<PAGE>
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, 1996
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) 04-2560004)
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
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(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 / / NO /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $21,645,217 at February 28, 1997, representing 3,533,913 shares.
The number of shares of common stock, par value $.01 per share, outstanding
as of February 28, 1997 was 4,657,930.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held May 13, 1997 (the "1997 Proxy Statement") are incorporated by
reference into Part III of this annual report on Form 10-K.
The 1997 Proxy Statement, 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.
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a specialty finance company engaged primarily in financing
healthcare providers throughout the United States. To date, the largest part
of the Company's revenues has been derived from its financing of healthcare
equipment. HPSC also finances the purchase of healthcare practices,
particularly dental practices. The Company has over 20 years of experience as
a provider of financing to dental professionals in the United States. Through
its subsidiary, ACFC, the Company also provides asset-based lending to a
variety of businesses in the northeastern United States.
HPSC provides financing for equipment and other practice-related expenses
to the dental, ophthalmic, general medical, chiropractic and veterinary
professions. On a consolidated basis, approximately 60.0% of the Company's
business arises from equipment financing, approximately 30.0% from related
financing, including practice finance, leasehold improvements, office
furniture, working capital and supplies, and approximately 10% from
asset-based lending. HPSC principally competes in the portion of the
healthcare finance market where the size of the transaction is $250,000 or
less, sometimes referred to as the "small-ticket" market. The average size of
the Company's financing transactions in 1996 has been approximately $25,000.
In connection with its equipment financings, the Company enters into
noncancellable installment sales and lease contracts, substantially all of
which provide for a full payout at a fixed interest rate over a term of one
to seven years. The Company markets its financing services to healthcare
providers in a number of ways, including direct marketing through trade
shows, conventions and advertising, through its sales staff with 14 offices
in nine states and through cooperative arrangements with equipment vendors.
At December 31, 1996, HPSC's outstanding leases and notes receivable
owned and managed were approximately $190 million, consisting of
approximately 11,100 active contracts. HPSC's financing contract originations
in 1996 were approximately $86.9 million compared to approximately $60.9
million in 1995, an increase of 42.7%, which compared to financing contract
originations of approximately $28.4 million in 1994, an increase of 114.4%.
The following table summarizes HPSC's financing contract originations for
fiscal years 1994, 1995 and 1996 (excluding ACFC originations).
HPSC Originations by Market (1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1994 1995 1996
-------------------------- -------------------------- --------------------------
DOLLAR PERCENTAGE OF DOLLAR PERCENTAGE OF DOLLAR PERCENTAGE OF
MARKET AMOUNT ORIGINATIONS AMOUNT ORIGINATIONS AMOUNT ORIGINATIONS
- ---------------------------------------------- --------- --------------- --------- --------------- --------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Dental........................................ $ 19,000 67.0% $ 28,900 47.0% $ 45,900 53.0%
Other Medical (2)............................. 9,400 33.0% 32,000 53.0% 41,000 47.0%
--------- ----- --------- ----- --------- -----
Total......................................... $ 28,400 100.0% $ 60,900 100.0% $ 86,900 100.0%
--------- ----- --------- ----- --------- -----
</TABLE>
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(1) Items financed include equipment (through leases and notes), leasehold
improvements, working capital, supplies, as well as practice finance.
(2) Includes financing contracts for the ophthalmic, general medical,
chiropractic and veterinary professions.
ACFC, the Company's wholly-owned subsidiary, provides asset-based
financing, principally in the northeastern United States, for companies which
cannot readily obtain traditional bank financing. The ACFC loan portfolio
generally provides the Company with a greater spread over its borrowing costs
than the Company can achieve in its healthcare financing business. The
Company anticipates that it will expand its asset-based financing business.
The following table summarizes ACFC's line of credit originations for fiscal
1994, 1995 and 1996.
<PAGE>
ACFC ORIGINATIONS
<TABLE>
<CAPTION> YEAR ENDED DECEMBER 31,
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1994 1995 1996
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<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Amount of Originated Lines of Credit.............................................. $ 5,000 $ 12,100 $ 17,600
Balance Outstanding (period end).................................................. $ 4,000 $ 12,000 $ 18,700
Number of Lines of Credit Originated.............................................. 2 8 14
</TABLE>
The continuing increase in the Company's originations of financing
contracts and lines of credit resulted in a 36.1% increase in the Company's
revenues for fiscal year 1996, as compared with fiscal year 1995, and an
10.7% increase in the Company's revenues for fiscal year 1995 compared with
fiscal year 1994. This percentage increase in revenues is lower than the
percentage increase in originations because revenues consist of earned income
on leases and notes, which is a function of the amount of net investment in
leases and notes and the level of interest rates, and is recognized over the
life of the financing contract, while originations are recognized at the time
of origination.
BUSINESS STRATEGY
The Company's strategy is to expand its business and enhance its
profitability by (i) increasing its share of the dental equipment financing
market, the Company's traditional market, as well as by expanding its
activities in other healthcare markets; (ii) diversifying the Company's
revenue stream through its practice finance and asset-based lending
businesses; (iii) emphasizing service to vendors and customers; (iv)
increasing its direct sales and other marketing efforts; (v) maintaining and
increasing its access to low-cost capital and managing interest rate risks;
(vi) continuing to manage effectively its credit risks; and (vii)
capitalizing on information technology to increase productivity and enable
the Company to manage a higher volume of financing transactions. Important
components of the Company's strategy include:
- Increase Healthcare Equipment Financing. The Company's goal is to increase
its share of the dental equipment financing market, as well as to expand
its activities in other healthcare markets, such as the ophthalmic,
general medical, chiropractic and veterinary professions. The Company is
pursuing this goal by hiring sales personnel with experience in financing
for those professions, through direct sales calls and advertising and by
applying the Company's experience in the dental profession to other
medical professions. The Company has increased its share of the dental
equipment financing market in each year since 1993 and believes that it
can increase its market share in other targeted professions through its
sales and marketing efforts and high level of service. The Company
believes that it has benefited and will continue to benefit from
technological advances which stimulate the demand for new and upgraded
healthcare equipment. The Company also believes that regulatory trends in
the healthcare professions have resulted in greater demand for outpatient
services, which may result in greater need for medical outpatient
equipment and supporting office equipment, including office automation
equipment. The Company intends to pursue these potential opportunities for
new financing business. This Note offering will increase the Company's
capital base, thereby permitting the Company to increase its financing
activity.
- Diversify Revenue Stream. In addition to retaining and increasing its
share of the healthcare equipment financing market, the Company plans to
expand its presence in the practice finance and asset-based lending
markets. In 1996, practice finance transactions accounted for
approximately 13.0% of HPSC's financing contract originations. HPSC has
originated approximately 260 practice finance loans aggregating
approximately $24.6 million over the past three years. In addition to this
business being profitable on a stand-alone basis, management believes that
practice finance earns HPSC substantial goodwill among healthcare
providers. Asset-based lending through ACFC accounts for approximately 10%
of the Company's revenues on a consolidated basis. ACFC has entered into
24 asset-based lending transactions since its inception in 1994, totaling
approximately $34.7 million in lines of credit, and currently has
approximately $18.7 million of loans outstanding. The Company anticipates
that it will expand its asset-based financing business.
- Emphasize Service to Vendors and Customers. The Company believes that
healthcare providers seek financing through the Company in large part due
to the high level of service it provides to both customers and vendors,
including the Company's familiarity with the specialized needs of dental
and medical professionals, the speed and convenience of financing
equipment through the Company and the Company's established relationships
with equipment vendors. The Company competes with other providers of
financing services for the business of vendors by ensuring that vendors in
approved equipment financing transactions are paid promptly for the
equipment, usually within one day of delivery to the customer. The Company
intends to continue to provide equipment vendors with timely,
<PAGE>
convenient and competitive financing for their equipment sales and with a
variety of other value-added services that promote both the vendors'
equipment sales and the selection of the Company to provide financing,
and thereby expects to continue to obtain referrals for additional
financing transactions. The Company also will continue to emphasize
customer service, which includes the flexibility to customize financing
arrangements to the needs of individual healthcare providers. In most
cases, the Company's sales representatives work directly with the vendors'
potential purchasers, providing them with the guidance necessary to
complete the equipment financing transaction. The Company believes that
such "consultative financing" has enhanced, and will continue to enhance,
customer satisfaction and loyalty.
- Increase Direct Sales and Other Marketing Efforts. The Company currently
has sales and marketing personnel located in 14 offices across the United
States. The Company intends to open additional sales offices and to
continue to hire sales staff with significant prior experience in the
healthcare financing business. In addition to promoting its financing
services through its sales and marketing personnel, the Company relies on
various equipment financing referral sources and relationships with
vendors and manufacturers of dental, medical and other equipment and
intends to further leverage these relationships. Management believes that
this marketing approach is more effective than isolated solicitations of
equipment purchasers. The Company also expects to continue to broaden its
customer base through national advertising in trade journals and
magazines, by participation in trade shows and through the broad
dissemination of literature describing the Company's financing programs.
- Reduce Borrowing Costs and Manage Interest Rate Risks. In order to reduce
its borrowing costs and manage interest rate risks, the Company seeks to
match-fund its financing contracts through a variety of funding sources.
Currently the Company has access to funding through the $95 million
Revolver and the $100 million Bravo asset securitization facility, as well
as its asset sales to, and loans from, a number of savings banks. The
Company completed the Funding I and Bravo asset securitizations to take
advantage of the significantly lower cost of funds available under these
facilities, as compared with the Company's bank borrowings, with which to
finance its contract originations. The Company's recently completed
amendment to its Bravo asset securitization facility permits it to sell up
to $30 million of financing assets under that program on a limited
recourse basis. The Company will continue to seek advantageous sources of
credit, possibly including additional securitizations and asset sales, if
appropriate.
- Manage Credit Risk. The Company employs comprehensive credit review
procedures. The credit background of each potential customer is checked
with one or more commercial credit reporting agencies, including TRW Inc.,
Equifax Inc., Trans Union Corporation and Dun & Bradstreet Corporation.
Appropriate professional organizations may be consulted regarding the
customer's professional status. In addition to a customer's credit
profile, information such as the equipment type and vendor may be
considered in some circumstances. The delinquency rate (based on
contractual balances more than 60 days past due) of the Company's
equipment financing contract portfolio has declined from 11.0% in fiscal
year 1994 to 4.2% at December 31, 1996. The Company believes that its
delinquency rate has declined because of (i) the Company's comprehensive
on-line credit evaluation procedure to screen financing applications, (ii)
the Company's improved collection procedures and (iii) growth in the
Company's portfolio of financing contracts. Management believes that the
Company's credit and loss experience compares favorably with other
"small-ticket" equipment finance companies. The Company will continue its
thorough credit application screening process and will seek to maintain
the decline in its delinquency rate.
- Capitalize on Information Technology. The Company has developed automated
information systems and telecommunications capabilities tailored to
support all areas within the organization. Systems support is provided for
accounting, taxes, credit, collections, operations, sales, sales support
and marketing. The Company has invested a significant amount of time and
capital in computer hardware and proprietary customized software and has
developed a substantial database of information that enables the Company
to better target its sales and marketing activities. The Company's Boston
headquarters is linked electronically with all of the Company's other
offices. Each salesperson's laptop computer can also connect to the Boston
office, permitting a salesperson to respond promptly to a customer's
financing request. This capability also permits the Company to control the
speed, accuracy and quality of the credit application process. The
Company's centralized data processing system provides timely support for
the marketing and service efforts of the Company's salespeople and for
equipment manufacturers and dealers. The Company's computerized systems
also provide management with accurate, up-to-date customer data which it
uses to strengthen the Company's internal controls and forecasting. The
Company believes that its system is among the most advanced in the
small-ticket equipment financing industry and can accommodate
significantly greater financing volume, giving the Company
<PAGE>
a competitive advantage based on the speed of its contract processing,
control over credit risk and high level of service.
INDUSTRY OVERVIEW
The equipment financing industry in the United States includes a wide
variety of sources for financing the purchase and leasing of equipment, ranging
from specialty financing companies, which concentrate on a particular industry
or financing vehicle, to large banking institutions, which offer a full array of
financial services. According to the Equipment Leasing Association of America
("ELA") 1995 Annual Survey of Industry Activity & Business Operations, the total
financing volume in the United States for all types of equipment (including
medical) was estimated to be approximately $160 billion in 1995, of which
medical equipment, according to responses to the ELA survey, accounted for 3.1%
(or approximately $5.0 billion) of 1995 total annual financing volume.
The medical equipment finance industry includes two distinct markets
which are generally differentiated based on equipment price and type of
healthcare provider. The first market, in which the Company currently does
not compete, is financing of equipment priced at over $250,000, which is
typically sold to hospitals and other institutional purchasers. Because of
the size of the purchase, long sales cycle, and number of financing
alternatives generally available to these types of customers, their choice
among financing alternatives tends to be based primarily on cost of
financing. The second market, in which the Company competes, is the financing
of lower-priced or "small-ticket" equipment, where the price of the financed
equipment is generally $250,000 or less. Much of this equipment is sold to
individual practitioners or small group practices, including dentists,
ophthalmologists, physicians, chiropractors, veterinarians and other
healthcare providers. The Company focuses on the small-ticket market because
it is able to respond in a prompt and flexible manner to the needs of
individual customers. Management believes that purchasers in the small-ticket
healthcare equipment market often seek the value-added sales support and
general ease of conducting business which the Company offers.
The Company believes that healthcare providers are increasingly choosing to
purchase rather than lease, equipment because of (i) the availability of a tax
deduction of up to $17,500 of the purchase price in the first year of equipment
use, (ii) changes in healthcare reimbursement methodologies that reduce
incentives to lease equipment for relatively short periods of time and (iii) a
reduced difference in financing costs between equipment purchases and equipment
leases, due to generally lower interest rates. Consistent with industry trends,
installment sales agreements (notes) now comprise 60% of the financing contracts
originated by the Company.
Although the Company has focused its business in the past on equipment
finance, it has expanded more recently into practice finance. Practice finance
is a specialized segment of the finance industry, in which the Company's primary
competitors are banks. Practice finance is a relatively new business opportunity
for financing companies such as HPSC that has developed as the sale of
healthcare professional practices has increased. The primary sources of
healthcare practice financing are banks; not all financing companies provide
this service. Typically, HPSC has financed approximately 70% of the cost of the
practice being purchased, although buyers are increasingly choosing to finance
the entire purchase price. Management believes that HPSC is a leading provider
of dental practice financing, due in large part to its active advertising
program to the dental profession and direct solicitation of dental healthcare
providers.
HEALTHCARE PROVIDER FINANCING
TERMS AND CONDITIONS
The Company's business consists primarily of the origination of equipment
financing contracts pursuant to which the Company finances the acquisition by
healthcare providers of various types of equipment as well as leasehold
improvements, working capital and supplies. The contracts are either installment
sales agreements (notes) or lease agreements and are noncancellable. The
installment sales agreements are full payout contracts and provide for scheduled
payments sufficient, in the aggregate, to cover the Company's borrowing costs
and the costs of the underlying equipment, and to provide the Company with an
appropriate profit margin. The majority of contracts originated by the Company
(approximately 60%) are installment sales agreements. The balance of the
equipment financing contracts originated by the Company are leases. The Company
provides its leasing customers with an option to purchase the equipment at the
end of the lease for 10% of its original cost. Since 1991, approximately 99% of
lessees have exercised this option. The average cost of financings by HPSC in
1996 was approximately $26,000. In that period, HPSC entered into approximately
3,740 new financing contracts, an increase of approximately 33.6% from 1995.
All of the Company's equipment financing contracts require the customer to:
(i) maintain, service and operate the equipment in accordance with the
manufacturer's and government-mandated procedures; (ii) maintain property and
public liability insurance for the equipment; (iii) pay all taxes associated
with the equipment; and (iv) make all scheduled contract payments regardless of
the performance of the equipment. Substantially all of the Company's financing
contracts provide for principal and interest payments due monthly for the term
of the contract. In the event of default by a customer, the financing contract
provides that the Company has the rights afforded creditors under law, including
the right to repossess the underlying
<PAGE>
equipment and in the case of legal proceedings arising from a default, to
recover damages and attorneys' fees. The Company's equipment financing
contracts generally provide for late fees and service charges to be applied
on payments which are overdue. In 1996, the Company billed approximately $1.1
million in late fees and service charges on late payments, compared to
approximately $700,000 in 1995. This increase was due to growth in the
Company's portfolio and to the completion of the Company's implementation of
a modified late fee and service charge program, rather than to increased
delinquencies.
Although the customer has the full benefit of the equipment manufacturers'
warranties with respect to the equipment it finances, the Company makes no
warranties to its customers as to the equipment. In addition, the financing
contract obligates the customer to continue to make contract payments regardless
of any defects in the equipment. Under an installment sale contract (note), the
customer holds title to the equipment and the Company has a lien on the
equipment to secure the loan; under a lease, the Company retains title to the
equipment. The Company has the right to assign any financing contract without
the consent of the customer.
A practice finance transaction typically takes the form of a loan to a
healthcare provider purchasing a practice, which is secured by the assets of the
practice being financed and may be secured by one or more personal guarantees or
personal assets. The average size of a practice finance transaction is
approximately $100,000, with a typical contract term of 60 to 72 months.
The length of the Company's lease agreements and notes due in installments
range from 12 to 84 months, with a median term of 60 months and an average
initial term of 55 months, and an average implicit interest rate, before the
yield adjustment for deferred origination costs, of 13.0% for 1996 originations
(excluding ACFC).
CUSTOMERS
The primary customers for the Company's financing contracts are healthcare
providers, including dentists, ophthalmologists, other physicians, chiropractors
and veterinarians. The following table provides the general composition of the
Company's healthcare finance portfolio as of December 31, 1996 (excluding ACFC's
portfolio).
HPSC Leases and Notes Receivable (1)
<TABLE>
<CAPTION>
NUMBER OF
DOLLARS PERCENTAGE CONTRACTS PERCENTAGE
---------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Dental........................................................... $ 130,910 69.0% 7,900 71.2%
Other Medical (2)................................................ $ 59,000 31.0% 3,200 28.8%
---------- ----- ----------- -----
Total............................................................ $ 189,910 100.0% 11,100 100.0%
---------- ----- ----------- -----
</TABLE>
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(1) Includes receivables owned or managed
(2) Includes ophthalmic, general medical, chiropractic and veterinary providers.
As of December 31, 1996, no single customer (or group of affiliated
customers) accounted for more than 1% of the Company's healthcare finance
portfolio.
The Company's customers are located throughout the United States, but
primarily in heavily populated states such as California, Florida, Texas,
Illinois and New York.
REALIZATION OF RESIDUAL VALUES ON EQUIPMENT LEASES
Since 1994, the Company has realized over 99% of the residual value of
equipment covered by leases. The overall growth in the Company's equipment lease
portfolio in recent years has resulted in increases in the aggregate amount of
recorded residual values. Substantially all of the residual values on the
Company's balance sheet as of December 31, 1996 are attributable to leases which
will expire by the end of 2001. Realization of such values depends on factors
not within the Company's control, such as the condition of the equipment, the
cost of comparable new equipment and the technological or economic obsolescence
of equipment. Although the Company has received over 99% of recorded residual
values for leases which expired during the last three years, there can be no
assurance that this realization rate will be maintained.
PRACTICE FINANCE
The Company regularly provides financing to healthcare providers in
connection with the acquisition of professional practices. HPSC typically makes
a loan to the professional acquiring the practice, which is
<PAGE>
secured by all of the assets of the practice and which may require a personal
guarantee and a pledge of personal assets by the professional who is
obtaining the financing. Through December 31, 1996, the Company has
originated a total of approximately 260 practice finance loans aggregating
approximately $24.6 million, with an average loan of approximately $100,000.
The term of such loans averages 60 to 84 months. In 1996, practice finance
generated approximately 13.0% of HPSC's financing contract originations.
Management believes that its practice finance business contributes to the
diversification of the Company's revenue sources and earns HPSC substantial
goodwill among healthcare providers. All practice finance inquiries received
at the Company's sales office, or by its salespersons in the field, are
referred to the Boston office for processing.
The Company solicits business for its practice finance services primarily by
advertising in trade magazines, attending healthcare conventions, and directly
approaching potential purchasers of healthcare practices. Over half of the
healthcare practices financed by the Company to date have been dental practices.
The Company has also financed the purchase of practices by chiropractors,
ophthalmologists, general medical practitioners and veterinarians.
The following table sets forth the estimated practice finance loan
originations for fiscal years 1994, 1995 and 1996.
PRACTICE FINANCE ORIGINATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount of Originations.............................................................. $ 3,200 $ 8,400 $ 13,000
Number of Contracts................................................................. 50 90 120
</TABLE>
GOVERNMENT REGULATION AND HEALTHCARE TRENDS
The majority of the Company's present customers are healthcare providers.
The healthcare industry is subject to substantial federal, state and local
regulation. In particular, the federal and state governments have enacted laws
and regulations designed to control healthcare costs, including mandated
reductions in fees for the use of certain medical equipment and the enactment of
fixed-price reimbursement systems, where the rates of payment to healthcare
providers for particular types of care are fixed in advance of actual treatment.
The United States Congress is considering changes to the Medicare program. The
impact on the Company's business of any changes to the Medicare program which
may be adopted cannot be predicted.
Major changes have occurred in the United States healthcare delivery system,
including the formation of integrated patient care networks (often involving
joint ventures between hospitals and physician groups), as well as the grouping
of healthcare consumers into managed-care organizations sponsored by insurance
companies and other third parties. Moreover, state healthcare initiatives have
significantly affected the financing and structure of the healthcare delivery
system. These changes have not yet had a material effect on the Company's
business, but the effect of any changes on the Company's future business cannot
be predicted.
The Company believes that the trend toward managed healthcare through
health maintenance organizations may have a positive effect on the Company's
future operations. The Company believes that as primary care physicians
increasingly become "gatekeepers" to more specialized care, the Company will
be able to accelerate its marketing programs to family and general
practitioners. These physicians would require additional, cost-effective
equipment that emphasizes early diagnosis and screening as compared to the
more costly "big-ticket" medical equipment purchased by hospitals for
treatment purposes. Medicaid managed care programs also encourage the
increased availability of cost-effective "small-ticket" equipment such as
that financed by the Company. Furthermore, the various reform initiatives are
intended to result in a greater percentage of the population having access to
some type of health coverage, which would increase the likelihood that
healthcare providers will be reimbursed at some (perhaps lower) rate for
services provided to this expanded insured population, thereby improving the
credit quality of providers and increasing their ability to purchase and
finance new equipment.
ASSET-BASED LENDING
ACFC makes asset-based loans of $3 million or less, primarily secured by
accounts receivable, inventory and equipment. ACFC typically makes accounts
receivable loans to borrowers that cannot obtain traditional bank financing in a
variety of industries (none of which to date are medical). ACFC takes a security
interest in all of the borrower's assets and monitors collection of its
receivables. Advances on a revolving loan generally do not exceed 80% of the
borrower's eligible accounts receivable. ACFC also makes revolving and "term
like" inventory loans not exceeding 50% of the value of the customer's active
inventory, valued at the lower of cost or market rate. Finally, ACFC provides
term financing for equipment, which is secured by the machinery and equipment of
the borrower. Each of ACFC's officers has over ten years of experience providing
these types of financing on behalf of various finance companies.
<PAGE>
The average ACFC loan is for a term of two to three years in an amount of $1
million. No single borrower accounts for more than 10% of ACFC's aggregate
portfolio, and no more than 25% of ACFC's portfolio is concentrated in any
single industry.
ACFC's loans are "fully followed," which means that ACFC receives daily
settlement statements of its borrowers' accounts receivable. ACFC participates
in the collection of its borrowers' accounts receivable and requires that
payments be made directly to an ACFC lock-box account. Availability under lines
of credit is usually calculated daily. ACFC's credit committee, which includes
members of the senior management of HPSC, must approve in advance all ACFC
loans. To date, ACFC has experienced no loan losses; however, there can be no
assurance that it will not experience losses in the future.
From its inception through December 31, 1996, ACFC has provided 24 lines of
credit totaling $34.7 million and currently has approximately $18.7 million of
loans outstanding to 18 borrowers. The annual dollar volume of originations of
lines of credit by ACFC has grown from $5.0 million in 1994 to $12.1 million in
1995 to $17.6 million in 1996. The Company anticipates that ACFC's asset-based
lending will continue to grow.
CREDIT AND ADMINISTRATIVE PROCEDURES
The Company processes all credit applications, and monitors all existing
contracts, at its corporate headquarters in Boston, Massachusetts (other than
ACFC applications and contracts, all of which are processed at ACFC's
headquarters in West Hartford, Connecticut). The Company's credit procedure
requires the review, verification and approval of a potential customer's
credit file, accurate and complete documentation, delivery of the equipment
and verification of installation by the customer, and correct invoicing by
the vendor. When a sales representative receives a credit application from a
potential customer, he or she enters it into the Company's computer system.
The Company's credit requirements usually include an acceptable personal
payment history and minimum credit rating scores on several credit reporting
agency models, and generally require that the borrower be a practicing
licensed medical professional. The credit of the potential customer is
checked with one or more commercial credit reporting agencies, including TRW
Inc., Equifax Inc., Trans Union Corporation and Dun & Bradstreet Corporation.
Appropriate professional organizations may be consulted regarding the
customer's professional status. In addition to a customer's credit profile,
information such as the equipment type and vendor may be considered. The type
and amount of information and time required for a credit decision varies
according to the nature, size and complexity of each transaction. In smaller,
less complicated transactions, a decision can often be reached within one
hour; more complicated transactions may require up to three or four days.
Once the equipment is shipped and installed, the vendor invoices the Company.
The Company verifies that the customer has received and accepted the
equipment and obtains the customer's authorization to pay the vendor.
Following this telephone verification, the file is forwarded to the contract
administration department for audit, booking and funding and to commence
automated billing and transaction accounting procedures.
Timely and accurate vendor payments are essential to the Company's business.
In order to maintain its relationships with existing vendors and attract new
vendors, the Company makes most payments to vendors for financed equipment
within one day of equipment delivery to the customer.
ACFC's underwriting procedures include an evaluation of the collectibility
of the borrower's receivables that are pledged to ACFC, including an evaluation
of the validity of such receivables and the creditworthiness of the payors of
such receivables. ACFC may also require its customers to pay for credit
insurance with respect to its loans. The Loan Administration Officer of ACFC is
responsible for maintaining its lending standards and for monitoring its loans
and underlying collateral. Before approving a loan, ACFC examines the
prospective customer's books and records, and continues to make such
examinations and to monitor its customers' operations as it deems necessary
during the term of the loan. Loan officers are required to rate the risk of each
loan made by ACFC, and to update the rating upon
<PAGE>
receipt of any financial statement from the customer or when 90 days have
elapsed since the date of the last rating. Loan loss reserves are based on a
percentage of loans outstanding. An account will be placed in non-accrual
status when a customer is unable to service the debt and the collateral is
deteriorating.
The Company considers its finance portfolio assets to consist of two general
categories of assets based on such assets' relative risk.
The first category of assets consists of the Company's lease contracts and
notes receivable due in installments, which comprise approximately 87.7% of the
Company's net investment in leases and notes at December 31, 1996 (90.1% at
December 31, 1995). Substantially all of such contracts and notes are due from
licensed medical professionals, principally dentists, who practice in individual
or small group practices. Such contracts and notes are at fixed interest rates
and have terms ranging from 12 to 84 months. The Company believes that leases
and notes entered into with medical professionals are generally "small-ticket,"
homogeneous transactions with similar risk characteristics. Except for the
amounts described in the following paragraph related to asset-based lending, all
of the Company's historical provision for losses, charge offs, recoveries and
allowance for losses have related to its lease contracts and notes due in
installments.
The second category of assets consists of the Company's notes receivable,
which comprise approximately 12.3% of the Company's net investment in leases and
notes at December 31, 1996 (9.9% at December 31, 1995). Such notes receivable
consist of commercial, asset-based, revolving lines of credit to small and
medium size manufacturers and distributors, at variable interest rates, and
typically have terms of two years. The Company began commercial lending
activities in mid-1994. Through December 31, 1996, the Company has not had any
charge-offs of commercial notes receivable. The provision for losses related to
the commercial notes receivable was $146,000, $95,000 and $43,000 in 1996, 1995
and 1994, respectively. The amount of the allowance for losses related to the
commercial notes receivable was $284,000 and $138,000 at December 31, 1996 and
1995, respectively.
COLLECTION AND LOSS EXPERIENCE
The delinquency statistics for the Company's equipment financing contract
portfolio have improved every year since 1993. The delinquency rate (based on
contractual balances more than 60 days past due) of the Company's portfolio
has declined from 11.0% at December 31, 1994 to 4.2% at December 31, 1996.
The Company believes that the delinquency rate has declined because of (i)
the Company's comprehensive on-line credit evaluation procedure to screen
financing applications, (ii) the Company's improved collection procedures and
(iii) growth in the Company's portfolio of financing contracts. The Company
believes that its credit and loss experience compares favorably with other
"small-ticket" equipment finance companies.
The Company uses its own five-person in-house staff to collect late payments
from customers and manage accounts that are in litigation. When an account is 30
days past due, the Company begins collection procedures. The following table
illustrates HPSC's delinquent payment experience in fiscal 1994, 1995 and 1996
(excluding ACFC loans).
Delinquency Experience (1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------
1994 1995 1996
------------ ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total Portfolio Owned and Managed......................... $100,045 $130,066 $189,910
Contractual Delinquencies:
61-90 days.............................................. $1,925 $2,314 $2,134
Over 90 days............................................ 9,108 4,964 5,763
------------ ---------------- ------------
Total Contractual Delinquencies (over 60 days)............ $11,033 $7,278 $7,897
------------ ---------------- ------------
Contractual Delinquencies as a Percentage of Total
Portfolio Owned and Managed
61-90 days.............................................. 1.9% 1.8% 1.1%
Over 90 days............................................ 9.1 3.8 3.1
------------ ---------------- ------------
Total Contractual Delinquencies (over 60 days)............ 11.0% 5.6% 4.2%
------------ ---------------- -------------
Net charge-offs divided by Average Total Portfolio Owned
and Managed (2)......................................... 1.7% 1.2% 0.9%
</TABLE>
- ------------------------
(1) Excludes ACFC. To date, ACFC has experienced no credit losses in its
asset-based lending portfolio.
(2) Excludes losses attributable to the Company's discontinued Canadian
operations.
