the outstanding voting securities of such
corporation or other business entity entitled to vote generally in the election
of directors (or other persons having the general power to direct the affairs of
such entity) is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Common Stock and Outstanding Company Voting
Securities immediately prior to such sale or other disposition in substantially
the same proportions as their ownership, immediately prior to such sale or other
disposition, of the Common Stock and/or Outstanding Company Voting securities,
as the case may be, (B) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation or other
business entity and any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 35 percent or more of the
Common Stock and/or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 35 percent or more of, respectively,
the then outstanding shares of common stock of such corporation and/or the
combined voting power of the then outstanding voting securities of such
corporation or other business entity entitled to vote generally in the election
of directors (or other persons having the general power to direct the affairs of
such entity) and (C) at least two-thirds of the members of the board of
directors (or other group of persons having the general power to direct the
affairs of such corporation or other entity) were members of the Incumbent Board
at the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company; provided
that any right which shall vest by reason of the action of the Board or the
stockholders pursuant to this paragraph (d) shall be divested, with respect to
any such right not already exercised, upon the abandonment by the Company of
such dissolution, or such sale or other disposition of assets, as the case may
be.
A Change in Control shall not occur upon the mere reincorporation of
the Company in another state.
-14-
<PAGE> 1
EXHIBIT 10.30
JANUARY 12, 1996
HPSC, INC.
STOCK OPTION GRANT TO LOWELL P. WEICKER
(EFFECTIVE DECEMBER 7, 1995)
<PAGE> 2
TABLE OF CONTENTS
HPSC, INC.
STOCK OPTION GRANT TO LOWELL P. WEICKER
(EFFECTIVE DECEMBER 7, 1995)
<TABLE>
<S> <C>
1. SHARES SUBJECT TO OPTION................................................. 1
2. TERM AND EXERCISE OF OPTION.............................................. 1
3. TERMS AND CONDITIONS OF EXERCISE......................................... 2
4. OPTION NON-TRANSFERABLE.................................................. 4
5. RIGHT TO TERMINATE....................................................... 4
6. SUSPENSION OF OPTIONS PRIOR TO A DISSOLUTION, REORGANIZATION, ETC........ 4
7. ADJUSTMENT IN SHARES..................................................... 4
8. RESTRICTIONS ON TRANSFER OF STOCK........................................ 5
9. OPTIONEE'S STATUS AS A SHAREHOLDER....................................... 5
10. NOTICE CONCERNING ACQUISITION OR DISPOSITION OF SHARES.................. 5
11. NOTICE CONCERNING TAX MATTERS........................................... 5
12. DEFINITIONS............................................................. 5
(a) "BOARD".............................................................. 5
(b) "CHANGE IN CONTROL".................................................. 6
(c) "CODE"............................................................... 6
(d) "COMMITTEE"......................................................... 6
(e) "COMMON STOCK"....................................................... 6
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
(f) "COMPANY"............................................................ 6
(g) "DATE OF GRANT"..................................................... 6
(h) "DISABILITY"......................................................... 6
(i) "EVENT".............................................................. 6
(j) "EXPIRATION DATE".................................................... 6
(k) "IMMEDIATE SALES PROCEEDS"........................................... 6
(l) "ISSUER"............................................................. 6
(m) "OPTION"............................................................. 6
(n) "OPTIONED SHARES".................................................... 6
(o) "OPTIONEE"........................................................... 6
(p) "OPTION PRICE"....................................................... 6
(r) "SERVICE"............................................................ 7
(s) "SUBSIDIARY"......................................................... 7
13. CHANGE IN CONTROL....................................................... 7
</TABLE>
-ii-
<PAGE> 4
HPSC, INC.
STOCK OPTION GRANT TO LOWELL P. WEICKER
(EFFECTIVE DECEMBER 7, 1995)
PREAMBLE
This non-qualified stock option (the "Option"), is granted as of
December 7, 1995 (the "Date of Grant"), by HPSC, Inc. (the "Issuer") to Lowell
P. Weicker (the "Optionee"), a director of the Issuer on the Date of Grant who
is not an employee of the Issuer or a Subsidiary(1) of the Issuer (hereinafter
individually and collectively referred to as the "Company").
1. SHARES SUBJECT TO OPTION.
Pursuant to resolutions adopted by the Board of Directors of HPSC, Inc.
(the "Board") on December 7, 1995, in connection with the Optionee becoming a
member of the Board and in recognition of his stature, the Issuer hereby grants
to the Optionee an Option to purchase Four Thousand (4,000) shares of its Common
Stock ($.01 par value) (the "Optioned Shares") at a price of $4.75 per share
(the "Option Price"), in accordance with and subject to all the terms and
conditions hereinafter set forth.
2. TERM AND EXERCISE OF OPTION.
Except as otherwise provided in this Option, the Option shall terminate
at the close of business ten (10) years from the Date of Grant (the "Expiration
Date") and may be exercised only by the Optionee or, to the extent provided in
Section 3(c) hereof, by his legal representative. Notwithstanding the foregoing,
if the Optionee is determined to be mentally incompetent and a guardian or
conservator (or other similar person) is appointed by a court of competent
jurisdiction to manage the Optionee's affairs, such appointee may exercise the
Option on behalf of the Optionee to the extent that the Optionee could have
exercised the Option at such time.
The Optioned Shares are immediately available for purchase on the Date
of Grant. Any Optioned Shares that remain unpurchased after the Date of Grant
may be subsequently purchased in their entirety or in any part thereof at any
time and from time to time (until exhausted) prior to the expiration or other
termination of the Option.
Written notice of the exercise of the Option or any portion thereof
shall be given to the Issuer specifying the number of Optioned Shares for which
the Option is exercised and accompanied by payment in full of the Option Price.
The Option Price of each share purchased shall be paid (a) in cash, (b) by
check, (c) by Immediate Sales Proceeds, as defined below, (d) by delivery of
other shares of the Issuer's Common Stock owned by the Optionee with a fair
market value equal to the Option Price of the Optioned Shares to be
- ----------------
(1) Capitalized terms not otherwise defined herein are defined in Section 12
below.
-1-
<PAGE> 5
purchased, or (e) in any combination of the permitted forms of payment. If,
however, the Compensation Committee of the Board (the "Committee") determines in
good faith that an exercise of an Option through the delivery of shares of the
Issuer's Common Stock is not in the best interest of the Issuer, the Committee
may withhold the right to so exercise the Option and require payment of the
purchase price by one or more of the other permitted methods. Notwithstanding
the foregoing, this Option may not be exercised by delivery and assignment to
the Issuer of shares of the Issuer's Common Stock or by delivery of Immediate
Sales Proceeds to the extent that such delivery and assignment would constitute
a violation of the provisions of any law, or related regulation or rule, or any
agreement or policy of the Issuer, restricting the transfer or redemption of the
Issuer's stock.
As used herein, the term "Immediate Sales Proceeds" shall mean the
assignment in form acceptable to the Issuer of the proceeds of a sale of the
Optioned Shares acquired on the exercise of this Option pursuant to a procedure
approved by the Committee. The Committee reserves the right to decline to
approve any such procedure in the Committee's sole and absolute discretion.
The Issuer, upon fulfillment of the requirements for exercise,
including receipt of the payment of the Option Price, and subject to the terms
and conditions of this Option, shall deliver the Optioned Shares purchased
hereunder to the Optionee.
To the extent required to comply with rules promulgated under Section
16 of the Securities Exchange Act of 1934, the Optioned Shares shall be subject
to the following restrictions (in addition to all other restrictions and
conditions set forth in this Option): No Optioned Shares acquired under this
Option may be sold or otherwise disposed of by the Optionee prior to six months
after the Date of Grant.
3. TERMS AND CONDITIONS OF EXERCISE.
Each exercise and purchase of Optioned Shares pursuant to the Option
shall be subject to the following terms and conditions:
(a) Except as provided herein or in paragraphs (b) and (c) below, the
Optionee shall have rendered continuous Service from the Date of Grant
until the date of exercise. Notwithstanding the preceding sentence, if
the Optionee ceases to render Service for any reason other than death,
Disability or termination for cause, the Optionee may purchase in whole
or in part within three months after such termination of Service the
Optioned Shares available to him on his termination date provided that
the Expiration Date of the Option as to such Shares purchased shall not
have occurred prior to the time that the Option is exercised. The
Board's good faith determination that the Optionee's termination was
for cause shall be binding for purposes of this Option.
(b) If the Optionee ceases to render Service because of Disability, the
Optionee may at any time within a period of six months after the date
of such cessatio of
2
<PAGE> 6
Service exercise the Option to the extent that the Option was
exercisable on the date of such cessation and provided that the
Expiration Date of the Option as to the Optioned Shares shall not have
occurred prior to the time that the Option is exercised.
(c) If the Optionee ceases to render Service because of death, then his
legal representative or the person or persons to whom his rights under
the Option shall pass by will or by the applicable laws of descent and
distribution shall be entitled within six months after the date of his
death to exercise the Option to the extent that the Optionee would have
been entitled to exercise the Option on the date of his death and
provided that the Expiration Date of the Option as to the Optioned
Shares purchased shall not have occurred prior to the time that the
Option is exercised.
(d) The Optionee shall hold the Optioned Shares for investment and not
with a view to, or for resale in connection with, any public
distribution of such Shares, and if requested, shall deliver to the
Issuer appropriate certificates to that effect. This restriction shall
terminate upon the registration of such Shares under federal and state
securities laws or if, in the opinion of counsel for the Issuer, such
Shares may be resold without registration.
(e) In the event that the Issuer, upon the advice of counsel, deems it
necessary to list upon official notice of issuance any of the Optioned
Shares on a national securities exchange or to register under the
Securities Act of 1933 or other applicable federal or state statute any
of the Optioned Shares, or to qualify any such Optioned Shares for
exemption from the registration requirements of the Securities Act of
1933 under the Rules and Regulations of the Securities and Exchange
Commission or for similar exemption under state law, then the Issuer
shall notify the Optionee to that effect and no Optioned Shares shall
be issued until such registration, listing or exemption has been
obtained. The Issuer shall make prompt application for any such
registration, listing or exemption pursuant to federal or state law or
rules of such securities exchange which it deems necessary and shall
make reasonable efforts to cause such registration, listing or
exemption to become and remain effective.
(f) The Issuer will furnish upon request of the Optionee copies of the
certificate of incorporation of the Issuer, as amended, and by-laws of
the Issuer, as amended, and such publicly available financial and other
information concerning the Issuer and its business and prospects as may
be reasonably requested by the Optionee in connection with exercise of
this Option.
(g) The Optionee shall comply with all terms and conditions of this
Option. All decisions under, and interpretations of, the provisions of
this Option by the Board or by the Committee shall be final, binding
and conclusive upon the Optionee and anyone claiming through the
Optionee.
