<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 0-11618
HPSC, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2560004
- ----------------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 720-3600
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 and 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: COMMON STOCK, PAR VALUE $.01 PER
SHARE. SHARES OUTSTANDING AT AUGUST 1, 1996, 4,686,530 .
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HPSC, INC.
INDEX
<TABLE>
<CAPTION>
PART 1 -- FINANCIAL INFORMATION PAGE
<S> <C>
Consolidated Balance Sheets as of June 30, 1996, and
December 31, 1995 ................................................. 3
Consolidated Statements of Income for each of the three and six
months ended June 30, 1996 and June 30, 1995 ...................... 4
Consolidated statements of Cash Flows for each of the three and six
months ended June 30, 1996 and June 30, 1995 ...................... 5
Notes to Consolidated Financial Statements ....................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 7-8
PART II -- OTHER INFORMATION
Signatures ........................................................ 9
</TABLE>
Exhibits
2
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HPSC, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 1,038 $ 861
RESTRICTED CASH 6,018 5,610
INVESTMENT IN LEASES AND NOTES:
Lease contracts receivable and notes receivable due in installments 132,429 115,364
Notes receivable due in installments 35,785 25,325
Estimated residual value of equipment at end of lease term 9,313 9,206
Less unearned income (31,463) (25,875)
Less allowance for losses (4,694) (4,512)
Less security deposits (3,944) (3,427)
Deferred origination costs 4,576 3,805
--------- ---------
Net investment in leases and notes 142,002 119,886
--------- ---------
OTHER ASSETS:
Deferred expense and other assets 3,453 3,294
Refundable income taxes -- 1,088
---------
TOTAL ASSETS $ 152,511 $ 130,739
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE TO BANKS $ 54,243 $ 42,070
NOTES PAYABLE AND ACCRUED LIABILITIES 1,419 3,537
ACCRUED INTEREST 653 339
INCOME TAXES:
Currently payable 517 368
Deferred 3,544 4,613
SENIOR NOTES 58,420 46,453
--------- ---------
TOTAL LIABILITIES 118,796 97,380
========= =========
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;
issued and outstanding 4,786,530 shares in 1996 and
4,786,530 shares in 1995 44 44
TREASURY STOCK (at cost) 100,000 shares (410) (410)
Additional paid-in capital 11,315 11,315
Retained earnings 24,832 24,476
--------- ---------
35,425
Less deferred ESOP and SESOP compensation (2,066) (2,066)
--------- ---------
Total Stockholders' Equity 33,715 33,359
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 152,511 $ 130,739
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
3
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HPSC, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(in thousands, except per share and share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
REVENUES:
<S> <C> <C> <C> <C>
Earned Income on Leases and notes $ 4,547 $ 3,203 $ 8,403 $ 6,147
Provisions for losses (452) (264) (800) (541)
----------- ----------- ----------- -----------
Net Revenues 4,095 2,939 7,603 5,606
----------- ----------- ----------- -----------
EXPENSES:
Selling, general and administrative 1,867 1,520 3,514 3,000
Interest, net 1,894 1,195 3,503 2,239
----------- ----------- ----------- -----------
Total expenses 3,761 2,715 7,017 5,239
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES: 334 224 586 367
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES:
Federal, Foreign and State:
Current 650 506 1,300 1,156
Deferred (520) (418) (1,070) (1,012)
----------- ----------- ----------- -----------
TOTAL INCOME TAXES 130 88 230 144
----------- ----------- ----------- -----------
NET INCOME $ 204 $ 136 $ 356 $ 223
=========== =========== =========== ===========
NET INCOME PER SHARE $ .05 $ .04 $ .09 $ .06
=========== =========== =========== ===========
SHARES USED TO COMPUTE
INCOME PER SHARE 4,069,795 3,838,116 4,049,423 3,830,185
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
4
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HPSC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR EACH OF THE SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 356 $ 223
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,587 972
Deferred income taxes (1,069) (1,012)