ALLOWANCE FOR LOSSES; CHARGE-OFFS
<PAGE>
The Company maintains an allowance for losses in connection with equipment
financing contracts and other loans held in the Company's portfolio at a level
which the Company deems sufficient to meet future estimated uncollectible
receivables, based on an analysis of delinquencies, problem accounts, and
overall risks and probable losses associated with such contracts, and a review
of the Company's historical loss experience. At December 31, 1996, this
allowance for losses was 2.7% of the Company's net investment in leases and
notes (before allowance). There can be no assurance that this allowance will
prove to be adequate. Failure of the Company's customers to make scheduled
payments under their financing contracts could require the Company to (i) make
payments in connection with the recourse portion of its borrowing relating to
such contract, (ii) forfeit its residual interest in any underlying equipment
and (iii) forfeit cash collateral pledged as security for the Company's asset
securitizations. In addition, although net charge-offs on the financing
contracts originated by the Company have been 1.1% of the Company's average net
investment in leases and notes (before allowance) for the year ended December
31, 1996, any increase in such losses or in the rate of payment defaults under
the financing contracts originated by the Company could adversely affect the
Company's ability to obtain additional funding, including its ability to
complete additional asset securitizations.
Accounts are normally charged off when future payment is deemed unlikely.
The following table illustrates the Company's historical allowance for losses
and charge-off experience.
<PAGE>
CHARGE-OFFS AND ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------
DEC. 26, DEC. 25, DEC. 31, DEC. 31, DEC. 31,
1992 1993 (1) 1994 1995 1996
--------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Allowance for losses:
Balance at beginning of period .......................... $11,033 $ 9,216 $6,897 $ 4,595 $ 4,482
Additions(2)............................................. 4,307 15,104 754 1,266 1,114
Charge-offs.............................................. (6,179) (17,501) (3,350) (1,504) (1,609)
Recoveries............................................... 55 78 294 125 95
--------------- ----------- ------- -------- ----------
Balance at end of period................................. $ 9,216 $ 6,897 $4,595 $ 4,482 $ 4,082
--------------- ----------- -------- -------- ----------
Net investment in leases and notes (before allowance).....$ 166,274 $ 116,649 $95,788 $124,398 $ 153,304
Ending allowance divided by net investment in leases and
notes (before allowance)................................ 5.5% 5.9% 4.8% 3.6% 2.7%
Charge-offs divided by average net investment in leases and
notes (before allowance)................................ 3.5% 12.4% 3.2% 1.4% 1.2%
</TABLE>
- ------------------------
(1) In 1993, the Company experienced a substantial decrease in originations,
increased selling, general and administrative costs and a substantial
adjustment to its allowance for losses, in each case largely as a result of
the bankruptcy of Healthco, which previously had referred to the Company
substantially all of the Company's business.
(2) In connection with the sale of leases and notes during 1996 and 1995, the
Company recognized estimated recourse liability of $450,000 and $30,000,
respectively.
The above table includes a provision for losses related to the commercial
notes receivable of $146,000, $95,000 and $43,000 in 1996, 1995 and 1994,
respectively. The amount of the allowance for losses related to the commercial
notes receivable was $284,000 and $138,000 at December 31, 1996 and 1995,
respectively.
FUNDING SOURCES
GENERAL
The Company's principal sources of funding for its financing transactions
have been: (i) a $95 million Revolver, (ii) a receivables-backed limited
recourse asset securitization transaction with Funding I in an original
amount of $70 million, (iii) a securitized limited recourse revolving credit
facility with Bravo, currently in the amount of $100 million, (iv) a defined
recourse fixed-term loan from and sales of financing contracts to savings
banks and other purchasers and (v) the Company's internally generated
revenues. In March 1997, the Company issued $20,000,000 principal amount 11%
unsecured senior subordinated notes due 2007, yielding approximately
$18,500,000 in net proceeds to the Company. Management believes that the
Company's liquidity is adequate to meet current obligations and future
projected levels of financings and to carry on normal operations.
The Revolver is a line of credit arrangement under which the Company may
borrow up to $95 million at any given time at variable rates. The Company is
subject to extensive borrowing covenants and certain restrictions on its
operations in connection with the Revolver. See "Description of Certain
Indebtedness."
The Company's securitization transactions provide funding for the
Company's financing transactions at more favorable interest rates than the
Company is able to obtain from conventional borrowing sources such as banks.
In a securitization, the Company sells or contributes financing contracts to
a special-purpose corporation ("SPC") wholly-owned by the Company. The SPC,
in turn, either itself or through a third-party trust to which the SPC has
pledged the financing contracts, issues securities representing an interest
in the financing contracts to outside investors (the securitization). The
offering proceeds from the securities are paid to the SPC, which then pays
the Company for the financing contracts or makes credit available to the
Company at favorable rates. Simultaneously, the Company and the SPC may
arrange for interest rate swaps with institutional lenders, such that any
credit extended to the Company by the SPC can be fixed at a lower rate of
interest than that being paid on the Company's financing contracts. The SPC
enlists the services of a credit organization to guarantee the issued
securities, and pays a fee to the Company to service the underlying contracts
(subject to the Company's compliance with certain financial and performance
covenants). As the financing contracts generate revenue from customers'
monthly payments, that revenue is used by the SPC or the trust to make
payments on the securities. The SPC is intended to be bankruptcy remote, with
assets entirely
<PAGE>
separate from those of the Company. It is limited in its business activities
to owning the transferred financing contracts, completing the securitization
of those contracts and providing credit to the Company based on the
securitization. The SPC may incur indebtedness or other obligations only in
relation to the securitization. The Company has found that securitizations
are an effective means of obtaining credit on a limited recourse basis at
favorable interest rates.
Another funding source for the Company has been sales of its financing
contracts to, and borrowing against such contracts from, a variety of savings
banks. Each of these transactions is subject to certain covenants that may
require the Company to (i) repurchase financing contracts from the bank and
make payments under certain circumstances, including the delinquency of the
underlying debtor, and (ii) service the underlying financing contracts. The
Company carries a recourse reserve for each transaction in its allowance for
losses and recognizes a gain that is included for accounting purposes in
earned income for leases and notes for the year in which the transaction is
completed. Each of these transactions incorporates the covenants under the
Revolver as such covenants were in effect at the time the asset sale or loan
agreement was entered into. Any default under the Revolver may trigger a
default under the loan or asset sale agreements. The Company may enter into
additional asset sale agreements in the future in order to manage its
liquidity.
THE REVOLVER
The Company executed a Revolving Credit Agreement on June 23, 1994 with
The First National Bank of Boston, individually and as Agent, and another
bank, for borrowing up to $20 million. This agreement was amended and
restated in May 1995, increasing credit availability to $50 million and
adding additional lending banks. The agreement was next amended in December
1995 to increase availability to $60 million and extend the term to December
31, 1996, and amended again in July 1996 to increase availability to $75
million, and further amended in December 1996 to increase availability to $95
million. There are currently five banks providing the credit facility to the
Company under the Revolver Agreement. Under the Revolver Agreement, the
Company may borrow at variable rates of prime plus 0.25% to 0.50% and at
LIBOR plus 1.75% to 2.00%, depending upon certain performance covenants. At
December 31, 1996, the Company had approximately $40 million outstanding
under this facility. The Revolver is not currently hedged and is, therefore,
exposed to upward movements in interest rates. See "Description of Certain
Indebtedness." The Revolver is secured by a lien on the assets of HPSC and
ACFC (including a pledge of the capital stock of ACFC), including, without
limitation, Customer Receivables (as defined herein). Accordingly,
indebtedness under the Revolver constitutes Secured Portfolio Debt for
purposes of the Indenture, and is senior in right of payment to the Notes.
FUNDING I
In December 1993, in a one-time receivables-backed securitization
transaction, Funding I (a wholly-owned SPC of the Company) issued $70 million
of secured notes ("Funding I Notes") bearing interest at 5.01% to three
institutional investors, Travelers Insurance Company, Prudential Insurance
Company and the Principal Group. Under the terms of the securitization, the
Company sold or contributed certain of its financing contracts, equipment
residual rights and rights to the underlying equipment to Funding I as
collateral for the Funding I Notes (the "Collateral"). The Funding I Notes
are rated "AAA" by Standard & Poor's. The required monthly payments of
interest and principal to holders of the Funding I Notes are unconditionally
guaranteed by Municipal Bond Investor Assurance Corporation ("MBIA") pursuant
to the terms of a Note guarantee insurance policy. In connection with the
securitization, the Company made an investment in Funding I, some or all of
which may be required to fund payments to holders of the Funding I Notes if
certain default and delinquency ratios relating to the Collateral are not
met. As of December 31, 1996, Funding I had approximately $9.8 million of
gross receivables as collateral for the Funding I Notes. The securitization
agreement also imposes restrictions on cash balances of Funding I under
certain conditions; at December 31, 1996, this restricted cash amounted to
approximately $4.0 million. At December 31, 1996, the Funding I Notes had an
outstanding balance of approximately $7.0 million. Note payments to investors
for the years 1997 through 1999, based on projected cash flows from the
Collateral, are expected to be $5.3 million, $1.3 million and $226,000,
respectively. The Company is not permitted to sell or contribute additional
financing contracts to Funding I as long as the current investor notes are
outstanding.
In July and August of 1996, the level of delinquencies of the contracts
held in Funding I rose above certain levels, as defined in the operative
documents, and triggered a payment restriction event. This restriction had
the effect of "trapping" any cash distribution that the Company otherwise
would have been eligible to receive. The event was considered a technical
default under the Revolver, which default was waived by the lending banks. In
September 1996, delinquency levels improved and the payment restrictions were
removed. A payment restriction event is not unusual during the later stages
of a static pool securitization and may occur again before Funding I is fully
paid out. The default provisions of the Revolver Agreement were amended on
December 12, 1996 to conform to the default provisions of the Funding I
agreements. As a result, a payment restriction event under Funding I will not
constitute a default under the Revolver unless such event continues for at
least six months. There can be no assurance that any future defaults will be
waived by the lending banks. Under the terms of Funding I, when the principal
balance of the Funding I Notes equals the balance of the restricted cash in
the facility, Funding I must automatically pay the Funding I Notes and
terminate. This event is expected to occur during fiscal 1997. In the event
of an early termination, the Company could incur a non-cash, non-operating
charge against earnings representing the early recognition of certain
unamortized deferred transaction origination costs. At December 31, 1996,
these unamortized costs were approximately $400,000 and were amortizing at
approximately $17,000 per month. The Notes are effectively subordinated to
<PAGE>
the Funding I Notes, which also constitute Secured Portfolio Debt. Funding I
has not guaranteed payment of the Notes.
BRAVO
In January 1995, the Company entered into a revolving credit
securitization facility (the "Facility") with another SPC, Bravo, structured
and guaranteed by CapMAC. Under the Facility, the Company sells certain
equipment financing contracts to Bravo which, along with the underlying
equipment, serve as collateral or consideration for cash advanced to Bravo by
Triple-A One Funding Corporation ("Triple-A"), a commercial paper conduit
entity. Bravo, in turn, makes cash advances to the Company in return for the
contracts. In November 1996, the Facility was amended to increase available
borrowing to up to $100 million and to allow up to $30 million of the
Facility to be used for sales of financing contracts to Triple-A from Bravo,
$7.0 million of which had been used for such sales at December 31, 1996.
Bravo incurs interest at variable rates in the commercial paper market and
enters into interest rate swap agreements to assure fixed rate funding.
Additional sales of financing contracts to Bravo from the Company may be made
subject to certain covenants regarding Bravo's portfolio performance and
borrowing base calculations. The Company's ability to make additional sales
under the Facility (and therefore to continue to draw advances at commercial
paper rates) will depend upon a number of factors, including general
conditions in the credit markets and the ability of the Company to originate
financing contracts which satisfy eligibility requirements set forth in the
Facility documents. There can be no assurance that the Company will continue
to originate eligible contracts.
In order to secure a AAA rating for its commercial paper, Triple-A has
established a liquidity line of credit with a group of liquidity banks, for
which The First National Bank of Boston serves as liquidity agent. Each
liquidity bank commits to make advances for a one-year term, which term may
be extended at the sole option of each liquidity bank. The Facility
terminates on the earlier of the termination of the liquidity banks'
commitment to make liquidity advances (currently December 1997) or October
28, 1999, or upon an event of default. Upon termination of the Facility, no
further advances will be made to either Bravo or the Company, and Bravo will
continue to pay principal, interest and "sale" payments until all advances
from Triple-A have been repaid in full. The Company had approximately $67.5
million outstanding under the Facility on December 31, 1996 and, in
connection with the Facility, had 14 separate interest rate swap agreements
with The First National Bank of Boston with a total notional value of
approximately $65.2 million. The weighted average cost of funds associated
with Bravo's borrowings under the Facility since January 1995 is
approximately 7.3%.
The Notes are effectively subordinated to Bravo's obligations to Triple-A,
which also constitute Secured Portfolio Debt. Bravo has not guaranteed payment
of the Notes.
SAVINGS BANK LOAN AND SALES OF FINANCING CONTRACTS
In April 1995, the Company entered into a secured, fixed rate, fixed term
loan agreement with Springfield Institution for Savings under which the Company
borrowed $3.5 million at 9.5% subject to certain recourse and performance
covenants. The Company had approximately $2.4 million outstanding under this
agreement at December 31, 1996. In addition, between November 1995 and December
1996, the Company sold an aggregate of $20.6 million net amount of financing
contracts to the following savings banks: Cambridge Savings Bank; Century Bank
and Trust Co.; First Essex Bank, FSB; and Springfield Institution for Savings.
The loan agreement and the agreements evidencing financing contract sales are
secured by the underlying Customer Receivables. In addition, under the recourse
provisions of the agreements evidencing the financing contract sales, the
Company has a contingent obligation to repurchase the Customer Receivables
securing such agreements and/or make payments on such receivables under certain
circumstances, including delinquencies of the underlying debtors. Upon the
occurrence of a triggering event under the recourse provisions of such
agreements, the Company's obligation to repurchase and/or make payments on the
Customer Receivables would constitute Secured Portfolio Debt.
INFORMATION TECHNOLOGY
The Company has developed automated information systems and
telecommunications capabilities to support all areas within the organization.
Systems support is provided for accounting, taxes, credit, collections,
operations, sales, sales support and marketing. The Company has invested a
significant amount of time and capital in computer hardware and proprietary
software. The Company's computerized systems provide management with accurate
and up-to-date customer data which strengthens its internal controls and
assists in forecasting.
The Company contracts with an outside consulting firm to provide
information technology services and has developed its own customized computer
software. The Company's Boston office is linked electronically with all of
the Company's other offices. Each salesperson's laptop computer may also be
linked to the computer systems in the Boston office, permitting a salesperson
to respond to a customer's financing request, or a vendor's informational
request, almost immediately. Management believes that its investment in
technology has positioned the Company to manage increased equipment financing
volume.
The Company's centralized data processing system provides timely support
for the marketing and service efforts of its salespeople and for equipment
manufacturers and dealers. The system permits the Company to generate
collection histories, vendor analyses, customer reports and credit histories
and other data
<PAGE>
useful in servicing customers and equipment suppliers. The system is also
used for financial and tax reporting purposes, internal controls, personnel
training and management. The Company believes that its system is among the
most advanced in the small-ticket equipment financing industry, giving the
Company a competitive advantage based on the speed of its contract
processing, control over credit risk and high level of service.
SALES AND MARKETING
GENERAL
In addition to promoting its financing services through its sales and
marketing employees, most of whom work out of the Company's regional offices,
the Company relies on various equipment financing referral sources and
relationships with vendors and manufacturers of dental, medical and other
equipment for the marketing of its services. The Company's sales and
marketing staff focuses its efforts primarily on these vendors in an effort
to encourage them to recommend the Company as a preferred funding source to
purchasers of their equipment. The Company then enters into financing
contracts directly with the vendors' customers.
HPSC currently has 14 field sales and marketing personnel located in 14
offices throughout the United States, as well as eight sales representatives
at the Company's Boston headquarters. Sales personnel are assigned to a
particular region of the country or to a particular healthcare profession.
Sales personnel generally can obtain approval of a financing transaction
within 24 to 48 hours, and often within one hour, of completion of
documentation through use of the Company's computer system. Practice finance
sales and marketing is managed centrally from Boston, with leads referred to
Boston from the Company's sales offices. ACFC's employees are located in West
Hartford, Connecticut. Its business is presently conducted primarily in the
northeastern United States with all sales and marketing efforts managed from
its West Hartford office.
The Company's sales force emphasizes customer service, including
providing customized financing arrangements for individual healthcare
providers. In most cases, the Company's sales representatives work directly
with the vendors' potential purchasers, providing them with the guidance
necessary to complete the equipment financing transaction. The Company
believes that such "consultative financing" enhances customer satisfaction
and loyalty.
The Company also attempts to broaden its customer base through national
advertising in trade journals and magazines, by attending trade shows and
through the broad dissemination of literature describing the Company's
financing programs.
VENDORS
The Company's sales representatives establish formal and informal
relationships with equipment vendors and manufacturers. The primary objective
of these relationships is for the sales representative to support the
equipment manufacturer or vendor or their representatives in their sales
efforts by providing timely, convenient and competitive financing for their
equipment sales. In addition, the Company provides these vendors with a
variety of value-added services which simultaneously promote the vendors'
equipment sales as well as the selection of the Company for financing. These
services include consulting with the vendors on structuring financing
transactions which meet the needs of the vendor and the equipment purchaser;
training the vendor's sales and management staffs to understand and market
the Company's various financing products; customizing financing products to
encourage product sales; and, in most cases, working directly with the
vendors' potential purchasers to provide them with the guidance necessary to
complete the equipment financing transaction.
The Company believes this method of marketing is more effective than
isolated solicitations of equipment purchasers. During the year ended
December 31, 1996, the Company estimates that vendor relationships generated
a majority of the Company's financing contract originations, but no one
vendor's financing accounted for more than 13% of the Company's financing
contract originations. The top ten vendors in terms of the dollar volume of
the Company's financings for the year ended December 31, 1996, accounted for
approximately 35% of HPSC's originations during that period.
MARKETING PROGRAMS
The Company employs a number of marketing strategies to promote its
healthcare provider financing services. For example, the Company advertises
its services in national publications targeting dental, ophthalmic and other
healthcare professionals. Representatives of the Company attend approximately
80 healthcare conventions per year, as well as solicit business directly from
key manufacturers and distributors of equipment. From time to time, the
Company participates in special promotions with equipment vendors to
encourage both the purchase and financing of healthcare equipment. The
Company also distributes to its customers and others informational brochures,
which are produced by the Company and which describe the various financing
services provided by the Company, as well as quarterly outlook fliers and a
year-end tax advisory letter.
<PAGE>
COMPETITION
Healthcare provider financing and asset-based lending are highly
competitive businesses. The Company competes for customers with a number of
national, regional and local finance companies, including those which, like
the Company, specialize in financing for healthcare providers. In addition,
the Company's competitors include those equipment manufacturers which finance
the sale or lease of their products themselves, conventional leasing
companies and other types of financial services companies such as commercial
banks and savings and loan associations. Although the Company believes that
it currently has a competitive advantage based on its customer-oriented
financing and value-added services, many of the Company's competitors and
potential competitors possess substantially greater financial, marketing and
operational resources than the Company. Moreover, the Company's future
profitability will be directly related to the Company's ability to obtain
capital funding at favorable rates as compared to the capital costs of its
competitors. The Company's competitors and potential competitors include many
larger, more established companies that have a lower cost of funds than the
Company and access to capital markets and to other funding sources which may
be unavailable to the Company. The Company's ability to compete effectively
for profitable equipment financing business will continue to depend upon its
ability to procure funding on attractive terms, to develop and maintain good
relations with new and existing equipment suppliers, and to attract
additional customers.
Historically, the Company's equipment finance business has concentrated
on leasing small-ticket dental, medical and office equipment. The Company may
in the future finance more expensive equipment than it has in the past. As it
does so, the Company's competition can be expected to increase. In addition,
the Company may face greater competition with its expansion into the practice
finance and asset-based lending markets.
EMPLOYEES
At December 31, 1996, the Company had 67 full-time employees, seven of
whom work for ACFC, and none of whom was represented by a labor union.
Approximately 13 of the Company's employees are engaged in credit,
collections and lease documentation, approximately 30 are in sales, marketing
and customer service, and 19 are engaged in general administration, tax and
accounting. Management believes that the Company's employee relations are
good.
ITEM 2 PROPERTY
The Company leases approximately 11,320 square feet of office space at 60
State Street, Boston, Massachusetts for approximately $24,000 per month. This
lease expires on May 31, 1999 with a five-year extension option. ACFC leases
approximately 2,431 square feet at 433 South Main Street, West Hartford,
Connecticut for approximately $4,000 per month. This lease expires on August
31, 1999 with a three-year extension option. The Company's total rent expense
for 1996 under all operating leases was $390,665. The Company also rents
space as required for its sales locations on a short-term basis. The Company
believes that its facilities are adequate for its current operations and for
the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Although the Company is from time to time subject to actions or claims
for damages in the ordinary course of its business and engages in collection
proceedings with respect to delinquent accounts, the Company is aware of no
such actions, claims, or proceedings currently pending or threatened that are
expected to have a material adverse effect on the Company's business,
operating results or financial condition.
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, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 1996 and
1995:
<TABLE>
<CAPTION>
1996 FISCAL YEAR HIGH LOW 1995 FISCAL YEAR HIGH LOW
- ------------------------------------- --------- --------- ------------------------------------- --------- ---------
<S> <C> <C> <C> <C> <C>
First Quarter........................ $ 5 3/4 $ 4 1/2 First Quarter........................ $ 5 1/2 $ 3 5/8
Second Quarter....................... 7 3/8 4 1/2 Second Quarter....................... 5 4 3/8
Third Quarter........................ 7 3/16 5 3/4 Third Quarter........................ 5 1/8 4 1/2
Fourth Quarter....................... 6 3/4 5 7/8 Fourth Quarter....................... 5 1/4 4 1/2
</TABLE>
<PAGE>
The foregoing quotations represent prices between dealers, and do not
include retail markups, markdowns, or commissions.
HOLDERS
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF HOLDERS OF RECORD
TITLE OF CLASS (AS OF FEBRUARY 28, 1997)
- -------------------------------------------------------------- --------------------------------------------
<S> <C>
Common Stock, par value $.01 per share 95(1)
</TABLE>
(1) This number does not reflect beneficial ownership of shares held in
"nominee" or "street" name.
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.
RECENT SALES OF UNREGISTERED STOCK
The Company granted a non-qualified stock option to Lowell P. Weicker,
Jr., a director of the Company, on December 7, 1995 for the purchase of 4,000
shares of Common Stock of the Company at an exercise price of $4.75 per share
(the market price per share on the date of grant). Any shares purchased by
Mr. Weicker under this option will not be registered under the Securities
Act. Mr. Weicker's option will expire on December 7, 2005 unless terminated
earlier in accordance with the terms of the option agreement.
The Company granted a non-qualified stock option to Terry Lierman
effective April 9, 1996 for the purchase of 10,000 shares of Company Common
Stock at an exercise price of $4.50 per share, in recognition of Mr.
Lierman's agreement to assist the Company in obtaining certain financing
transactions. Any shares purchased by Mr. Lierman under this option will not
be registered under the Securities Act. Mr. Lierman's option will expire on
April 9, 2001 unless terminated earlier in accordance with the terms of the
option agreement.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
DEC. 26, DEC. 25, DEC. 31, DEC. 31, DEC. 31,
1992 1993 (1) 1994 (2) 1995 1996
---------------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Earned income on leases and notes........... $ 21,734 $ 17,095 $ 11,630 $ 12,871 $ 17,515
Gain on sales of leases and notes........... -- -- -- 53 1,572
Provision for losses........................ (4,307) (15,104) (754) (1,296) (1,564)
---------------- ---------- ---------- ---------- ----------
Net revenues..................... 17,427 1,991 10,876 11,628 17,523
Selling, general and administrative
expenses.................................. 3,574 5,160 6,970 5,984 8,059
Interest expense............................ 10,663 9,057 3,514 5,339 8,146
Interest income............................. (54) (78) (358) (375) (261)
Loss on write-off of foreign currency
translation adjustment (3)................ -- -- -- 601 --
---------------- ---------- ---------- ---------- ----------
Income (loss) before income taxes........... 3,244 (12,148) 750 79 1,579
Provision (benefit) for income taxes........ 1,260 (4,870) 300 204 704
---------------- ---------- ---------- ---------- ----------
Net income (loss)........................... $ 1,984 $ (7,278) $ 450 $ (125) $ 875
---------------- ---------- ---------- ---------- ----------
Net income (loss) per share................. $ 0.40 $ (1.48) $ 0.09 $ (0.03) $ 0.22
---------------- ---------- ---------- ---------- ----------
Shares used to compute net income (loss) per
share..................................... 4,922,473 4,923,233 4,989,391 3,881,361 4,067,236
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEC. 26, DEC. 25, DEC. 31, DEC. 31, DEC. 31,
1992 1993 (1) 1994 1995 1996
------------------ --------- ------------------ ---------------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $ 625 $16,600 $ 419 $ 861 $ 2,176
Restricted cash........... -- -- 7,936 5,610 6,769
Net investment in leases
and notes............... 157,058 109,752 91,193 119,916 149,222
Total assets.............. 158,857 130,437 103,148 130,571 163,217
Revolving credit
borrowings.............. 24,584 7,130 16,500 39,000 40,000
Senior notes.............. 50,000 50,000 41,024 49,523 76,737
Senior Subordinated
Notes................... -- -- -- -- --
Subordinated debt......... 19,090 19,962 -- -- --
Total liabilities......... 113,816 92,816 70,326 97,410 128,885
Total stockholders'
equity.................. 45,041 37,621 32,822 33,161 34,332
</TABLE>
- ------------------------
(1) In 1993, the Company experienced a substantial decrease in new business,
increased selling, general and administrative costs and a substantial
adjustment to its loan loss reserves, in each case largely as a result of
the bankruptcy of Healthco, which previously had referred to the Company
substantially all of the Company's business.
(2) For 1994 and prior years, the Company's fiscal year was the 52 or 53-week
period ending on the last Saturday of the calendar year. The 1994 fiscal
year covers the 53-week period from December 26, 1993 to December 31, 1994.
In fiscal year 1995, the Company changed its fiscal year-end to
December 31.
(3) Reflects a one-time, non-cash loss on write-off of cumulative foreign
currency translation adjustments related to the Company's discontinued
Canadian operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995
Earned income from leases and notes for 1996 was $17,515,000 (including
$2,643,000 from ACFC) as compared to $12,871,000 ($1,316,000 from ACFC) for
1995. This increase of approximately 36.1% was due primarily to the increase
in the net investment in leases and notes from 1995 to 1996. The increase in
net investment in leases and notes resulted from an increase of approximately
41.4% in the Company's financing contract originations for fiscal 1996 to
approximately $97,000,000 (including approximately $10,000,000 in ACFC
originations, and excluding $3,800,000 of initial direct costs) from
$68,600,000 (including $7,600,000 in ACFC originations, and excluding
$3,000,000 of initial direct costs) for 1995. Gains on sales of leases and
notes increased to $1,572,000 in 1996 compared to $53,000 in 1995. This
increase was caused by higher levels of sales activity in 1996. Earned income
on leases and notes is a function of the amount of net investment in leases
and notes and the level of financing contract interest rates. Earned income
is recognized over the life of the net investment in leases and notes, using
the interest method.
Interest expense net of interest income on cash balances for 1996 was
$7,885,000 (45.0% of earned income) compared to $4,964,000 (38.6% of earned
income) for 1995, an increase of 58.8%. The increase in net interest expense
was due primarily to a 31.9% increase in debt levels from 1995 to 1996, which
resulted from borrowings to finance the Company's financing contract
originations. The increase as a percentage of earned income was due to higher
interest rates on debt in 1996 as compared to 1995.
<PAGE>
Net financing margin (earned income less net interest expense) for fiscal
1996 was $9,630,000 (55.0% of earned income) as compared to $7,907,000 (61.4%
of earned income) for 1995. The increase in amount was due to higher earnings
on a higher balance of earning assets. The decline in percentage of earned
income was due to higher debt during 1996 as compared to 1995.
The provision for losses for fiscal 1996 was $1,564,000 (8.9% of earned
income) compared to approximately $1,296,000 (10.1% of earned income) for
1995. This increase in amount resulted from higher levels of new financings
in 1996 and the Company's continuing evaluation of its allowance for losses.
The allowance for losses at December 31, 1996 was $4,082,000 (2.7% of net
investment in leases and notes) as compared to $4,482,000 (3.7% of net
investment in leases and notes) at December 31, 1995. Net charge-offs were
$1,500,000 in 1996 compared to $1,400,000 in 1995.
Selling, general and administrative expenses for fiscal 1996 were
$8,059,000 (46.0% of earned income) as compared to $5,984,000 (46.5% of
earned income) for 1995. This increase resulted from increased staffing and
systems and support costs required by higher volumes of financing activity in
1996 and anticipated near-term growth.
In 1995, the Company incurred a loss on write-off of foreign currency
translation adjustment of approximately $601,000 in connection with
substantial liquidation of the Company's investment in its Canadian
subsidiary. The Company incurred no such loss in 1996.
The Company's income before income taxes for fiscal 1996 was $1,579,000
compared to $79,000 for 1995. The provision for income taxes was $704,000
(44.6% of income before tax) in 1996 compared to $204,000 (258.2%) in 1995.
The 1995 provision was affected by the $601,000 foreign currency translation
adjustment related to the Company's Canadian operations that was not
deductible.
The Company's net income for fiscal 1996 was $875,000 or $0.22 per share
compared to ($125,000) or ($0.03) per share for 1995. The increase in 1996
over 1995 was due to higher earned income from leases and notes and gains on
sales offset by increases in the provision for losses, higher selling,
general and administrative expenses, higher average debt levels and higher
average rates of interest on debt and a foreign currency translation
adjustment in 1995.
At December 31, 1996, the Company had approximately $47,500,000 of
customer applications which had been approved but had not resulted in a
completed transaction, compared to approximately $39,900,000 of such customer
applications at December 31, 1995. Not all approved applications will result
in completed financing transactions with the Company.
FISCAL YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
Earned income from leases and notes for fiscal 1995 was $12,871,000
compared to $11,630,000 in 1994. This increase of 10.7% resulted primarily
from an increase of 31.5% in the net investment in leases and notes from 1994
to 1995. The Company financed new portfolio assets at a cost of $68,600,000
million in 1995 compared to $32,600,000 in 1994, a 110.4% increase in the
value of assets financed.