3
<PAGE> 7
4. OPTION NON-TRANSFERABLE.
This Option may not be transferred by the Optionee or by operation of
law other than by will or by the laws of descent and distribution. Except to the
extent specifically provided in Sections 2 or 3, it may be exercised during the
lifetime of the Optionee only by him.
5. RIGHT TO TERMINATE.
Nothing contained in this Option shall restrict the right of the
Company to terminate the Board Service of the Optionee or other Service by the
Optionee at any time and for any reason, with or without notice.
6. SUSPENSION OF OPTIONS PRIOR TO A DISSOLUTION, REORGANIZATION, ETC.
Prior to any dissolution, liquidation, merger, consolidation or
reorganization of the Issuer as to which the Issuer will not be the surviving
corporation, or the sale or exchange of substantially all of the Common Stock or
the sale of substantially all of the assets of the Issuer (the "Event"), unless
such Event would constitute a Change in Control, the Board or the Committee may
decide to terminate this Option. If the Board or the Committee so decides, this
Option shall terminate as of the effective date of the Event, but the Board or
the Committee shall suspend the exercise of this Option a reasonable time prior
to the Event, giving the Optionee not less than fourteen days' written notice of
the date of suspension, prior to which date the Optionee may purchase in whole
or in part the Optioned Shares otherwise available to him as of the date of
purchase. If the Event is not consummated, the suspension shall be removed and
this Option shall continue in full force and effect, subject to the terms of the
Option.
7. ADJUSTMENT IN SHARES.
Appropriate adjustment shall be made by the Committee in the number,
kind and Option Price of the Optioned Shares covered by this Option to give
effect to any stock dividends, stock splits, stock combinations,
recapitalizations and other similar changes in the capital structure of the
Issuer after the Date of Grant of the Option. In the event of a change of the
Common Stock resulting from a merger or similar reorganization as to which the
Issuer is the surviving corporation, the number, kind and Option Price of the
Optioned Shares covered by this Option shall be appropriately adjusted in such
manner as the Committee shall deem equitable to prevent dilution or enlargement
of the rights granted hereunder.
8. RESTRICTIONS ON TRANSFER OF STOCK.
The shares of stock issued on exercise of the Option shall be subject
to any restrictions on transfer then in effect pursuant to the certificate of
incorporation or by-laws of the Issuer and to any other restrictions or
provisions attached hereto and made a part hereof or set forth in any other
contract or agreement binding on the Optionee.
4
<PAGE> 8
9. OPTIONEE'S STATUS AS A SHAREHOLDER.
The Optionee shall have no rights as a shareholder with respect to the
Optioned Shares until the exercise of the Option and the issuance of a stock
certificate for the Optioned Shares with respect to which the Option shall have
been exercised.
10. NOTICE CONCERNING ACQUISITION OR DISPOSITION OF SHARES.
If the Issuer is subject to Section 16(b) of the Securities Exchange
Act of 1934 at the time this Option or any portion hereof is exercised or the
Optioned Shares purchased under the Option are sold, the Optionee may be subject
(upon such exercise or sale and/or upon purchases or sales of the Common Stock
within six months before or after any such exercise or sale) to the
requirements, restrictions and sanctions of said Section 16(b) and the rules and
regulations promulgated thereunder unless this Option has been put into
compliance with Rule 16b-3 promulgated under the Securities Exchange Act of 1934
(or any applicable successor rule) and the Optionee complies with all applicable
requirements of said Rule 16b-3. The Optionee should assume that this Option
does not comply with Rule 16b-3 unless specifically informed otherwise by the
Company in writing.
11. NOTICE CONCERNING TAX MATTERS
The Company makes no representation about the tax treatment to the
Optionee with respect to the receipt or exercise of this Option or the
acquisition, holding or disposition of the Optioned Shares. This is not an
"incentive stock option" within the meaning of Section 422 of the Code. The
Optionee is urged to consult a professional tax adviser of his choosing for
advice as to the tax consequences (including the application of Section 83 of
the Code) of receiving or exercising this Option or of holding or selling
Optioned shares purchased under this Option.
12. DEFINITIONS.
(a) "BOARD" has the meaning defined in Section 1 above.
(b) "CHANGE IN CONTROL" has the meaning defined in Section 13
below.
(c) "CODE" means the Internal Revenue Code of 1986, as heretofore
and hereafter amended, and the regulations promulgated thereunder.
(d) "COMMITTEE" has the meaning defined in Section 2 above.
(e) "COMMON STOCK" as the meaning defined in Section 1 above.
(f) "COMPANY" has the meaning defined in the Preamble above.
5
<PAGE> 9
(g) "DATE OF GRANT" has the meaning defined in the Preamble above.
(h) "DISABILITY" has the meaning defined in Code Section 22(e)(3).
(i) "EVENT" has the meaning defined in Section 6 above.
(j) "EXPIRATION DATE" has the meaning defined in Section 2 above.
(k) "IMMEDIATE SALES PROCEEDS" has the meaning defined in Section
2 above.
(l) "ISSUER" has the meaning defined in the Preamble above.
(m) "OPTION" has the meaning defined in the Preamble above.
(n) "OPTIONED SHARES" has the meaning defined in Section 1 above.
(o) "OPTIONEE" has the meaning defined in the Preamble above.
(P) "OPTION PRICE" has the meaning defined in Section 1 above.
(q) "SERVICE" means service as a director of the Issuer while not
an employee of the Issuer.
(r) "SUBSIDIARY" has the meaning defined in Code Section 424(f).
13. CHANGE IN CONTROL. A change in control of the Issuer (a "Change in
Control") will occur upon:
(a) The acquisition by any individual, entity or group (within the
meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either (i) the then outstanding shares of
the Common Stock or (ii) the combined voting power of the then outstanding
voting securities of the Issuer entitled to vote generally in the election of
the directors (the "Outstanding Company Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change in Control: (A)
any acquisition directly from the Issuer (excluding an acquisition by virtue of
the exercise of a conversion privilege); (B) any acquisition by the Issuer or by
any corporation controlled by the Issuer; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Issuer or any
corporation controlled by the Issuer; or (D) any acquisition by any corporation
pursuant to a consolidation or merger, if, following such consolidation or
merger, the conditions described in clauses (i), (ii), and (iii) of paragraph
(c) of this Section 14 are satisfied; or
(b) Individuals who, as of March 8, 1995, constituted the Board (the
"Incumbent Board") ceasing for any reason to constitute at least two-thirds of
the Board
6
<PAGE> 10
over any period of 24 consecutive months or less; provided, however,
that any individual becoming a director subsequent to March 8, 1995, whose
election, or nomination for election by the Issuer's shareholders, was approved
by a vote or resolution of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Adoption by the Board of a resolution approving an agreement of
consolidation of the Issuer with or merger of the Issuer into another
corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 60 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Common Stock and Outstanding
Company Voting Securities immediately prior to such consolidation or merger in
substantially the same proportions as their ownership, immediately prior to such
consolidation or merger, of the Common Stock and/or Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the Issuer, any
employee benefit plan (or related trust) of the Issuer or such corporation or
other business entity resulting from such consolidation or merger and any Person
beneficially owning, immediately prior to such consolidation or merger, directly
or indirectly, 35 percent or more of the Common Stock and/or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 35 percent or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such consolidation or merger or
the combined voting power of the then outstanding voting securities of such
corporation or business entity entitled to vote generally in the election of its
directors (or other persons having the general power to direct the affairs of
such entity) and (iii) at least two-thirds of the members of the board of
directors (or other group of persons having the general power to direct the
affairs of the corporation or other business entity) resulting from such
consolidation or merger were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such consolidation or merger;
provided that any right which shall vest by reason of the action of the Board
pursuant to this paragraph (c) shall be divested, with respect to any such right
not already exercised, upon (A) the rejection of such agreement of consolidation
or merger by the stockholders of the Issuer or (B) its abandonment by either
party thereto in accordance with its terms; or
(d) Adoption by the requisite majority of the whole Board, or by the
holders of such majority of stock of the Issuer as is required by law or by the
Certificate of Incorporation or By-Laws of the Issuer as then in effect, of a
resolution or consent authorizing (i) the dissolution of the Issuer or (ii) the
sale or other disposition of all or
7
<PAGE> 11
substantially all of the assets of the Issuer, other than to a corporation or
other business entity with respect to which, following such sale or other
disposition, (A) more than 60 percent of, respectively, the then outstanding
shares of common stock of such corporation and/or the combined voting power of
the outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Common Stock
and Outstanding Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the Common Stock and/or
Outstanding Company Voting securities, as the case may be, (B) no Person
(excluding the Issuer and any employee benefit plan (or related trust) of the
Issuer or such corporation or other business entity and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 35 percent or more of the Common Stock and/or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 35 percent or more of, respectively, the then outstanding shares of
common stock of such corporation and/or the combined voting power of the then
outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) and (C) at least
two-thirds of the members of the board of directors (or other group of persons
having the general power to direct the affairs of such corporation or other
entity) were members of the Incumbent Board at the time of the execution of the
initial agreement or action of the Board providing for such sale or other
disposition of assets of the Issuer; provided that any right which shall vest by
reason of the action of the Board or the stockholders pursuant to this paragraph
(d) shall be divested, with respect to any such right not already exercised,
upon the abandonment by the Issuer of such dissolution, or such sale or other
disposition of assets, as the case may be.
8
<PAGE> 12
A Change in Control shall not occur upon the mere reincorporation of
the Issuer in another state.
HPSC, INC.
(Corporate Seal) By:
-----------------------
John Everets
President
Attest:
-------------------
Secretary
This Option is accepted and the terms and conditions of the Plan and of
this Option are assented to by the Optionee on the date stated below:
OPTIONEE:
---------------------------
Lowell P. Weicker
Dated:
---------------------
<PAGE> 1
HPSC ANNUAL REPORT
TO OUR STOCKHOLDERS
During 1995 the Company achieved an operating profit of $680,000; however, due
to a non-cash, non-operating foreign currency translation charge relating to the
liquidation of its Canadian subsidiary, the Company experienced a net loss of
$125,000 for the year. This charge, which in prior years had been recorded as a
reduction of retained earnings, had a positive effect on the Company's
stockholders' equity for 1995, which increased by $537,000 from 1994.
The primary challenge for HPSC management has been to invest the Company's
resources for long term portfolio growth with a commitment to control expenses,
while at the same time striving to achieve competitive returns on stockholders'
equity. In 1995 we made strong advances toward many of our goals by executing
our strategic plan to make the Company a leader in its key markets over the next
five years. The Company made investments for its future such as its repurchase
of 1,225,182 shares of its stock, which it completed in 1995, and is committed
to continuing to build investor confidence so that HPSC stock will be priced at
an appropriate premium to book value in the future.
During 1995 we expanded our sales force and increased the number of our sales
offices from six to thirteen. This drove record increases in the Company's
volume of originations and resulted in corresponding portfolio growth.