Provision for losses on lease contracts
and notes receivable 800 541
Increase in accrued interest 314 52
(Decrease) increase in accounts payable (2,118) 132
Increase in accrued income taxes 149 491
Decrease in refundable income taxes 1,088 950
Increase (decrease) in other assets 12 (531)
-------- --------
Cash provided by operating activities 1,119 1,818
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments on capital lease (40) (24)
Proceeds from sale of receivables 3,179 --
Lease contracts receivable and notes receivable (32,043) (12,578)
Estimated residual value of equipment (107) 124
Unearned income 6,288 3,026
Security deposits 517 315
Purchase of furniture & equipment (396) (93)
Initial direct costs incurred (1,973) (1,100)
-------- --------
Cash (used in) investing activities (24,575) (10,330)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Senior Notes (13,057) (11,832)
Repayment of notes payable treasury stock purchase -- (3,750)
Proceeds from issuance of Senior Notes 25,024 16,082
Proceeds from revolving notes payable to banks 12,173 6,996
(Increase) decrease in restricted funds (408) 1,508
Debt issuance costs (121) (310)
Contribution to Employee Stock Ownership Plan -- 110
Other 22 33
-------- --------
Cash provided by financing activities 23,633 8,837
-------- --------
Net increase in cash and cash equivalents 177 325
Cash and cash equivalents at beginning of period 861 419
-------- --------
Cash and cash equivalents at end of period $ 1,038 $ 744
======== ========
Supplemental disclosures of cash flow information
Interest paid $ 3,055 $ 2,157
Income taxes paid 150 120
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
5
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HPSC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information presented for the interim periods is unaudited, but includes
all adjustments (consisting only of normal recurring adjustments) which, in the
opinion of the Company, are necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented. The
results for interim periods are not necessarily indicative of results to be
expected for the full fiscal year. Certain 1995 account balances have been
reclassed to conform with 1996 presentation.
2. Interest expense is net of interest income of $58,000 and $140,000 for the
three months ended and $119,000 and $235,000 for the six months ended June 30,
1996 and June 30, 1995, respectively.
3. For the three months ended June 30, 1996, and June 30, 1995, the earnings per
share computation assumes the exercise of stock options under the modified
treasury stock method and includes only those shares allocated to participant
accounts in the Company's Employee Stock Ownership Plan ("ESOP"). The ESOP holds
240,348 shares that have not yet been funded or allocated to specific
participant accounts. These unallocated shares have not been included in
earnings per share calculations. There was no allocation of shares from the
Supplemental ESOP, which holds 350,000 shares.
4. On June 30, 1996, the Company had $6,018,000 in restricted cash of which
$3,927,000 was reserved for debt service and $2,091,000 was reserved for credit
enhancement pursuant to the terms of agreements entered into by the Company on
December 27, 1993, with respect to a $70,000,000 securitization transaction and
the HPSC Bravo Funding Corp. ("Bravo") revolving credit facility.
5. In connection with the Bravo revolving credit facility, the Company had
$45,834,000 of its Senior Notes subject to interest rate swap agreements. Under
the structure of the facility, Bravo incurs interest at variable rates in the
commercial paper market and enters into interest rate swap agreements to assure
fixed rate funding. At June 30, 1996, Bravo had ten separate swap contracts with
the Bank of Boston with a total notional value of $47,304,000.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30, 1995
The Company's net income for the second quarter of 1996 was $204,000 or $.05 per
share compared to $136,000 or $.04 per share for 1995. For the six months ended
June 30, 1996, net income was $356,000 or $.09 per share compared to $223,000 or
$.06 per share in 1995. The increases in both the quarter and six month periods
of 1996 over 1995 were due to higher earned income from leases and notes offset
by increases in the provision for losses, higher selling, general and
administrative expenses and higher interest costs.