Interest expense net of interest income on cash balances for 1995 was
$4,964,000 (38.6% of earned income) compared to $3,156,000 (27.1% of earned
income) in 1994. The 57.3% increase in amount was due primarily to a 42.7%
increase in the level of debt required to support the increase in new
portfolio assets 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" and Note B to the
Company's Consolidated Financial Statements contained elsewhere in this
annual report on Form 10-K.
Net financing margin for fiscal 1995 was $7,907,000 (61.4% of earned
income), compared to approximately $8,474,000 (72.9% of earned income) in
fiscal 1994. The declines in both the amount of net interest margin and its
percentage of earned income were due to the Company's higher levels of debt
at higher average interest rates on debt in 1995 as compared to 1994.
The provision for losses was $1,296,000 (10.1% of earned income) in 1995
as compared to $754,000 (6.5% of earned income) in 1994. The allowance for
losses at December 31, 1995 was $4,482,000 (3.7% of net investment in leases
and notes), compared to approximately $4,595,000 (5.0% of net investment in
leases and notes) at December 31, 1994. Net charge-offs were approximately
$1,400,000 in 1995 compared to approximately $3,100,000 in 1994. The increase
in the provision for losses was due to the higher level of financing contract
originations and the Company's continuing adjustment of the provision for
losses to reflect the risks and diversification in its portfolio.
Selling, general and administrative expenses were $5,984,000 (46.5% of
earned income) in fiscal year 1995 compared to $6,970,000 (59.9% of earned
income) in fiscal year 1994. The decrease in amount was due to a reduction in
expenses related to the Company's discontinued Canadian operations in 1995
and the reversal of certain accruals related to the uncertain impact on the
Company of the bankruptcy of Healthco in 1993.
<PAGE>
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. ("Newcourt") for approximately
$7,000,000 and used most of the proceeds to repay third party debt. Some of
the proceeds were repatriated to the Company. As part of the sale agreement,
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 generated new business in Canada, these managed
accounts were written down to estimated net realizable value. As a result of
the transaction with Newcourt the Company's total investment in Canada
decreased from approximately $3,800,000 to approximately $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 Statement
of Financial Accounting Standards No. 52 ("Foreign Currency Translation"),
the Company recognized in earnings the cumulative translation losses incurred
in prior years that had been deferred as a separate component of equity.
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 (258.2% of
income before tax) in 1995 compared to $300,000 (40%) in 1994. The provision
for income taxes in 1995 was 258.2% of income before income taxes, due to the
fact that the $601,000 foreign currency translation adjustment related to the
Company's Canadian operations was not deductible. In addition, the Company
had a $128,000 reduction in its tax provision for a 1995 Canadian provincial
refund of taxes from prior years.
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 non-cash write-off of a
cumulative foreign currency translation adjustment of $601,000 related to the
Company's discontinued Canadian operations.
The earnings per share impact from the Company's repurchase and
retirement of treasury shares in 1995 was less than $0.01. Earnings per share
were unfavorably affected in 1995 by $0.16 per share due to the 1995
write-off of the Company's cumulative translation adjustment from the
substantial liquidation of its Canadian operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financing activities require substantial amounts of
capital, and its ability to originate new financing transactions is dependent
on the availability of cash and credit. The Company currently has access to
credit under the Revolver, its securitization transactions with Bravo, and a
loan secured by financing contracts. The Company obtains cash from sales of
its financing contracts to various savings banks and from lease and note
payments. Substantially all of the assets of HPSC and ACFC and the stock of
ACFC have been pledged to HPSC's lenders as security under HPSC's various
short and long-term credit arrangements. Borrowings under the securitizations
are secured by financing contracts, including the amounts receivable
thereunder and the assets securing the financing contracts. The
securitizations are limited recourse obligations of the Company, structured
so that the cash flow from the securitized financing contracts services the
debt. In these limited recourse transactions, the Company retains some risk
of loss because it shares in any losses incurred, and it may forfeit the
residual interest, if any, it has in the securitized financing contracts
should a default occur. The Company's borrowings under the Revolver are full
recourse obligations of HPSC. Most of the Company's borrowings under the
Revolver are used to temporarily fund new financing contracts entered into by
the Company and are repaid with the proceeds obtained from other full or
limited recourse financings and cash flow from the Company's financing
transactions.
At December 31, 1996, the Company had $8,945,000 in cash, cash
equivalents and restricted cash as compared to $6,471,000 at the end of 1995.
As described in Note D to the Company's Consolidated Financial Statements,
$6,769,000 of such cash was restricted pursuant to financing agreements as of
December 31, 1996, compared to $5,610,000 at December 31, 1995.
Cash provided by operating activities was $6,680,000 million for the year
ended December 31, 1996 compared to $4,514,000 in 1995 and cash used in
operating activities of $2,598,000 in 1994. The significant components of
cash provided for 1996 as compared to 1995 were an increase in net income in
1996 to $875,000 from a loss of $125,000 in 1995; an increase in the gain on
sales of leases and notes to $1,572,000 in 1996 from $53,000 in 1995, which
was caused by a higher level of sales activity in 1996; and an increase in
accounts payable and accrued liabilities of $2,379,000 in 1996 as compared to
1995, which was caused by a higher level of originations of lease contracts
and notes receivable in 1996 as compared to 1995.
Cash used in investing activities was $34,406,000 for the year ended
December 31, 1996 compared to $32,615,000 in 1995 and cash provided by
investing activities of $15,675,000 in 1994. The primary components of cash
used in investing activity for 1996 as compared to 1995 were an increase in
originations of lease contracts and notes receivable to $90,729,000 from
$63,945,000 in 1995, offset by an increase in proceeds from sales of lease
contracts and notes receivable to $24,344,000 in 1996 from $1,630,000 in 1995.
<PAGE>
Cash provided by financing activities was $29,041,000 for the year ended
December 31, 1996 compared to cash provided by financing activities of
$28,543,000 for 1995 and cash used in financing activities of $29,258,000 in
1994. The significant components of cash provided by financing activity in
1996 as compared to 1995 were an increase in the proceeds from issuance of
senior notes in 1996 to $52,973,000 from $28,422,000 in 1995, offset by
repayments of senior notes in 1996 of $26,019,000 compared to $23,385,000 in
1995 and a decrease in net proceeds from demand and revolving notes payable
to banks to $1,000,000 in 1996 from $25,570,000 in 1995.
On December 27, 1993, the Company raised $70,000,000 through an asset
securitization transaction in which its wholly-owned subsidiary, Funding I,
issued senior secured notes (the "Funding I Notes") at a rate of 5.01%. The
Funding I Notes are secured by a portion of the Company's portfolio which it
sold in part and contributed in part to Funding I. Proceeds of this financing
were used to retire $50,000,000 of 10.125% senior notes due December 28,
1993, and $20,000,000 of 10% subordinated notes due January 15, 1994. The
Funding I Notes had an outstanding balance of $6,861,000 at December 31,
1996. In July and August of 1996, the level of delinquencies in Funding I
rose above specified levels and triggered a payment restriction event. This
restriction had the effect of "trapping" any cash distribution that the
Company otherwise would have been eligible to receive. The event was
considered a technical default under the Revolver Agreement, which default
was waived by the lending banks in September 1996. In September 1996,
delinquency levels improved and the payment restrictions were removed. A
payment restriction event is not unusual during the later stages of a static
pool securitization and may occur again before Funding I is fully paid out.
The Revolver Agreement was amended and restated on December 12, 1996,
amending the default provisions with respect to Funding I payment restriction
events to conform to the default provisions of the Funding I agreements. As a
result, a payment restriction event under Funding I will not constitute a
default under the Revolver Agreement unless such event continues for at least
six months. There can be no assurance that any future defaults will be waived
by the lending banks. Under the terms of the Funding I securitization, when
the principal balance of the Funding I Notes equals the balance of the
restricted cash in the facility, Funding I must automatically pay the Funding
I Notes and terminate. This event may occur during fiscal 1997, prior to the
scheduled termination of Funding I. In the event of an early termination, the
Company would incur a non-cash, non-operating charge against earnings
representing the early recognition of certain unamortized deferred
transaction origination costs. At December 31, 1996, these unamortized costs
were approximately $400,000 and were amortizing at approximately $17,000 per
month.
The Revolver Agreement, as amended and restated, increased the Company's
availability under the Revolver to $95,000,000. Under the Revolver Agreement,
the Company may borrow at variable rates of prime and at LIBOR plus 1.25% to
1.75%, dependent on certain performance covenants. At December 31, 1996, the
Company had $40,000,000 outstanding under this facility and $55,000,000
available for borrowing, subject to borrowing base limitations. The Revolver
Agreement currently is 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 Bravo, established 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 portfolio. HPSC
may make additional sales to Bravo 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 $67,524,000 outstanding under the Bravo facility
at December 31, 1996, and, in connection with this facility, had 14 separate
interest rate swap agreements with The First National Bank of Boston with a
total notional value of $65,231,000. Effective November 5, 1996, the Bravo
facility was increased to $100,000,000 and amended to provide that up to
$30,000,000 of such facility may be used as sales of receivables from Bravo
for accounting purposes. The Company had $6,991,000 outstanding from sales of
receivables under this portion of the facility at December 31, 1996.
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 $2,352,000 outstanding under this
agreement at December 31, 1996. Also in fiscal 1995, the Company entered into
a sale agreement with SIS under which it sold approximately $1,700,000 of
financing contracts (which included a cash payment of $1,500,000 and
scheduled future payments of $200,000), subject to certain recourse covenants
and servicing of these contracts by the Company, and recognized a net gain of
approximately $53,000 in connection with the sale. Through December 31, 1996,
the Company had entered into several similar sale agreements with savings
banks and the Bravo securitization facility under which it received a total
of $24,344,000 during 1996 and recognized a net gain of $1,572,000.
Amortization of debt discount of $0, $0 and $38,000 in 1996, 1995 and
1994, respectively, is included in interest expense.
<PAGE>
The Company's existing senior secured debt, issued in connection with
certain securitization transactions as shown on the balance sheet contained
in the Company's Consolidated Financial Statements appearing elsewhere,
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.
In March 1997, the Company issued $20,000,000 principal amount 11%
unsecured senior subordinated notes due 2007, yielding approximately
$18,500,000 in net proceeds to the Company (the "Note Offering"). The Company
used the net proceeds to repay, in part, amounts outstanding under the
Revolver.
Management believes that the Company's liquidity, resulting from the
availability of credit under the Revolver, the Bravo facility and the loan
from SIS, along with cash obtained from the sales of its financing contracts
and from internally generated revenues and the net proceeds of the Note
Offering, is adequate to meet current obligations and future projected levels
of financings and to carry on normal operations. In order to finance
adequately its anticipated growth, the Company will continue to seek to raise
additional capital from bank and non-bank sources, make selective use of
asset sale transactions in 1997 and use its current credit 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 adequate earning spreads on its portfolio assets.
CERTAIN ACCOUNTING PRONOUNCEMENTS
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.
Effective January 1, 1995, the Company adopted prospectively Statement of
Financial Accounting Standards (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.
In October 1995, the Financial Accounting Standards Board ("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 continues to apply APB No. 25 and to disclose the pro forma
information required by SFAS No. 123.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), effective for the Company on January 1, 1997,
provides new methods of accounting and reporting for transfers and servicing
of financial assets and extinguishments of liabilities. SFAS No. 127 has
delayed the effective date of certain sections of SFAS 125 until January 1,
1998. The Company's adoption of the appropriate sections of SFAS 125 is not
expected to have a material effect on the Company's financial position or
results of operations.
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act. Discussions containing such
forward-looking statements may be found in the material set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
<PAGE>
Operations" and "Business," as well as within the annual report generally.
When used in this annual report, the words "believes," "anticipates,"
"expects," "plans," "intends," "estimates," "continue," "could," "may" or
"will" (or the negative of such words) and similar expressions are intended
to identify forward-looking statements. Such statements are subject to a
number of risks and uncertainties. Actual results in the future could differ
materially from those described in the forward-looking statements as a result
of the risk considerations set forth below and the matters set forth in this
annual report generally. HPSC cautions the reader, however, that such list of
considerations may not be exhaustive. HPSC undertakes no obligation to
release publicly the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
CERTAIN CONSIDERATIONS
Dependence on Funding Sources; Restrictive Covenants. The Company's
financing activities are capital intensive. The Company's revenues and
profitability are related directly to the volume of financing contracts it
originates. To generate new financing contracts, the Company requires access
to substantial short- and long-term credit. To date, the Company's principal
sources of funding for its financing transactions have been (i) a revolving
credit facility with The First National Bank of Boston, as Agent, for
borrowing up to $95.0 million (the "Revolver"), (ii) borrowings under a
receivables-backed limited recourse asset securitization transaction with
Funding I in an original amount of $70.0 million, (iii) a $100.0 million
limited recourse revolving credit facility with Bravo, (iv) a fixed-rate,
full recourse term loan from a savings bank, (v) specific recourse sales of
financing contracts to savings banks and other purchasers ((iv) and (v)
constitute "Savings Bank Indebtedness") and (vi) the Company's internally
generated revenues. There can be no assurance that the Company will be able
to negotiate a new revolving credit facility at the end of the current term
of the Revolver in December 1997, complete additional asset securitizations
or obtain other additional financing, when needed and on acceptable terms.
The Company would be adversely affected if it were unable to continue to
secure sufficient and timely funding on acceptable terms. The agreement
governing the Revolver (the "Revolver Agreement") contains numerous financial
and operating covenants. There can be no assurance that the Company will be
able to maintain compliance with these covenants, and failure to meet such
covenants would result in a default under the Revolver Agreement. Moreover,
the Company's financing arrangements with Bravo and the savings banks
described above incorporate the covenants and default provisions of the
Revolver Agreement. Thus, any default under the Revolver Agreement will also
trigger defaults under these other financing arrangements. In addition, the
Indenture contains certain covenants that could restrict the Company's access
to funding.
Securitization Recourse; Payment Restriction and Default Risk. As part of
its overall funding strategy, the Company utilizes asset securitization
transactions with wholly-owned, bankruptcy-remote subsidiaries to seek fixed
rate, matched-term financing. The Company sells financing contracts to these
subsidiaries which, in turn, either pledge or sell the contracts to third
parties. The third parties' recourse with regard to the pledge or sale is
limited to the contracts sold to the subsidiary. If the contract portfolio of
these subsidiaries does not perform within certain guidelines, the
subsidiaries must retain or "trap" any monthly cash distribution to which the
Company might otherwise be entitled. This restriction on cash distributions
could continue until the portfolio performance returns to acceptable levels
(as defined in the relevant agreements), which restriction could have a
negative impact on the cash flow available to the Company. There can be no
assurance that the portfolio performance would return to acceptable levels or
that the payment restrictions would be removed. In July and August of 1996,
the level of delinquencies of the contracts held in Funding I rose above
specified levels and triggered such a payment restriction event, "trapping"
any cash distributions to the Company. The event was considered a default
under the Revolver Agreement, which default was waived by the lending banks.
In September 1996, delinquency levels improved and the payment restrictions
were removed. A payment restriction event may occur again before Funding I is
fully paid out. The default provisions of the Revolver Agreement were amended
in December 1996 to conform to the default provisions of the Funding I
agreements. As a result, a payment restriction event under Funding I will not
constitute a default under the Revolver Agreement unless such event continues
for at least six months. There can be no assurance that any future defaults
will be waived by the lending banks.
Customer Credit Risks. The Company maintains an allowance for doubtful
accounts in connection with payments due under financing contracts originated
by the Company (whether or not such contracts have been securitized, held as
collateral for loans to the Company or, when sold, a separate recourse
reserve is maintained) at a level which the Company deems sufficient to meet
future estimated uncollectible receivables, based on an analysis of the
delinquencies, problem accounts, and overall risks and probable losses
associated with such contracts, together with a review of the Company's
historical credit loss experience. There can be no assurance that this
allowance or recourse reserve will prove to be adequate. Failure of the
Company's customers to make scheduled payments under their financing
contracts could require the Company to (i) make payments in connection with
its recourse loan and asset sale transactions, (ii) lose its residual
interest in any underlying equipment and (iii) forfeit collateral pledged as
security for the Company's limited recourse asset securitizations. In
addition, although the provision for losses on the contracts originated by
the Company have been 1.1% of the Company's net investment in leases and
notes for 1996, any increase in such losses or in the rate of payment
defaults under the financing contracts originated by the Company could
adversely affect the Company's ability to obtain additional financing,
including its ability to complete additional asset securitizations and
secured asset sales or loans. There can be no assurance that the Company will
be able to maintain or reduce its current level of credit losses.
<PAGE>
Competition. The Company's financing activities are highly competitive.
The Company competes for customers with a number of national, regional and
local finance companies, including those which, like the Company, specialize
in financing for healthcare providers. In addition, the Company's competitors
include those equipment manufacturers which finance the sale or lease of
their products themselves, conventional leasing companies and other types of
financial services companies such as commercial banks and savings and loan
associations. Many of the Company's competitors and potential competitors
possess substantially greater financial, marketing and operational resources
than the Company. Moreover, the Company's future profitability will be
directly related to its ability to obtain capital funding at favorable
funding rates as compared to the capital costs of its competitors. The
Company's competitors and potential competitors include many larger, more
established companies that have a lower cost of funds than the Company and
access to capital markets and to other funding sources that may be
unavailable to the Company. There can be no assurance that the Company will
be able to continue to compete successfully in its targeted markets.
Equipment Market Risk. The demand for the Company's equipment financing
services depends upon various factors not within its control. These factors
include general economic conditions, including the effects of recession or
inflation, and fluctuations in supply and demand related to, among other
things, (i) technological advances in and economic obsolescence of the
equipment and (ii) government regulation of equipment and payment for
healthcare services. The acquisition, use, maintenance and ownership of most
types of medical and dental equipment, including the types of equipment
financed by the Company, are affected by rapid technological changes in the
healthcare field and evolving federal, state and local regulation of
healthcare equipment, including regulation of the ownership and resale of
such equipment. Changes in the reimbursement policies of the Medicare and
Medicaid programs and other third-party payors, such as insurance companies,
as well as changes in the reimbursement policies of managed care
organizations, such as health maintenance organizations, may also affect
demand for medical and dental equipment and, accordingly, may have a material
adverse effect on the Company's business, operating results and financial
condition.
Changes in Healthcare Payment Policies. The increasing cost of medical
care has brought about federal and state regulatory changes designed to limit
governmental reimbursement of certain healthcare providers. These changes
include the enactment of fixed-price reimbursement systems in which the rates
of payment to hospitals, outpatient clinics and private individual and group
practices for specific categories of care are determined in advance of
treatment. Rising healthcare costs may also cause non-governmental medical
insurers, such as Blue Cross and Blue Shield associations and the growing
number of self-insured employers, to revise their reimbursement systems and
policies governing the purchasing and leasing of medical and dental
equipment. Alternative healthcare delivery systems, such as health
maintenance organizations, preferred provider organizations and managed care
programs, have adopted similar cost containment measures. Other proposals to
reform the United States healthcare system are considered from time to time.
These proposals could lead to increased government involvement in healthcare
and otherwise change the operating environment for the Company's customers.
Healthcare providers may react to these proposals and the uncertainty
surrounding such proposals by curtailing or deferring investment in medical
and dental equipment. Future changes in the healthcare industry, including
governmental regulation thereof, and the effect of such changes on the
Company's business cannot be predicted. Changes in payment or reimbursement
programs could adversely affect the ability of the Company's customers to
satisfy their payment obligations to the Company and, accordingly, may have a
material adverse effect on the Company's business, operating results and
financial condition.
Interest Rate Risk. Except for $18.7 million of the Company's financing
contracts, which are at variable interest rates with no scheduled payments,
the Company's financing contracts require the Company's customers to make
payments at fixed interest rates for specified terms. However, approximately
$40.0 million of the Company's borrowings currently are subject to a variable
interest rate. Consequently, an increase in interest rates, before the
Company is able to secure fixed-rate, long-term financing for such contracts
or to generate higher-rate financing contracts to compensate for the
increased borrowing cost, could adversely affect the Company's business,
operating results and financial condition. The Company's ability to secure
additional long-term financing and to generate higher-rate financing
contracts is limited by many factors, including competition, market and
general economic conditions and the Company's financial condition.
Residual Value Risk. At the inception of its equipment leasing
transactions, the Company estimates what it believes will be the fair market
value of the financed equipment at the end of the initial lease term and
records that value (typically 10% of the initial purchase price) on its
balance sheet. The Company's results of operations depend, to some degree,
upon its ability to realize these residual values (as of December 31, 1996,
the estimated residual value of equipment at the end of the lease term was
approximately $9.3 million, representing approximately 5.7% of the Company's
total assets). Realization of residual values depends on many factors,
several of which are not within the Company's control, including, but not
limited to, general market conditions at the time of the lease expiration;
any unusual wear and tear on the equipment; the cost of comparable new
equipment; the extent, if any, to which the equipment has become
technologically or economically obsolete during the contract term; and the
effects of any new government regulations. If, upon the expiration of a lease
contract, the Company sells or refinances the underlying equipment and the
amount realized is less than the original recorded residual value for such
equipment, a loss reflecting the difference will be recorded on the Company's
books. Failure to realize aggregate recorded residual values could thus have
an adverse effect on the Company's business, operating results and financial
condition.
Sales of Receivables. As part of the Company's portfolio management
strategy and as a source of funding of its operations, the Company has sold
selected pools of its lease contracts and notes receivable due in
<PAGE>
installments to a variety of savings banks. Each of these transactions is
subject to certain covenants that require the Company to (i) repurchase
financing contracts from the bank and/or make payments under certain
circumstances, including the delinquency of the underlying debtor, and (ii)
service the underlying financing contracts. The Company carries a recourse
reserve for each transaction in its allowance for losses and recognizes a
gain that is included for accounting purposes in earned income for leases and
notes for the year in which the transaction is completed. Each of these
transactions incorporates the covenants under the Revolver as such covenants
were in effect at the time the asset sale or loan agreement was entered into.
Any default under the Revolver may trigger a default under the loan or asset
sale agreements. The Company may enter into additional asset sale agreements
in the future in order to manage its liquidity. The level of recourse
reserves established by the Company in relation to these sales may not prove
to be adequate. Failure of the Company to honor its repurchase and/or payment
commitments under these agreements could create an event of default under the
loan or asset sale agreements and under the Revolver. There can be no
assurance that a continuing market can be found to sell these types of assets
or that the purchase prices in the future would generate comparable gain
recognition.
Dependence on Sales Representatives. The Company is, and its growth and
future revenues are, dependent in large part upon (i) the ability of the
Company's sales representatives to establish new relationships, and maintain
existing relationships, with equipment vendors, distributors and
manufacturers and with healthcare providers and other customers and (ii) the
extent to which such relationships lead equipment vendors, distributors and
manufacturers to promote the Company's financing services to potential
purchasers of their equipment. As of December 31, 1996, the Company had 14
field sales representatives and eight in-house sales personnel. Although the
Company is not materially dependent upon any one sales representative, the
loss of a group of sales representatives could, until appropriate
replacements were obtained, have a material adverse effect on the Company's
business, operating results and financial condition.
Dependence on Current Management. The operations and future success of
the Company are dependent upon the continued efforts of the Company's
executive officers, two of whom are also directors of the Company. The loss
of the services of any of these key executives could have a material adverse
effect on the Company's business, operating results and financial condition.
Fluctuations in Quarterly Operating Results. Historically, the Company
has generally experienced fluctuating quarterly revenues and earnings caused
by varying portfolio performance and operating and interest costs. Given the
possibility of such fluctuations, the Company believes that quarterly
comparisons of the results of its operations during any fiscal year are not
necessarily meaningful and that results for any one fiscal quarter should not
be relied upon as an indication of future performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<PAGE>
HPSC, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands,
except share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents........................................ $ 2,176 $ 861
Restricted Cash.................................................. 6,769 5,610
Investment in Leases and Notes:
Lease contracts and notes receivable due in installments...... 160,049 128,687
Notes receivable.............................................. 18,688 12,002
Estimated residual value of equipment at end of lease term.... 9,259 9,206
Less unearned income.......................................... (34,482) (25,875)
Less allowance for losses..................................... (4,082) (4,482)
Less security deposits........................................ (4,522) (3,427)
Deferred origination costs.................................... 4,312 3,805
------------ ------------
Net investment in leases and notes......................... 149,222 119,916
------------ ------------
Other Assets:
Other assets.................................................. 3,847 3,096
Refundable income taxes....................................... 1,203 1,088
------------ ------------
Total Assets............................................... $ 163,217 $ 130,571
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving Credit Borrowings...................................... $ 40,000 39,000
Senior Notes..................................................... 76,737 49,523
Accounts Payable and Accrued Liabilities......................... 5,916 3,537
Accrued Interest................................................. 450 339
Estimated Recourse Liabilities................................... 480 30
Income Taxes:
Currently payable............................................. 300 368
Deferred...................................................... 5,002 4,613
------------ ------------
Total Liabilities.......................................... $ 128,885 $ 97,410
------------ ------------
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 shares in 1996 and 1995..................... 48 48
Treasury Stock (at cost) 128,600 shares in 1996 and 100,000
shares in 1995............................................... (587) (410)
Additional paid-in capital....................................... 12,305 11,311
Retained earnings................................................ 25,351 24,476
------------ ------------
37,117 35,425
Less: Deferred compensation...................................... (2,590) (2,066)
Notes receivable from officers and employees............... (195) (198)
------------ ------------
Total Stockholders' Equity................................. 34,332 33,161
------------ ------------
Total Liabilities and Stockholder's Equity................. $ 163,217 $ 130,571
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HPSC, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share and
share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues
Earned income on leases and notes............................ $ 17,515 $ 12,871 $ 11,630
Gain on sales of leases and notes............................ 1,572 53 -
Provision for losses......................................... (1,564) (1,296) (754)
-----------------------------------
Net Revenues............................................... 17,523 11,628 10,876
Operating and Other (Income) Expenses
Selling, general and administrative.......................... 8,059 5,984 6,970
Interest expense............................................. 8,146 5,339 3,514
Interest income on cash balances............................. (261) (375) (358)
Loss on write-off of foreign currency translation adjustment. - 601 -
-----------------------------------
Income before Income Taxes....................................... 1,579 79 750
Provision for Income Taxes....................................... 704 204 300
-----------------------------------
Net Income (Loss)................................................ $875 $ (125) $450
-----------------------------------
Net Income (Loss) per Share...................................... $.22 $ (.03) $.09
-----------------------------------
Shares Used to Compute Net Income (Loss) per share............... 4,067,236 3,881,361 4,989,391
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HPSC, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands except share amounts)
<TABLE>
<CAPTION>
CUMULATIVE
NOTES FOREIGN
COMMON STOCK ADDITIONAL RECEIVABLE CURRENCY
------------ PAID-IN RETAINED TREASURY DEFERRED FROM OFFICERS TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS STOCK COMPENSATION AND EMPLOYEES ADJUSTMENT TOTAL
----------- ---------- ----------- --------------- --------- ------------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance 4,923,571 $49 $13,645 $24,151 $ - $ - $ - $(224) $37,621
at
December
25, 1993..
Issuance 824 - 3 - - - - - 3
of
Common
Stock..
Net Income - - 450 - - - - 450
Purchase - - - (5,023) - - - (5,023)
of
Treasury
Stock..
Issuance 650,000 7 2,268 - - (2,275) - - -
of
Common
Stock to
ESOP &
SESOP..
ESOP - - - - - 99 - - 99
Compensation
Foreign - - - - - - - (328) (328)
currency
translation
adjustments..
-------- --------- ---------- ---------- --------- --------- ----------- --------- -------
Balance 5,574,395 56 15,916 24,601 (5,023) (2,176) - (552) 32,822
at
December
31, 1994
Issuance 317 - - - - - - - -
of
Common
Stock..
Net
Loss... - - - (125) - - - - (125)
Retirement of (1,125,182) (12) (4,601) - 4,613 - - - -
Treasury
Stock
Restricted 337,000 4 (4) - - - - - -
Stock
Awards..
ESOP - - - - - 110 - - 110
Compensation
Foreign - - - - - - - (49) (49)
currency
translation
adjustments
Recognized in - - - - - - - 601 601
current
period upon
liquidation
of foreign
subsidiary
Increase in - - - - - - (198) - (198)
Notes
Receivable
from
Officers and
Employees -------- -------- --------- --------- ------- -------- -------- --------- -------
Balance at 4,786,530 48 11,311 24,476 (410) (2,066) (198) - 33,861
December
31, 1995
Net Income - - - 875 - - - - 875
Restricted - - 994 - - (994) - - -
Stock
Awards
Purchase of - - - - (177) - - - (177)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Treasury
Stock
Restricted - - 365 - - 365
Stock
Compensation
ESOP - - - - - 105 - - 105
Compensation
Decrease in - - - - - - 3 - 3
Notes
Receivable
from
Officers and
Employee --------- --------- -------- ---------- -------- --------- --------- ---------- -----
Balance at 4,786,530 $48 $12,305 $25,351 $(587) $(2,590) $(195) $ - $34,332
December
31, 1996 --------- --------- -------- ---------- -------- --------- --------- -------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HPSC, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
--------- --------------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss)............................................................ $ 875 $ (125) $ 450
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Foreign currency translation adjustments.................................... -- 601 --
Depreciation and amortization............................................... 2,862 2,340 1,872
Deferred income taxes....................................................... 389 (926) (1,093)
Restricted stock compensation............................................... 365 -- --
Gain on sale of receivables................................................. (1,572) (53) --
Provision for losses on lease contracts and notes receivable................ 1,564 1,296 754
Increase (decrease) in accrued interest..................................... 111 46 (3,141)
Increase (decrease) in accounts payable and accrued liabilities............. 2,379 1,087 (2,898)
(Decrease) increase in accrued income taxes................................. (68) 348 (290)
Decrease (increase) in refundable income taxes.............................. (115) 358 827
(Increase) decrease in other assets......................................... (110) (458) 921
--------- ------------ ---------
Cash provided by (used in) operating activities.............................. 6,680 4,514 (2,598)
--------- ------------ ---------
Cash Flows from Investing Activities
Origination of lease contracts and notes receivable due in installments...... (90,729) (63,945) (29,710)
Portfolio receipts, net of amounts included in income........................ 38,445 37,654 43,727
Proceeds from sales of lease contracts and notes receivable due in
installments................................................................ 24,344 1,500 6,958
Net increase in notes receivable............................................. (6,730) (7,570) (4,370)
Net increase (decrease) in security deposits................................. 1,095 788 (221)
Net increase in other assets................................................. (834) (844) (700)
Loans to employees........................................................... 3 (198) (9)
--------- ------------ ---------
Cash (used in) provided by investing activities.............................. (34,406) (32,615) 15,675
--------- ------------ ---------
Cash Flows from Financing Activities
Repayment of senior notes and subordinated debt.............................. (26,019) (23,385) (98,976)
Proceeds from issuance of senior notes, net of debt issue costs.............. 52,973 28,422 69,033
Repayment of notes payable-treasury stock purchase........................... -- (4,500) --
Net proceeds from demand and revolving notes payable to banks................ 1,000 25,570 9,370
Purchase of treasury stock................................................... (177) -- (523)
Increase (decrease) in restricted cash....................................... 1,159 2,326 (7,936)
Proceeds from issuance of common stock....................................... -- -- 3
Repayment of employee stock ownership plan promissory note................... 105 110 99
Other........................................................................ -- -- (328)
--------- ------------ ---------
Cash provided by (used in) financing activities.............................. 29,041 28,543 (29,258)
--------- ------------ ---------
Net increase (decrease) in cash and cash equivalents.......................... 1,315 442 (16,181)
Cash and cash equivalents at beginning of year................................ 861 419 16,600
--------- ------------ ---------
Cash and cash equivalents at end of year...................................... $ 2,176 $ 861 $ 419
--------- ------------ ---------
Supplemental disclosures of cash flow information:
Interest paid................................................................ $ 7,719 $ 4,510 $ 6,630
Income taxes paid............................................................ 765 1,423 2,018
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
HPSC, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--HPSC, Inc. ("HPSC") and its consolidated subsidiaries (the
"Company") provide credit primarily to healthcare professionals throughout
the United States.