Originations totaled $68,554,000, an increase of 110% over 1994. Our fourth
quarter volume of $22,524,000 was the largest in the Company's history. Earning
assets increased by 31% from $91,193,000 to $119,886,000 in 1995. At year end
1995 our bank lines were $60,000,000, a $40,000,000 increase over 1994.
These increased bookings and portfolio growth were supported by the Company's
investments in state-of-the-art data processing systems. These automated systems
enable the Company to provide timely responses to requests for credit approval
and improve its handling of customer service inquiries.
As our portfolio has grown, we have also improved its quality. Our primary
market in 1995 continued to be the healthcare professions, particularly the
dental profession; but the Company's expanded portfolio now includes financing
for a variety of medical specialties as well as asset-based lending. We now
provide financing for more than 500 vendors. HPSC has established relationships
with some of America's finest companies by providing excellent service and
competitive rates.
During 1995 the Company significantly achieved its geographic and asset
diversification strategies. Today the Company has a national presence.
As the healthcare industry continues to react to profound structural and
economic pressures, HPSC is well positioned to respond to the changing needs of
its customers. The Company will strive to achieve continued growth by
aggressively seeking to become the finance company of choice in the markets we
serve, including medical, dental and asset-based lending.
Our successes in 1995, including 31% portfolio growth and 110% volume growth,
would not have been possible without the professionalism and commitment of our
employee shareholders, who are so vital to our future success. The continued
support of our dedicated Board of Directors, senior management and employees
gives us reason to face the considerable challenges of 1996 with enthusiasm. Our
priorities will be to achieve profitability through service, portfolio growth
and portfolio quality.
JOHN W. EVERETS
Chairman of the Board and
Chief Executive Officer
1
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(in thousands, except share amounts) 1995 1994
- -------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 861 $ 419
RESTRICTED CASH 5,610 7,936
INVESTMENT IN LEASES AND NOTES:
Lease contracts receivable due in installments 115,364 95,408
Notes receivable due in installments 25,325 8,123
Estimated residual value of equipment at end of lease term 9,206 9,321
Less unearned income (25,875) (16,924)
Less allowance for losses (4,512) (4,595)
Less security deposits (3,427) (2,639)
Deferred origination costs 3,805 2,499
- -------------------------------------------------------------------------------------------------------------
Net investment in leases and notes 119,886 91,193
- -------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Other assets 3,294 2,154
Refundable income taxes 1,088 1,446
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 130,739 $ 103,148
=============================================================================================================
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
NOTES PAYABLE TO BANKS $ 42,070 $ 16,500
NOTES PAYABLE - TREASURY STOCK PURCHASE --- 4,500
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 3,537 2,450
ACCRUED INTEREST 339 293
INCOME TAXES:
Currently payable 368 20
Deferred 4,613 5,539
SENIOR NOTES 46,453 41,024
- -------------------------------------------------------------------------------------------------------------
Total Liabilities 97,380 70,326
- -------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1.00 par value;
authorized 5,000,000 shares; Issued - None --- ---
Common Stock, $.01 par value; 15,000,000 shares authorized;
and issued 4,786,530 in 1995 and 5,574,395 shares in 1994 48 56
Treasury Stock (at cost) 100,000 shares in 1995 and 1,225,182 shares in 1994 (410) (5,023)
Additional paid-in capital 11,311 15,916
Retained earnings 24,476 24,601
Cumulative foreign currency translation adjustments --- (552)
- -------------------------------------------------------------------------------------------------------------
35,425 34,998
Less deferred ESOP and SESOP compensation (2,066) (2,176)
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 33,359 32,822
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 130,739 $ 103,148
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Each of the years ended
---------------------------------------------
DECEMBER 31, December 31, December 25,
(in thousands, except per share and share amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
REVENUES
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earned income on leases and notes $ 12,924 $ 11,630 $ 17,095
Provision for losses (1,296) (754) (15,104)
- --------------------------------------------------------------------------------------------------------------
Net Revenues 11,628 10,876 1,991
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
- --------------------------------------------------------------------------------------------------------------
Selling, general and administrative 5,984 6,970 5,160
Interest, net 4,964 3,156 8,979
- --------------------------------------------------------------------------------------------------------------
Total Operating Expenses 10,948 10,126 14,139
- --------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS) 680 750 (12,148)
- --------------------------------------------------------------------------------------------------------------
(LOSS) ON WRITE-OFF
OF FOREIGN CURRENCY TRANSLATION ADJUSTMENT (601) --- ---
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 79 750 (12,148)
- --------------------------------------------------------------------------------------------------------------
PROVISION (BENEFIT) FOR INCOME TAXES 204 300 (4,870)
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (125) $ 450 $ (7,278)
==============================================================================================================
NET INCOME (LOSS) PER SHARE $ (.03) $ .09 $ (1.48)
==============================================================================================================
Shares Used to Compute Net Income (Loss) per Share 3,881,361 4,989,391 4,923,233
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Deferred Foreign
Common Stock Additional ESOP & Currency
(in thousands except share ------------ Paid-In Retained Treasury SESOP Translation
amounts) Shares Amount Capital Earnings Stock Compensation Adjustment TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 26, 1992 4,922,677 $ 49 $13,643 $31,429 -- -- $ (80) $45,041
Issuance of Common Stock 894 -- 2 -- -- -- -- 2
Net loss -- -- -- (7,278) -- -- -- (7,278)
Foreign currency translation
adjustments -- -- -- -- -- -- (144) (144)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 25, 1993 4,923,571 49 13,645 24,151 -- -- (224) 37,621
Issuance of Common Stock 824 -- 3 -- -- -- -- 3
Net income -- -- -- 450 -- -- -- 450
Purchase of Treasury Stock -- -- -- -- (5,023) -- -- (5,023)
Issuance of Common Stock
to ESOP & SESOP 650,000 7 2,268 -- -- (2,275) -- --
ESOP Compensation -- -- -- -- -- 99 -- 99
Foreign currency translation
adjustments -- -- -- -- -- -- (328) (328)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 5,574,395 56 15,916 24,601 (5,023) (2,176) (552) 32,822
Issuance of Common Stock 317 -- -- -- -- -- -- --
Net loss -- -- -- (125) -- -- -- (125)
Retirement of Treasury Stock (1,125,182) (12) (4,601) -- 4,613 -- -- --
Restricted Stock Awards 337,000 4 (4) -- -- -- -- --
ESOP Compensation -- -- -- -- -- 110 -- 110
Foreign currency translation
adjustments -- -- -- -- -- -- (49) (49)
Recognized in current period
upon liquidation of foreign
subsidiary -- -- -- -- -- -- 601 601
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 4,786,530 $ 48 $11,311 $24,476 $ (410) $(2,066) $ -- $33,359
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH
FLOWS For Each of The Years Ended
------------------------------------------
DECEMBER 31, December 31, December 25,
(in thousands) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $ (125) $ 450 $ (7,278)
Adjustments to reconcile net income
to net cash provided by operating activities:
Foreign currency translation adjustments 601 -- --
Depreciation and amortization 2,340 1,872 2,695
Deferred income taxes (926) (1,093) (4,333)
Gain on sale of receivables (53) -- --
Provision for losses on lease
contracts and notes receivable 1,296 754 15,104
Increase (decrease) in accrued interest 46 (3,141) (79)
Increase (decrease) in accounts payable and accrued liabilities 1,087 (2,898) 882
Increase (decrease) in accrued income taxes 348 (290) (880)
Decrease (increase) in refundable income taxes 358 827 (1,968)
(Increase) decrease in other assets (458) 921 (940)
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 4,514 (2,598) 3,203
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on capital leases (81) (27) (60)
Proceeds from sales of receivables 1,630 6,958 --
Lease contracts receivable and notes receivable (40,494) 11,957 41,136
Estimated residual value of equipment 115 2,339 2,734
Unearned income 9,391 (3,346) (11,988)
Security deposits 788 (221) (603)
Purchase of furniture and equipment (463) (598) (154)
Initial direct costs incurred (3,003) (1,303) (684)
Investments (300) (75) --
- ----------------------------------------------------------------------------------------------------------------
Cash (used in) provided by investing activities (32,417) 15,684 30,381
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior notes (23,385) (78,976) --
Repayment of subordinated debt -- (20,000) --
Repayment of notes payable to banks -- -- (14,000)
Proceeds from issuance of senior notes 28,813 70,000 --
(Decrease) increase in notes payable treasury stock purchase (4,500) 4,500 --
Net (decrease) in demand notes payable to banks -- (7,130) (3,454)
Proceeds from revolving notes payable to banks 25,570 16,500 --
Purchase of treasury stock -- (5,023) --
Debt issuance costs (391) (967) --
Increase (decrease) in restricted cash 2,326 (7,936) --
Proceeds from issuance of common stock -- 3 2
Contribution to employee stock ownership plan 110 99 --
Loans to employees (198) (9) (13)
Other -- (328) (144)
- ----------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 28,345 (29,267) (17,609)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 442 (16,181) 15,975
Cash and cash equivalents at beginning of year 419 16,600 625
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 861 $ 419 $ 16,600
================================================================================================================
Supplemental disclosures of cash flow information:
Interest paid $ 4,510 $ 6,630 $ 8,103
Income taxes paid 1,423 2,018 2,587
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
GENERAL - Until Healthco International, Inc. ("Healthco") filed for
bankruptcy on June 9, 1993, Healthco referred to the Company substantially all
of the Company's financing business. Healthco was a leading distributor of
merchandise, equipment and services to dentists and institutional providers of
dental care, including dental schools and dental laboratories. Healthco also
provided certain sales and related services to the Company as well as certain
management, data processing and administrative services to the Company.
Healthco also owned 1,949,182 shares of the Company's Common Stock,
which it had pledged to certain of its secured creditors (the "Secured
Creditors") and, as a result of the bankruptcy of Healthco, the Secured
Creditors and the Company made certain claims against each other for moneys due.
During 1994 and 1995, HPSC replaced the business that previously had
been referred to it by Healthco with business from other vendors. Now HPSC
provides for itself the sales, management, data processing and administrative
services formerly provided by Healthco.
In July 1995, the Company completed payment for 1,225,182 shares of its
Common Stock which it repurchased from certain secured creditors of Healthco,
pursuant to a Purchase and Sale Agreement between the Company and the Healthco
secured creditors, dated as of November 1, 1994. Healthco had pledged the shares
of the Company's Common Stock to secure its obligations to the secured
creditors. The shares were released from the pledge agreement upon the Company's
completion of the payment. The secured creditors also released the Company from
any claims that may arise out of the bankruptcy of Healthco, effective upon
payment by the Company for the shares. The Company has retired 1,125,182 of
these shares and holds 100,000 of these shares in its treasury.