Earned income on leases and notes for the second quarter of 1996 was $4,547,000,
compared to $3,203,000 in 1995. For the six months ended June 30, 1996, earned
income was $8,403,000 compared to $6,147,000 in 1995. The increases in both the
quarter and six month periods were due primarily to the increases in the net
investment of leases and notes. The Company's volume of new financings for the
second quarter of 1996 was $23,350,000 compared to $13,500,000 in 1995. For the
six month period new financings were $43,636,000 in 1996 compared to $28,186,000
in 1995.
The provision for losses was $452,000 in the quarter ended June 30, 1996,
compared to $264,000 for the comparable period in 1995. For the six month period
in 1996, the provision for losses was $800,000 compared to $541,000 in 1995.
These increases are the result of higher levels of new financings in 1996.
Selling, general and administrative costs for the second quarter of 1996 were
$1,867,000 as compared to $1,520,000 in 1995, an increase of 23%. For the six
months ended June 30, 1996, selling, general and administrative expenses were
$3,514,000 as compared to $3,000,000 in 1995. These increases reflect the
increased staffing, systems and support costs required by the higher volumes of
financing activity.
Interest expense for the second quarter of 1996 was $1,894,000 as compared to
$1,195,000 in 1995, an increase of 58%. For the six months ended June 30, 1996,
interest expense was $3,503,000 compared to $2,239,000 in 1995, an increase of
56%. These increases were primarily due to a 63% increase in debt levels from
1995 to 1996.
The Company's income before income taxes in the second quarter of 1996 was
$334,000, compared to $224,000 in 1995. For the six months ended June 30, 1996,
income before income taxes was $586,000 compared to $367,000 in 1995. The
effective tax rate remained approximately the same for all periods.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(cont'd)
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $7,056,000 in cash, cash equivalents and
restricted cash as compared to $6,471,000 at the end of 1995. As described in
Note 4 to the Company's consolidated financial statements included in this
report on Form 10-Q, $6,018,000 of such cash was restricted pursuant to
financing agreements as of June 30, 1996. Cash provided by operating activities
was $1,119,000 for the six months ended June 30, 1996 compared to cash provided
by operating activities of $1,818,000 in the same period of 1995. Cash used in
investing activities was $24,575,000 for the six months ended June 30, 1996
compared to cash used in investing activities of $10,330,000 in the same
period for 1995.
As of June 30, 1996, the Company, entered into a sale agreement with two banks
under which it transferred $2,817,000 in assets to them subject to certain
recourse covenants and servicing of these assets by the Company. A net gain of
approximately $240,000 was recognized in connection with these transactions and
is included in earned income from leases and notes for the period.
At June 30, 1996 the Company's Revolving Loan Agreement provided for loans of up
to $60,000,000, with $51,500,000 outstanding, and $8,500,000 available for
borrowing, subject to certain borrowing base calculations. In July 1996, the
Revolving Loan Agreement was amended to increase the availability to
$75,000,000. The Company continues to utilize HPSC Bravo Funding Corp. ("Bravo")
and at June 30, 1996 had $45,834,000 of loans outstanding under this $50,000,000
revolving credit facility.
Management believes that the Company's liquidity is adequate to meet current
obligations and projected levels of financings and operations. In order to
finance adequately its anticipated growth, the Company will continue to seek to
raise additional capital at competitive rates, but there can be no assurance it
will be able to do so.
8
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HPSC, INC.
PART II. OTHER INFORMATION
Items 1 through 5 are omitted because they are inapplicable.
Item 4. Submission of Matters to a Vote of the Security Holders
a. The Annual Meeting of Stockholders was held on May 16, 1996.
b. Not applicable.
c. The stockholders elected the following two persons to serve as
Class I Directors.
FOR WITHHELD
--- --------
Lowell P. Weicker, Jr. 4,197,013 22,500
Thomas M. McDougal 4,213,013 6,500
To ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors of the Company for the fiscal year ended December 31, 1996:
FOR AGAINST ABSTAIN NO VOTE
--- ------- ------- -------
4,187,613 19,850 12,050 0
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits:
10.6 Third Amendment to the Amended and Restated Revolving
Credit Agreement dated as of March 29, 1996, 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.