The Company leases dental, ophthalmic, chiropractic, veterinary, podiatry
and other medical equipment utilized in the healthcare professions. The Company
does not carry any inventory. The Company acquires the financed equipment from
vendors at their customary selling price to other customers. All leases are
classified as direct financing leases.
The Company also finances the acquisition of healthcare practices by
healthcare professionals and provides financing on leasehold improvements,
office furniture and equipment and certain other costs involved in opening or
maintaining a healthcare provider's office. In connection with sales of leases
and notes receivable, the Company may retain the rights to service the assets
sold and receive a service fee in connection with such activities. In addition,
through its wholly-owned subsidiary, ACFC, the Company provides asset-based
financing to commercial enterprises.
Consolidation--The accompanying consolidated financial statements include
HPSC, Inc. and the following wholly-owned subsidiaries: HPSC Funding Corp. I
("Funding I"), a special purpose corporation formed in connection with a
securitization transaction in 1993; Credident, Inc. ("Credident") the
Company's Canadian subsidiary; 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
securitizations in 1995 and 1996. 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. A significant area requiring the use of
management estimates is the allowance for losses on lease and notes
receivable, including the recourse provisions related to lease and note
receivables sold. Actual results could differ from those estimates.
Revenue Recognition--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. When a transaction is initially activated, the Company records the
minimum payments and the estimated residual value, if any, associated with
the transaction. An amount equal to 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. 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.
Sales of Leases and Notes Receivable--The Company sells leases and notes
receivable to third parties. Gains on sales of leases and notes are
recognized at the time of the sale in an amount equal to the present value of
the anticipated future cash flows, net of initial direct costs, expenses and
estimated credit losses under certain recourse provisions of the related sale
agreements. Generally, the Company retains the servicing of lease receivables
sold. Servicing fees specified in the sale agreements, which approximate
market-rate servicing fees, are deferred and recognized as revenue in
proportion to the estimated periodic servicing costs.
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.
Allowance for Losses--The Company 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 specifically reserved for or written off when deemed uncollectible.
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, 1996 or December 31, 1995.
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, which do not apply to the Company's lease
contracts, apply to the Company's practice acquisition and asset-based loans,
the two major risk classifications
<PAGE>
used to aggregate loans for purposes of SFAS No. 114. 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 practice acquisition and asset-based 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 Company had no impaired loans at
December 31, 1996 or 1995.
Accounting for Stock-Based Compensation--In October 1995, the Financial
Accounting Standards Board ("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 continues to apply APB No. 25 and
has disclosed the pro forma information required by SFAS No. 123.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities--Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS No. 125), effective for the Company in
January 1997, provides new methods of accounting and reporting for transfers
and servicing of financial assets and extinguishments of liabilities. SFAS
No. 127 has delayed the effective date of certain sections of SFAS No. 125
until January 1, 1998. The Company's adoption of the appropriate sections of
SFAS No. 125 is not expected to have a material effect on the Company's
financial position or results of operations.
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" (SFAS No. 52). Over a number
of years, the accounts of the Company's Canadian subsidiary, Credident, when
translated into U.S. dollars, lost value as a result of the decline in the
Canadian dollar in relation to the U.S. dollar. In accordance with SFAS No.
52, the cumulative amount of such translation losses had been presented as a
reduction of stockholders' equity. The Company discontinued its Canadian
operations in 1994, and during 1995, the Company substantially liquidated its
investment in Credident. In accordance with SFAS No. 52, upon substantial
liquidation in 1995, the cumulative exchange losses were reflected in the
statement of operations and eliminated as a separate component of
stockholders' equity. During 1996, such translation adjustments, which were
not significant, were reflected in current operations.
Net Income (Loss) per Share--Earnings per share computations are based
on the weighted average number of common and common share equivalents
outstanding. The weighted average number of common and common share equivalents
outstanding do not include unallocated shares under the Company's ESOP and SESOP
plans, unvested restricted stock awards and treasury stock. Fully diluted and
primary income per share are the same for each of the periods presented.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Interest Rate Contracts--The Company utilizes interest rate contracts to
reduce the interest rate risk associated with the Company's variable rate
borrowings. 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 as they accrue 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. Leasehold improvements are amortized over the
shorter of the life of the lease or the asset. Upon retirement or other
disposition, the cost
<PAGE>
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, 1996 and 1995.
Deferred Compensation--Deferred compensation includes notes receivable
from the Company's Employee Stock Ownership Plan ("ESOP") and Supplemental
Employee Stock Ownership Plan ("SESOP"), and deferred compensation related to
restricted stock awards. Deferred compensation consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
- -------------- --------- --------- ---------
<S> <C> <C> <C>
ESOP...................... $ 736 $ 841 $ 951
SESOP..................... 1,225 1,225 1,225
Restricted Stock.......... 629 -- --
------- --------- ---------
Total................... $ 2,590 $ 2,066 $ 2,176
------- --------- ---------
</TABLE>
Non-Cash Operating, Investing and Financing Activities--On November
1, 1994, the Company executed an agreement with certain secured creditors of
Healthco International, Inc. ("Healthco") under which it settled all existing
and potential claims between the Company and Healthco and purchased 1,225,182
shares of stock. In 1994, the Company made a cash payment of $1,785,000 and
issued a note payable of $4,500,000 to the secured creditors of Healthco to
(i) settle net liabilities of $1,262,000 due to Healthco and (ii) to purchase
the 1,225,182 shares of stock.
In 1996, the Company recognized $365,000 in compensation expense relating
to restricted stock awards under its 1995 Stock Incentive Plan (Note G).
Fiscal Year--For 1994 and prior years, the Company's fiscal year was
the 52 or 53 week period ending on the last Saturday of the calendar year.
The 1994 fiscal year covers the 53-week period from December 26, 1993 to
December 31, 1994. In fiscal year 1995, the Company changed its fiscal
year-end to December 31.
Reclassifications--Certain amounts in the 1995 and 1994 consolidated
financial statements have been reclassified to conform to the current year
presentation.
NOTE B. LEASES AND NOTES RECEIVABLE
The Company considers its finance portfolio assets to consist of two
general categories of assets based on such assets' relative risk.
The first category of assets consists of the Company's lease contracts
and notes receivable due in installments, which comprise approximately 87.7%
of the Company's net investment in leases and notes at December 31, 1996
(90.1% at December 31, 1995). Substantially all of such contracts and notes
are due from licensed medical professionals, principally dentists, who
practice in individual or small group practices. Such contracts and notes are
at fixed interest rates and have terms ranging from 12 to 84 months. The
Company believes that leases and notes entered into with medical
professionals are generally "small-ticket," homogeneous transactions with
similar risk characteristics. Except for the amounts described in the
following paragraph related to asset-based lending, all of the Company's
historical provision for losses, charge offs, recoveries and allowance for
losses have related to its lease contracts and notes due in installments.
The second category of assets consists of the Company's notes receivable,
which comprise approximately 12.3% of the Company's net investment in leases
and notes at December 31, 1996 (9.9% at December 31, 1995). Such notes
receivable consist of commercial, asset-based, revolving lines of credit to
small and medium size manufacturers and distributors, at variable interest
rates, and typically have terms of two years. The Company began commercial
lending activities in mid-1994. Through December 31, 1996, the Company has
not had any charge offs of commercial notes receivable. The provision for
losses related to the commercial notes receivable was $146,000, $95,000 and
$43,000 in 1996, 1995 and 1994, respectively. The amount of the allowance for
losses related to the commercial notes receivable was $284,000 and $138,000
at December 31, 1996 and 1995, respectively.
A summary of activity in the Company's allowance for losses which relates
to the Company's investment in leases and notes for each of the years in the
three-year period ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995 1994
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Beginning balance........ $ (4,482) $ (4,595) $ (6,897)
Provision for losses..... (1,114) (1,266) (754)
Charge offs.............. 1,609 1,504 3,350
Recoveries............... (95) (125) (294)
--------- --------- ---------
Balance, end of year..... $ (4,082) $ (4,482) $ (4,595)
--------- --------- ---------
</TABLE>
<PAGE>
The Company's receivables are exposed to credit risk. To reduce the risk
to the Company, stringent underwriting policies in approving leases and notes
are closely monitored by management.
The total contractual balances of delinquent lease contracts and notes
receivable due in installments over 90 days past due amounted to $5,763,000
at December 31, 1996 compared to $4,964,000 at December 31, 1995. An account
is initially considered delinquent when not paid within thirty days of the
billing due date.
The Company's agreements with its customers, except for notes receivable
related to ACFC (approximately $18,688,000 in 1996 and $12,002,000 in 1995),
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. Scheduled
future receipts on lease contracts and notes receivable due in installments,
including interest and excluding the residual value of the equipment and ACFC
receivables, as of December 31 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS):
- --------------
<S> <C>
1997...................... $ 50,156
1998...................... $ 37,740
1999...................... $ 31,221
2000...................... $ 22,941
2001 and thereafter....... $ 17,991
</TABLE>
At December 31, 1996 and 1995, the Company had outstanding unfunded
asset-based lending commitments of approximately $14,853,000 and $7,100,000.
These amounts represent the aggregate difference between committed lines of
credit and advances on such lines. The rates on such commitments fluctuate
based on the prime rate. As a result, the Company is not exposed to interest
rate risk on such commitments. In addition, at December 31, 1996 and 1995,
the Company had approved fixed rate lease and practice finance applications
outstanding but not yet activated of approximately $47,500,000 and
$39,900,000, respectively. These approved applications are subject to
reevaluation if not accepted within 60 days. While the Company is not legally
bound to honor such approvals prior to activation, it has historically
honored such approvals. The Company may be exposed to unfavorable movements
in interest rates between the approval date and the activation date.
NOTE C. SALES OF LEASE AND NOTES RECEIVABLE
In November 1995, the Company received a total of approximately
$1,500,000 in connection with a sale of notes receivable due in installments.
In 1996, the Company sold additional leases and notes receivable due in
installments, received a total of $24,344,000 in initial proceeds and is
scheduled to receive $4,074,000 in future payments from such sales. The
related sales agreements are subject to certain covenants that, among other
matters, may require the Company to repurchase the assets sold and/or make
payments under certain circumstances, primarily on the failure of the
underlying debtors to pay when due (the "recourse provisions"). At the time
of sale, the Company recognizes its estimated liability under the recourse
provisions. In connection with the sale of leases and notes during 1996 and
1995, the Company recognized estimated recourse liability of $450,000 and
$30,000 respectively. The Company has contingent obligations to repurchase
leases and notes due in installments, which had an outstanding balance of
$16,696,000 at December 31, 1996 and $1,466,000 at December 31, 1995. In
addition, under the sales agreements the Company is obligated to continue to
service the assets sold. The Company recorded a servicing liability of
approximately $395,000 and $20,000 related to sale transactions in 1996 and
1995, respectively, which will be recognized as revenue in proportion to the
estimated future periodic servicing costs. The Company recognized
approximately $15,000 of such revenue in 1996. Gains of approximately
$1,572,000 and $53,000 were recognized by the Company in 1996 and 1995,
respectively, related to sales of notes and leases.
NOTE D. REVOLVING CREDIT BORROWINGS AND OTHER DEBT
Debt of the Company as of December 31, 1996 and December 31, 1995 is
summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
- -------------- --------- ---------
<S> <C> <C>
Revolving credit arrangement Due Dec. 31, 1997...... $ 40,000 $ 39,000
---------- ---------
Senior Notes:
Senior Notes (Funding I)
Due Dec., 1999...................................... 6,861 20,150
Senior Notes (Bravo)
Due Nov., 2000 through Aug., 2001................... 67,524 26,303
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Senior Notes (SIS) Due Mar., 2001................... 2,352 3,070
---------- ---------
Total Senior Notes.................................. 76,737 49,523
---------- ---------
Total............................................... $ 116,737 $ 88,523
---------- ---------
</TABLE>
Revolving Credit Arrangement--In May 1995, the Company executed an
Amended and Restated Revolving Loan agreement with the First National Bank of
Boston as Managing Agent (the "Revolving Loan Agreement"), increasing
availability under this arrangement to $50,000,000. The Revolving Loan
Agreement was amended in December 1995 to increase availability to
$60,000,000 and to extend the term to December 31, 1996. In December, 1996,
the Revolving Loan Agreement was further amended to increase availability to
$95,000,000 and extend the term to December 30, 1997. Under the Revolving
Loan Agreement, the Company may borrow at variable rates of prime or in
Eurodollar loans at LIBOR plus 1.25% to 1.75%, dependent upon certain
performance covenants. Such rates on the outstanding borrowings were 7.5% and
8.0% at December 31, 1996 and 1995, respectively. In connection with the
arrangement, all HPSC and ACFC assets, including ACFC stock but excluding
assets collateralized under the senior notes, have been pledged as
collateral. The Revolving Loan Agreement has not been historically hedged,
and is not hedged at December 31, 1996, 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 to carry on normal operations. The Company will continue to
seek to raise additional capital from bank and non-bank sources, and from
selective use of asset-sale transactions in the future. The Company expects
that it will be able to obtain additional capital at competitive rates, but
there can be no assurance that it will be able to do so.
In July and August of 1996, the level of delinquencies of the contracts
held in Funding I rose above certain levels, as defined in the operative
documents, and triggered a payment restriction event. This restriction had
the effect of "trapping" any cash distribution that the Company otherwise
would have been eligible to receive. The event was considered a technical
default under the Revolving Loan Agreement, which default was waived by the
lending banks. In September 1996, delinquency levels improved and the payment
restrictions were removed. A payment restriction is not unusual during the
later stages of a static pool securitization and may occur again before
Funding I is fully paid out. The default provisions of the Revolving Credit
Agreement were amended on December 12, 1996 to conform to the default
provisions of the Funding I agreements. As a result, a payment restriction
event under Funding I will not constitute a default under the Revolving Loan
Agreement unless such event continues for at least six months.
Senior Notes (Funding I)--The Company borrowed $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, Funding I, 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"). Funding I subsequently issued
$70,000,000 of secured notes ("Notes"), bearing interest at a fixed rate of
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.
As of December 31, 1996 and 1995, Funding I had gross receivables of
approximately $9,758,000 and $26,984,000, respectively, which were pledged as
Collateral. The Agreement also provides for restrictions on cash balances
under certain conditions relating to default and delinquency ratios
applicable to the Collateral. At December 31, 1996 and 1995, restricted cash
amounted to approximately $4,014,000 and approximately $4,693,000,
respectively.
Note payments to investors, based on projected cash flows from the
Collateral, for the years 1997 through 1999 are expected to be as follows:
$5,328,000, $1,307,000, and $226,000, respectively. However, the agreement
also contains a provision that requires early termination and payment to
investors when the restricted cash contains an amount equal to investor
balances. This event may occur during 1997.
Senior Notes (Bravo)--As of January 31, 1995, the Company, along with
its wholly-owned, special-purpose subsidiary, HPSC Bravo Funding Corp.
("Bravo") had available borrowings of $50,000,000 under a 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. In
November 1996, the facility was amended to increase available borrowing to
$100,000,000 and to allow up to $30,000,000 of the facility to be used for
sales of financing contracts.
Monthly settlements of principal and interest payments are made from the
collection of payments on Bravo's transactions. The terms of the facility
restrict the use of certain collected cash. Such restricted cash
<PAGE>
amounted to approximately $2,755,000 and $917,000 at December 31, 1996 and
1995, respectively. 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.
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. Under such interest rate swap contracts, the Company pays
a fixed rate of interest and receives a variable rate from the counterparty.
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.
At December 31, 1996, the Company had approximately $67,524,000
outstanding under the loan portion of this facility and, in connection with
these borrowings, had 14 separate interest rate swap agreements with the Bank
of Boston with a total notional value of approximately $65,231,000. The
Company had utilized approximately $6,991,000 of the sale pool and in
connection with such sale, had one interest rate swap agreement with a total
notional value of approximately $6,713,000.
At December 31, 1995, the Company had approximately $26,303,000
outstanding under the loan facility. In connection with these borrowings, the
Company had six interest rate swap agreements with a notional value of
approximately $27,500,000.
The amounts of borrowings outstanding under the loan portion of the Bravo
facility, the notional amount of swaps outstanding related to such loans and
the effective interest rate under the swaps, assuming payments are made as
scheduled will be as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT FOR %) BORROWINGS SWAPS RATE
- --------------------------- ----------- --------- ---------
<S> <C> <C> <C>
December 31, 1996............................. $ 67,524 $ 65,231 6.29%
December 31, 1997............................. $ 46,493 $ 46,576 6.28%
December 31, 1998............................. $ 28,255 $ 29,152 6.24%
December 31, 1999............................. $ 13,593 $ 14,338 6.19%
December 31, 2000............................. $ 4,155 $ 4,553 6.16%
December 31, 2001............................. $ 675 $ 854 6.14%
</TABLE>
Senior Notes (SIS)--In April 1995, the Company entered into a
secured, fixed rate, fixed term loan agreement with Springfield Institution
for Savings under which the Company borrowed $3,500,000 at 9.5% subject to
certain recourse and performance covenants.
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, 1996, the Company was in compliance with the provisions of its
debt covenants.
The scheduled maturities of the Company's revolving credit borrowings and
other debt at December 31, 1996 are as follows (in thousands):
<TABLE>
<S> <C>
1997.............................. $ 67,004
1988.............................. $ 20,248
1999.............................. $ 15,534
2000.............................. $ 9,770
2001.............................. $ 3,508
Thereafter........................ $ 673
</TABLE>
NOTE E. 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 $391,000, $318,000, and $198,000 for 1996, 1995 and
1994, respectively.
Future minimum lease payments for commitments exceeding twelve months
under non-cancelable operating leases as of December 31, 1996, are as follows
(in thousands):
<TABLE>
<S> <C>
1997.............................. $ 324
1998.............................. $ 324
</TABLE>
<PAGE>
<TABLE>
<S> <C>
1999.............................. $ 146
2000.............................. -0-
2001 & thereafter................. -0-
</TABLE>
NOTE F. 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.
The components of income (loss) before income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
(IN THOUSANDS) 1996 1995 1994
- -------------- ---------- --------- ---------
Domestic............................... $1,699 $154 $891
Foreign................................ (120) (75) (141)
---------- --------- ---------
Income (loss) before income taxes...... $1,579 $79 $750
---------- --------- ---------
</TABLE>
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
(IN THOUSANDS) 1996 1995 1994
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Federal:
Current.................................. $ 251 $ 832 $ 808
Deferred................................. 310 (569) (530)
State:
Current.................................. 64 426 635
Deferred................................. 79 (357) (563)
Foreign:
Current.................................. -- (128) (50)
Deferred................................. -- -- --
--------- --------- ---------
Provision (credit) for income taxes......... $ 704 $ 204 $ 300
--------- --------- ---------
</TABLE>
Deferred income taxes arise from the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
(IN THOUSANDS) 1996 1995 1994
- -------------- --------- --------- ---------
Operating method......................... 142 $ (2,501) $ (3,498)
Alternative minimum tax credit........... -- 609 2,147
Other.................................... 247 966 258
--------- --------- ---------
$ 389 $ (926) $ (1,093)
--------- --------- ---------
</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:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
Statutory rate........................................................ 34.0% 34.0% 34.0%
State taxes net of US federal income tax benefit...................... 6.0 55.7 5.2
Effect of prior year foreign tax recovery............................. -- (162.0) --
Foreign loss not benefited............................................ 2.6 22.7 --
Non-deductible write-off of foreign currency translation adjustment... -- 258.5 --
Other................................................................. 2.0 49.3 .8
--- --------- ---
44.6% 258.2% 40.0%
--- --------- ---
</TABLE>
The items which comprise a significant portion of deferred tax liabilities
as of December 31, 1996 and December 31, 1995 are as follows:
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 1995
- ------------------ --------- ---------
<S> <C> <C>
Operating method............ $ 5,146 $ 5,004
Other....................... (144) (391)
--------- ---------
Deferred income taxes....... $ 5,002 $ 4,613
--------- ---------
</TABLE>
At December 31, 1996 consolidated retained earnings included $260,000 of
unremitted earnings from the Company's foreign subsidiary. In the event of
repatriation, the Company does not anticipate any significant additional
income taxes.
NOTE G. STOCK OPTION AND STOCK INCENTIVE PLANS
Stock Option Plans--The Company had three stock option plans in place
which provided for the granting of options to purchase up to 801,875 shares
of common stock: the Employee Stock Option Plan dated March 23, 1983, as
amended (the "1983 Plan"), the Stock Option Plan dated March 5, 1986 (the
"1986 Plan") and the 1994 Stock Plan dated March 23, 1994 (the "1994 Plan").
These three plans were terminated in May 1995 upon the approval of the 1995
Stock Incentive Plan discussed below.
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.
Options under the Plan were granted at an exercise price equal to the market
price on the date of grant. 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. The Plan required that the option
exercise price in each case be at least 50% of the fair market value of the
Common Stock on the date of grant. All options granted under the Plan had an
exercise price equal to the fair market value of the Common Stock on the
grant date. Options vest over five years of service.
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. A total of 138,000 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, 1996.
1995 Stock Plan--Restricted Stock--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. 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. Additional paid in
capital and deferred compensation of $994,000 was recorded when the
performance criteria was achieved with respect to 50% of the restricted
shares in June 1996. Compensation expense of $365,000 was recognized in 1996
and the remaining deferred compensation will be recognized over the remaining
term of the service condition.
<PAGE>
1995 Stock Plan--Stock Options--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 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.
Other Option Grants--At December 31, 1996, there were options
exercisable for an aggregate of 2,000 shares of Common Stock outstanding to a
consultant and options exercisable for an aggregate of 4,000 shares of Common
Stock outstanding to a non-employee director of the Company.
The following table summarizes stock option and restricted stock activity:
<TABLE>
<CAPTION>
OPTIONS
-------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE RESTRICTED
OPTIONS PRICE STOCK
----------- --------- -----------
<S> <C> <C> <C>
Outstanding at January 1, 1994..... 471,875 $ 2.96 --
Granted............................ 190,000 $ 3.70 --
Exercised.......................... -- -- --
Expired............................ -- -- --
Forfeited.......................... (25,000) $ 3.25 --
----------- --------- -----------
Outstanding at December 31, 1994.. 636,875 $ 3.17 --
Granted............................ 25,000 $ 4.33 337,000
Exercised.......................... -- -- --
Expired............................ -- -- --
Forfeited.......................... (50,000) $ 3.56 --
----------- --------- -----------
Outstanding at December 31, 1995... 611,875 $ 3.19 337,000
Granted............................ 60,000 $ 5.15 --
Exercised.......................... -- -- --
Expired............................ -- -- --
Forfeited.......................... (30,000) $ 3.31 --
----------- --------- -----------
Outstanding at December 31, 1996... 641,875 $ 3.36 337,000
----------- --------- -----------
</TABLE>
<PAGE>
The following table sets forth information regarding options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE WEIGHTED
RANGE OF OPTIONS OPTIONS OPTIONS AVERAGE
EXERCISE NUMBER OF CURRENTLY GRANTED EXERCISABLE REMAINING
PRICES OPTIONS EXERCISABLE EXERCISABLE PRICE PRICE LIFE (YEARS)
- -------- -------- ----------- ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
2.63-3.25 391,875 356,500 $2.87 $2.86 6.10
3.38-4.00 175,000 89,667 $3.75 $3.76 7.42
4.50-4.88 59,000 18,000 $4.70 $4.72 8.78
6.13-6.63 16,000 7,000 $6.40 $6.19 9.16
------ ---------- --------------- ------------- ------------
2.63-6.63 641,875 471,167 $3.36 $3.15 6.29
------ ---------- --------------- ------------- ------------
</TABLE>
The weighted average grant date fair values of options granted for the
years ending December 31, 1996 and 1995 were $3.07 and $4.24, respectively.
Stock Purchase Plan--Under the Stock Purchase Plan, eligible employees
were granted options to acquire, through authorized payroll deductions,
shares of common stock. The Stock Purchase Plan provided for options to be
granted twice each year, on the first day of a six-month payment period, with
exercise of the option to take place on the last business day of each such
payment period at a purchase price of the lesser of 85% of the fair market
value of the shares on the option grant date or on the option exercise date.
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.
Notes Receivable from Officers and Employees (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. 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 years after the date of the
loan. All shares purchased with such loans are pledged to the Company as
collateral for repayment of the loans.
Pro Forma Disclosure--As described in Note A, the Company uses the
intrinsic value method to measure compensation expense associated with the
grants of stock options or awards to employees. Had the Company used the fair
value method to measure compensation, reported net income and earnings per
share would have been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Income (loss) before income taxes..................... $ 1,598 $ (64)
Provision for income taxes............................ 735 204
--------- ---------
Net income (loss)..................................... $ 863 $ (140)
--------- ---------
Net income (loss) per share........................... $ 0.21 $ (0.04)
--------- ---------
</TABLE>
For purposes of determining the above disclosure required by Statement of
Financial Accounting Standards No. 123, the fair value of options on their
grant date was measured using the Black/Scholes option pricing model. Key
assumptions used to apply this pricing model were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Risk-free interest rate.............................. 6.0% 6.7%
Expected life of option grants....................... 10 years 10 years
Expected volatility of underlying stock.............. 36.4% 46.6%
</TABLE>
The pro forma presentation only includes the effects of grants made
subsequent to January 1, 1995.
NOTE H. EMPLOYEE BENEFIT PLANS
Employee Stock Ownership Plan--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. ESOP
contributions are at the discretion of the Company's Board of Directors and
are determined annually. However, it is the Company's present intention to
make contributions sufficient to repay the ESOP's Promissory Note on a level
funding basis over a 10-year period. The Company measures the expense related
to such contributions based on the original cost of the stock which was
originally issued to the ESOP. Shares of stock which were issued to the ESOP
are allocated to the participants based on a calculation of the ratio of the
annual contribution amount to the original principal of the Promissory Note.
The Company made contributions of $105,000 in 1996, $110,000 in 1995, and
$99,000 in 1994.
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. As of December 31, 1996, 89,654
shares of Common Stock have been allocated to participant accounts under the
ESOP and 210,346 shares remain unallocated. The market value of unallocated
share was $1,262,076.
<PAGE>
Supplemental Employee Stock Ownership Plan--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.
SESOP contributions are at the discretion of the Company's Board of Directors
and are determined annually. No contributions have been made nor have any
allocations yet been made to participant accounts.
Savings Plan--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
$62,841 in 1996, $49,419 in 1995 and $37,975 in 1994.
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. 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-hundredth of a share of Preferred Stock, at 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.
NOTE J. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 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.
<PAGE>
The following table presents a comparison of the carrying value and
estimated fair value of the Company's financial instruments at December 31,
1996:
<TABLE>
<CAPTION>
IN THOUSANDS VALUE FAIR VALUE
- ------------ ---------- ----------
<S> <C> <C>
Financial liabilities:
Notes payable.......................................... $116,737 $116,130
Interest rate contracts................................ $-0- $(336)
</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:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
IN THOUSANDS VALUE FAIR VALUE
- ------------ ---------- ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents.............................. $861 $861
Restricted cash........................................ $5,610 $5,610
Net investment in leases and notes..................... $119,916 $119,916
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 estimated fair value of net
investment in leases and notes approximates carrying value. Loans at rates
similar to those in the current portfolio could be made to borrowers with
similar credit ratings and for similar remaining maturities. For nonaccrual
practice acquisition and asset-based 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 fair market value of the Company's senior notes 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. At December 31, 1995, the Company's senior notes, as shown on the
accompanying balance sheet, reflect their approximate fair market value.
Interest rate contracts: The fair value of interest rate contracts is
estimated based on the estimated amount necessary to terminate the
agreements. At December 31, 1995, this amount was not material to the
financial statements.
NOTE K. SUBSEQUENT EVENT
On March 26, 1997, the Company completed the issuance of $20 million of
unsecured senior subordinated notes due in 2007, which bear interest at a
fixed rate of 11%. The Company received approximately $18.5 million in net
proceeds, which it used to repay a portion of the amount outstanding under
the Revolving Credit Arrangement (Note D).
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of HPSC, Inc.:
We have audited the accompanying consolidated balance sheet of HPSC, Inc.
and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of HPSC, Inc. and
subsidiaries as of December 31, 1996, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
February 28, 1997
(March 26, 1997 as to Note K)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of HPSC, Inc.:
We have audited the accompanying consolidated balance sheet of HPSC, Inc. as
of December 31, 1995, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the two 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 the consolidated results of its operations and its
cash flows for each of the two 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.
Coopers & Lybrand L.L.P.