The Company entered into an agreement to sell substantially all the
finance assets of Credident Inc. ("Credident"), the Company's Canadian
subsidiary, effective June 30, 1994, to Newcourt Credit Group, Inc. (Newcourt)
for approximately (US) $7,000,000 in cash. The Company also entered into a
service agreement whereby Newcourt will manage certain accounts for the two
years ended June 30, 1996 for a fee related to collections. The sale did not
have a material effect on the Company's operations in 1994. Subsequent to the
sale, all of Credident's Canadian bank debt was retired. The sale of
substantially all of Credident's finance assets was consistent with the
Company's strategic plan to focus on its business in the United States. As of
December 31, 1994, in light of the fact that the Company had discontinued its
Canadian operations, the Company wrote off all assets deemed uncollectable at
that time. Credident's total assets at December 31, 1994, were approximately
1.5% of the Company's total consolidated assets and Credident's earned revenues
represented 4.0% of total consolidated earned revenues.
In 1995, the Company reduced its investment in Credident through asset
liquidation, repatriation of funds from Canada and adjustments, to approximately
$800,000. At December 31, 1995, Credident's total assets were less than 1% of
consolidated assets.
CONSOLIDATION - The accompanying consolidated financial statements
include the following wholly-owned subsidiaries: HPSC Funding Corp. I ("HPSCF"),
a special purpose corporation formed in connection with a securitization
transaction; Credident; American Commercial Finance Corporation ("ACFC"), an
asset-based lender focused primarily on accounts receivable and inventory
financing at variable rates; and HPSC Bravo Funding Corp. ("Bravo"), a special
purpose corporation formed in connection with a securitization in 1995. All
intercompany transactions have been eliminated.
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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
6
<PAGE> 7
REVENUE RECOGNITION - When a transaction is initially activated, the
Company records the minimum payments and the estimated residual value, if any,
associated with the transaction. The difference between the sum of the payments
due plus residual less the cost of the transaction is recorded as unearned
income. The unearned income is recognized as revenue over the life of the
transaction using the interest method in essentially all cases. Recognition of
revenue on these assets is suspended no later than when a transaction becomes
145 days delinquent in scheduled payments. Also included in earned income are
fee income from service charges on portfolio accounts, gains and losses on
residual transactions plus miscellaneous income items net of initial direct cost
amortization.
CASH AND EQUIVALENTS - The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
FINANCING OPERATIONS - The Company provides credit primarily to
healthcare professionals throughout the United States. The Company finances
dental, ophthalmic, chiropractic, veterinary, podiatry and other medical
equipment utilized in the healthcare professions, as well as leasehold
improvements, office furniture and equipment and certain other costs involved in
opening or maintaining a healthcare provider's office. The Company also finances
the acquisition of healthcare practices by healthcare professionals and, through
its wholly-owned subsidiary, ACFC, engages in asset-based lending.
The Company finances equipment only after a customer's credit has been
approved and a financing agreement for the transaction has been executed. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses.
The Company does not carry any inventory. The Company acquires the
financed equipment from vendors at their customary selling price to other
customers.
The Company sells lease and notes receivable to other parties. Income
is recorded at the time of the sale approximately equal to the present value of
the anticipated future cash flow, partially offset by initial direct costs,
expenses and estimated credit losses under certain recourse provisions of the
related sale agreements. Also included in net income is the difference between
the net sales proceeds and the carrying amount of the lease receivables sold.
Generally, the Company retains the servicing of lease receivables sold. Income
equal to the estimated future costs of servicing these lease receivables is
deferred and recognized in proportion to the estimated periodic servicing costs.
ALLOWANCE FOR LOSSES - In connection with the Company's financing
transactions, it records an allowance for losses in its portfolio. The extent of
the allowance is based on a specific analysis of potential loss accounts,
delinquencies and historical loss experiences. An account is reserved for or
written off when deemed uncollectable.
The Company occasionally repossesses equipment from lessees who have
defaulted on their obligations to the Company. There was no such equipment held
for sale at December 31, 1995, or December 31, 1994.
Except for approximately $12,000,000 of ACFC receivables, substantially
all of the Company's agreements with its customers are non-cancelable and
provide for a full payout at a fixed financing rate with a fixed payment
schedule over a term of three to seven years. All leases are classified as
direct financing leases.
Delinquent installments on the Company's financing agreements amounted
to $2,618,000 at December 31, 1995 compared to $3,496,000 at December 31, 1994.
An account is considered delinquent when not paid within thirty days of the
billing due date. Total balances on accounts in non-accrual status at December
31, 1995, and December 31, 1994, were $4,709,000 and $6,181,000, respectively.
Effective January 1, 1995, the Company adopted prospectively, SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosure." These standards apply to the Company's practice acquisition loans
and asset-based lending. The standards require that a loan be classified and
accounted for as an impaired loan when it is probable that the Company will be
unable to collect all principal and interest due on the loan in accordance with
the loan's original contractual terms.
Impaired loans are valued based on the present value of expected future
cash flows, using the interest rate in effect at the time the loan was placed on
nonaccrual status. A loan's observable market value or collateral value may be
used as an alternative valuation technique. Impairment exists when the recorded
investment in a loan exceeds the value of the loan measured using the
above-mentioned valuation techniques. Such impairment is recognized as a
valuation reserve, which is included as a part of the Company's allowance for
losses.
The adoption of these new standards did not have a material impact on
the Company's allowance for losses.
7
<PAGE> 8
INCOME TAXES - The Company accounts for income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Current tax liabilities or assets
are recognized, through charges or credits to the current tax provision, for the
estimated taxes payable or refundable for the current year. Net deferred tax
liabilities or assets are recognized, through charges or credits to the deferred
tax provision, for the estimated future tax effects, based on enacted tax rates,
attributable to temporary differences. Deferred tax liabilities are recognized
for temporary differences that will result in amounts taxable in the future, and
deferred tax assets are recognized for temporary differences and tax benefit
carryforwards that will result in amounts deductible or creditable in the
future. The effect of enacted changes in tax law, including changes in tax
rates, on these deferred tax assets and liabilities is recognized in income in
the period that includes the enactment date. A deferred tax valuation reserve is
established if it is more likely than not that all or a portion of the Company's
deferred tax assets will not be realized. Changes in the deferred tax valuation
reserve are recognized through charges or credits to the deferred tax provision.
FOREIGN CURRENCY TRANSLATION - The Company accounts for translation of
foreign currency in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation" (FAS 52). Over a number of years, the
accounts of the Company's Canadian subsidiary, Credident, when translated into
US dollars lost value as a result of the decline in the Canadian dollar in
relation to the US dollar. In accordance with FAS 52, the cumulative amount of
such translation losses had been presented as a reduction of stockholders'
equity. As reported last year, the Company discontinued its Canadian operations
in 1994. During 1995, the Company substantially liquidated its investment in
Credident. In accordance with FAS 52, upon substantial liquidation, cumulative
exchange losses are reflected in the income statement in the current period and
eliminated as a separate component of stockholders' equity.
NET INCOME (LOSS) PER SHARE - Earnings-per-share computations for the
years ended December 31, 1995 and December 31, 1994 are based on the weighted
average number of common and common share equivalents outstanding. At December
31, 1995 and 1994, the calculation included only allocated shares under the
Company's ESOP and SESOP plans and excluded unvested restricted stock grants.
Fully diluted and primary income per share are the same for each of the periods
presented. For the year ended December 25, 1993, the weighted average number of
common shares outstanding was used to calculate the loss per share.
DEFERRED ORIGINATION COSTS - The Company capitalizes initial direct
costs that relate to the origination of leases and notes receivable. These
initial direct costs are comprised of certain specific activities related to
processing requests for financing. Deferred origination costs are amortized over
the life of the receivable as an adjustment of yield.
INTEREST RATE CONTRACTS - The Company utilizes interest rate contracts
to reduce interest rate risk. The Company has established a control environment
which includes policies and procedures for risk assessment and the approval,
reporting and monitoring of derivative financial instrument activities. The
Company does not hold or issue derivative financial instruments for trading
purposes. The differentials to be received or paid under contracts designated as
hedges are recognized in income over the life of the contracts as adjustments to
interest expense.
PROPERTY AND EQUIPMENT - Office furniture, equipment and capital leases
are recorded at cost and depreciated using the straight-line method over a
period of three to five years. Leaseholds are amortized over the shorter of the
life of the lease or the asset. Upon retirement or other disposition, the cost
and related accumulated depreciation of the assets are removed from the accounts
and the resulting gain or loss is reflected in income. Net property, plant and
equipment is included in other assets and was not material at December 31, 1995
and 1994.
RECLASSIFICATIONS - Certain amounts in the 1994 financial statements
have been reclassified to conform to the current year presentation. Such
reclassifications had no effect on earnings.
8
<PAGE> 9
NOTE B.
NOTES PAYABLE TO BANKS AND OTHER DEBT
In 1994, the Company retired its outstanding $50,000,000 10.125% Senior
Notes (principal and interest of $52,527,000) with the proceeds of the
Securitization described below. The Company's $20,000,000 10% Subordinated Notes
were retired at par value plus accrued interest of $1,000,000 on January 15,
1994.
The Company raised $70,000,000 in a receivable backed securitization
transaction ("Securitization") on December 27, 1993. Under the terms of the
Securitization, the Company formed a wholly-owned, special-purpose subsidiary,
HPSC Funding Corp. I ("HPSCF") to which the Company sold or contributed certain
of its equipment lease contracts, conditional sales agreements, leasehold
improvement loans, equipment residual rights and rights to underlying equipment
("Collateral"). HPSCF subsequently issued $70,000,000 of secured notes
("Notes"), bearing interest at 5.01%, secured by the Collateral. The Notes are
rated "AAA" by Standard & Poor's. Monthly payments of interest and principal on
the Notes are made through the application of regularly scheduled monthly
receivable payments on the Collateral. The Company is the servicer of the
Collateral portfolio, subject to its meeting certain covenants. The required
monthly payments of interest and principal to holders of the Notes are
unconditionally guaranteed by Municipal Bond Investor Assurance Corporation
pursuant to the terms of a Note guarantee insurance policy.
In connection with the Securitization, the Company made an investment
in HPSCF. Some or all of the Company's investment in HPSCF may be required to
fund payments to holders of the Notes if certain default and delinquency ratios
applicable to the Collateral are not met. As of December 31, 1995 HPSCF had
approximately $26,984,000 of gross receivables as collateral for the Notes. The
Agreement also provides for restrictions on cash balances under certain
conditions; at December 31, 1995, this restricted cash amounted to $4,693,000.
The Notes had an outstanding balance of $20,150,000 at December 31,1995.
Note payments to investors, based on projected cash flows from the
Collateral, for the years 1996 through 2000 are expected to be as follows:
$11,868,000, $ 6,218,000, $1,734,000, $275,000 and $55,000, respectively.
In May, 1995, the Company executed an Amended and Restated Revolving
Loan agreement with the First National Bank of Boston as Agent Bank ("Revolving
Loan Agreement") increasing availability under this arrangement to $50,000,000.