10.7 Fourth Amendment to the Amended and Restated
Revolving Credit Agreement dated as of July 29, 1996,
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.
27. Financial Data Schedule
b) Reports on Form 8-K:
During the period for which this report
is filed, the Company filed with the Commission the following
report on Form 8-K:
The Company reported on June 19, 1996 the
resignation of Coopers & Lybrand L.L.P. as the Company's
independent auditors and the engagement of Deloitte & Touche
LLP as the Company's new independent auditors.
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.
Dated: August 14, 1996 HPSC, INC.
--------------------------------
(Registrant)
By: /s/ John W. Everets
--------------------------------
John W. Everets
Chief Executive Officer
Chairman of the Board
By: /s/ Rene Lefebvre
--------------------------------
Rene Lefebvre
Vice President
Chief Financial Officer
9
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Exhibit 10.6
THIRD AMENDMENT
TO REVOLVING CREDIT AGREEMENT
This THIRD AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "Third Amendment") dated as of March 29, 1996, by and among HPSC, INC.
(the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF BOSTON,
BANK OF AMERICA ILLINOIS, NATIONSBANK, N.A., CORESTATES BANK, N.A., THE SUMITOMO
BANK, LIMITED (FORMERLY, THE DAIWA BANK, LIMITED), (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 and the Second
Amendment dated as of December 1, 1995 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 certain terms and conditions
of the Credit Agreement be amended and the Banks and the Agent 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.
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:
"Sale Agreements. Collectively, (i) the dental practice
receivables-backed credit agreement dated as of April 13, 1995
by and between the Borrower and SISB; (ii) the sale agreement
dated as of November 3, 1995 by and between the Borrower and
SISB (iii) any other sale or credit agreements entered into
from time to time by and between the Borrower and financial
institutions provided that such agreements are substantially
in the form of Exhibit J attached hereto and made a part
hereof."
1.2 AMENDMENT TO SECTION 8.1(m) OF THE CREDIT AGREEMENT.
Section 8.1(m) of the Credit Agreement is hereby amended by deleting the text
"SIS Credit Agreement" and
<PAGE> 2
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inserting in lieu thereof the text "Sale Agreements" and by deleting the dollar
amount "$5,000,000" and inserting in lieu thereof the dollar amount
"$12,500,000".
1.3. AMENDMENT TO SECTION 8.2 OF THE CREDIT AGREEMENT. Section
8.2 of the Credit Agreement is hereby amended by (i) deleting the word "and"
appearing at the end of subsection (l), (ii) deleting the period appearing at
the end of subsection (m) and inserting in lieu thereof a semicolon and (iii)
inserting the following new subsection (n) at the end thereof:
"(n) liens granted by the Borrower to financial institutions
on assets which are sold or otherwise transferred pursuant to the Sale
Agreements."
1.4. 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, from time to time, to
release the security interest created by the Security
Documents in any assets sold or otherwise transferred by the
Borrower pursuant to the Sale Agreements 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 sold or otherwise transferred by the
Borrower pursuant to the Sale Agreements."
1.5. AMENDMENT TO CREDIT AGREEMENT. The Credit Agreement is hereby
further amended by deleting the text "SIS Credit Agreement" each time such text
appears and inserting in lieu thereof the text "Sale Agreements".
1.6 EXCLUSION OF CREDIDENT. Each reference in the Credit Agreement to
the exclusion "(other than Credident)" or "(other than Funding or Credident)"
shall be deemed to cover, without limitation, any foreign currency translation
adjustment related to Credident or to the Borrower's investment in Credident,
with the result that such adjustments not be reflected in the Borrower's
financial reporting for purposes of the Credit Agreement.
1.7 EXHIBITS B, D AND J. Exhibits B and D to the Credit Agreement are
hereby amended by deleting such Exhibits in their entirety and substituting the
Exhibits B and D attached hereto in place thereof. Exhibit J to this Third
Amendment is added as new Exhibit J to the Credit Agreement.