BOSTON, MASSACHUSETTS
March 25, 1996
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this item has been filed on Form 8-K,
dated June 19, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference from the
sections captioned "PROPOSAL ONE--ELECTION OF DIRECTORS --Nominees for Class II
Directors," "--Members of the Board of Directors Continuing in Office" and " -
Other Executive Officers" and "VOTING SECURITIES--Section 16(a) Beneficial
Ownership Reporting Compliance" in the 1997 Proxy Statement to be filed not
later than 120 days after the end of the fiscal year covered by this annual
report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
sections captioned "EXECUTIVE COMPENSATION--Summary Compensation Table," "
- -Stock Loan Program," "--Supplemental Executive Retirement Plan," "--Option
Grants in Last Fiscal Year," "--Aggregated Option Exercises and Year-End
Values,"--Employment Agreements" and "--Compensation of Directors" in the 1997
Proxy Statement to be filed not later than 120 days after the end of the fiscal
year covered by this annual report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "VOTING SECURITIES--Share Ownership of Certain Beneficial
Owners and Management" in the 1997 Proxy Statement to be filed not later than
120 days after the end of the fiscal year covered by this annual report on Form
10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
--------------------
The consolidated financial statements filed as part of this Report are
listed in Item 8.
(A) 2. FINANCIAL STATEMENT SCHEDULES
-----------------------------
Schedules have been omitted because they are not applicable, or not
required, or because the required information is included in the
consolidated financial statements or notes thereto.
<PAGE>
LOCATION OF DOCUMENTS PERTAINING TO EXECUTIVE COMPENSATION PLANS AND
ARRANGEMENTS
<TABLE>
<CAPTION>
ITEM IN
NAME OF DOCUMENT THIS REPORT CROSS REFERENCE
---------------- ----------- ---------------
<C> <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 10.3 Incorporated by reference to Exhibit
between the Company and 10.3 to HPSC's Amendment No. 1 to
John W. Everets, dated as of Registration Statement on Form S-1 filed on
July 19, 1996 March 10, 1997
3. Employment Agreement 10.4 Incorporated by reference to Exhibit
between the Company and 10.4 to HPSC's Amendment No. 1 to
Raymond R. Doherty dated as Registration Statement on Form S-1 filed on
of August 2, 1996 March 10, 1997
4. HPSC, Inc. Employee Stock 10.6 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. First Amendment effective 10.7 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
6. Second Amendment effective 10.8 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
7. Third Amendment effective 10.9 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
8. HPSC, Inc. 401 (k) Plan dated 10.13 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
9. HPSC, Inc. Supplemental 10.10 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 10.11 Incorporated by reference to Exhibit
dated as of March 23, 1994 10.4 to HPSC's Quarterly Report on
and related forms of Form 10-Q for the quarter ended June
Nonqualified Option Grant 25, 1994
and Option Exercise Form
11. Employment Agreement 10.5 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. Amended and Restated HPSC, 10.29 Incorporated by reference to Exhibit 10.27 to
Inc. 1995 Stock Incentive Plan HPSC's Annual Report on Form 10-K for the
fiscal year ended December
31, 1995.
13. Stock Option grant to Lowell 10.30 Incorporated by reference to Exhibit 10.28 to
P. Weicker effective HPSC's Annual Report on Form 10-K for the
December 7, 1995 fiscal year ended December 31, 1995.
14. HPSC, Inc. Supplemental 10.12 Incorporated by reference to Exhibit 10.12 to
Executive Retirement Plan HPSC's Amendment No. 1 to Registration
dated as of January 1, 1997 Statement on Form S-1 filed March 10, 1997.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(a) 3 EXHIBITS
Exhibits
- --------------
NO. TITLE METHOD OF FILING
--- ----- ----------------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of Incorporated by reference to Exhibit 3.1 to HPSC's Annual
HPSC, Inc. Report on Form 10-K for the fiscal year ended December 31,
1995.
3.2 Certificate of Amendment to Incorporated by reference to Exhibit 3.2 to HPSC's Annual
Restated Certificate of Report filed on Form 10-K for the fiscal year ended
Incorporation of HPSC, Inc. December 31, 1995.
in Delaware on September 14,
1987
3.3 Certificate of Amendment to Incorporated by reference to Exhibit 3.3 to HPSC's Annual
Restated Certificate of Report filed on Form 10-K for the fiscal year ended
Incorporation of HPSC, Inc. December 31, 1995.
in Delaware on May 22, 1995
3.4 Amended and Restated By-Laws Incorporated by reference to Exhibit 3.4 to HPSC's Amendment
No. 1 to Registration Statement on Form S-1 filed March 10,
1997
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 10.3 to HPSC's Amendment No. 1
John W. Everets, dated as of to Registration Statement on Form S-1
July 19, 1996 filed March 10, 1997
10.4 Employment Agreement Incorporated by reference to
between the Company and Exhibit 10.4 to HPSC's Amendment No. 1
Raymond R. Doherty dated to Registration Statement on Form S-1
as of August 2, 1996 filed March 10, 1997
10.5 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
10.6 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
10.7 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
10.8 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
10.9 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.10 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
dated July 25, 1994 quarter ended June 25, 1994
10.11 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
10.12 HPSC, Inc. Supplemental Executive Incorporated by reference to Exhibit 10.12
Retirement Plan dated as of to HPSC's Amendment No. 1 to
January 1, 1997 Registration Statement on Form S-1
filed March 10, 1997
10.13 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
10.14 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.
10.15 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
10.16 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
10.17 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.
10.18 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
10.19 Second Amended and Restated Incorporated by reference to
Revolving Loan Agreement Exhibit 10.19 to HPSC's
dated as of December 12, 1996, Registration Statement on Form S-1
among HPSC, Inc., The First National filed January 30, 1997
Bank of Boston, individually
and as Managing Agent, Nation Bank,
individually and as Agent, and the
the banks named therein
10.20 First Amendment to Second Amended Filed herewith
and Restated Revolving Loan
Agreement dated as of March 26,
1997 among HPSC, Inc., The First
National Bank of Boston,
individually and as Managing Agent,
National Bank, individually and as
Agent, and the bank named therein
10.21 Loan Agreement dated April 13, 1995 Incorporated by reference to Exhibit 10.1 to HPSC's
between HPSC, Inc. and Springfield Quarterly Report on Form 10-Q for the quarter ended
Institution for Savings March 31, 1995
10.22 Sale Agreement dated November 16, Incorporated by reference to Exhibit 10.24 to HPSC's
1995 between HPSC, Inc. and Annual Report on Form 10-K for the fiscal year ended
Springfield Institution for Savings December 31, 1995
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.23 Stock Purchase Agreement, dated as Incorporated by reference to Exhibit 10.3 to HPSC's
of November 1, 1994, by and among Quarterly Report on Form 10-Q for the quarter ended
HPSC, Inc. and each of Chemical September 24, 1994
Bank; The CIT Group/Business
Credit, 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
10.24 Purchase and Contribution Agreement Incorporated by reference to Exhibit 10.31 to HPSC's
dated as of January 31, 1995 Annual Report on Form 10-K for the fiscal year ended
between HPSC, Inc. and HPSC Bravo December 31, 1994
Funding Corp.
10.25 Credit Agreement dated as of Incorporated by reference to Exhibit 10.32 to HPSC's
January 31, 1995 among HPSC Bravo Annual Report on Form 10-K for the fiscal year ended
Funding Corp., Triple-A One Funding December 31, 1994
Corporation, as lender, and CapMAC,
as Administrative Agent and as
Collateral Agent
10.26 Agreement to furnish copies of Incorporated by reference to Exhibit 10.33 to HPSC's
Omitted Exhibits to Certain Annual Report on Form 10-K for the fiscal year ended
Agreements with HPSC Bravo Funding December 31, 1994
Corp.
10.27 Amendment documents, effective Incorporated by reference to Exhibit 10.26 to HPSC's
November 5, 1996 to Credit Registration Statement on Form S-1 filed January 30, 1997
Agreement dated as of January 31,
1995 among HPSC Bravo Funding
Corp., Triple-A Funding
Corporation, as Lender, and CapMAC,
as Administrative Agent and as
Collateral Agent
10.28 Indenture dated as of March 20, Filed herewith
1997 between HPSC, Inc. and State
Street Bank and Trust Company, as
Trustee
10.29 Amended and Restated HPSC, Inc. Incorporated by reference to Exhibit 10.27 to HPSC's Annual
1995 Stock Incentive Plan Report on Form 10-K for the fiscal year ended December 31, 1995
10.30 Stock Option grant to Lowell P. Incorporated by reference to Exhibit 10.28 to HPSC's Annual
Weicker effective December 7, 1995. Report on Form 10-K for the fiscal year ended December 31, 1995
21.1 Subsidiaries of HPSC, Inc. Filed herewith
23.1 Consent of Deloitte & Touche LLP Filed herewith
23.2 Consent of Coopers & Lybrand Filed herewith
L.L.P.
27.1 HPSC, Inc. Financial Data Schedule Filed herewith
</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
<PAGE>
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: John W. Everets
---------------------------
DATED: MARCH 31, 1997 JOHN W. EVERETS
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
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.
<TABLE>
<CAPTION>
<C> <S> <C>
Name Title Date
- ------------------------------ --------------------------- -------------------
By: /S/ JOHN W. EVERETS Chairman, Chief Executive
- ------------------------------ Officer and Director March 31, 1997
John W. Everets (Principal Executive
Officer)
Vice President, Chief
BY: /S/ RENE LEFEBVRE Financial Officer and
- ------------------------------ Treasurer (Principal March 31, 1997
Rene Lefebvre Financial Officer)
BY: /S/ RAYMOND R. DOHERTY President and Director
- ------------------------------ March 24, 1997
Raymond R. Doherty
BY: /S/ DENNIS J. McMAHON Vice President, Administration
- ------------------------------ (Principal Accounting Officer) March 31, 1997
Dennis J. Mcmahon
BY: /S/ DOLLIE A. COLE Director
- ------------------------------ March 26, 1997
Dollie A. Cole
BY: /S/ THOMAS M. McDOUGAL Director
- ------------------------------ March 31, 1997
Thomas M. McDougal
BY: /S/ SAMUEL P. COOLEY Director
- ------------------------------ March 24, 1997
Samuel P. Cooley
BY: /S/ JOSEPH A. BIERNAT Director
- ------------------------------ March 31, 1997
Joseph A. Biernat
BY: /S/ J. KERMIT BIRCHFIELD Director
- ------------------------------ March 31, 1997
J. Kermit Birchfield
BY: /S/ LOWELL P. WEICKER, JR. Director
- ------------------------------ March 31, 1997
Lowell P. Weicker, Jr.
II-6
</TABLE>
<PAGE>
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: John W. Everets
--------------------------
DATED: MARCH 31, 1997 JOHN W. EVERETS
CHAIRMAN, CHIEF EXECUTIVE
OFFICER AND DIRECTOR
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.
<TABLE>
<CAPTION>
<C> <S> <C>
Name Title Date
- ------------------------------ --------------------------- -------------------
Chairman, Chief Executive
BY: JOHN W. EVERETS Officer and Director
- ------------------------------ (Principal Executive March 31, 1997
John W. Everets Officer)
Vice President, Chief
BY: RENE LEFEBVRE Financial Officer and
- ------------------------------ Treasurer (Principal March 31, 1997
Rene Lefebvre Financial Officer)
BY: RAYMOND R. DOHERTY President and Director
- ------------------------------ March 24, 1997
Raymond R. Doherty
BY: DENNIS J. MCMAHON Vice President,
- ------------------------------ Administration (Principal March 31, 1997
Dennis J. Mcmahon Accounting Officer)
BY: DOLLIE A. COLE Director
- ------------------------------ March 26, 1997
Dollie A. Cole
BY: THOMAS M. MCDOUGAL Director
- ------------------------------ March 31, 1997
Thomas M. McDougal
BY: SAMUEL P. COOLEY Director
- ------------------------------ March 24, 1997
Samuel P. Cooley
BY: JOSEPH A. BIERNAT Director
- ------------------------------ March 31, 1997
Joseph A. Biernat
BY: J. KERMIT BIRCHFIELD Director
- ------------------------------ March 31, 1997
J. Kermit Birchfield
BY: /S/ LOWELL P. WEICKER, JR. Director
- ------------------------------ March 31, 1997
Lowell P. Weicker, Jr.
</TABLE>
<PAGE>
FIRST AMENDMENT
TO REVOLVING CREDIT AGREEMENT
This FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Amendment") dated as of March 26, 1997, by and among HPSC,
Inc. (the "Borrower"), a Delaware corporation, American Commercial Finance
Corporation ("ACFC"), a Delaware corporation, The First National Bank of
Boston, Bank of America Illinois, NationsBank, N.A., CoreStates Bank, N.A.,
The Sumitomo Bank, Limited (collectively, the "Banks"), and The First
National Bank of Boston as managing agent (the "Agent") for the Banks and
NationsBank, N.A., as 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 Second Amended and Restated Revolving Credit Agreement dated as of
December 12, 1996 (as 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 adding the following definition of "Indenture" and deleting
the definition of Subordinated Debt and inserting in lieu thereof the
following definition of Subordinated Debt:
"Indenture. The Indenture between HPSC Inc. as Issuer and State
Street Bank and Trust Company, as Trustee entered into at the time
of issuance of up to $23,000,000 of Senior Subordinated Notes,
<PAGE>
which Indenture contains subordination provisions substantially in
the form of Exhibit K attached hereto."
"Subordinated Debt. The Senior Subordinated Notes Due 2007 issued
by the Borrower in an aggregate principal amount not exceeding
$23,000,000 which are expressly subordinated and made junior to the
payment and performance in full of the Obligations, and evidenced as
such by the Indenture."
1.2 Amendment to Section 6 of the Credit Agreement. Section 6 of
the Credit Agreement is amended by inserting the following new Section 6.23.
"6.23. Subordinated Debt. The Obligations constitute "Secured
Portfolio Debt" under the terms of the Indenture and are entitled to the
full benefit of the subordination provisions contained in Article XI of
the Indenture."
1.3 Amendment to Section 8.4 of the Credit Agreement. Section 8.4
of the Credit Agreement is hereby amended to read as follows:
"8.4 Distributions. The Borrower will not make any Distributions.
The Borrower will not permit ACFC to make any Distributions if a Default
or Event of Default exists at the time of the proposed Distribution."
1.4. Amendment to Section 8.8 of the Credit Agreement. Section 8.8
of the Credit Agreement is hereby amended to read as follows:
"8.8 Other Debt. The Borrower will not, and will not permit any of
its Subsidiaries to, (a) amend, supplement or otherwise modify the terms
of any Subordinated Debt or prepay, redeem or repurchase any
Subordinated Debt (other than, so long as no Default or Event of Default
exists or would result from any such repurchase, repurchases of
Subordinated Debt pursuant to Section 4.16 of the Indenture that do not
exceed (i) $250,000 in principal amount (plus accrued interest), in the
aggregate with respect to all holders of Subordinated Debt, in any
calendar year or (ii) $25,000 in principal amount (plus accrued
interest), in the aggregate with respect to any single holder of
Subordinated Debt, in any calendar year) or (b) other than the Funding
Subsidiaries, prepay, redeem or repurchase Indebtedness outstanding
under the Funding Indenture, the Bravo Credit Agreement or the Sale
Agreements."
2
<PAGE>
1.5. Amendment to Section 12.1 of the Credit Agreement. Section
12.1 of the Credit Agreement is amended so that paragraphs (j) and (q) read
as follows:
"(j) the holders of all or any part of the Subordinated Debt
or Indebtedness under the Funding Indenture or Indebtedness under
the Bravo Facility Documents shall accelerate the maturity of all or
any part of such debt or such debt shall be prepaid, redeemed or
repurchased in whole or in part; provided, however, that (A) early
termination of the Funding Indenture by Funding I pursuant to the
terms thereof shall not constitute an acceleration by such holders;
(B) early termination of the Bravo Credit Agreement by Bravo
pursuant to the terms thereof shall not constitute an acceleration
by such holders; (C) payments by Bravo pursuant to Sections 2.05(b)
and 2.05(c) of the Purchase Agreement shall not constitute
prepayment of Indebtedness under the Bravo Credit Agreement; and (D)
repurchases of Subordinated Debt pursuant to Section 4.16 of the
Indenture that do not exceed (i) $250,000 in principal amount (plus
accrued interest) in the aggregate with respect to all holders of
Subordinated Debt in any calendar year or (ii) $25,000 in principal
amount (plus accrued interest) in the aggregate with respect to any
single holder of Subordinated Debt in any calendar year, shall not
constitute a Default or Event of Default pursuant to this subsection
12.1(j);"
"(q) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under
said Act) of fifty-one percent (51%) or more of the outstanding
shares of common stock of the Borrower or any "Change in Control"
shall occur under the terms of the Indenture;"
1.6. Amendment to Sections 12.1 and 12.2 of the Credit Agreement.
Each of Section 12.1 (third to last line) and Section 12.2 (second line) are
amended by adding a reference to "Section 12.1(q)" in addition to the existing
reference to "Section 12.1(g), Section 12.1(h) and Section 12.1(j)."
2. Conditions to Effectiveness. This Amendment shall not become
effective unless and until:
(a) the Agent receives counterparts of this Amendment executed by each
of the Borrower, the Majority Banks, the Agent and ACFC; and
3
<PAGE>
(b) each of the Banks and the Agent receives a favorable opinion
addressed to the Banks and the Agent, in form and substance
satisfactory to the Agent, from Hill & Barlow, counsel to the
Borrower and its Subsidiaries, confirming that the Obligations
constitute senior debt pursuant to the Indenture.
(c) all proceedings in connection with the transactions contemplated by
this 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 Section 6 or elsewhere in the Credit Agreement or in the other Loan
Documents, as amended by this 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 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 other 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 and ACFC confirm and agree
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
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 Amendment shall be read and construed as a single
agreement.
4
<PAGE>
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 in connection with the preparation of this
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
ACFC or any rights of the Agent or either of the Banks consequent thereon.
This 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 Amendment are included herein for
convenience of reference only and shall not constitute part of this Amendment
for any other purpose. This Amendment shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Massachusetts (without
reference to conflict of laws).
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as
a sealed instrument as of the date first set forth above.
HPSC, INC.
By: /s/ Rene LeFebvre
-------------------------------------
Name: Rene LeFebvre
Title: CFO
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By: /s/ Roberta F. Keeler
-------------------------------------
Name: Roberta F. Keeler
Title: Vice President
BANK OF AMERICA ILLINOIS
By: /s/ Nelson D. Albrecht
-------------------------------------
Name: Nelson D. Albrecht
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Roger A. Lee
-------------------------------------
Name: Roger A. Lee
Title: Vice President
6
<PAGE>
CORESTATES BANK, N.A.
By: /s/ Verna R. Prentice
-------------------------------------
Name: Verna R. Prentice
Title: Vice President
THE SUMITOMO BANK, LIMITED
By: /s/ D.G. Eastman
-------------------------------------
Name: D.G. Eastman
Title: Vice President & Manager
By: /s/ Alfred DeGemmis
-------------------------------------
Name: Alfred DeGemmis
Title: Vice President
Agreed to by the undersigned:
AMERICAN COMMERCIAL
FINANCE CORPORATION
By: /s/ John W. Everets
--------------------------
7
<PAGE>
Exhibit K
Part I: SUBORDINATION PROVISIONS
Part II: Definitions
<PAGE>
Part I: Subordination Provisions
<PAGE>
ARTICLE XI
SUBORDINATION OF SECURITIES
SECTION 11.1. Securities Subordinated to Secured Portfolio Debt.
The Company and each Securityholder, by its acceptance of Securities,
agree that (a) the payment of the principal of and interest on the Securities
and (b) any other payment or obligations in respect of the Securities,
including on account of the acquisition or redemption of the Securities by
the Company (including, without limitation, pursuant to Articles III or X) is
subordinated, to the extent and in the manner provided in this Article XI, to
the prior payment in full in Cash or Cash Equivalents of all Secured
Portfolio Debt of the Company and that these subordination provisions are
for the benefit of the holders of Secured Portfolio Debt.
This Article XI shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold,
Secured Portfolio Debt, and such provisions are made for the benefit of the
holders of Secured Portfolio Debt, and such holders are made obligees
hereunder and any one or more of them may enforce such provisions.
The Securities shall in all respects rank (i) pari passu with all other
unsecured Funded Recourse Debt of the Company outstanding on the Issue Date
and (ii) senior to any Funded Recourse Debt of the Company issued after the
Issue Date, and only Indebtedness of the Company which is Secured Portfolio
Debt shall rank senior to the Securities in accordance with the provisions
set forth herein.
SECTION 11.2. No Payment on Securities in Certain Circumstances.
(a) No payment (by set-off or otherwise) shall be made by or on
behalf of the Company, as applicable, on account of the principal of,
premium, if any, or interest on the Securities (including any repurchases of
Securities), or on account of the redemption provisions of the Securities or
any obligation in respect of the Securities, for Cash or property, (i) upon
the maturity of any Secured Portfolio Debt of the Company, as applicable, by
lapse of time, acceleration (unless waived) or otherwise, unless and until
all principal of and the interest on such Secured Portfolio Debt are first
paid in full in Cash or Cash Equivalents, or (ii) in the event of default in
the payment of any principal or interest on or fee in respect of Secured
Portfolio Debt of the Company when it becomes due and payable, whether at
74
<PAGE>
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist; provided that the Company may pay
the Securities without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of the
Designated Secured Portfolio Debt with respect to which such payment default
has occurred and is continuing.
(b) In furtherance of the provisions of Section 11.1, in the event that,
notwithstanding the foregoing provisions of this Section 11.2, any payment or
distribution of assets of the Company shall be received by the Trustee or the
Securityholders at a time when such payment or distribution is prohibited by
the provisions of this Section 11.2, such payment or distribution shall be
held in trust for the benefit of the holders of such Secured Portfolio Debt,
and shall be paid or delivered by the Trustee or such Securityholders, as the
case may be, to the holders of such Secured Portfolio Debt remaining unpaid
or to their Representative or Representatives, ratably according to the
aggregate principal amounts remaining unpaid on account of such Secured
Portfolio Debt held or represented by each, for application to the payment of
all such Secured Portfolio Debt remaining unpaid, to the extent necessary to
pay all such Secured Portfolio Debt in full in Cash or Cash Equivalents after
giving effect to any concurrent payment or distribution to the holders of
such Secured Portfolio Debt.
SECTION 11.3. Securities Subordinated to Prior Payments of All Secured
Portfolio Debt on Dissolution, Liquidation or Reorganization.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or
a similar proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities:
(a) the holders of all Secured Portfolio Debt of the Company, as
applicable, will first be entitled to receive payment in full in Cash or Cash
Equivalents before the Securityholders are entitled to receive any payment on
account of the principal of, premium, if any, and interest on the Securities
or any obligation in respect of the Securities;
(b) any payment or distribution of assets of the Company of any kind or
character from any source, whether in Cash, property or securities to which
the Securityholders or the Trustee on behalf of the Securityholders would be
entitled (by set-off or otherwise), except for the provisions of this Article
XI, shall be paid by the liquidating trustee or agent or other person making
such a payment or distribution directly to the holders of such Secured
Portfolio Debt or their Representative to the extent necessary to make
payment in full on all such Secured Portfolio Debt remaining unpaid, after
giving effect to any concurrent payment or distribution to the holders of
such Secured Portfolio Debt; and
75
<PAGE>
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company shall be received by the Trustee or the
Securityholders at a time when such payment or distribution is prohibited by
the foregoing provisions, such payment or distribution shall be held in trust
for the benefit of the holders of such Secured Portfolio Debt, and shall be
paid or delivered by the Trustee or such Securityholders, as the case may be,
to the holders of such Secured Portfolio Debt remaining unpaid or to their
Representative or Representatives ratably according to the aggregate
principal amounts remaining unpaid on account of such Secured Portfolio Debt
held or represented by each, for application to the payment of all such
Secured Portfolio Debt remaining unpaid, to the extent necessary to pay all
such Secured Portfolio Debt in full in Cash or Cash Equivalents after giving
effect to any concurrent payment or distribution to the holders of such
Secured Portfolio Debt.
SECTION 11.4. Securityholders to Be Subrogated to Rights of Holders of
Secured Portfolio Debt.
Subject to the payment in full in Cash or Cash Equivalents of all
Secured Portfolio Debt of the Company as provided herein, the Securityholders
shall be subrogated to the rights of the holders of such Secured Portfolio
Debt to receive payments or distributions of assets of the Company applicable
to the Secured Portfolio Debt until all amounts owing on the Securities shall
be paid in full, and for the purpose of such subrogation no such payments or
distributions to the holders of such Secured Portfolio Debt by or on behalf
of the Company, or by or on behalf of the Securityholders by virtue of this
Article XI, which otherwise would have been made to the Securityholders
shall, as between the Company or on account of such Secured Portfolio Debt,
it being understood that the provisions of this Article XI are and are
intended solely for the purpose of defining the relative rights of the
Securityholders, on the one hand, and the holders of such Senior Debt, on the
other hand.
If any payment or distribution to which the Securityholders would
otherwise have been entitled but for the provisions of this Article XI shall
have been applied and the Securityholders, be deemed to be payment by the
Company pursuant to the provisions of this Article XI, to the payment of
amounts payable under Secured Portfolio Debt of the Company, then the
Securityholders shall be entitled to receive from the holders of such Secured
Portfolio Debt any payments or distributions received by such holders of
Secured Portfolio Debt in excess of the amount sufficient to pay all amounts
payable under or in respect of such Secured Portfolio Debt in full in Cash or
Cash Equivalents.
SECTION 11.5. Obligations of the Company Unconditional.
76
<PAGE>
Nothing contained in this Article XI or elsewhere in this Indenture or
in the Securities is intended to or shall impair, as between the Company and
the Securityholders, the obligation of the Company, which is absolute and
unconditional, to pay to the Securityholders the principal of, premium, if
any, and interest on the Securities as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Securityholders and creditors of the Company other
than the holders of the Secured Portfolio Debt, nor shall anything herein or
therein prevent the Trustee or any Securityholder from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article XI, of the
holders of Secured Portfolio Debt in respect of Cash, property or securities
of the Company received upon the exercise of any such remedy. Notwithstanding
anything to the contrary in this Article XI or elsewhere in this Indenture or
in the Securities, upon any distribution of assets of the Company referred to
in this Article XI, the Trustee, subject to the provisions of Sections 7.1
and 7.2, and the Securityholders shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating Trustee or agent or other Person making any
distribution to the Trustee or the Securityholders for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Secured Portfolio Debt and other Indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
XI so long as such court has been apprised of the provisions of, or the
order, decree or certificate makes reference to, the provisions of this
Article XI. Nothing in this Section 11.5 shall apply to the claims of, or
payments to, the Trustee under or pursuant to Section 7.7.
SECTION 11.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or
by the Trustee unless and until a Trust Officer of the Trustee or any Paying
Agent shall have received, no later than one Business Day prior to such
payment, written notice thereof from the Company or from one or more holders
of Secured Portfolio Debt or from any Representative therefor and, prior to
the receipt of any such written notice, the Trustee, subject to the
provisions of Sections 7.1 and 7.2, shall be entitled in all respects
conclusively to assume that no such fact exists.
SECTION 11.7. Application by Trustee of Assets Deposited with It.
Amounts deposited by the Company in trust with the Trustee pursuant to
and in accordance with Article VIII shall be for the sole benefit of
77
<PAGE>
Securityholders and, to the extent (i) the making of such deposit did not, or
after giving effect to such deposit does not, result in any contravention of
any term or provision of the Revolver Agreement and (ii) allocated for the
payment of Securities, shall not be subject to the subordination provisions
of this Article XI. Otherwise, any deposit of assets with the Trustee or the
Paying Agent (whether or not in trust) for the payment of principal of or
interest on any Securities shall be subject to the provisions of Sections
11.1, 11.2, 11.3 and 11.4; provided that, if prior to one Business Day
preceding the date on which by the terms of this Indenture any such assets
may become distributable for any purpose (including without limitation, the
payment of either principal of or interest on any Security) the Trustee or
such Paying Agent shall not have received with respect to such assets the
written notice provided for in Section 11.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or
after such date.
SECTION 11.8. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Secured Portfolio Debt.
No right of any present or future holders of any Secured Portfolio Debt
to enforce subordination provisions contained in this Article XI shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have
or be otherwise charged with. The holders of Secured Portfolio Debt may
extend, renew, modify or amend the terms of the Secured Portfolio Debt or any
security therefor and release; sell or exchange such security and otherwise
deal freely with the Company, all without affecting the liabilities and
obligations of the parties to this Indenture or the Securityholders.
SECTION 11.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities.
Each Securityholder by his acceptance thereof authorizes and expressly
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provisions contained in this
Article XI and to protect the rights of the Securityholders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors
or any other marshalling of assets and liabilities of the Company), the
immediate filing of a claim for the unpaid balance of his Securities in the
form required in said proceedings and cause said claim to be approved. If the
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Trustee does not file a proper claim or proof of debt in the form required in
such proceeding prior to 30 days before the expiration of the time to file
such claim or claims, then the holders of the Secured Portfolio Debt or their
representative are or is hereby authorized to have the right to file and are
or is hereby authorized to file an appropriate claim for and on behalf of the
Securityholders. Nothing herein contained shall be deemed to authorize the
Trustee or the holders of Secured Portfolio Debt or their Representative to
authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Securityholder thereof, or to authorize
the Trustee or the holders of Secured Portfolio Debt or their Representative
to vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 11.10. Right of Trustee to Hold Secured Portfolio Debt.
The Trustee shall be entitled to all of the rights set forth in this
Article XI in respect of any Secured Portfolio Debt at any time held by it to
the same extent as any other holder of Secured Portfolio Debt, and nothing in
this Indenture shall be construed to deprive the Trustee of any of its rights
as such holder.
SECTION 11.11. Article XI Not to Prevent Events of Default.
The failure to make a payment on account of principal of, premium, if
any, or interest on the Securities by reason of any provision of this Article
XI shall not be construed as preventing the occurrence of a Default or an
Event of Default under Section 6.1 or in any way limit the rights of the
Trustee or any Securityholder to pursue any other rights or remedies with
respect to the Securities.
SECTION 11.12. No Fiduciary Duty of Trustee to Holders of Secured Port-
folio Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Secured Portfolio Debt, and shall not be liable to any such holders (other
than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the Securityholders of the Securities or
the Company or any other Person, Cash, property or securities to which any
holders of Secured Portfolio Debt shall be entitled by virtue of this Article
XI or otherwise. Nothing in this Section 11.12 shall affect the obligation of
any other such Person to hold such payment for the benefit of, and to pay
such payment over to, the holders of Secured Portfolio Debt or their
Representative. In the event of any conflict between the fiduciary duty of
the Trustee to the Holders of Securities and to the holders of Secured
Portfolio Debt, the Trustee is expressly authorized to resolve such conflict
in favor of the Securityholders.