This agreement was amended in December, 1995, to increase availability to
$60,000,000 and extend the term to December 31, 1996. Under this agreement, the
Company may acquire US dollar loans at variable rates of prime plus 1/4% to 1/2%
in Eurodollar loans at LIBOR plus 1.75% to 2.00%, dependent on certain
performance covenants. At December 31, 1995, the Company had $39,000,000
outstanding under this facility. This revolving loan agreement is not currently
hedged and is, therefore, exposed to upward movements in interest rates.
Management believes that the Company's liquidity is adequate to meet current
obligations and future projected levels of financings and carry on normal
operations. The Company will continue to seek to raise additional capital from
bank and non-bank sources and selective use of asset-sale transactions in 1996.
The Company expects that it will be able to obtain additional capital at
competitive rates, but there can be no assurance it will be able to do so.
As of November 30, 1994, the Company executed a Purchase Agreement with
the Healthco Secured Creditors (as described in Note A) to purchase 1,225,182
shares for $6,285,000, payable $1,785,000 at closing (December 30, 1994) and
$4,500,000 pursuant to a promissory note which provided for six equal monthly
payments of $750,000 beginning February 1, 1995. All scheduled payments were
made in 1995, and the note was paid in full in July 1995.
As of January 31, 1995, the Company, along with its wholly-owned,
special-purpose subsidiary, HPSC Bravo Funding Corp. ("Bravo") completed a
$50,000,000 revolving credit facility structured and guaranteed by Capital
Markets Assurance Corporation ("CapMAC"). Under the terms of the facility,
Bravo, to which the Company sells and may continue to sell or contribute certain
of its portfolio assets, pledges its interests in these assets to a
commercial-paper conduit entity. Bravo incurs interest at variable rates in the
commercial paper market and enters into interest rate swap agreements to assure
fixed rate funding.
Monthly settlements of principal and interest payments are made from
the collection of payments on Bravo's transactions. Additional sales to Bravo
from HPSC may be made subject to certain covenants regarding Bravo's portfolio
performance and borrowing base calculations.
The Company is the servicer of the Bravo portfolio, subject to its
meeting certain covenants. The required monthly payments of principal and
interest to purchasers of the commercial paper are guaranteed by CapMAC pursuant
to the terms of the agreement.
The Company had $26,303,000 outstanding under this facility at December
31, 1995, and, in connection with this transaction, had six separate interest
rate swap agreements with the Bank of Boston with a total notional value of
approximately $27,500,000.
9
<PAGE> 10
In April, 1995, the Company entered into a fixed rate, fixed term loan
agreement with Springfield Institution for Savings ("SIS") under which the
Company borrowed $3,500,000 at 9.5% subject to certain recourse and performance
covenants. The Company had $3,070,000 outstanding under this agreement at
December 31, 1995. In November, 1995, the Company sold approximately $1,500,000
in assets to SIS subject to certain covenants that may require (i) the Company
to repurchase assets from SIS and/or make payments under certain circumstances,
including the delinquencies of the underlying debtor and (ii) servicing of these
assets by the Company. Related to this agreement, the Company carries a recourse
reserve of $30,000 in its allowance for losses. A gain of approximately $53,000
was recognized in connection with this transaction and is included in earned
income from leases and notes for 1995. The Company may enter into additional
asset sale agreements in the future in order to manage its liquidity.
Amortization of debt discount of $ 0, $38,000, and $872,000 in 1995,
1994, and 1993, respectively, is included in interest expense.
Certain debt/securitization agreements contain restrictive covenants
which, among other things, include minimum net worth, interest coverage ratios,
capital expenditures, and portfolio performance guidelines. At December 31,
1995, the Company was in compliance with the provisions of its debt covenants.
<TABLE>
Debt of the Company as of December 31, 1995, and December 31, 1994 is
summarized below.
<CAPTION>
- -----------------------------------------------------
DEC. 31, Dec. 31,
(in thousands) 1995 1994
- -----------------------------------------------------
<S> <C> <C>
Senior Notes (HPSCF)
Due Dec., 1999 $ 20,150 $ 41,024
Senior Notes (Bravo)
Due Nov., 2000
through Aug., 2001 26,303 ---
Senior Notes (SIS)
Due Mar., 2001 3,070 ---
Notes Payable - treasury
stock purchase
Due July 1, 1995 --- 4,500
Revolving credit arrangement
Due Dec. 31, 1996 39,000 16,500
- -----------------------------------------------------
Total $ 88,523 $ 62,024
=====================================================
</TABLE>
Interest expense is net of interest income of $375,000, $358,000 and
$78,000 in 1995, 1994, and 1993, respectively.
NOTE C.
LEASE COMMITMENTS
The Company leases various office locations under noncancelable lease
arrangements that have terms of from three to five years and that generally
provide renewal options from one to five years. Rent expense under all operating
leases was $318,000, $198,000 and $92,000 for 1995, 1994 and 1993, respectively.
<TABLE>
Future minimum lease payments for commitments exceeding twelve months
under non-cancelable operating leases as of December 31, 1995, are as follows
(in thousands):
<S> <C>
1996 $ 290
1997 324
1998 324
1999 146
2000 & thereafter -0-
</TABLE>
10
<PAGE> 11
NOTE D.
INCOME TAXES
Deferred income taxes reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations.
<TABLE>
The components of income (loss) before income taxes are as follows:
<CAPTION>
- -----------------------------------------------------------
For Each of The Years Ended
- -----------------------------------------------------------
DEC. 31, Dec. 31, Dec. 25,
(in thousands) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 154 $ 891 $(11,661)
Foreign (75) (141) (487)
- -----------------------------------------------------------
Income (loss) before
income taxes $ 79 $ 750 $(12,148)
==========================================================
</TABLE>
<TABLE>
Income taxes consist of the following:
<CAPTION>
- -----------------------------------------------------------
For Each of The Years Ended
- -----------------------------------------------------------
DEC. 31, Dec. 31, Dec. 25,
(in thousands) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $ 1,050 $ 808 $(1,079)
Deferred (787) (530) (2,663)
State
Current 426 635 ---
Deferred (357) (563) (957)
Foreign
Current (128) (50) 542
Deferred --- --- (713)
- -----------------------------------------------------------
Provision (credit) for
income taxes $ 204 $ 300 $(4,870)
===========================================================
</TABLE>
<TABLE>
Deferred income taxes arise from the following:
<CAPTION>
- -----------------------------------------------------------
For Each of The Years Ended
- -----------------------------------------------------------
DEC. 31, Dec. 31, Dec. 25,
(in thousands) 1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Operating method $(2,501) $(3,498) (4,277)
Alternative minimum
tax credit 609 2,147 ---
Other 748 258 (56)
- -----------------------------------------------------------
$(1,144) $(1,093) $(4,333)
===========================================================
</TABLE>
<TABLE>
A reconciliation of the statutory federal income tax rate and the
effective tax rate as a percentage of pre-tax income for each year is as
follows:
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State taxes net of US
federal income tax
benefit 55.7 5.2 5.2
Effect of prior year foreign
tax recovery (162.0) -- --
Foreign loss not
benefited 22.7 -- --
Non-deductible write-off
of foreign currency
translation adjustment 258.5 -- --
Other 49.4 .8 .8
- ------------------------------------------------------------
258.2% 40.0% 40.0%
============================================================
</TABLE>
<TABLE>
The items which comprise a significant portion of deferred tax
liabilities as of December 31, 1995, and December 31, 1994, are as follows:
<CAPTION>
- --------------------------------------------------------------
1995 1994
DEF. TAX Def. Tax
(in thousands) LIABILITIES Liabilities
- --------------------------------------------------------------
<S> <C> <C>
Operating method $ 4,089 $ 6,122
State income tax
accrual 915 1,273
Alternative minimum
tax
credit --- (609)
Other (391) (1,247)
- --------------------------------------------------------------
Deferred income
taxes $ 4,613 $ 5,539
- --------------------------------------------------------------
</TABLE>
At December 31, 1995, consolidated retained earnings included $381,000
of unremitted earnings from the Company's foreign subsidiary. In the event of
repatriation, the Company does not anticipate any significant additional income
taxes.
11
<PAGE> 12
NOTE E.
SCHEDULED FUTURE RECEIPTS ON LEASES
AND NOTES
<TABLE>
Scheduled future receipts on leases and notes, excluding the residual
value of the equipment and ACFC receivables, are as follows (in thousands):
<S> <C>
1996 $ 40,439
1997 33,466
1998 24,454
1999 17,802
2000 and thereafter 12,104
</TABLE>
NOTE F.
STOCK OPTION AND STOCK INCENTIVE PLANS
The Company has outstanding options under three stock option plans
which were terminated in May, 1995 upon approval of the 1995 Stock Incentive
Plan described below. The Company has 101,875 shares outstanding under its
Employee Stock Option Plan dated March 23, 1983, as amended (the "1983 Plan"),
345,000 shares outstanding under its Stock Option Plan dated March 5, 1986 (the
"1986 Plan") and 150,000 shares under its 1994 Stock Plan dated March 23, 1994
(the "1994 Plan").
Options exercisable under the 1983, 1986 and 1994 Plans at December 31,
1995, were 90,125, 267,000 and 32,000, respectively.
Options granted under the 1983 Plan are either incentive stock options
or non-qualified options and were granted at no less than 85% of the fair market
value of the Common Stock on the date of grant. Officers and directors of the
Company and its subsidiaries were eligible to participate under the 1986 Plan
and only non-qualified stock options were granted under the 1986 Plan. Key
employees, directors of and consultants to the Company were eligible to
participate in the 1994 Plan. Only non-qualified options were granted under the
1994 Plan and the option exercise price was in each case not less than 50% of
the fair market value of the Common Stock on the date of grant.
The Stock Purchase Plan was terminated upon the approval of the Stock
Incentive Plan in May, 1995. During 1995 and 1994, 317 and 824 shares,
respectively, were issued under the Stock Purchase Plan.
1995 STOCK INCENTIVE PLAN
The Company has outstanding stock options and awards of restricted
stock under its 1995 Stock Incentive Plan dated March 8, 1995, as amended March
14, 1996, (the "1995 Stock Plan") pursuant to which 550,000 shares of Common
Stock are reserved.