2. CONDITIONS TO EFFECTIVENESS. This Third Amendment shall not become
effective unless and until:
(a) the Agent receives counterparts of this Third Amendment
executed by each of the Borrower, the Majority Banks, the
Agent and the Guarantor; and
<PAGE> 3
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(b) all proceedings in connection with the transactions
contemplated by this Third Amendment and all documents
incident hereto, 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 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 Section6 or elsewhere in the Credit Agreement or in the other Loan Documents,
as amended by this Third 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
Sections 7 and 8 or elsewhere in the Credit Agreement or the other Loan
Documents, as amended by this Third Amendment; and (c) no event has occurred or
is continuing and no condition exists which constitutes a Default or Event of
Default.
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 Third 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 Third 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 Third
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 Third Amendment are included herein for
convenience of reference only and shall not constitute part of this Third
Amendment for any other purpose. This Third
<PAGE> 4
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Amendment shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts (without reference to conflict of
laws).
<PAGE> 5
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IN WITNESS WHEREOF, the undersigned have duly executed this Third
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By: Rene Lefebvre
__________________________________
Name: Rene Lefebvre
Title: CFO
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By: Robert F. Keeler
__________________________________
Name: Robert F. Keeler
Title: Vice President
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By: Mark N. Hurley
__________________________________
Name: Mark N. Hurley
Title: Managing Director
NATIONSBANK, N.A.
By: Roger A. Lee
__________________________________
Name: Roger A. Lee
Title: Vice President
<PAGE> 6
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CORESTATES BANK, N.A.
By: Verna R. Prentice
____________________________
Name: Verna R. Prentice
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: D.G. Eastman
____________________________
Name: D.G. Eastman
Title: Vice President
and Manager
By: Alfred DeGemmis
____________________________
Name: Alfred DeGemmis
Title: Vice President
Consented to by the undersigned Guarantor:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By: John W. Everets
______________________________
John W. Everets
President
<PAGE> 7
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Exhibit B
REVISED FORM of BORROWING BASE CERTIFICATE
<PAGE> 8
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Exhibit D
REVISED FORM OF COMPLIANCE CERTIFICATE
<PAGE> 9
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Exhibit J
FORM OF SALE AGREEMENT
<PAGE> 1
Exhibit 10.7
FOURTH AMENDMENT
TO REVOLVING CREDIT AGREEMENT
This FOURTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Fourth Amendment") dated as of July 29, 1996, by and among
HPSC, INC. (the "Borrower"), a Delaware corporation, THE FIRST NATIONAL BANK OF
BOSTON, BANK OF AMERICA ILLINOIS, NATIONSBANK, N.A., CORESTATES BANK, N.A., THE
SUMITOMO BANK, LIMITED (ASSIGNEE OF THE DAIWA BANK, LIMITED), (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 and the Second
Amendment dated as of December 1, 1995, and the Third Amendment dated as of
March 29, 1996 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 certain terms and conditions
of the Credit Agreement be amended and the Banks and the Agent 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.
1.1 SCHEDULE 1. Schedule 1 to the Credit Agreement is hereby
amended by deleting it in its entirety and substituting the Schedule 1 attached
hereto in place thereof.
2. CONDITIONS TO EFFECTIVENESS. This Fourth Amendment shall not become
effective unless and until:
(a) this Fourth 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 Fourth 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
Fourth Amendment;
<PAGE> 2
-2-
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 Fourth 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 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 Fourth 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 Fourth Amendment,
the continuing effectiveness of the Security Documents, and
the Replacement Notes;
(f) 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;
(g) 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;
(h) 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 Subsidiaries following the consummation of
the transactions contemplated herein;
(i) 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;
(j) the Banks shall have received the most recent Accounts
Receivable aging report of (i) the Borrower and its
Subsidiaries and (ii) ACFC;
(k) the Banks shall have received the most recent Compliance
Certificate required to be delivered by the Borrower pursuant
to Section 7.4(c) of the Credit Agreement; and
<PAGE> 3
-3-
(l) the Banks shall have received the most recent Borrowing Base
Certificate required to be delivered by the Borrower pursuant
to Section7.4(e) of the Credit Agreement.