SECTION 11.13. Acceleration of Payment of Securities.
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If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify the holders of the Designated
Secured Portfolio Debt (or their Representative) of the acceleration. If any
Designated Secured Portfolio Debt is outstanding, the Company may not pay the
Securities until five days after such holders or the Representative of the
Designated Secured Portfolio Debt receive notice of such acceleration and,
thereafter, may pay the Securities only if this Article XI otherwise permits
payment at that time.
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Part II: Definitions
<PAGE>
SECTION 1.1 Definitions.
"Acceleration Notice" shall have the meaning specified in Section 6.2.
"Acquired Recourse Debt" means Funded Recourse Debt or Disqualified
Capital Stock of any Person existing at the time such Person becomes a
Subsidiary of the Company or is merged or consolidated into or with the
Company or one of its Subsidiaries.
"Acquistion" means the purchase or other acquisition of any Person or
substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
For purposes of this definition, the term "control" means the power to direct
the management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract or otherwise, provided that a beneficial owner of 10% or more of the
total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable, shall for such purposes be deemed to
constitute control.
"Affiliate Transaction" shall have the meaning specified in Section
4.10.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Attributable Indebtedness" means, with respect to any particular
lease under which any Person is at the time liable and at any date as of
which the amount thereof is to be determined, the present value of the total
net amount of rent required to be paid by such Person under the lease during
the primary term thereof, without giving effect to any renewals at the option
of the lessee, discounted from the respective due dates thereof to such date
at the rate of interest per annum implicit in the terms of the lease. As used
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in the preceding sentence, the net amount of rent under any lease for any
such period shall mean the sum of rental and other payments required to be
paid with respect to such period by the lessee thereunder excluding any
amounts required to be paid by such lessee on account of maintenance and
repairs, insurance, taxes, assessments, water rates or similar charges. In
the case of any lease which is terminable by the lessee upon payment of a
penalty, such net amount of rent shall also include the amount of such
penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of
the product of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal (or redemption) payment
of such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Beneficial Owner," for purposes of the definition of Change of
Control, has the meaning attributed to it in Rules 13d-3 and 13d-5 under the
Exchange Act (as in effect on the Issue Date), whether or not applicable,
except that a "person" (as such term is used for purposes of such Rules)
shall be deemed to have "beneficial ownership" of all shares that such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person. With respect to any Person
that is not organized as a corporation, "Board of Directors" shall refer to
the entity or entities having similar powers.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
or the city in which the principal office of the Trustee is located are
authorized or obligated by law or executive order to close.
"Capitalized Lease Obligation" means rental obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations, as
determined in accordance with GAAP.
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"Capital Stock" means, (i) with respect to any Person formed as a
corporation, any and all shares, interests, rights to purchase (other than
convertible or exchangeable Indebtedness), warrants, options, participations
or other equivalents of or interests (however designated) in stock issued by
that corporation and (ii) with respect to any Person formed other than as a
corporation, any and all partnership or other equity interests of such Person.
"Cash" means such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) maturing within one
year after the date of acquisition, (ii) time deposits, certificates of
deposit, bankers' acceptances and commercial paper issued by the parent
corporation of any domestic commercial bank of recognized standing having
capital and surplus in excess of $1 billion, (iii) commercial paper issued by
any other issuer which is rated in the case of commercial paper which matures
one year or more after the date of acquisition, at least A-1 or the
equivalent thereof by Standard & Poor's Corporation ("S&P") or at least P-1
or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's"), (iv)
securities commonly known as "short-term bank notes" issued by any commercial
bank denominated in U.S. Dollars which at the time of purchase is rated at
least A-2 or the equivalent thereof by S&P or at least P-2 or the equivalent
thereof by Moody's, (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (i)
and (ii) above entered into with any commercial bank meeting the
qualifications specified in clause (ii) above and (vi) shares of any money
market fund, or similar fund, in each case having assets in excess of $1
billion, which invests predominantly in investments of the type described in
clauses (i), (ii), (iii), (iv) or (v) above.
"Change of Control" means (i) any sale, merger or consolidation with or
into any Person or any transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or in a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the total
voting power in the aggregate normally entitled to vote in the election of
directors, managers or trustees, as applicable, of the transferee or
surviving entity, (ii) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner," directly or indirectly, of
more than 50% of the total voting power in the aggregate of all classes of
Capital Stock of the Company then outstanding normally entitled to vote in
elections of directors or (iii)
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during any period of 12 consecutive months after the Issue Date, individuals
who at the beginning of any such 12-month period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors then still in
office who were either directors at the beginning of such period or whose
election, recommendation, or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
"Change of Control Offer" shall have the meaning specified in Section
10.1.
"Change of Control Offer Period" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Date" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Price" shall have the meaning specified in
Section 10.1.
"Change of Control Put Date" shall have the meaning specified in Section
10.1.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means HPSC, Inc., a Delaware corporation, until a successor
replaces it pursuant to this Indenture, and thereafter means such successor.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated Net Income of such Person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) consolidated income tax
expense for such period, (ii) consolidated depreciation and amortization
expense for such period, (iii) non-cash charges of such Person and its
Consolidated Subsidiaries during such period less the amount of all cash
payments made during such period to the extent such payments relate to
non-cash charges that were added back in determining Consolidated EBITDA for
such period, (iv) Consolidated Interest Expense for such period and (v) to
the extent not excluded from the Consolidated Net Income of such Person for
such period, losses (determined on a consolidated basis in accordance with
GAAP) which are either extraordinary (as determined in accordance with GAAP)
or are unusual or nonrecurring.
"Consolidated Interest Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis,
of (a) the aggregate amount of Consolidated EBITDA of such Person
attributable to continuing operations and businesses (exclusive of amounts,
whether positive or negative,
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attributable to operations and businesses permanently discontinued or
disposed of) for the Reference Period to (b) the aggregate Consolidated
Interest Expense of such Person (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of, but only
to the extent that the obligations giving rise to such Consolidated Interest
Expense would no longer be obligations contributing to such Person's
Consolidated Interest Expense subsequent to the Transaction Date) during the
Reference Period; provided, that for purposes of such calculation, (i)
Acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (including any
Consolidated EBITDA associated with such Acquisition) shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions
giving rise to the need to calculate the Consolidated Interest Coverage Ratio
shall be assumed to have occurred on the first day of the Reference Period,
(iii) the incurrence or repayment of any Indebtedness or issuance of any
Disqualified Capital Stock during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (and the application
of the proceeds therefrom to the extent used to refinance or retire other
Indebtedness), other than under a revolving credit or similar facility to the
extent that the proceeds were used to finance working capital requirements in
the ordinary course of business, shall be assumed to have occurred on the
first day of such Reference Period and (iv) the Consolidated Interest Expense
of such Person attributable to interest on any Indebtedness or dividends on
any Disqualified Capital Stock bearing a floating interest (or dividend) rate
shall be computed on a pro forma basis as if the rate in effect on the
Transaction Date had been the applicable rate of the entire period, unless
such Person or any of its Subsidiaries is a party to a Hedging and Interest
Swap Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to Capitalized Lease Obligations)
of such Person and its Consolidated Subsidiaries during such period,
including (i) original issue discount and noncash interest payments or
accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations and (iii) all commissions, discounts and other fees and
charges owed with respect to bankers' acceptances and letters of credit
financing and currency and Hedging and Interest Swap Obligations, in each
case to the extent attributable to such period and (b) the amount of
dividends accrued or payable (other than in additional shares of such
Preferred Stock) by such Person or any of its Consolidated Subsidiaries in
respect of Preferred Stock (other than by Subsidiaries of such Person to such
Person or such Person's Consolidated Subsidiaries). For purposes of this
definition, (x) interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by the Company to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP, (y) interest expense attributable to any
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Indebtedness represented by the guaranty by such Person or a Subsidiary of
such Person of an obligation of another Person shall be deemed to be the
interest expense attributable to the Indebtedness guaranteed, and (z)
dividends in respect of Preferred Stock shall be deemed to be an amount equal
to the actual dividends paid divided by one minus the applicable actual
combined Federal, state, local and foreign income tax rate of the Company and
its Consolidated Subsidiaries (expressed as a decimal).
"Consolidated Net Income" means, with respect to any Person for any
period, the net income (or loss) of such Person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, (i) adjusted to exclude (only to the extent included in
computing such net income (or loss) and without duplication); (a) net gains
(but not net losses) from the sale, lease, transfer or other dispositions of
assets or property not in the ordinary course of business; (b) net gains (but
not net losses) which are either extraordinary (as determined in accordance
with GAAP) or are either unusual or nonrecurring, (c) the net income, if
positive, of any other Person accounted for by the equity method of
accounting, except to the extent of the amount of any dividends or
distributions actually paid in cash to such Person or a Consolidated
Subsidiary of such Person during such period, but in any case not in excess
of such Person's pro rata share of such Person's net income for such period,
(d) the net income, if positive, of any Person acquired in a pooling-
of-interests transaction for any period prior to the date of such
acquisition, (e) the net income, if positive, of any of such Person's
Consolidated Subsidiaries in the event and solely to the extent that the
declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or bylaws or any
other agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Consolidated Subsidiary, (f) all
gains (but not losses) from currency exchange transactions not in the
ordinary course of business consistent with past practice and (g) any
non-cash expense determined in accordance with GAAP in connection with a
transaction between the Company and the ESOP; and (ii) adjusted to include
the amount of any dividends or distributions actually paid in cash to such
Person or a Consolidated Subsidiary of such Person by an Unrestricted
Subsidiary in an amount not to exceed such Person's pro rata share of such
Unrestricted Subsidiary's net income.
"Consolidated Net Worth" of any Person at any date means the aggregate
consolidated stockholders' equity of such Person (plus amounts of equity
attributable to Preferred Stock) and its Consolidated Subsidiaries, as would
be shown on the consolidated balance sheet of such Person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (a) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of such Person
and its Consolidated Subsidiaries, (b) all upward revaluations and other
write-ups in the book value of any asset of such Person or a Consolidated
Subsidiary of such Person subsequent to the Issue Date and (c) all
investments in Subsidiaries that are not Consolidated Subsidiaries and in
Persons that are not Subsidiaries.
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"Consolidated Subsidiary" means, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting
purposes with the financial statements of such Person in accordance with GAAP.
"Customer" means any Person for whom the Company or any of its
Subsidiaries finances property, equipment, goods, leasehold improvements or
working capital requirements.
"Customer Receivable" means any obligation of any kind or nature,
however denominated, to the Company or any of its Subsidiaries (i) incurred
by Customers in the ordinary course of the respective business of the Company
and its Subsidiaries or (ii) arising from the purchase or acquisition by the
Company or any of its Subsidiaries of any lease, promissory note, account
receivable, loan or similar financial arrangement, or any right or asset
reasonably related to any of the foregoing.
"Covenant Defeasance" shall have the meaning specified in Section 8.3.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Defaulted Interest" shall hae the meaning specified in Section 2.12.
"Definitive Securities" means Securities that are in the form of Security
attached hereto as Exhibit A that do not include the information called for
by footnotes 1 and 2 thereof.
"Depository" means, with respect to the Securities issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter. "Depository" shall mean or include such successor.
"Designated Secured Portfolio Debt" means (a) the Indebtedness under the
Revolver Agreement and (b) any other Secured Portfolio Debt which (i) at the
date of determination has an aggregate principal amount outstanding of, or
under which at the date of determination the holders thereof are committed to
lend up to, at least $10,000,000 and (ii) is specifically designated by the
Company in the instrument governing such Secured Portfolio Debt as
"Designated Secured Portfolio Debt" for purposes of this Indenture.
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"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any Person, Capital Stock of such Person that, by its terms or by
the terms of any security into which it is then convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such Person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Securities and (b) with
respect to any Subsidiary of any Person (including with respect to any
Subsidiary of the Company), any Capital Stock of such Subsidiary other than
any common stock with no preference, privileges, or redemption or repayment
provisions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ESOP" means, collectively, the HPSC, Inc. Employee Stock Ownership Plan
and the Supplemental HPSC, Inc. Employee Stock Ownership Plan, and any
successor employee stock ownership plans having terms similar to the
foregoing plans, as amended from time to time by a resolution of the Board of
Directors of the Company or a duly authorized committee thereof.
"Event of Default" shall have the meaning specified in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exempted Affiliate Transaction" means (a) transactions solely between
the Company and any of its Wholly-Owned Subsidiaries or solely among
Wholly-Owned Subsidiaries of the Company, (b) transactions permitted under
Section 4.3 hereof, (c) customary employee compensation arrangements approved
by a majority of independent (as to such transactions) members of the Board
of Directors of the Company, (d) reasonable fees and compensation paid to,
and indemnities to, and directors and officers and ERISA-based fiduciary
liability insurance provided on behalf of, officers, directors, agents or
employees of the Company or any of its Subsidiaries or the ESOP or any
trustee thereof, in each case in the ordinary course of business and as
determined in good faith by the Board of Directors of the Company and (e) any
guaranty by the Company or any of its Subsidiaries of any Indebtedness of the
Company and/or any Wholly-Owned Subsidiary of the Company (but not of any
other Person).
"Funded Recourse Debt" means, without duplication, any Indebtedness of
the Company or any Subsidiary of the Company which by its terms matures at or
is extendible or renewable at the sole option of the obligor without
requiring the consent of the obligee to a date more than one year after the
date of the creation or incurrence of such obligation; provided that Funded
Recourse Debt shall not include any Non-Recourse Indebtedness of the Company
or any Subsidiary of the Company.
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"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"Global Security" means a Security that contains the paragraph referred
to in footnote 1 and the additional schedule referred to in footnote 2 to the
form of Security attached hereto as Exhibit A.
"Hedging and Interest Swap Obligations" means, with respect to any
Person, the obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements
and (ii) other agreements or agreements designed to protect such Person
against fluctuations in interest rates.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's book or, for purposes of Section 4.16, the
beneficial owner of Securities held in global form.
"Indebtedness" of any Person means, without duplication: (a) all
liabilities and obligations, contingent or otherwise, of any such Person, (i)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such Person or only to a portion thereof), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except (other than accounts payable or other
obligations to trade creditors which have remained unpaid for greater than 90
days past their original due date unless contested in good faith) those
incurred in the ordinary course of its business that would constitute
ordinarily a trade payable to creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (b) all net obligations of such Person
under Hedging and Interest Swap Obligations; (c) all liabilities and
obligations of others of the kind described in the preceding clauses (a) or
(b) that such Person has guaranteed or that is otherwise legal liability or
which are secured by any assets or property of such Person; and (d) all
immediately enforceable obligations to purchase, redeem or acquire any
Capital Stock of such Person (other than, in the case of the Company or any
of its Subsidiaries, obligations under the Restricted Stock Plans or the
Stock Options Plans).
"Indenture" means this Indenture as amended or supplemented from time to
time in accordance with the terms hereof.
"Independent Committee" shall have the meaning set forth in Section 4.10.
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"Interest Payment Date" means the stated due date of an installment of
interest on the Securities.
"Investment" by any person in any other person means (without
duplication): (a) the acquisition (whether by purchase, merger, consolidation
or otherwise) by such Person (whether for cash, property, services,
securities or otherwise) of Capital Stock, bonds, notes, debentures,
partnership or other ownership interests or other securities, including any
options or warrants, of such other Person or any agreement to make any such
acquisition; (b) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension (but
excluding accounts receivable or deposits arising in the ordinary course of
business); (c) other than guarantees of Indebtedness of the company to the
extent permitted by Section 4.11 hereof, the entering into by such Person of
any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other Person; and (d) the
making of any capital contribution by such Person to such other Person.
"Issue Date" means the date of first issuance of the Securities under
this Indenture.
"Legal Defeasance" shall have the meaning specified in Section 8.2.
"Lien" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest
and any option or other agreement to give any security interest).
"Maturity Date" means, when used with respect to any Security, the date
specified on such Security as the fixed date on which the final installment
of principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any redemption thereof pursuant to Article
III of this Indenture, or any Change of Control Offer or repurchase upon the
death of the Holder of such Security).
"Net Cash Proceeds" means the aggregate amount of Cash and Cash
Equivalents received by the company in the case of a sale of Qualified
Capital Stock plus, in the case of an issuance of Qualified Capital Stock
upon any exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable debt) of the Company that
were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including
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options, warrants, rights and convertible or exchangeable debt) less, in each
case, the sum of all payments, fees, commissions and reasonable and
customary) expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in
connection with such sale of Qualified Capital Stock.
"Non-Receivable Asset" means any asset, property or right of the Company
or any of its Subsidiaries, other than any Customer Receivable, or asset
related to such Customer Receivable, such as inventory, records, intellectual
property and proceeds of Customer Receivables.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness (i) as to which neither the Company nor any of its Subsidiaries
(a) provide credit support (including any undertaking, agreement or instrument
which would constitute Indebtedness), (b) is directly or indirectly liable or
(c) constitutes the lender and (ii) with respect to which no default would
permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Subsidiary to declare a default on such
other Indebtedness or cause the payment therefor to be accelerated or payable
prior to its stated maturity.
"Notice of Default" shall have the meaning specified in Section 6.1(4).
"Obligation" means any principal, premium, interest, penalties, fees,
reimbursements, damages, indemnification and other liabilities relating to
obligations of the Company under the Securities or this Indenture.
"Officer" means, with respect to the Company, the Chief Executive
Officer, the President, any Executive or Senior Vice President, the Chief
Financial Officer, the Treasurer, the Controller, or the Secretary of the
Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant
Secretary of the Company and otherwise complying with the requirements of
Sections 12.4 and 12.5.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of
Sections 12.4 and 12.5.
"Outstanding" as used with reference to the Securities shall have the
meaning specified in Section 2.8.
"Paying Agent" shall have the meaning specified in Section 2.3.
"Permitted Lien" means any of the following:
11
<PAGE>
(a) Liens existing on the Issue Date;
(b) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being
converted in good faith and by appropriate proceedings, if adequate
reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP;
(c) Statutory Liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of
law in the ordinary course of business provided that (i) the
underlying obligations are not overdue for a period of more than 30
days or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
for borrowed money), leases statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) Easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title effects which, singly or in the
aggregate, do not in any case materially detract from the value of
the property subject thereto (as such property is used by the
Company or any of its Subsidiaries) or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period not resulting in an
Event of Default with respect thereto;
(g) Pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(h) Liens on the property or assets of a Person existing at the time
such person becomes a Subsidiary or is merged with or into the
Company or a Subsidiary, provided in each case that such Liens were
in existence prior to the date of such acquisition, merger or
consolidation were not incurred in anticipation therof and do not
extend to any other assets;
(i) Liens on property or assets existing at the time of the acquisition
thereof by the Company or any of its Subsidiaries, provided that
such Liens were
12
<PAGE>
in existence prior to the date of such acquisition and were not
incurred in anticipation thereof;
(j) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more
adverse to the Holders of the Securities than the terms of the
Liens securing such refinanced Indebtedness;
(k) Liens securing Portfolio Debt;
(l) Liens securing Purchase Money Indebtedness or Capitalized Lease
Obligations permitted to be incurred under clause (c) of the
definition of "Permitted Recourse Debt";
(m) Liens in favor of the Company or any Subsidiary of the Company; and
(n) Liens securing the Securities.
"Permitted Recourse Debt" means any of the following:
(a) Indebtedness of the Company evidenced by the Securities pursuant to
this Indenture up to the amounts specified herein as of the Issue
Date;
(b) Indebtedness of the Company and its Subsidiaries under the Revolver
Agreement (including any Indebtedness issued to refinance, refund
or replace such Indebtedness in whole or in part, including any
extended maturity or increase in the amount thereof);
(c) Indebtedness of the Company and its Subsidiaries (in addition to
Indebtedness permitted by any other clause of this definition) in
an aggregate amount outstanding at any time (including any
Indebtedness issued to refinance, replace or refund such
Indebtedness in whole or in part) of up to $1,500,000;
(d) Refinancing Indebtedness of the Company and its Subsidiaries
incurred with respect to any Indebtedness or Disqualified Capital
Stock, as applicable, described in clause (ii) of the proviso
contained in Section 4.11 or described in clause (e) of this
definition of "Permitted Recourse Debt";
(e) Indebtedness of the Company owed to any Wholly-Owned Subsidiary,
and Indebtedness of any Subsidiary of the Company owed to any other
Wholly-Owned Subsidiary or to the Company; provided that any such
obligations of the Company owed to any Wholly-Owned Subsidiary of
the Company shall be unsecured and subordinated in all respects to
the
13
<PAGE>
Company's obligations pursuant to the Securities; and, provided,
further, that if any Wholly-Owned Subsidiary ceases to be a
Wholly-Owned Subsidiary of the Company or if the Company or any
Wholly-Owned Subsidiary transfers such Indebtedness to any Person
(other than to the Company or another Wholly-Owned Subsidiary),
such events, in each case, shall constitute the incurrence of such
Indebtedness by the Company or such Wholly-Owned Subsidiary, as the
case may be, at the time of such event;
(f) Indebtedness of the Company and its Subsidiaries existing on the
Issue Date;
(g) Indebtedness of the Company and its Subsidiaries incurred solely in
respect of bankers acceptances, letters of credit, surety bonds and
performance bonds (in each case to the extent that such incurrence
does not result in the incurrence of any obligation for the payment
of borrowed money of others) issued (i) in connection with the
incurrence or refinancing of Secured Portfolio Debt and (ii) in the
ordinary course of business consistent with past practice;
(h) Indebtedness of the Company and its Subsidiaries represented by
Hedging and Interest Swap Obligations entered into in the ordinary
course of business consistent with past practice and related to
Indebtedness of the Company and its Subsidiaries otherwise
permitted to be incurred pursuant to the Indenture; and
(i) Secured Portfolio Debt.
"Person" or "person" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity, country, state or
political subdivision thereof, trust, municipality or other entity.
"Principal" of any Indebtedness means the principal of such Indebtedness
plus, without duplication, any applicable premium, if any, on such
Indebtedness.
"Pro Rata Portion" shall have the meaning set forth in Section 11.1(d).
"Property" means any right or interest in or to property or assets of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Money Indebtedness" means Indebtedness of the Company or its
Subsidiaries to the extent that (i) such Indebtedness is incurred in
connection with the acquisition of specialized assets and property (the
"Subject Assets") for the business of the
14
<PAGE>
Company or its Subsidiaries, including Indebtedness which existed at the time
of the acquisition of such Subject Asset and was assumed in connection
therewith, and (ii) the Liens securing such Indebtedness are limited to the
Subject Asset.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Subordinated
Indebtedness of the Company issued on or after the Issue Date with the Net
Cash Proceeds received by the Company from the substantially concurrent
(i.e., within 60 days) sale (other than to a Subsidiary of the Company or
the ESOP) of Qualified Capital Stock or any issuance of Qualified Capital
Stock in exchange for any Capital Stock or Subordinated Indebtedness issued
on or after the Issue Date.
"Record Date" means a Record Date specified in the Securities whether or
not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III
of this Indenture and Paragraph 5 of such Security.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to
Paragraph 5 of such Security, which shall include, without duplication, in
each case, accrued and unpaid interest to the Redemption Date.
"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in
existence) of such Person ended immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Securities or
this Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale
of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in
part, or (b) constituting an amendment, modification or supplement to, or a
deferral or renewal of (each of (a) and (b) above is a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing) the lesser of (i) the principal amount or,
in the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so refinanced and (ii) if such
Indebtedness being refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at
15
<PAGE>
the time of such Refinancing; provided that (A) such Refinancing Indebtedness
of any Subsidiary of the Company shall only be used to refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
Refinancing Indebtedness shall (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Securities than was the
Indebtedness or Disqualified Capital Stock to be refinanced and (C) such
Refinancing Indebtedness shall have no installment of principal (or
redemption payment) scheduled to come due earlier than the scheduled maturity
of any installment of principal of the Indebtedness or Disqualified Capital
Stock to be so refinanced which was scheduled to come due prior to the Stated
Maturity.
"Registrar" shall have the meaning specified in Section 2.3.
"Related Business" means the business conducted by the company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of the Company are materially
related businesses.
"Representative" means the trustee, agent or representative (if any) of
Secured Portfolio Debt.
"Repurchase Date," when used with respect to any Security to be
repurchased pursuant to the provisions of Section 4.16, means the date fixed
for the repurchase of such Security pursuant to Section 4.16.
"Repurchase Price," when used with respect to any Security to be
repurchased pursuant to the provisions of Section 4.16, means an amount equal
to 100% of the principal amount thereof and shall include, without
duplication, in each case, accrued and unpaid interest to the Repurchase
Date of such Security.
"Restricted Investment" means any Investment other than:
(a) Investments in Customer Receivables;
(b) Investments in Cash Equivalents;
(c) Investments existing on the Issue Date;
(d) Investments in the Company or a Wholly-Owned Subsidiary;
(e) Investments in any Person engaged in a Related Business if, as a
consequence of such Investment, (i) such Person becomes a
Wholly-Owned Subsidiary of the Company or (ii) such Person is merged,
16
<PAGE>
consolidated or amalgamated with or into, or conveys substantially
all of its assets to the Company or a Wholly-Owned Subsidiary of
the Company;
(f) Investments consisting of loans or advances to employees of the
Company or any of its Subsidiaries (i) for moving, entertainment,
travel and other similar expenses in the ordinary course of
business not exceeding $250,000 outstanding in the aggregate at any
one time or (ii) pursuant to the HPSC Stock Loan Program not
exceeding $400,000 (or such greater amount as may be permitted
under Federal Reserve regulations from time to time) outstanding in
the aggregate at any one time;
(g) Investments made as a result of the receipt of non-cash
consideration in connection with the sale, lease, disposal, pledge,
encumbrance or other transfer of Customer Receivables:
(h) Investments not otherwise specified in clauses (a) through (g)
above not exceeding $1,000,000 outstanding in the aggregate at any
one time; and
(i) Investments not otherwise specified in clauses (a) through (h)
above which are from time to time permitted to be made by HPSC or
any of its Subsidiaries under Section 8.3 (or any successor
provision) of the Revolver Agreement.
"Responsible Officer" means an officer of the Trustee in the department
or other group administering the trust established hereby.
"Restricted Payment" means, with respect to any Person, (a) the
declaration or payment of any dividend or other distribution in respect of
any Capital Stock of such Person or any Subsidiary of such Person, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Capital Stock of such Person or any Subsidiary of
such Person, (c) other than with the proceeds from the substantially
concurrent (i.e., within 60 days) sale of, or in exchange for, Refinancing
Indebtedness, any purchase, redemption or other acquisition or retirement for
value of, any payment in respect of any amendment of the terms of or any
defeasance of, any Subordinated Indebtedness of such Person or any Affiliate
or Subsidiary of such Person, directly or indirectly, by such Person or any
Subsidiary of such Person prior to the scheduled maturity, any scheduled
repayment of principal, or any scheduled sinking fund payment, as the case
may be, of such Subordinated Indebtedness and (d) any Restricted Investment
by such Person; provided that the term "Restricted Payment" does not
include (i) any dividend, distribution or other payment on or with respect
to, or on account of the purchase, redemption or other acquisition or
retirement for value of, Capital Stock of an issuer to the extent payable
solely in shares of Qualified Capital Stock of such issuer or (ii) any
dividend, distribution or other payment to the Company or to any of its
Wholly-Owned Subsidiaries by the Company or any of its Subsidiaries.
17
<PAGE>
"Restricted Stock Plans" shall mean collectively, (i) the Company's 1995
Stock Incentive Plan and (ii) comparable plans providing for the issuance of
Capital Stock of the Company to officers, directors and employees of the
Company and its Subsidiaries having terms similar to the foregoing, each as
amended from time to time by a resolution of the Board of Directors of the
Company or a duly authorized committee thereof.
"Revolver Agreement" means the credit agreement dated as of December 12,
1996, as amended on the Issue Date, by and among the Company and ACFC,
certain financial institutions, and The First National Bank of Boston, as
agent, providing for an aggregate $95,000,000 revolving credit facility,
including any related notes, guarantees, collateral documents, instruments
and agreements executed in connection therewith, as such credit agreement
and/or related documents may by the Company be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time
whether or not with the same agent, trustee, representative lenders or
holders, and irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Revolver
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to any Revolver Agreement
by the Company and all refundings, refinancings and replacements of any such
Revolver Agreement, including any agreement (i) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
thereunder include the Company and its successors and assigns, (iii)
increasing the amount of Indebtedness incurred thereunder or available to be
borrowed thereunder or (iv) otherwise altering the terms and conditions
thereof.
"Savings Bank Indebtedness" of the Company or any Subsidiary means any
Indebtedness owed to a savings bank or other financial institution, which
Indebtedness is (i) created, incurred, assumed or guaranteed by the Company
or such Subsidiary of the Company in order to finance one or more Customer
Receivables created in the ordinary course of business of the Company or such
Subsidiary and (ii) secured by a Lien on such Customer Receivable(s).
"Secured Portfolio Debt" of the Company or any Subsidiary means any
indebtedness, including principal, interest (including, without limitation
interest accruing after the commencement of any bankruptcy case or
proceedings whether or not allowed as a claim in such case or proceeding)
fees, collateral protection expenses and enforcement costs, of the Company or
such Subsidiary under the Revolver Agreement, Savings Bank Indebtedness and
any other Indebtedness of the Company or such Subsidiary, whether outstanding
on the Issue Date or thereafter created, incurred, assumed or guaranteed by
the Company or such Subsidiary, which Indebtedness is (i) created, incurred,
assumed or guaranteed by the Company or such Subsidiary of the Company in
order to finance one or more Customer Receivables created
18
<PAGE>
in the ordinary course of business of the Company or such Subsidiary and (ii)
secured by a Lion on such Customer Receivable(s).
"SEC" means the Securities and Exchange Commission.
"Securities" means the __% Senior Subordinated Notes due 2007 as amended
or supplemented from time to time pursuant to the terms of this Indenture,
that are issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a Security
is registered on the Registrar's books.