The 1995 Stock Plan provides that restricted shares of Common Stock
awarded under the plan will remain unvested until certain performance and
service conditions are both met. The performance condition is met with respect
to 50% of the restricted shares if and when during the five-year period after
the date of grant ("the Performance Period") the closing price of the Company's
Common Stock, as reported on the Nasdaq National Market System for a consecutive
ten-day period, equals at least 134.175% of the closing price on the grant date
(the "Partial Performance Condition"). The performance condition is met with
respect to the remaining 50% of the restricted shares if and when during the
Performance Period the closing price of the Company's Common Stock, as reported
on the Nasdaq National Market System for a consecutive ten-day period, equals at
least 168.35% of the closing price on the grant date (the "Full Performance
Condition"). The service condition is met with respect to all restricted shares
(provided that the applicable performance condition has also been met) by the
holder's continuous service for the Company throughout the Performance Period
provided that such holder shall also have completed five (5) years of continued
service with the Company from the date of grant. When either the partial or full
performance condition is met, the value of the shares awarded related to the
period earned would be charged to expense and the remainder would be recorded as
deferred compensation to be amortized over the recipient's remaining required
service period. Upon a change of control of the Company (as defined in the 1995
Stock Plan), all restricted stock awards granted prior to such change of control
become fully vested. Upon the termination of a holder's employment by the
Company without cause or by reason of death or disability during the Performance
Period, any restricted stock awards for which the applicable performance
condition is satisfied no later than four months after the date of such
termination of employment shall become fully vested.
Awards of 337,000 restricted shares of the Company's Common Stock were
made in May 1995. The Partial Performance Condition of these shares is $5.90 per
share with respect to 332,000 shares and $6.04 with respect to 5,000 shares, and
the Full Performance Condition is $7.37 per share with respect to 332,000 shares
and $7.58 with respect to 5,000 shares.
The 1995 Stock Plan provides that with respect to options made to key
employees (except non-employee directors), the option term and the terms and
conditions upon which the options may be exercised will be determined by the
Compensation Committee of the Company's Board of Directors for each such option
at the time it is granted (except so delegated to the chief executive officer
for non-executive officer grants). Options granted to key employees of the
Company may be either incentive stock options (within the meaning of
12
<PAGE> 13
Section 422 of the Internal Revenue Code of 1986 and subject to the restrictions
of that section on certain terms of such options) or non-qualified options, as
designated by the Compensation Committee.
With respect to automatic options to non-employee directors of the
Company (which must be non-qualified options), the 1995 Stock Plan specifies the
option term and the terms and conditions upon which the options may be
exercised. Each non-employee director who is such at the conclusion of any
regular annual meeting of the Company's stockholders while the 1995 Stock Plan
is in effect and who will continue to serve on the Board of Directors is granted
such automatic options to purchase 1,000 shares of the Company's Common Stock at
a price equal to the closing price of the Common Stock, as reported on the
Nasdaq National Market System, on the date of grant of the option. Each
automatic option is exercisable immediately in full or for any portion thereof
and remains exercisable for ten years after the date of grant, unless terminated
earlier (as provided in the Plan) upon or following termination of the holder's
service as a director.
At December 31, 1995, there were options exercisable for an aggregate
of 2,000 shares of Common Stock outstanding to key employees and automatic
options exercisable for an aggregate of 5,000 shares of Common Stock outstanding
to non-employee directors of the Company, granted under the 1995 Stock Plan. The
Company also granted a non-qualified stock option to Lowell P Weicker, Jr.
effective December 7, 1995, in connection with his becoming a director of the
Company. The option is exercisable for 4,000 shares of Common Stock at $4.75 per
share, the fair market value of Common Stock on the date of grant. The option
grant is not pursuant to any of the stock plans referred to above.
A total of 198,000 shares of the Company's Common Stock remained
available for grants of options or awards of restricted stock under the 1995
Stock Plan at December 31, 1995.
In November 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued, and is effective January 1, 1996. This new standard
requires either the recording of compensation expense for all stock awards and
stock option grants or significantly increased disclosures for such awards and
grants made after December 31, 1994. The Company intends to disclose the
information required by the standard.
<TABLE>
The following table summarizes 1995 and 1994 activity under the Stock
Option Plans and the Stock Purchase Plan:
<CAPTION>
1983 Stock 1986 1994 1995
OPTION Purchase Option Option Stock
PLAN Plan Plan Plan Plan
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares available at
Dec. 31, 1993 --- 70,448 155,000 --- ---
1994 Stock Plan
Shares available
Mar. 23, 1994 --- --- --- 200,000 ---
Options granted in
1994:
Price $3.375 --- --- --- 10,000 ---
Price $3.5625 --- --- --- 80,000 ---
Price $3.625 --- --- --- 10,000 ---
Price $3.75 --- --- --- 50,000 ---
Price $4.00 --- --- --- 40,000 ---
Shares purchased in
1994 --- 824 --- --- ---
Options canceled in
1994 (25,000) --- --- --- ---
1995 Stock Plan
Shares available
Mar. 8, 1995 --- --- --- --- 550,000
Options granted in
1995
Price $3.75 --- --- --- 5,000 ---
Price $3.625 --- --- --- 5,000 ---
Price $4.75 --- --- --- --- 15,000
Restricted Stock Awards
in 1995
Price $4.375 --- --- --- --- 332,000
Price $4.50 --- --- --- --- 5,000
Shares purchased in
1995 --- 317 --- --- ---
Options canceled in
1995 --- --- --- (50,000) ---
Plan terminations:
Mar. 8, 1995
Stock Purchase Plan;
1986 Option Plan;
1994 Option Plan;
Remaining Options
on shares --- 69,307 155,000 50,000 ---
Options outstanding at
Dec. 31, 1995 101,875 --- 345,000 150,000 352,000
Shares available at
Dec. 31, 1995 --- --- --- --- 198,000
</TABLE>
13
<PAGE> 14
NOTE G.
FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 1995, the Company recognized a loss on foreign
currency translation of $601,000 as a result of the substantial liquidation of
its Canadian subsidiary (see Note A). Also in the fourth quarter, the Company
reversed accruals of $290,000, which had previously been included in general
reserves to reflect the uncertainty created by the bankruptcy of Healthco in
1993 on the Company's portfolio and operations. The aggregate effect of these
adjustments on fourth quarter results was a decrease in income before tax of
$311,000 ($435,000 after tax).
NOTE H.
EMPLOYEE BENEFIT PLANS
In December 1993, the Company established a stock bonus type of
Employee Stock Ownership Plan ("ESOP") for the benefit of all eligible
employees. The ESOP is expected to be primarily invested in common stock of the
Company on behalf of the employees. The Company made contributions of $110,000
in 1995 for the 1994 allocation to the ESOP and $99,000 in 1994 for the 1993
allocation to the ESOP.
Employees with five or more years of service with the Company from and
after December 1993 at the time of termination of employment will be fully
vested in their benefits under the ESOP. For a participant with fewer than five
years of service from December 1993 through his or her termination date, his or
her account balance will vest at the rate of 20% for each year of employment.
Upon the retirement or other termination of an ESOP participant, the shares of
common stock in which he or she is vested, at the option of the participant, may
be converted to cash or may be distributed. The unvested shares are allocated to
the remaining participants. The Company has issued 300,000 shares of Common
Stock to this plan in consideration of a Promissory Note in the principal amount
of $1,050,000; 31,372 shares of Common Stock were allocated to participant
accounts for 1994 under the ESOP. No allocation has yet been made for 1995.
In July, 1994, the Company adopted a Supplemental Employee Stock
Ownership Plan ("SESOP") for the benefit of all eligible employees. Eligibility
requirements are similar to the ESOP discussed above except that any amounts
allocated under the SESOP would first be allocated to the accounts of certain
highly compensated employees to make up for certain limitations on Company
contributions under the ESOP required by the 1993 Tax Act and next to all
eligible employees on a non- discriminatory basis. The Company has issued
350,000 shares of Common Stock to this plan in consideration for a Promissory
Note in the principal amount of $1,225,000. No allocations have yet been made to
participant accounts.
The Company has established a Savings Plan covering substantially all
full-time employees, which allows participants to make contributions by salary
deductions pursuant to Section 401(k) of the Internal Revenue Code. The Company
matches employee contributions up to a maximum of 2% of the employee's salary.
Both employee and employer contributions are vested immediately. The Company's
contributions to the Savings Plan were $49,419 in 1995, and $37,975 in 1994.
14
<PAGE> 15
NOTE I.
PREFERRED STOCK PURCHASE RIGHTS
PLAN
Pursuant to a rights agreement between the Company and the First
National Bank of Boston, as rights agent, dated August 3, 1993, the Board of
Directors declared a dividend on August 3, 1993 of one preferred stock purchase
right ("Right") for each share of the Company's common stock (the "Shares")
outstanding on or after August 13, 1993. The Right entitles the holder to
purchase one one-hundredth of a share of Series A Preferred Stock, which
fractional share is substantially equivalent to one share of Common Stock, at an
exercise price of $20.00. The Rights will not be exercisable or transferable
apart from the Common Stock until the earlier to occur of (i) 10 days following
a public announcement that a person or affiliated group has acquired 15 percent
or more of the outstanding Common Stock (such person or group, an "Acquiring
Person"), or (ii) 10 business days after an announcement or commencement of a
tender offer which would result in a person or group's becoming an Acquiring
Person, subject to certain exceptions. The Rights beneficially owned by the
Acquiring Person and its affiliates become null and void upon the Rights
becoming exercisable.
If a person becomes an Acquiring Person or certain other events occur,
each Right entitles the holder, other than the Acquiring Person, to purchase
common stock (or one one-hundredths of a share of Preferred Stock, in the
discretion of the Board of Directors) having a market value of two times the
exercise price of the Right. If the Company is acquired in a merger or other
business combination, each exercisable Right entitles the holder, other than the
Acquiring Person, to purchase Common Stock of the acquiring company having a
market value of two times the exercise price of the Right.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person of 50% or more of the outstanding Common Stock, the
Board of Directors may direct the Company to exchange the Rights held by any
person other than an Acquiring Person at an exchange ratio of one share of
Common Stock per Right. The Rights may be redeemed by the Company, subject to
approval of the Board of Directors, for one cent per Right in accordance with
the provisions of the Rights Plan. The Rights have no voting or dividend
privileges.
15
<PAGE> 16
NOTE J.
DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS
The FASB Statement 107, Disclosures about Fair Value of Financial
Instruments ("SFAS No. 107"), requires the Company to disclose the estimated
fair values for certain of its financial instruments. Financial instruments
include items such as loans, interest rate contracts, notes payable, and other
items as defined in SFAS No. 107.
Fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
Quoted market prices are used when available; otherwise, management
estimates fair value based on prices of financial instruments with similar
characteristics or using valuation techniques such as discounted cash flow
models. Valuation techniques involve uncertainties and require assumptions and
judgments regarding prepayments, credit risk and discount rates. Changes in
these assumptions will result in different valuation estimates. The fair values
presented would not necessarily be realized in an immediate sale; nor are there
plans to settle liabilities prior to contractual maturity. Additionally, SFAS
No. 107 allows companies to use a wide range of valuation techniques; therefore,
it may be difficult to compare the Company's fair value information to other
companies' fair value information.
<TABLE>
The following table presents a comparison of the carrying value and
estimated fair value of the Company's financial instruments at December 31, 1995
<CAPTION>
- --------------------------------------------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
-------- ----------
In thousands
- --------------------------------------------------------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 861 $ 861
Restricted cash $ 5,610 $ 5,610
Net investment in
leases and notes $119,886 $119,886
Financial liabilities:
Notes payable $ 88,523 $ 88,523
- --------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
Cash, cash equivalents and restricted cash: For these short-term
instruments, the carrying amount is a reasonable estimate of fair value.