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 Section 6 or elsewhere in the Credit Agreement or in the other Loan
Documents, as amended by this Fourth 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 Sections 7 and 8 or elsewhere in the Credit Agreement or the other
Loan Documents, as amended by this Fourth Amendment; and (c) no event has
occurred or is continuing and no condition exists which constitutes a Default or
Event of Default.
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 Fourth 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 Fourth 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 Fourth
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 Fourth Amendment are included herein for
convenience of reference only and shall not constitute part of this Fourth
Amendment for any other purpose. This Fourth 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 Fourth
Amendment as a sealed instrument as of the date first set forth above.
HPSC, INC.
By: Rene Lefebvre
__________________________________
Name: Rene Lefebvre
Title: CFO
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By: Mitchell B. Feldman
__________________________________
Name: Mitchell B. Feldman
Title: Managing Director
BANK OF AMERICA ILLINOIS,
individually and as co-agent
By: Nelson Albrecht
__________________________________
Name: Nelson Albrecht
Title: Vice President
NATIONSBANK, N.A.
By: Roger A. Lee
__________________________________
Name: Roger A. Lee
Title: Vice President
<PAGE> 5
\ -5-
CORESTATES BANK, N.A.
By: Verna R. Prentice
____________________________
Name: Verna R. Prentice
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: Alfred DeGemmis
____________________________
Name: Alfred DeGemmis
Title: Vice President
By: Stephen O'Sullivan
__________________________
Name: Stephen O'Sullivan
Title: Assistant Vice
President
Consented to by the undersigned Guarantor:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By: John W. Everets
______________________________
John W. Everets
President
<PAGE> 6
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
Schedule 1
Banks; Addresses; Commitments; Commitment Percentages
dated as of July 29, 1996
<TABLE>
<CAPTION>
BANK'S NAME AND ADDRESS COMMITMENT PERCENTAGE
----------------------- ---------- ----------
<S> <C> <C>
The First National Bank of Boston $18,750,000 25%
100 Federal Street
Boston, MA 02110
Attn.: Mitchell B. Feldman, Director
Phone: 617-434-5760
Fax: 617-434-0637
NationsBank, N.A. $18,750,000 25%
100 South Charles Street
Fourth Floor
Baltimore, MD 21201
Attn: Roger A. Lee, Vice President
Phone: 410-547-5888
Fax: 410-576-2958
Bank of America Illinois $15,000,000 20%
231 South LaSalle Street
Chicago, IL 60697
Attn.: Nelson Albrecht, Vice President
Phone: 312-828-3166
Fax: 312-828-1997
CoreStates Bank, N.A. $15,000,000 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 Sumitomo Bank, Limited $ 7,500,000 10%
One Post Office Square, Suite 3820
Boston, MA 02109
Attn.: Alfred DeGemmis, Vice President
Phone: 617-451-3200
Fax: 617-423-4884
TOTAL $75,000,000 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,056
<SECURITIES> 0
<RECEIVABLES> 168,214
<ALLOWANCES> 4,694
<INVENTORY> 0
<CURRENT-ASSETS> 149,058
<PP&E> 1,661
<DEPRECIATION> 546
<TOTAL-ASSETS> 152,511
<CURRENT-LIABILITIES> 55,662
<BONDS> 58,420
0
0
<COMMON> 44
<OTHER-SE> 33,671
<TOTAL-LIABILITY-AND-EQUITY> 152,511
<SALES> 0
<TOTAL-REVENUES> 8,403
<CGS> 0
<TOTAL-COSTS> 3,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 800
<INTEREST-EXPENSE> 3,503
<INCOME-PRETAX> 586
<INCOME-TAX> 230
<INCOME-CONTINUING> 356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