"Senior Indebtedness" of the Company or any of its Subsidiaries means
any Indebtedness of the Company or such Subsidiary, whether outstanding on
the Issue Date or thereafter created, incurred, assumed or guaranteed by the
Company or such Subsidiary, other than Indebtedness as to which the
instrument creating or evidencing the same or the assumption or guarantee
thereof expressly provides that such Indebtedness is subordinated or junior
to the Securities. Notwithstanding the foregoing, however, in no event shall
Senior Indebtedness include (a) Indebtedness owed to any Subsidiary of the
Company or any officer, director or employee of the Company or any Subsidiary
of the Company or (b) Indebtedness incurred in violation of the terms of this
Indenture.
"Sinking Fund" means the method provided in this Indenture and the
Securities for amortizing the aggregate principal amount of the Securities.
"Sinking Fund Payment Date" means the first day of each ___,___,___, and
___, commencing ___ 1, ___ and continuing through ___ 1,200 ___.
"Special Record Date" for payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means _____,
2007.
"Stock Option Plans" shall mean collectively, (i) the Company's 1987
Stock Option Plan, (ii) the HPSC, Inc. 1988 Director's Stock Option Plan, and
(iii) comparable plans providing for the issuance of options to purchase
Capital Stock of the Company to officers, directors and/or employees of the
Company and its Subsidiaries having terms
19
<PAGE>
similar to the foregoing, each as amended from time to time by a resolution
of the Board of Directors of the Company or a duly authorized committee
thereof.
"Subordinated Indebtedness" means Indebtedness of the Company that is
(i) subordinated in right of payment to the Securities in any respect or (ii)
any Indebtedness which is expressly subordinate to Senior Indebtedness and
has a stated maturity on or after the Stated Maturity.
"Subsidiary" with respect to any Person, means (i) a corporation a
majority of whose Capital Stock with voting power under ordinary
circumstances to elect directors is at the time, directly or indirectly owned
by such Person, by such Person and one or more Subsidiaries of such Person or
by one or more Subsidiaries of such Person, or (ii) any other Person (other
than a corporation described in clause (i) above) in which such Person, one
or more Subsidiaries of such Person or such Person and one or more
Subsidiaries of such Person directly or indirectly at the date of
determination thereof has at least majority ownership interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not
constitute a Subsidiary of the Company or of any of the Company's
Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"U.S. Government Obligations" means direct non-callable obligations of
or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Voting Stock" means Capital Stock of the Company having generally the
right to vote in the election of the majority of the directors of the Company
or having generally the right to vote with respect to the organizational
matters of the Company.
"Wholly-Owned" or "wholly-owned" with respect to a Subsidiary of any
Person means a Subsidiary of such Person of which all of the outstanding
Capital Stock or other ownership interests (other than directors' qualifying
shares) shall at the time be owned by such Person or by one or more
Wholly-Owned Subsidiaries of such Person or by such Person and one or more
Wholly-Owned Subsidiaries of such Person.
20
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- -------------------------------------------------------------------------------
HPSC, INC.,
ISSUER,
AND
STATE STREET BANK AND TRUST COMPANY,
TRUSTEE
INDENTURE
DATED AS OF MARCH 20, 1997
$23,000,000
11% SENIOR SUBORDINATED NOTES DUE 2007
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE......................1
SECTION 1.1 Definitions.............................................1
SECTION 1.2 Incorporation by Reference of TIA......................18
SECTION 1.3 Rules of Construction..................................19
ARTICLE II THE SECURITIES................................................20
SECTION 2.1 Form and Dating........................................20
SECTION 2.2 Execution and Authentication...........................20
SECTION 2.3 Registrar and Paying Agent.............................21
SECTION 2.4 Paying Agent to Hold Assets in Trust...................21
SECTION 2.5 Securityholder Lists...................................22
SECTION 2.6 Transfer and Exchange..................................22
SECTION 2.7 Replacement Securities.................................25
SECTION 2.8 Outstanding Securities.................................25
SECTION 2.9 Treasury Securities....................................25
SECTION 2.10 Temporary Securities..................................26
SECTION 2.11 Cancellation..........................................26
SECTION 2.12 Defaulted Interest....................................26
ARTICLE III REDEMPTIONS; SINKING FUND....................................28
SECTION 3.1 Right of Redemption....................................28
SECTION 3.2 Notices to Trustee.....................................28
SECTION 3.3 Selection of Securities to Be Redeemed.................28
SECTION 3.4 Notice of Redemption...................................29
SECTION 3.5 Effect of Notice of Redemption.........................30
SECTION 3.6 Deposit of Redemption Price............................30
SECTION 3.7 Securities Redeemed in Part............................31
SECTION 3.8 Sinking Fund...........................................31
ARTICLE IV COVENANTS.....................................................31
SECTION 4.1 Payment of Securities..................................32
SECTION 4.2 Maintenance of Office or Agency........................32
SECTION 4.3 Limitation on Restricted Payments......................32
SECTION 4.4 Corporate Existence....................................34
SECTION 4.5 Payment of Taxes and Other Claims......................34
SECTION 4.6 Maintenance of Properties and Insurance................34
SECTION 4.7 Compliance Certificate; Notice of Default..............35
SECTION 4.8 Reports and Other Information..........................35
SECTION 4.9 Limitation on Status as Investment Company.............36
SECTION 4.10 Limitation on Transactions with Affiliates............36
SECTION 4.11 Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock.................................37
SECTION 4.12 Limitations on Dividends and Other Payment
Restrictions Affecting Subsidiaries............................38
SECTION 4.13 Limitation on Liens...................................38
SECTION 4.14 Waiver of Stay, Extension or Usury Laws...............39
SECTION 4.15 Limitation on Lines of Business.......................39
<PAGE>
SECTION 4.16 Repurchase of Securities Upon Death of Holder.........39
ARTICLE V SUCCESSOR CORPORATION..........................................42
SECTION 5.1 Limitation on Merger, Sale or Consolidation............42
SECTION 5.2 Successor Corporation Substituted......................43
ARTICLE VI EVENTS OF DEFAULT AND REMEDIES................................43
SECTION 6.1 Events of Default......................................43
SECTION 6.2 Acceleration of Maturity Date; Rescission and
Annulment......................................................45
SECTION 6.3 Collection of Indebtedness and Suits for Enforcement by
Trustee........................................................46
SECTION 6.4 Trustee May File Proofs of Claim.......................47
SECTION 6.5 Trustee May Enforce Claims Without Possession of
Securities.....................................................48
SECTION 6.6 Priorities.............................................48
SECTION 6.7 Limitation on Suits....................................48
SECTION 6.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest...........................................49
SECTION 6.9 Rights and Remedies Cumulative.........................49
SECTION 6.10 Delay or Omission Not Waiver..........................50
SECTION 6.11 Control by Holders....................................50
SECTION 6.12 Waiver of Past Default................................50
SECTION 6.13 Undertaking for Costs.................................51
SECTION 6.14 Restoration of Rights and Remedies....................51
ARTICLE VII TRUSTEE......................................................51
SECTION 7.1 Duties of Trustee......................................52
SECTION 7.2 Rights of Trustee......................................53
SECTION 7.3 Individual Rights of Trustee...........................54
SECTION 7.4 Trustee's Disclaimer...................................54
SECTION 7.5 Notice of Default......................................54
SECTION 7.6 Reports by Trustee to Holders..........................54
SECTION 7.7 Compensation and Indemnity.............................55
SECTION 7.8 Replacement of Trustee.................................56
SECTION 7.9 Successor Trustee by Merger, Etc.......................57
SECTION 7.10 Eligibility; Disqualification.........................57
SECTION 7.11 Preferential Collection of Claims Against Company.....57
ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE; SATISFACTION AND
DISCHARGE................................................................57
SECTION 8.1 Option to Effect Legal Defeasance and Discharge........57
SECTION 8.2 Legal Defeasance and Discharge.........................58
SECTION 8.3 Covenant Defeasance....................................58
SECTION 8.4 Conditions to Legal or Covenant Defeasance.............59
SECTION 8.5 Deposited Cash and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous Provisions..................60
SECTION 8.6 Repurchase to the Company..............................60
SECTION 8.7 Reinstatement..........................................61
SECTION 8.8 Satisfaction and Discharge.............................61
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS...........................62
SECTION 9.1 Supplemental Indentures Without Consent of Holders.....62
ii
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SECTION 9.2 Amendments, Supplemental Indentures and Waivers with
Consent of Holders.............................................63
SECTION 9.3 Compliance with TIA....................................64
SECTION 9.4 Revocation and Effect of Consents......................64
SECTION 9.5 Notation on or Exchange of Securities..................65
SECTION 9.6 Trustee to Sign Amendments, Etc........................65
ARTICLE X RIGHT TO REQUIRE REPURCHASE UPON CHANGE OF CONTROL.............66
SECTION 10.1 Repurchase of Securities at Option of the Holder Upon a
Change of Control..............................................66
ARTICLE XI SUBORDINATION OF SECURITIES...................................68
SECTION 11.1. Securities Subordinated to Secured Portfolio Debt....68
SECTION 11.2. No Payment on Securities in Certain Circumstances....69
SECTION 11.3. Securities Subordinated to Prior Payment of All Secured
Portfolio Debt on Dissolution, Liquidation or Reorganization...70
SECTION. 11.4. Securityholders to Be Subrogated to Rights of
Holders of Secured Portfolio Debt..............................70
SECTION 11.5. Obligations of the Company Unconditional.............71
SECTION 11.6. Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice...........................................71
SECTION 11.7. Application by Trustee of Assets Deposited with It...72
SECTION 11.8. Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders of Secured Portfolio Debt..72
SECTION 11.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities....................................72
SECTION 11.10. Right of Trustee to Hold Secured Portfolio Debt.....73
SECTION 11.11. Article XI Not to Prevent Events of Default.........73
SECTION 11.12. No Fiduciary Duty of Trustee to Holders of Secured
Portfolio Debt.................................................73
SECTION 11.13. Acceleration of Payment of Securities...............74
ARTICLE XII MISCELLANEOUS................................................74
SECTION 12.1 TIA Controls..........................................74
SECTION 12.2 Notices...............................................74
SECTION 12.3 Communications by Holders with Other Holders..........75
SECTION 12.4 Certificate and Opinion as to Conditions Precedent....75
SECTION 12.5 Statements Required in Certificate or Opinion.........76
SECTION 12.6 Rules by Trustee, Paying Agent, Registrar.............76
SECTION 12.7 Non-Business Days.....................................76
SECTION 12.8 Governing Law.........................................76
SECTION 12.9 No Adverse Interpretation of Other Agreements.........77
SECTION 12.10 No Recourse Against Others...........................77
SECTION 12.11 Successors...........................................77
SECTION 12.12 Duplicate Originals..................................78
SECTION 12.13 Severability.........................................78
SECTION 12.14 Table of Contents, Headings, Etc.....................78
SECTION 12.15 Qualification of Indenture...........................78
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INDENTURE, dated as of March 20, 1997, between HPSC, Inc., a Delaware
corporation (the "Company") and State Street Bank and Trust Company, as
Trustee.
Each party hereto agrees as follows for the benefit of each other party
and for the equal and ratable benefit of the Holders of the Company's 11%
Senior Subordinated Notes due 2007 (the "Securities").
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1 Definitions.
"Acceleration Notice" shall have the meaning specified in Section 6.2.
"Acquired Recourse Debt" means Funded Recourse Debt or Disqualified
Capital Stock of any Person existing at the time such Person becomes a
Subsidiary of the Company or is merged or consolidated into or with the
Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any Person or
substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
For purposes of this definition, the term "control" means the power to direct
the management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract or otherwise, provided that a beneficial owner of 10% or more of the
total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable, shall for such purposes be deemed to
constitute control.
"Affiliate Transaction" shall have the meaning specified in Section 4.10.
"Agent" means any Registrar, Paying Agent or co- Registrar.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount
of rent required to be paid by such Person under the lease during the primary
term thereof, without giving effect to any renewals at the option of the
lessee, discounted from the respective due dates thereof to such date at the
rate of interest per annum implicit in the terms of the lease. As used in the
preceding sentence, the net amount of rent under any lease for any such
period shall mean the sum of rental and other payments required to be paid
with respect to such period by the lessee thereunder excluding any amounts
required to be paid by such lessee on account of maintenance and repairs,
insurance, taxes, assessments, water rates or similar charges. In the case of
any lease which is terminable by the lessee upon payment of a penalty, such
net amount of rent shall also include the amount of such
<PAGE>
penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of
the product of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal (or redemption) payment
of such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal, state or
foreign law for the relief of debtors.
"Beneficial Owner," for purposes of the definition of Change of Control,
has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange
Act (as in effect on the Issue Date), whether or not applicable, except that
a "person" (as such term is used for purposes of such Rules) shall be deemed
to have "beneficial ownership" of all shares that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person. With respect to any Person
that is not organized as a corporation, "Board of Directors" shall refer to
the entity or entities having similar powers.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York or the
city in which the principal office of the Trustee is located are authorized
or obligated by law or executive order to close.
"Capitalized Lease Obligation" means rental obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations, as
determined in accordance with GAAP.
"Capital Stock" means, (i) with respect to any Person formed as a
corporation, any and all shares, interests, rights to purchase (other than
convertible or exchangeable Indebtedness), warrants, options, participations
or other equivalents of or interests (however designated) in stock issued by
that corporation and (ii) with respect to any Person formed other than as a
corporation, any and all partnership or other equity interests of such Person.
"Cash" means such coin or currency of the United States of America as at
the time of payment shall be legal tender for the payment of public and
private debts.
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"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) maturing within one
year after the date of acquisition, (ii) time deposits, certificates of
deposit, bankers' acceptances and commercial paper issued by the parent
corporation of any domestic commercial bank of recognized standing having
capital and surplus in excess of $1 billion, (iii) commercial paper issued by
any other issuer which is rated in the case of commercial paper which matures
one year or more after the date of acquisition, at least A-1 or the
equivalent thereof by Standard & Poor's Corporation ("S&P") or at least P-1
or the equivalent thereof by Moody's Investors Service, Inc. ("Moody's"),
(iv) securities commonly known as "short-term bank notes" issued by any
commercial bank denominated in U.S. Dollars which at the time of purchase is
rated at least A-2 or the equivalent thereof by S&P or at least P-2 or the
equivalent thereof by Moody's, (v) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (i) and (ii) above entered into with any commercial bank meeting the
qualifications specified in clause (ii) above and (vi) shares of any money
market fund, or similar fund, in each case having assets in excess of $1
billion, which invests predominantly in investments of the type described in
clauses (i), (ii), (iii), (iv) or (v) above.
"Change of Control" means (i) any sale, merger or consolidation with or
into any Person or any transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or in a series of related
transactions, if, immediately after giving effect to such transaction, any
"person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the total
voting power in the aggregate normally entitled to vote in the election of
directors, managers or trustees, as applicable, of the transferee or
surviving entity, (ii) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner," directly or indirectly, of
more than 50% of the total voting power in the aggregate of all classes of
Capital Stock of the Company then outstanding normally entitled to vote in
elections of directors or (iii) during any period of 12 consecutive months
after the Issue Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for election
by the shareholders of the Company was approved by a vote of a majority of
the directors then still in office who were either directors at the beginning
of such period or whose election, recommendation, or nomination for election
was previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Company then in office.
"Change of Control Offer" shall have the meaning specified in Section 10.1.
"Change of Control Offer Period" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Date" shall have the meaning specified in
Section 10.1.
"Change of Control Purchase Price" shall have the meaning specified in
Section 10.1.
"Change of Control Put Date" shall have the meaning specified in Section
10.1.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means HPSC, Inc., a Delaware corporation, until a successor
replaces it pursuant to this Indenture, and thereafter means such successor.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated Net Income of such Person for such period adjusted to add
thereto (to the extent deducted from net revenues in determining Consolidated
Net Income), without duplication, the sum of (i) consolidated income tax
expense for such period, (ii) consolidated depreciation and amortization
expense for such period, (iii) non-cash charges of such Person and its
Consolidated Subsidiaries during such period less the amount of all cash
payments made during such period to the extent such payments relate to
non-cash charges that were added back in determining Consolidated EBITDA for
such period, (iv) Consolidated Interest Expense for such period and (v) to
the extent not excluded from the Consolidated Net Income of such Person for
such period, losses (determined on a consolidated basis in accordance with
GAAP) which are either extraordinary (as determined in accordance with GAAP)
or are unusual or nonrecurring.
"Consolidated Interest Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis,
of (a) the aggregate amount of Consolidated EBITDA of such Person
attributable to continuing operations and businesses (exclusive of amounts,
whether positive or negative, attributable to operations and businesses
permanently discontinued or disposed of) for the Reference Period to (b) the
aggregate Consolidated Interest Expense of such Person (exclusive of amounts
attributable to operations and businesses permanently discontinued or
disposed of, but only to the extent that the obligations giving rise to such
Consolidated Interest Expense would no longer be obligations contributing to
such Person's Consolidated Interest Expense subsequent to the Transaction
Date) during the Reference Period; provided, that for purposes of such
calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date
(including any Consolidated EBITDA associated with such Acquisition) shall be
assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Interest
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period, (iii) the incurrence or repayment of any Indebtedness or
issuance of any Disqualified Capital Stock during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date
(and the application of the proceeds therefrom to the extent used to
refinance or retire other Indebtedness), other than under a revolving credit
or similar facility to the extent that the proceeds were used to finance
working capital requirements in the ordinary course of business, shall be
assumed to have occurred on the first day of such Reference Period and (iv)
the Consolidated Interest Expense of such Person attributable to interest on
any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis
as if the rate in effect on the Transaction Date had been the applicable rate
for the entire period, unless such Person or any of its Subsidiaries is a
party to a Hedging and Interest Swap Obligation (which shall remain in effect
for the 12-month period
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immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated Interest Expense" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued,
or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to Capitalized Lease Obligations)
of such Person and its Consolidated Subsidiaries during such period,
including (i) original issue discount and noncash interest payments or
accruals on any Indebtedness, (ii) the interest portion of all deferred
payment obligations and (iii) all commissions, discounts and other fees and
charges owed with respect to bankers' acceptances and letters of credit
financing and currency and Hedging and Interest Swap Obligations, in each
case to the extent attributable to such period and (b) the amount of
dividends accrued or payable (other than in additional shares of such
Preferred Stock) by such Person or any of its Consolidated Subsidiaries in
respect of Preferred Stock (other than by Subsidiaries of such Person to such
Person or such Person's Consolidated Subsidiaries). For purposes of this
definition, (x) interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by the Company to be the
rate of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP, (y) interest expense attributable to any Indebtedness represented
by the guaranty by such Person or a Subsidiary of such Person of an
obligation of another Person shall be deemed to be the interest expense
attributable to the Indebtedness guaranteed, and (z) dividends in respect of
Preferred Stock shall be deemed to be an amount equal to the actual dividends
paid divided by one minus the applicable actual combined Federal, state,
local and foreign income tax rate of the Company and its Consolidated
Subsidiaries (expressed as a decimal).
"Consolidated Net Income" means, with respect to any Person for any
period, the net income (or loss) of such Person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, (i) adjusted to exclude (only to the extent included in
computing such net income (or loss) and without duplication): (a) net gains
(but not net losses) from the sale, lease, transfer or other dispositions of
assets or property not in the ordinary course of business; (b) net gains (but
not net losses) which are either extraordinary (as determined in accordance
with GAAP) or are either unusual or nonrecurring, (c) the net income, if
positive, of any other Person accounted for by the equity method of
accounting, except to the extent of the amount of any dividends or
distributions actually paid in cash to such Person or a Consolidated
Subsidiary of such Person during such period, but in any case not in excess
of such Person's pro rata share of such Person's net income for such period,
(d) the net income, if positive, of any Person acquired in a pooling-
of-interests transaction for any period prior to the date of such
acquisition, (e) the net income, if positive, of any of such Person's
Consolidated Subsidiaries in the event and solely to the extent that the
declaration or payment of dividends or similar distributions is not at the
time permitted by operation of the terms of its charter or bylaws or any
other agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Consolidated Subsidiary, (f) all
gains (but not losses) from currency exchange transactions not in the
ordinary course of business consistent with past practice and (g) any
non-cash expense determined in accordance with GAAP in connection with a
transaction between the Company and the ESOP; and (ii) adjusted to include
the amount of any dividends or distributions actually paid in cash to such
Person or a Consolidated Subsidiary of such Person by
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an Unrestricted Subsidiary in an amount not to exceed such Person's pro rata
share of such Unrestricted Subsidiary's net income.
"Consolidated Net Worth" of any Person at any date means the aggregate
consolidated stockholders' equity of such Person (plus amounts of equity
attributable to Preferred Stock) and its Consolidated Subsidiaries, as would
be shown on the consolidated balance sheet of such Person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (a) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of such Person
and its Consolidated Subsidiaries, (b) all upward revaluations and other
write-ups in the book value of any asset of such Person or a Consolidated
Subsidiary of such Person subsequent to the Issue Date and (c) all
investments in Subsidiaries that are not Consolidated Subsidiaries and in
Persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting
purposes with the financial statements of such Person in accordance with GAAP.
"Customer" means any Person for whom the Company or any of its
Subsidiaries finances property, equipment, goods, leasehold improvements or
working capital requirements.
"Customer Receivable" means any obligation of any kind or nature,
however denominated, to the Company or any of its Subsidiaries (i) incurred
by Customers in the ordinary course of the respective business of the Company
and its Subsidiaries or (ii) arising from the purchase or acquisition by the
Company or any of its Subsidiaries of any lease, promissory note, account
receivable, loan or similar financial arrangement, or any right or asset
reasonably related to any of the foregoing.
"Covenant Defeasance" shall have the meaning specified in Section 8.3.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in Section 2.12.
"Definitive Securities" means Securities that are in the form of
Security attached hereto as Exhibit A that do not include the information
called for by footnotes 1 and 2 thereof.
"Depository" means, with respect to the Securities issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
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"Designated Secured Portfolio Debt" means (a) the Indebtedness under the
Revolver Agreement and (b) any other Secured Portfolio Debt which (i) at the
date of determination has an aggregate principal amount outstanding of, or
under which at the date of determination the holders thereof are committed to
lend up to, at least $10,000,000 and (ii) is specifically designated by the
Company in the instrument governing such Secured Portfolio Debt as
"Designated Secured Portfolio Debt" for purposes of this Indenture.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any Person, Capital Stock of such Person that, by its terms or by
the terms of any security into which it is then convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time
would be, required to be redeemed or repurchased (including at the option of
the holder thereof) by such Person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Securities and (b) with
respect to any Subsidiary of any Person (including with respect to any
Subsidiary of the Company), any Capital Stock of such Subsidiary other than
any common stock with no preference, privileges, or redemption or repayment
provisions.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ESOP" means, collectively, the HPSC, Inc. Employee Stock Ownership Plan
and the Supplemental HPSC, Inc. Employee Stock Ownership Plan, and any
successor employee stock ownership plans having terms similar to the
foregoing plans, as amended from time to time by a resolution of the Board of
Directors of the Company or a duly authorized committee thereof.
"Event of Default" shall have the meaning specified in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Exempted Affiliate Transaction" means (a) transactions solely between
the Company and any of its Wholly-Owned Subsidiaries or solely among
Wholly-Owned Subsidiaries of the Company, (b) transactions permitted under
Section 4.3 hereof, (c) customary employee compensation arrangements approved
by a majority of independent (as to such transactions) members of the Board
of Directors of the Company, (d) reasonable fees and compensation paid to,
and indemnities to, and directors and officers and ERISA-based fiduciary
liability insurance provided on behalf of, officers, directors, agents or
employees of the Company or any of its Subsidiaries or the ESOP or any
trustee thereof, in each case in the ordinary course of business and as
determined in good faith by the Board of Directors of the Company and (e) any
guaranty by the Company or any of its Subsidiaries of any Indebtedness of the
Company and/or any Wholly-Owned Subsidiary of the Company (but not of any
other Person).
"Funded Recourse Debt" means, without duplication, any Indebtedness of
the Company or any Subsidiary of the Company which by its terms matures at or
is extendible or renewable at the sole option of the obligor without
requiring the consent of the obligee to a date more then one year after the
date of the creation or incurrence of such obligation; provided that Funded
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Recourse Debt shall not include any Non-Recourse Indebtedness of the Company
or any Subsidiary of the Company.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession as in effect on the Issue Date.
"Global Security" means a Security that contains the paragraph referred
to in footnote 1 and the additional schedule referred to in footnote 2 to the
form of Security attached hereto as Exhibit A.
"Hedging and Interest Swap Obligations" means, with respect to any
Person, the obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements
and (ii) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books or, for purposes of Section 4.16, the
beneficial owner of Securities held in global form.
"Indebtedness" of any Person means, without duplication: (a) all
liabilities and obligations, contingent or otherwise, of any such Person, (i)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such Person or only to a portion thereof), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except (other than accounts payable or other
obligations to trade creditors which have remained unpaid for greater than 90
days past their original due date, unless contested in good faith) those
incurred in the ordinary course of its business that would constitute
ordinarily a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (b) all net obligations of such Person
under Hedging and Interest Swap Obligations; (c) all liabilities and
obligations of others of the kind described in the preceding clauses (a) or
(b) that such Person has guaranteed or that is otherwise its legal liability
or which are secured by any assets or property of such Person; and (d) all
immediately enforceable obligations to purchase, redeem or acquire any
Capital Stock of such Person (other than, in the case of the Company or any
of its Subsidiaries, obligations under the Restricted Stock Plans or the
Stock Option Plans).
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Committee" shall have the meaning set forth in Section 4.10.
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"Interest Payment Date" means the stated due date of an installment of
interest on the Securities.
"Investment" by any person in any other person means (without
duplication): (a) the acquisition (whether by purchase, merger, consolidation
or otherwise) by such Person (whether for cash, property, services,
securities or otherwise) of Capital Stock, bonds, notes, debentures,
partnership or other ownership interests or other securities, including any
options or warrants, of such other Person or any agreement to make any such
acquisition; (b) the making by such Person of any deposit with, or advance,
loan or other extension of credit to, such other Person (including the
purchase of property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such property to such other
Person) or any commitment to make any such advance, loan or extension (but
excluding accounts receivable or deposits arising in the ordinary course of
business); (c) other than guarantees of Indebtedness of the Company to the
extent permitted by Section 4.11 hereof, the entering into by such Person of
any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other Person; and (d) the
making of any capital contribution by such Person to such other Person.
"Issue Date" means the date of first issuance of the Securities under
this Indenture.
"Legal Defeasance" shall have the meaning specified in Section 8.2.
"Lien" means any mortgage, lien, pledge, charge, security interest, or
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest
and any option or other agreement to give any security interest).
"Maturity Date" means, when used with respect to any Security, the date
specified on such Security as the fixed date on which the final installment
of principal of such Security is due and payable (in the absence of any
acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any redemption thereof pursuant to Article
III of this Indenture, or any Change of Control Offer or repurchase upon the
death of the Holder of such Security).
"Net Cash Proceeds" means the aggregate amount of Cash and Cash
Equivalents received by the Company in the case of a sale of Qualified
Capital Stock plus, in the case of an issuance of Qualified Capital Stock
upon any exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable debt) of the Company that
were issued for cash on or after the Issue Date, the amount of cash
originally received by the Company upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions and reasonable
and customary) expenses (including, without limitation, the fees and expenses
of legal counsel and investment banking fees and expenses) incurred in
connection with such sale of Qualified Capital Stock.
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"Non-Receivable Asset" means any asset, property or right of the Company
or any of its Subsidiaries, other than any Customer Receivable, or asset
related to such Customer Receivable, such as inventory, records, intellectual
property and proceeds of Customer Receivables.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness (i) as to which neither the Company nor any of its Subsidiaries
(a) provide credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness), (b) is directly or
indirectly liable or (c) constitutes the lender and (ii) with respect to
which no default would permit (upon notice, lapse of time or both) any holder
of any other Indebtedness of the Company or any Subsidiary to declare a
default on such other Indebtedness or cause the payment therefor to be
accelerated or payable prior to its stated maturity.
"Notice of Default" shall have the meaning specified in Section 6.1(4).
"Obligation" means any principal, premium, interest, penalties, fees,
reimbursements, damages, indemnification and other liabilities relating to
obligations of the Company under the Securities or this Indenture.
"Officer" means, with respect to the Company, the Chief Executive
Officer, the President, any Executive or Senior Vice President, the Chief
Financial Officer, the Treasurer, the Controller, or the Secretary of the
Company.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant
Secretary of the Company and otherwise complying with the requirements of
Sections 12.4 and 12.5.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of
Sections 12.4 and 12.5.
"Outstanding," as used with reference to the Securities shall have the
meaning specified in Section 2.8.
"Paying Agent" shall have the meaning specified in Section 2.3.
"Permitted Lien" means any of the following:
(a) Liens existing on the Issue Date;
(b) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being
contested in good faith and by appropriate proceedings, if adequate
reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP;
(c) Statutory Liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law
in the ordinary course of business provided that (i) the underlying
obligations are not overdue for a period
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of more than 30 days or (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with
respect thereto are maintained on the books of the Company in
accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) Easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the
aggregate, do not in any case materially detract from the value of
the property, subject thereto (as such property is used by the
Company or any of its Subsidiaries) or interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting in
an Event of Default with respect thereto;
(g) Pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(h) Liens on the property or assets of a Person existing at the time
such Person becomes a Subsidiary or is merged with or into the
Company or a Subsidiary, provided in each case that such Liens were
in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof and do not
extend to any other assets;
(i) Liens on property or assets existing at the time of the acquisition
thereof by the Company or any of its Subsidiaries, provided that
such Liens were in existence prior to the date of such acquisition
and were not incurred in anticipation thereof;
(j) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more
adverse to the Holders of the Securities than the terms of the
Liens securing such refinanced Indebtedness;
(k) Liens securing Secured Portfolio Debt;
(l) Liens securing Purchase Money Indebtedness or Capitalized Lease
Obligations permitted to be incurred under clause (c) of the
definition of "Permitted Recourse Debt";
(m) Liens in favor of the Company or any Subsidiary of the Company; and
(n) Liens securing the Securities.