Net investment in leases and notes: The fair value of loans is
estimated by discounting the future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit
rating and for the same remaining maturities. For nonaccrual loans, fair value
is estimated by discounting management's estimate of future cash flows with a
discount rate commensurate with the risk associated with such assets.
Notes payable: The Company's senior notes, as shown on the accompanying
balance sheet, reflect their approximate fair market value. The fair market
value is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
maturity.
Interest rate contracts: The fair values of interest rate contracts is
estimated based on the estimated amount necessary to terminate the agreements,
which is not material.
NOTE K.
OFF-BALANCE-SHEET FINANCIAL
INSTRUMENTS
Off-balance-sheet financial instruments represent various degrees and
types of risk to the Company, including credit, interest rate and liquidity
risk.
In the normal course of its business the Company enters into interest
rate swap contracts to hedge its interest rate risk related to its variable rate
notes payable. Credit risk is the possibility that a loss may occur if a
counterparty to a transaction fails to perform according to the terms of the
contract. The notional amount of interest rate contracts is the amount upon
which interest and other payments under the contract are based.
Interest rate swaps generally involve the exchange of fixed and
variable rate interest payments between two parties based on a common notional
principal amount and maturity date. The primary risks associated with interest
rate swaps are the exposure to movements in interest rates and the ability of
the counterparties to meet the terms of the contracts.
At December 31, 1995, the Company has six interest rate swap agreements
with a notional value of approximately $27,500,000. The agreements mature from
2000 to 2001.
NOTE L.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of lease and note receivables and temporary
cash balances. To reduce the risk to the Company, stringent underwriting
policies in approving leases and notes and lease pools are closely monitored by
management. In addition, the cash is maintained with several high quality
financial institutions.
16
<PAGE> 17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of HPSC, Inc.:
We have audited the accompanying consolidated balance sheets of HPSC,
Inc. as of December 31, 1995 and December 31, 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. 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. Those 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of HPSC,
Inc. as of December 31, 1995 and December 31, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note A to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan," as amended by Statement of Financial Accounting
Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure," effective January 1, 1995.
Boston, Massachusetts
March 26, 1996
17
<PAGE> 18
MARKET INFORMATION
<TABLE>
The table below sets forth the representative high and low bid prices
for shares of the Common Stock in the over the counter market as reported by the
Nasdaq National Market System (Symbol: "HPSC") for the fiscal years 1995 and
1994:
<CAPTION>
1995 Fiscal Year High Low 1994 Fiscal Year High Low
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Quarter............... $5 1/2 $3 5/8 First Quarter .................. $3 3/4 $3 1/4
Second Quarter.............. 5 4 3/8 Second Quarter ................ 4 1/8 3 1/4
Third Quarter............... 5 1/8 4 1/2 Third Quarter ................. 3 7/8 3 1/16
Fourth Quarter.............. 5 1/4 4 1/2 Fourth Quarter ................ 4 3 1/4
</TABLE>
The foregoing quotations represent prices between dealers, and do not
include retail markups, markdowns, or commissions.
<TABLE>
HOLDERS
<CAPTION>
Approximate Number of Record
Title of Class Holders (as of February 29, 1996)
- -----------------------------------------------------------------------------------------
<S> <C>
Common Stock, par value $.01 per share 110 (1)
</TABLE>
(1) Excluded from the number of stockholders of record are approximately 1,000
"nominee" or "street name" holders
DIVIDENDS
The Company has never paid any dividends and anticipates that for the
foreseeable future its earnings will be retained for use in its business.
18
<PAGE> 19
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
For Each of The Years Ended
-----------------------------------------------------------------------
(in thousands, except DEC. 31, Dec. 31, Dec. 25, Dec. 26, Dec. 28,
share and per share data) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Earned Income on Leases
and Notes $ 12,924 $ 11,630 $ 17,095 $ 21,734 $ 25,565
Provision for Losses (1,296) (754) (15,104) (4,307) (4,403)
- ----------------------------------------------------------------------------------------------------
Net Revenues $ 11,628 $ 10,876 $ 1,991 $ 17,427 $ 21,162
====================================================================================================
Net Income (Loss) $ (125) $ 450 $ (7,278) $ 1,984 $ 3,182
====================================================================================================
Income (Loss) per Share $ (.03) $ .09 $ (1.48) $ .40 $ .65
====================================================================================================
Shares Used to Compute
Earnings per Share 3,881,361 4,989,391 4,923,233 4,922,473 4,921,145
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As at
-----------------------------------------------------
DEC. 31, Dec. 31, Dec. 25, Dec. 26, Dec. 28,
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and Cash Equivalents $ 861 $ 419 $ 16,600 $ 625 $ 4,323
Restricted Cash 5,610 7,936 -- -- --
Lease Contracts Receivable
and Notes Receivable 140,689 103,531 126,369 184,928 217,304
Unearned Income 25,875 16,924 21,803 33,791 43,573
Total Assets 130,739 103,148 130,437 158,857 185,168
Bank Debt 42,070 16,500 7,130 24,584 33,593
Senior Debt 46,453 41,024 50,000 50,000 68,000
Subordinated Debt -- -- 19,962 19,090 18,326
Stockholder's Equity 33,359 32,822 37,621 45,041 43,385
</TABLE>
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
RESULTS OF OPERATIONS
Fiscal 1995 compared to 1994:
The Company's net loss was $ 125,000 or $ 0.03 per share in 1995
compared to net income of $450,000 or $0.09 per share in 1994. The decrease in
1995 was primarily caused by the recognition of a write-off of a foreign
currency translation adjustment of $601,000. The Company had operating income in
1995 of $680,000 compared to $750,000 in 1994. This decrease in operating income
was due to a higher provision for losses due to a higher volume of originations
and an increase in interest expense offset by an increase in earned income and a
decrease in selling, general and administrative expenses.
In 1994, the Company discontinued its Canadian operations as part of
its strategic plan to focus on its business in the United States. Consistent
with this strategy, and in an effort to begin to liquidate its Canadian
operations, the Company in 1994 sold a large portion of its Canadian portfolio
to Newcourt Credit Group, Inc. and used most of the proceeds to repay third
party debt. Some of the proceeds were repatriated to the Company. As a result of
this transaction the Company's total investment in Canada decreased from
$3,800,000 to $2,100,000 at December 31, 1994. In 1995, the Company continued to
liquidate its Canadian assets and repatriated another $700,000 to the United
States. At December 31, 1995, after currency adjustments, the Company's
investment in Canada was less than $800,000. Accordingly, the Company was deemed
to have substantially liquidated its Canadian investment. Therefore, in
accordance with FAS 52, the Company recognized in earnings the cumulative
translation losses incurred in prior years that had been deferred as a separate
component of equity.
Earned income from leases and notes for 1995 was $12,924,000 compared
to $11,630,000 in 1994 after reclassification of certain amounts in 1995. This
increase of 11% resulted primarily from an increase of 6% in average portfolio
of earning assets from 1994 to 1995. The Company financed new portfolio assets
at a cost of $68,554,000 in 1995 compared to $32,609,000 in 1994, a 110%
increase in the value of assets financed. At December 31, 1995, the Company had
a $35,000,000 backlog of customer applications that had been approved but had
not yet resulted in a completed transaction, compared to $25,000,000 at the end
of 1994. Not all approved transactions will result in financing transactions for
the Company. The Company's interest costs increased in 1995 by 57% due to higher
levels of average debt required to support this increase in new portfolio assets
and a higher cost of capital than in 1994. (See Note B to Financial Statements
and Liquidity and Capital Resources.)
Selling, general and administrative expenses were $5,984,000 in 1995
compared to $6,970,000 in 1994, a 14% decrease. This decrease was due to a
reduction in expenses related to the Company's Canadian operations in 1995 and
the reversal of certain accruals which had previously been included in general
reserves to reflect the uncertainty created by the bankruptcy of Healthco in
1993 on the Company's portfolio and operations.
The provision for losses was $1,296,000 in 1995 as compared to $754,000
in 1994. The allowance for losses in 1995 was $4,512,000, approximately 3.8% of
net investment in leases and notes compared to $4,595,000 or 5.0% in 1994. Net
write-offs were $1,379,000 in 1995 compared to $3,056,000 in 1994. The increase
in the provision for losses is due to the higher level of new financings added
to the portfolio and management's continuing analysis of the risks and
diversification in its portfolio.
Net interest expense for 1995 was $4,964,000 compared to $3,156,000 in
1994 after reclassification to conform to 1995 presentation. This 57% increase
was due primarily to higher levels of debt (43%) and higher average interest
rates in 1995. The Company funded its business in 1995 in part with fixed rate
and revolving credit arrangements (see Liquidity and Capital Resources).
The Company had income before income taxes in 1995 of $79,000 compared
to $750,000 in 1994. The provision for income taxes was $204,000 (258%) in 1995
compared to $300,000 (40%) in 1994. This increase is due to the fact that the
$601,000 foreign currency translation adjustment is not deductible. In addition,
the Company has a $128,000 reduction in its tax provision for a 1995 Canadian
provincial refund of taxes from prior years.
The Company has relationships with a diverse mix of equipment
distributors and industry contacts in a variety of licensed practitioner
professions. No single source of new financing represented more than 8% of 1995
total volume of financings.
The earnings per share impact from the Company's repurchase and
retirement of treasury shares in 1995 was less than $.01. Earnings per share
have been unfavorably impacted by $.16 per share due to the 1995 write-off of
its cumulative translation adjustment from the substantial liquidation of
Credident.
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had $861,000 in cash and cash
equivalents compared with $419,000 at the end of 1994. As discussed in Note B to
the Company's Consolidated Financial Statements, $5,610,000 of cash was
restricted as of December 31, 1995, pursuant to a securitization agreement with
HPSCF discussed below. Cash provided by operating activities was $4,514,000 for
the year ended December 31, 1995, compared to cash used in operating activities
of $2,598,000 for 1994. Cash used in investing activities was $32,417,000 for
the year ended December 31, 1995, compared to cash provided by investing
activities of $15,684,000 in 1994. Cash provided by financing activities was
$28,345,000 for 1995 compared to cash used in financing activities of
$29,267,000 in 1994.
On December 27, 1993, the Company raised $70,000,000 through an asset
Securitization transaction in which a wholly-owned subsidiary, HPSC Funding
Corp. I ("HPSCF") issued senior secured notes (the "Notes") at a rate of 5.01%.
The Notes were secured by a portion of the Company's portfolio which it sold in
part and contributed in part to HPSCF. Proceeds of this financing were used to
retire $50,000,000 10.125% senior notes due December 28, 1993, and $20,000,000,
10% subordinated notes due January 15, 1994. The Notes had an outstanding
balance of $20,150,000 at December 31, 1995.
In May, 1995, the Company executed an Amended and Restated Revolving
Loan agreement with the First National Bank of Boston as Agent Bank ("Revolving
Loan Agreement") increasing availability under this arrangement to $50,000,000.
This agreement was amended in December, 1995, to increase availability to
$60,000,000and extend the term to December 31, 1996. Under this agreement, the
Company may acquire US dollar loans at variable rates of prime plus 1/4% to 1/2%
in Eurodollar loans at LIBOR plus 1.75% to 2.00%, dependent on certain
performance covenants. At December 31, 1995, the Company had $39,000,000
outstanding under this facility. This revolving loan agreement is currently not
hedged and is, therefore, exposed to upward movements in interest rates.
As of January 31, 1995, The Company, along with its newly-formed,
wholly-owned, special-purpose subsidiary, HPSC Bravo Funding Corp. ("Bravo")
completed a $50,000,000 revolving credit facility structured and guaranteed by
Capital Markets Assurance Corporation ("CapMAC"). Under the terms of the
facility, Bravo, to which the Company has sold and may continue to sell or
contribute certain of its portfolio assets, pledges its interests in these
assets to a commercial-paper conduit entity. Bravo incurs interest at variable
rates in the commercial paper market and enters into interest rate swap
agreements to assure fixed rate funding. Monthly settlements of principal and
interest payments are made from the collection of payments on Bravo's
transactions. Additional sales to Bravo from HPSC may be made subject to certain
covenants regarding Bravo's portfolio performance and borrowing base
calculations.
The Company is the servicer of the Bravo portfolio, subject to meeting
certain covenants. The required monthly payments of principal and interest to
purchasers of the commercial paper are guaranteed by CapMAC pursuant to the
terms of the agreement.
The Company had $26,303,000 outstanding under this facility at December
31, 1995, and, in connection with this facility, had six separate interest rate
swap agreements with the Bank of Boston with a total notional value of
approximately $27,500,000.
In April, 1995, the Company entered into a fixed rate, fixed term loan
agreement with Springfield Institution for Savings ("SIS") under which the
Company borrowed $3,500,000 at 9.5% subject to certain recourse and performance
covenants. The Company had $3,070,000 outstanding under this agreement at
December 31, 1995. This revolving loan agreement is not currently hedged and is,
therefore, exposed to upward movements in interest rates. In November, 1995, the
Company entered into a sale agreement with SIS under which it transferred $1.5
million in assets to SIS subject to certain recourse covenants and servicing of
these assets by the Company. A net gain of approximately $53,000 was recognized
in connection with this transaction and is included in earned income from leases
and notes for 1995.
Amortization of debt discount of $0, $38,000, and $872,000 in 1995,
1994 and 1993 respectively is included in interest expense.
The Company's senior notes as shown on the accompanying balance sheet
reflect its approximate fair market value. The fair market value is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same maturity.
Management believes that the Company's liquidity is adequate to meet
current obligations and future projected levels of financings and carry on
normal operations. In order to finance adequately its anticipated growth, the
Company will continue to
21
<PAGE> 22
seek to raise additional capital from bank and non-bank sources and make
selective use of asset-sale transactions in 1996 as well as use additional
availability under its current facilities. The Company expects that it will be
able to obtain additional capital at competitive rates, but there can be no
assurance it will be able to do so.
Inflation in the form of rising interest rates could have an adverse
impact on the interest rate margins of the Company and its ability to maintain
timely and adequate earning spreads on its portfolio assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." This standard was effective January 1, 1996. The
standard encourages, but does not require, adoption of a fair value-based
accounting method for stock-based compensation arrangements and would supersede
the provisions of Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees." An entity may continue to apply APB
No. 25 provided the entity discloses its pro forma net income and earnings per
share as if the fair value- based method had been applied in measuring
compensation cost. The Company intends to continue applying APB No. 25 and to
disclose the pro forma information required by SFAS No. 123.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO 1993
The Company's net income of $450,000 or $0.09 per share in 1994
compared with a loss of $7,278,000 or $1.48 per share in 1993. This increase was
due principally to a decrease in the provision for losses and interest expense,
offset by a decline in earned income on portfolio assets as well as a continuing
increase in selling general and administrative costs as part of the Company's
continuing transition into an independent, "open-market" financial services
company.
Revenue from leases and notes for 1994 was $11,630,000 after
reclassification to conform to 1995 presentation compared to $17,095,000 in
1993. This decline of 33% resulted primarily from a reduction of average
portfolio assets from 1993 to 1994 of 26%. However, as the Company made the
transition to an independent, open-market financial services company in 1994, it
financed portfolio assets at a cost of $32,609,000 in 1994 compared to
$16,402,000 in 1993, an approximately 99% increase in the amount of assets
financed. At December 31, 1994, the Company had a $25,000,000 backlog consisting
of customer applications which have been approved but have not yet resulted in a
completed transaction, compared to $6,400,000 at the end of 1993. Not all
approved applications result in financing transactions for the Company. The
Company reduced its cost of capital as a result of securitization and revolving
line of credit transactions (see Note B to Financial Statements and Liquidity
and Capital Resources). By reducing its cost of capital, the Company was able to
maintain competitive rates which it charges to its customers.
Selling, general and administrative expenses were $6,970,000 in 1994
compared to $5,160,000 in 1993. As a result of the Healthco bankruptcy, the
Company provided services which were formerly provided by Healthco under
intercompany agreements between the two companies, including computer, tax
compliance, human resources and certain advertising services. After the Healthco
bankruptcy the Company hired additional senior management and sales and support
personnel to assist the Company in its transition to a financial services
organization no longer affiliated with a single vendor. In addition, as
discussed above, the Company's level of activity in financing portfolio assets
increased approximately 99% in 1994 over 1993. The Company has also incurred
substantial legal fees in connection with the Healthco bankruptcy and the
transition of the Company to an open market financial services organization.
The provision for losses was $754,000 in 1994 compared to $15,104,000
in 1993. The allowance for losses of $4,595,000 for 1994 was approximately 5.0%
of net investment in leases and notes compared to $6,897,000 or 6.3% in 1993.
Net write-offs were $3,056,000 in 1994 compared to $17,423,000 in 1993. This
amount includes approximately $1,166,000 of write-offs taken against the
portfolio of Credident, the Company's wholly-owned Canadian subsidiary. In June,
1994, the Company entered into an agreement to sell substantially all the
finance assets of Credident to Newcourt Credit Group, Inc. ("Newcourt") for
approximately (US) $7,000,000 in cash. The Company entered into a service
agreement whereby Newcourt agreed to manage certain accounts over the next
two-year period ending June 30, 1996. Since the Company no longer generates new
business in
22
<PAGE> 23
Canada, these managed accounts were written down to estimated net realizable
value.
The decrease in the provision for losses in 1994 was due in part to the
decline in portfolio size, the increase in the allowance for losses in 1993, and
management's continuing analysis of the risks and diversification in its current
portfolio of assets. The exposure to certain accounts generated in the mid to
late 1980s decreased significantly in the Company's portfolio to 7.7% at
December 31, 1994. This category of accounts represented a substantial portion
of the 1993 provision for losses.
Net interest expense for 1994 was $3,156,000 after reclassification to
conform to 1995 presentation compared to $8,979,000 in 1993. This 65% decrease
resulted from a reduced level of average borrowings (30%) as well as reduced
overall interest rates on outstanding debt. The Company funded its business in
1994 in part with fixed rate and revolving credit arrangements.
The Company had income before income taxes in 1994 of $750,000 compared
to a loss of $12,148,000 in 1993. The provision for income taxes was $300,000 in
1994 compared to a credit in 1993 of $4,870,000.
Despite the adverse developments arising out of the Healthco bankruptcy
in 1993, the Company replaced the business previously supplied by Healthco with
referrals from other equipment vendors. The Company established relationships
with dental, medical, and other healthcare equipment distributors representing
diversified sources of new business. All of the new financings entered into by
the Company in 1994 involved equipment vendors other than Healthco.
23
<PAGE> 24
OFFICERS
JOHN W. EVERETS
Chairman
Chief Executive Officer
RAYMOND R. DOHERTY
President
Chief Operating Officer
RENE LEFEBVRE
Vice President
Treasurer
Chief Financial Officer
DIRECTORS
JOHN W. EVERETS (3)
Chairman
Chief Executive Officer
RAYMOND R. DOHERTY (3)
President
Chief Operating Officer
LOUIS J.P. CALISTI, DDS, MPH
Director Emeritus
JOSEPH A. BIERNAT (2)
Retired
Former Senior Vice President,
United Technologies Corp.
J. KERMIT BIRCHFIELD, JR. (1)(3)
Independent Consultant.
DOLLIE COLE (1)(2)
Chairperson
Dollie Cole Corporation
Dallas, Texas
SAMUEL P. COOLEY (1)(2)(3)
Retired
Former Executive Vice President,
Shawmut National Corp.
THOMAS M. MCDOUGAL, DDS (2)
Practicing Dentist
LOWELL P. WEICKER, JR.
Chairman
DresingoLiermanoWeicker
(1) Member, Compensation
Committee
(2) Member, Audit Committee
(3) Executive Committee
AUDITORS
Coopers & Lybrand, L.L.P.
One International Place
Boston, Massachusetts 02110
TRANSFER AGENT
First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
10-K
HPSC's Annual Report on Form
10-K is available to stockholders
without charge by writing to:
Investor Relations Department
HPSC, Inc.
60 State Street, Suite 3520
Boston, Massachusetts 02109
24
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF HPSC, INC.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
<S> <C>
Credident, Inc. Canada
American Commercial Finance Corporation Delaware
HPSC Funding Corp. I Delaware
HPSC Bravo Funding Corp. Delaware
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of HPSC, Inc. on Form S-8 (File Nos. 33-60077, 33-10796 and 33-6075)
of our report dated March 25, 1996, on our audits of the consolidated financial
statements and financial statement schedule of HPSC, Inc. as of December 31,
1995 and 1994, and for the years ended December 31, 1995, 1994, and 1993, which
report is incorporated by reference in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,471
<SECURITIES> 0
<RECEIVABLES> 124,398
<ALLOWANCES> 4,512
<INVENTORY> 0
<CURRENT-ASSETS> 126,357
<PP&E> 1,297
<DEPRECIATION> 403
<TOTAL-ASSETS> 130,739
<CURRENT-LIABILITIES> 45,946
<BONDS> 46,453
0
0
<COMMON> 48
<OTHER-SE> 33,359
<TOTAL-LIABILITY-AND-EQUITY> 130,739
<SALES> 0
<TOTAL-REVENUES> 12,924
<CGS> 0
<TOTAL-COSTS> 5,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,296
<INTEREST-EXPENSE> 4,964
<INCOME-PRETAX> 79
<INCOME-TAX> 204
<INCOME-CONTINUING> (125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