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"Permitted Recourse Debt" means any of the following:
(a) Indebtedness of the Company evidenced by the Securities pursuant to
this Indenture up to the amounts specified herein as of the Issue
Date;
(b) Indebtedness of the Company and its Subsidiaries under the Revolver
Agreement (including any Indebtedness issued to refinance, refund
or replace such Indebtedness in whole or in part, including any
extended maturity or increase in the amount thereof);
(c) Indebtedness of the Company and its Subsidiaries (in addition to
Indebtedness permitted by any other clause of this definition) in an
aggregate amount outstanding at any time (including any Indebtedness
issued to refinance, replace or refund such Indebtedness in whole or
in part) of up to $1,500,000;
(d) Refinancing Indebtedness of the Company and its Subsidiaries
incurred with respect to any Indebtedness or Disqualified Capital
Stock, as applicable, described in clause (ii) of the proviso
contained in Section 4.11 or described in clause (e) of this
definition of "Permitted Recourse Debt";
(e) Indebtedness of the Company owed to any Wholly-Owned Subsidiary,
and Indebtedness of any Subsidiary of the Company owed to any other
Wholly-Owned Subsidiary or to the Company; provided that any such
obligations of the Company owed to any Wholly-Owned Subsidiary of
the Company shall be unsecured and subordinated in all respects to
the Company's obligations pursuant to the Securities; and,
provided, further, that if any Wholly-Owned Subsidiary ceases to be
a Wholly-Owned Subsidiary of the Company or if the Company or any
Wholly-Owned Subsidiary transfers such Indebtedness to any Person
(other than to the Company or another Wholly-Owned Subsidiary),
such events, in each case, shall constitute the incurrence of such
Indebtedness by the Company or such Wholly-Owned Subsidiary, as
the case may be, at the time of such event;
(f) Indebtedness of the Company and its Subsidiaries existing on the
Issue Date;
(g) Indebtedness of the Company and its Subsidiaries incurred solely in
respect of bankers acceptances, letters of credit, surety bonds and
performance bonds (in each case to the extent that such incurrence
does not result in the incurrence of any obligation for the payment
of borrowed money of others) issued (i) in connection with the
incurrence or refinancing of Secured Portfolio Debt and (ii) in the
ordinary course of business consistent with past practice;
(h) Indebtedness of the Company and its Subsidiaries represented by
Hedging and Interest Swap Obligations entered into in the ordinary
course of business consistent with past practice and related to
Indebtedness of the Company and its Subsidiaries otherwise
permitted to be incurred pursuant to the Indenture; and
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(i) Secured Portfolio Debt.
"Person" or "person" means any corporation, individual, limited
liability company, joint stock company, joint venture, partnership,
unincorporated association, governmental regulatory entity, country, state or
political subdivision thereof, trust, municipality or other entity.
"Principal" of any Indebtedness means the principal of such Indebtedness
plus, without duplication, any applicable premium, if any, on such
Indebtedness.
"Pro Rata Portion" shall have the meaning set forth in Section 11.1(d).
"Property" means any right or interest in or to property or assets of
any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Money Indebtedness" means Indebtedness of the Company or its
Subsidiaries to the extent that (i) such Indebtedness is incurred in
connection with the acquisition of specified assets and property (the
"Subject Assets") for the business of the Company or its Subsidiaries,
including Indebtedness which existed at the time of the acquisition of such
Subject Asset and was assumed in connection therewith, and (ii) the Liens
securing such Indebtedness are limited to the Subject Asset.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Subordinated Indebtedness
of the Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent (i.e., within 60
days) sale (other than to a Subsidiary of the Company or the ESOP) of
Qualified Capital Stock or any issuance of Qualified Capital Stock in
exchange for any Capital Stock or Subordinated Indebtedness issued on or
after the Issue Date.
"Record Date" means a Record Date specified in the Securities whether or
not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 of such Security.
"Redemption Price," when used with respect to any Security to be
redeemed, means the redemption price for such redemption pursuant to
Paragraph 5 of such Security, which shall include, without duplication, in
each case, accrued and unpaid interest to the Redemption Date.
"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in
existence) of such Person ended immediately preceding any date upon which any
determination is to be made pursuant to the terms of the Securities or this
Indenture.
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"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale
of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in
part, or (b) constituting an amendment, modification or supplement to, or a
deferral or renewal of (each of (a) and (b) above is a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing) the lesser of (i) the principal amount or,
in the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so refinanced and (ii) if such
Indebtedness being refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided that (A) such Refinancing Indebtedness of any
Subsidiary of the Company shall only be used to refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B)
Refinancing Indebtedness shall (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such Refinancing and (y) in all respects, be no less subordinated or junior,
if applicable, to the rights of Holders of the Securities than was the
Indebtedness or Disqualified Capital Stock to be refinanced and (C) such
Refinancing Indebtedness shall have no installment of principal (or
redemption payment) scheduled to come due earlier than the scheduled maturity
of any installment of principal of the Indebtedness or Disqualified Capital
Stock to be so refinanced which was scheduled to come due prior to the Stated
Maturity.
"Registrar" shall have the meaning specified in Section 2.3.
"Related Business" means the business conducted by the Company and its
Subsidiaries as of the Issue Date and any and all businesses that in the good
faith judgment of the Board of Directors of the Company are materially
related businesses.
"Representative" means (i) when used with respect to holders of
Indebtedness under the Revolver Agreement, the "Agent" under (and as defined
in) such Revolver Agreement and (ii) when used with respect to holders of
other Secured Portfolio Debt, the trustee, agent or representative (if any)
of the holder of Secured Portfolio Debt, as evidenced by a certificate of the
clerk, assistant clerk, secretary or assistant secretary of the holder of any
such other Secured Portfolio Debt.
"Repurchase Date," when used with respect to any Security to be
repurchased pursuant to the provisions of Section 4.16, means the date fixed
for the repurchase of such Security pursuant to Section 4.16.
"Repurchase Price," when used with respect to any Security to be
repurchased pursuant to the provisions of Section 4.16, means an amount equal
to 100% of the principal amount thereof and shall include, without
duplication, in each case, accrued and unpaid interest to the Repurchase Date
of such Security.
"Restricted Investment" means any Investment other than:
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(a) Investments in Customer Receivables;
(b) Investments in Cash Equivalents;
(c) Investments existing on the Issue Date;
(d) Investments in the Company or a Wholly-Owned Subsidiary;
(e) Investments in any Person engaged in a Related Business if, as a
consequence of such Investment, (i) such Person becomes a Wholly-Owned
Subsidiary of the Company or (ii) such Person is merged, consolidated
or amalgamated with or into, or conveys substantially all of its
assets to the Company or a Wholly-Owned Subsidiary of the Company;
(f) Investments consisting of loans or advances to employees of the
Company or of its Subsidiaries (i) for moving, entertainment,
travel and other similar expenses in the ordinary course of
business not exceeding $250,000 outstanding in the aggregate at any
one time or (ii) pursuant to the HPSC Stock Loan Program not
exceeding $400,000 (or such greater amount as may be permitted under
Federal Reserve regulations from time to time) outstanding in the
aggregate at any one time;
(g) Investments made as a result of the receipt of non-cash consideration
in connection with the sale, lease, disposal, pledge, encumbrance or
other transfer of Customer Receivables;
(h) Investments not otherwise specified in clauses (a) through (g)
above not exceeding $1,000,000 outstanding in the aggregate at any
one time; and
(i) Investments not otherwise specified in clauses (a) through (h)
above which are from time to time permitted to be made by HPSC or
any of its Subsidiaries under Section 8.3 (or any successor
provision) of the Revolver Agreement.
"Responsible Officer" means an officer of the Trustee in the department
or other group administering the trust established hereby.
"Restricted Payment" means, with respect to any Person, (a) the
declaration or payment of any dividend or other distribution in respect of
any Capital Stock of such Person or any Subsidiary of such Person, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Capital Stock of such Person or any Subsidiary of
such Person, (c) other than with the proceeds from the substantially
concurrent (i.e., within 60 days) sale of, or in exchange for, Refinancing
Indebtedness, any purchase, redemption or other acquisition or retirement for
value of, any payment in respect of any amendment of the terms of or any
defeasance of, any Subordinated Indebtedness of such Person or any Affiliate
or Subsidiary of such Person, directly or indirectly, by such Person or any
Subsidiary of such
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Person prior to the scheduled maturity, any scheduled repayment of principal,
or any scheduled sinking fund payment, as the case may be, of such
Subordinated Indebtedness and (d) any Restricted Investment by such Person;
provided that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to, or on account
of the purchase, redemption or other acquisition or retirement for value of,
Capital Stock of an issuer to the extent payable solely in shares of
Qualified Capital Stock of such issuer or (ii) any dividend, distribution or
other payment to the Company or to any of its Wholly-Owned Subsidiaries by
the Company or any of its Subsidiaries.
"Restricted Stock Plans" shall mean collectively, (i) the Company's 1995
Stock Incentive Plan and (ii) comparable plans providing for the issuance of
Capital Stock of the Company to officers, directors and employees of the
Company and its Subsidiaries having terms similar to the foregoing, each as
amended from time to time by a resolution of the Board of Directors of the
Company or a duly authorized committee thereof.
"Revolver Agreement" means the credit agreement dated as of December 12,
1996, as amended on the Issue Date, by and among the Company and ACFC,
certain financial institutions, and The First National Bank of Boston, as
agent, providing for an aggregate $95,000,000 revolving credit facility,
including any related notes, guarantees, collateral documents, instruments
and agreements executed in connection therewith, as such credit agreement
and/or related documents may by the Company be amended, restated,
supplemented, renewed, replaced or otherwise modified from time to time
whether or not with the same agent, trustee, representative lenders or
holders, and irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Revolver
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to any Revolver
Agreement by the Company and all refundings, refinancings and replacements of
any such Revolver Agreement, including any agreement (i) extending the
maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers thereunder include the Company and its successors and
assigns, (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder or (iv) otherwise altering the terms and
conditions thereof.
"Savings Bank Indebtedness" of the Company or any Subsidiary means any
Indebtedness owed to a savings bank or other financial institution, which
Indebtedness is (i) created, incurred, assumed or guaranteed by the Company
or such Subsidiary of the Company in order to finance one or more Customer
Receivables created in the ordinary course of business of the Company or such
Subsidiary and (ii) secured by a Lien on such Customer Receivable(s).
"Secured Portfolio Debt" of the Company or any Subsidiary means (a) any
Indebtedness, including principal, interest (including, without limitation,
interest accruing after the commencement of any bankruptcy case or
proceedings whether or not allowed as a claim in such case or proceeding)
fees, collateral protection expenses and enforcement costs, of the Company or
such Subsidiary under the Revolver Agreement, (b) Savings Bank Indebtedness
and (c) any other Indebtedness of the Company or such Subsidiary, whether
outstanding on the Issue Date or thereafter created, incurred, assumed or
guaranteed by the Company or such Subsidiary, which
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Indebtedness described in clause (c) is (i) created, incurred, assumed or
guaranteed by the Company or such Subsidiary of the Company in order to
finance one or more Customer Receivables created in the ordinary course of
business of the Company or such Subsidiary and (ii) secured by a Lien on such
Customer Receivable(s).
"SEC" means the Securities and Exchange Commission.
"Securities" means the 11% Senior Subordinated Notes due 2007, as amended or
supplemented from time to time pursuant to the terms of this Indenture, that are
issued under this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Trustee, as custodian with respect to the
Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a Security is
registered on the Registrar's books.
"Senior Indebtedness" of the Company or any of its Subsidiaries means any
Indebtedness of the Company or such Subsidiary, whether outstanding on the
Issue Date or thereafter created, incurred, assumed or guaranteed by the
Company or such Subsidiary, other than Indebtedness as to which the
instrument creating or evidencing the same or the assumption or guarantee
thereof expressly provides that such Indebtedness is subordinated or junior
to the Securities. Notwithstanding the foregoing, however, in no event shall
Senior Indebtedness include (a) Indebtedness owed to any Subsidiary of the
Company or any officer, director or employee of the Company or any Subsidiary
of the Company or (b) Indebtedness incurred in violation of the terms of this
Indenture.
"Sinking Fund" means the method provided in this Indenture and the
Securities for amortizing the aggregate principal amount of the Securities.
"Sinking Fund Payment Date" means the first day of each January, April,
July, and October, commencing July 1, 2002 and continuing through April 1,
2007.
"Special Record Date" for payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security, means April 1,
2007.
"Stock Option Plans" shall mean collectively, (i) the Company's 1987
Stock Option Plan, (ii) the HPSC, Inc. 1988 Director's Stock Option Plan, and
(iii) comparable plans providing for the issuance of options to purchase
Capital Stock of the Company to officers, directors and/or employees of the
Company and its Subsidiaries having terms similar to the foregoing, each as
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amended from time to time by a resolution of the Board of Directors of the
Company or a duly authorized committee thereof.
"Subordinated Indebtedness" means Indebtedness of the Company that is (i)
subordinated in right of payment to the Securities in any respect or (ii) any
Indebtedness which is expressly subordinate to Senior Indebtedness and has a
stated maturity on or after the Stated Maturity.
"Subsidiary" with respect to any Person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly,
owned by such Person, by such Person and one or more Subsidiaries of such
Person or by one or more Subsidiaries of such Person, or (ii) any other
Person (other than a corporation described in clause (i) above) in which such
Person, one or more Subsidiaries of such Person, or such Person and one or
more Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest.
Notwithstanding the foregoing, an Unrestricted Subsidiary shall not
constitute a Subsidiary of the Company or of any of the Company's
Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb) as in effect on the date of the execution of this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"U.S. Government Obligations" means direct non-callable obligations of,
or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Voting Stock" means Capital Stock of the Company having generally the
right to vote in the election of a majority of the directors of the Company
or having generally the right to vote with respect to the organizational
matters of the Company.
"Wholly-Owned" or "wholly-owned" with respect to a Subsidiary of any
Person means a Subsidiary of such Person of which all of the outstanding
Capital Stock or other ownership interests (other than directors' qualifying
shares) shall at the time be owned by such Person or by one or more
Wholly-Owned Subsidiaries of such Person or by such Person and one or more
Wholly-Owned Subsidiaries of such Person.
SECTION 1.2 Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
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"Indenture security" means any of the Securities.
"Indenture securityholder" means a Holder or a Securityholder.
"Indenture to be qualified" means this Indenture.
"Indenture trustee" or "institutional trustee" means the Trustee.
"Obligor" on the indenture securities means the Company and any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them thereby.
SECTION 1.3 Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to this
Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such Section
or Article in this Indenture, unless stated otherwise.
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ARTICLE II
THE SECURITIES
SECTION 2.1 Form and Dating.
The Securities and the Trustee's certificate of authentication, in
respect thereof, shall be substantially in the form of Exhibit A hereto,
which Exhibit is part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. The
Company shall approve the form of the Securities and any notation, legend or
endorsement on them. Any such notations, legends or endorsements not
contained in the form of Security attached as Exhibit A hereto shall be
delivered in writing to the Trustee. Each Security shall be dated the date of
its authentication.
The terms and provisions contained in the forms of Securities shall
constitute, and are hereby expressly made, a part of this Indenture and, to
the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and
to be bound thereby.
SECTION 2.2 Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one Officer shall
attest to, the Security for the Company by manual or facsimile signature.
The Company's seal shall be impressed, affixed, imprinted or reproduced on
the Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer at the time
of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless and the
Company shall nevertheless be bound by the terms of the Securities and this
Indenture.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $23,000,000, upon a written order of the
Company in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of Securities to be authenticated and the date on
which the Securities are to be authenticated. The aggregate principal amount
of Securities outstanding at any time may not exceed $23,000,000, except as
provided in Section 2.7. Upon the written order of the Company in the form
of an Officers' Certificate, the Trustee shall authenticate Securities in
substitution of Securities originally issued to reflect any name change of
the Company.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. Unless otherwise provided in the appointment, an
authenticating agent
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may authenticate Securities whenever the Trustee may do so. Each reference in
this Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent to deal
with the Company, any Affiliate of the Company, or any of their respective
Subsidiaries.
Securities shall be issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof.
SECTION 2.3 Registrar and Paying Agent.
The Company shall maintain an office or agency in the City of Boston, in
the Commonwealth of Massachusetts, where Securities may be presented or
surrendered for payment ("Paying Agent"), where Securities may be surrendered
for registration of transfer or exchange ("Registrar") and where notices and
demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Company may act as Registrar or Paying Agent,
except that, for the purposes of Articles III, VIII, X and Section 4.14 and
as otherwise specified in this Indenture, neither the Company nor any
Affiliate of the Company shall act as Paying Agent. The Registrar shall keep
a register of the Securities and of their transfer and exchange. The Company
may have one or more co-Registrars and one or more additional Paying Agents.
The term "Paying Agent" includes any additional Paying Agent. The Company
hereby initially appoints the Trustee as Registrar and Paying Agent, and the
Trustee hereby initially agrees so to act.
The Company shall enter into an appropriate written agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent, and shall furnish a
copy of each such agreement to the Trustee. The Company shall promptly
notify the Trustee in writing of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such.
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Securities.
The Company initially appoints the Trustee to act as Securities Custodian
with respect to the Global Securities.
SECTION 2.4 Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that such Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, premium, if any, or interest on, the Securities (whether
such assets have been distributed to it by the Company or any other obligor
on the Securities), and shall notify the Trustee in writing of any Default in
making any such payment. If either of the Company or a Subsidiary of the
Company acts as Paying Agent, it shall segregate such assets and hold them as
a separate trust fund for the benefit of the Holders or the Trustee. The
Company at any time may require a Paying Agent to distribute all assets held
by it
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to the Trustee and account for any assets disbursed and the Trustee may at
any time during the continuance of any payment Default or any Event of
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have
been delivered by the Company to the Paying Agent, the Paying Agent (if other
than the Company) shall have no further liability for such assets.
SECTION 2.5 Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee on or
before the third Business Day preceding each Interest Payment Date and at
such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee reasonably may require of the names and
addresses of Holders and shall otherwise comply with TIA Section 312(a).
SECTION 2.6 Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented to the Registrar or a co-Registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
the Registrar or co-Registrar shall register the transfer or make the
exchange as requested if its reasonable requirements for such transaction are
met; provided that the definitive securities surrendered for transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar or
co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged
for a beneficial interest in a Global Security except upon satisfaction of
the requirements set forth below. Upon receipt by the Trustee of a
Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with written
instructions directing the Trustee to make, or to direct the Securities
Custodian to make, an endorsement on the Global Security to reflect an
increase in the aggregate principal amount of the Securities represented by
the Global Security, then the Trustee shall cancel such Definitive Security
and cause, or direct the Securities Custodian to cause, in accordance with
the standing instructions and procedures existing between the Depository and
the Securities Custodian, the aggregate principal amount of Securities
represented by the Global Security to be increased accordingly. If no Global
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Securities are then outstanding, the Company shall issue and the Trustee
shall authenticate a new Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the
procedures of the Depository therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
Definitive Security.
(i) Any Person having a beneficial interest in a Global Security
may upon request exchange such beneficial interest for a Definitive
Security. Upon receipt by the Trustee of (A) written instructions
or such other form of instructions as is customary for the Depository
from the Depository or its nominee on behalf of any Person having a
beneficial interest in a Global Security and (B) if such beneficial
interest is being transferred to the Person designated by the
Depository as being the beneficial owner, a certification (which may
be submitted by facsimile) from such Person to that effect (in
substantially the form set forth on the reverse of the Security),
then the Trustee or the Securities Custodian, at the direction of
the Trustee, will cause, in accordance with the standing instructions
and procedures existing between the Depository and the Securities
Custodian, the aggregate principal amount of the Global Security to
be reduced and, following such reduction, the Company will execute
and, upon receipt of an authentication order in the form of an
Officers' Certificate, the Trustee will authenticate and deliver to
the transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.6(d) shall
be registered in such names and in such authorized denominations as
the Depository, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee
shall deliver such Definitive Securities to the persons in whose
names such Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Not-withstanding any other provisions of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.6), a Global
Security may not be transferred as a whole except by the Depository to a
nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository or by the Depository or any such nominee
to a successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of Depository.
If at any time (i) the Depository for the Securities notifies the Company
that the Depository is unwilling or unable to continue as Depository for the
Global Securities and a successor Depository for the Global Securities is
not appointed by the Company within 90 days after delivery of such notice or
(ii) the Company, in its sole discretion, notifies the Trustee in writing
that it elects to cause the issuance of Definitive Securities under this
Indenture, then, in either event, the Company will
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execute, and the Trustee, upon receipt of an Officers' Certificate requesting
the authentication and delivery of Definitive Securities, will authenticate
and deliver Definitive Securities, in an aggregate principal amount equal to
the principal amount of the Global Securities, in exchange for such Global
Securities.
(g) Cancellation and/or Adjustment of Global Security. At such time as
all beneficial interests in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global
Security shall be returned to or retained and canceled by the Trustee. At
any time prior to such cancellation, if any beneficial interest in a Global
Security is exchanged for Definitive Securities, redeemed, repurchased or
canceled, the principal amount of Securities represented by such Global
Security shall be reduced and an endorsement shall be made on such Global
Security, by the Trustee or the Securities Custodian, at the direction of the
Trustee, to reflect such reduction.
(h) Obligations with respect to Transfers and Exchanges of Definitive
Securities.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's or
co-Registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient
to cover any transfer tax, assessments, or similar governmental charge
payable in connection therewith (other than any such transfer taxes,
assessments, or similar governmental charge payable upon exchanges
not involving any transfer pursuant to Section 2.2 (fourth paragraph),
2.10, 3.7, 4.16(e), 9.5 or 10.1 (final paragraph)).
(iii) The Registrar or co-Registrar shall not be required to register
the transfer of or exchange of (a) any Definitive Security selected
for redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Definitive Security being redeemed in part,
(b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase pursuant to Article X
hereof or redeem Securities pursuant to Article III hereof and ending
at the close of business on the day of such mailing or (c) any
Security which has been surrendered for repurchase at the option of
the Holder pursuant to Article X or Section 4.16 hereof, except the
portion, if any, of such Security not to be so repurchased.
(iv) Prior to due presentment for registration or transfer of any
Security, the Trustee, any Agent and the Company may deem and treat
the Person in whose name the Security is registered as the absolute
owner of such Security, and none of the Trustee, Agent or the Company
shall be affected by notice to the contrary.
SECTION 2.7 Replacement Securities.
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If a mutilated Security is surrendered to the Trustee or if the Holder of a
Security claims and submits an affidavit or other evidence, satisfactory to the
Trustee, to the effect that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee
or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for
its reasonable, out-of-pocket expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.8 Outstanding Securities.
Securities outstanding at any time are all the Securities that have been
authenticated by the Trustee (including any Security represented by a Global
Security) except those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected
by the Trustee hereunder and those described in this Section 2.8 as not
outstanding. A Security does not cease to be outstanding because the Company
or an Affiliate of the Company holds the Security, except as provided in
Section 2.9.
If a Security is replaced pursuant to Section 2.7 (other than a mutilated
Security surrendered for replacement), it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Security is held
by a bona fide purchaser. A mutilated Security ceases to be outstanding upon
surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent (other than
an Company or an Affiliate of the Company) holds Cash or U.S. Government
Obligations sufficient to pay all of the principal of, premium, if any, and
interest due on the Securities payable on that date and payment of the
Securities called for redemption is not otherwise prohibited pursuant to this
Indenture, then on and after that date such Securities shall cease to be
outstanding and interest on them shall cease to accrue.
SECTION 2.9 Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, amendment, supplement, waiver or
consent, Securities owned by the Company or Affiliates of the Company shall
be disregarded, except that, for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, amendment,
supplement, waiver or consent, only Securities that a Responsible Officer of
the Trustee actually knows are so owned shall be disregarded.
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SECTION 2.10 Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but
may have variations that the Company reasonably and in good faith considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as permanent Securities authenticated and delivered hereunder.
SECTION 2.11 Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent (other than the Company or an Affiliate of the Company), and no one
else, shall cancel and, at the written direction of the Company or in
accordance with its records disposal policies, shall dispose of all
Securities surrendered for transfer, exchange, payment or cancellation.
Except as set forth in Section 2.7, the Company may not issue new Securities
to replace Securities that have been paid or delivered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange
for any Securities canceled as provided in this Section 2.11, except as
expressly permitted in the form of Securities and as permitted by this
Indenture.
SECTION 2.12 Defaulted Interest.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more predecessor Securities) is
registered at the close of business on the record date for such interest or
liquidated damages.
Any interest on any Security which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on the defaulted interest (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
holder on the relevant Record Date, and such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in clause (1) or
(2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
persons in whose names the Securities (or their respective predecessor
Securities) are registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security and the
date of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of Cash
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equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such Cash when
deposited to be held in trust for the benefit of the persons entitled to such
Defaulted Interest as provided in this clause (1). Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name and
at the expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security register not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the persons in whose names the Securities (or their
respective predecessor Securities) are registered on such Special Record Date
and shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, if any, and upon such notice
as may be required by such exchange, if, after notice given by the Company to
the Trustee of the proposed payment pursuant to this clause, such manner
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Security shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Security.
ARTICLE III
REDEMPTIONS; SINKING FUND
SECTION 3.1 Right of Redemption.
Redemption of Securities, as permitted by any provision of this
Indenture, shall be made in accordance with such provision and this Article
III. On or after April 1, 2002, the Company will have the right to redeem
all or any part of the Securities, other than through the operation of the
Sinking Fund provided for in Section 3.8, at the Redemption Prices specified
in Paragraph 5 of the Securities, in each case (subject to the right of the
Holders of record on a Record Date to receive interest due on an Interest
Payment Date that is on or prior to such Redemption Date), including accrued
and unpaid interest thereon to the Redemption Date.
SECTION 3.2 Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5 of the
Securities, or is required to redeem Securities pursuant to the operation of
the Sinking Fund provided for in
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Section 3.8, it shall notify the Trustee in writing of the Redemption Date
and the principal amount of Securities to be redeemed and whether it wants
the Trustee to give notice of redemption to the Holders. In the event that,
with respect to a redemption of Securities pursuant to the operation of the
Sinking Fund provided for in Section 3.8, the Company elects to reduce the
amount of any Sinking Fund Payment pursuant to the provisions of Section
3.8(a), the notice to the Trustee shall also state the amount of such
reduction and the basis for such reduction as set forth in Section 3.8.
The Company shall give each notice to the Trustee provided for in this
Section 3.2 at least five days prior to the date on which notice is to be
given (or such shorter period as the Trustee shall permit), as set forth in
Section 3.4. Any such notice may be canceled at any time prior to notice of
such redemption being mailed to any Holder and shall thereby be void and of
no effect.
SECTION 3.3 Selection of Securities to Be Redeemed.
If less than all outstanding Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed by lot or by such other method as
the Trustee shall determine to be fair and appropriate and in such manner as
complies with any applicable Depository, legal or stock exchange requirements.
The Trustee shall make the selection from the Securities outstanding and
not previously called for redemption and shall promptly notify the Company in
writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or
any integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called
for redemption.
SECTION 3.4 Notice of Redemption.
At the Company's written request made at least five days prior to the
date on which notice is to be given (or such shorter period as the Trustee
shall permit), the Trustee shall, at least 30 days but not more than 60 days
before a Redemption Date, whether through operation of the Sinking Fund or
otherwise, mail a notice of redemption by first class mail, postage prepaid,
to each Holder whose Securities are to be redeemed to such Holder's last
address as then shown on the registry books of the Registrar. Each notice
for redemption shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including the amount of accrued and unpaid
interest to be paid upon such redemption;
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(3) the name, address and telephone number of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent at the address specified in such notice to collect the
Redemption Price;
(5) that, unless (a) the Company defaults in its obligation to
deposit Cash or U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide, not later than one day before the due date of
any payment, Cash in an amount to fund the Redemption Price with the
Paying Agent in accordance with Section 3.6 hereof or (b) such redemption
payment is otherwise prohibited, interest on Securities called for
redemption ceases to accrue on and after the Redemption Date and the only
remaining right of the Holders of such Securities shall be to receive
payment of the Redemption Price, including accrued and unpaid interest to
the Redemption Date, upon surrender to the Paying Agent of the Securities
called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount equal to $1,000 or any integral multiple thereof, of such
Security to be redeemed and that, after the Redemption Date, and upon
surrender of such Security, a new Security or Securities in aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(7) if less than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption;
(8) the CUSIP number of the Securities to be redeemed; and
(9) whether the redemption notice is being sent pursuant to the
optional redemption provisions of Paragraph 5 of the Securities or pursuant
to the operation of the Sinking Fund provided for in Section 3.8.
SECTION 3.5 Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.4,
Securities called for redemption shall become due and payable on the
Redemption Date and at the Redemption Price, including accrued and unpaid
interest to the Redemption Date. Upon surrender to the Trustee or Paying
Agent, such Securities called for redemption shall be paid at the Redemption
Price, including interest accrued and unpaid to the Redemption Date; provided
that if the Redemption Date is after a regular Record Date and on or prior to
the Interest Payment Date to which such Record Date relates, the accrued
interest shall be payable to the Holder of the redeemed Securities registered
on the relevant Record Date; provided, further, that if a Redemption Date is
not a Business Day, payment shall be made on the next succeeding Business Day
and no interest shall accrue for the period from such Redemption Date to such
succeeding Business Day.
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SECTION 3.6 Deposit of Redemption Price.
Prior to 10:00 A.M. on the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the Company)
Cash or U.S. Government Obligations sufficient to pay the Redemption Price
of, including accrued and unpaid interest on, all Securities to be redeemed
on such Redemption Date (other than Securities or portions thereof called for
redemption on that date that have been delivered by the Company to the
Trustee for cancellation). The Paying Agent shall promptly return to the
Company any Cash or U.S. Government Obligations so deposited which is not
required for that purpose upon the written request of the Company.
If the Company complies with the preceding paragraph and the other
provisions of this Article III and payment of the Securities called for
redemption is not prohibited under this Indenture, interest on the Securities
to be redeemed will cease to accrue on the applicable Redemption Date,
whether or not such Securities are presented for payment. Notwithstanding
anything herein to the contrary, if any Security surrendered for redemption
in the manner provided in the Securities shall not be so paid upon surrender
for redemption because of the failure of the Company to comply with the
preceding paragraph, interest shall continue to accrue and be paid from the
Redemption Date until such payment is made on the unpaid principal, and, to
the extent lawful, on any interest not paid on such unpaid principal, in each
case at the rate and in the manner provided in Section 4.1 hereof and the
Security.
SECTION 3.7 Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the Company
shall execute and the Trustee shall authenticate and deliver to the Holder,
without service charge to the Holder, a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered. If a
Global Security is so surrendered, such new Security so issued shall be a new
Global Security.
SECTION 3.8 Sinking Fund.
(a) As and for a Sinking Fund for the retirement of the Securities, the
Company will, until all the Securities are paid or payment thereof provided
for, deposit in accordance with Section 3.6 on or prior to each Sinking Fund
Payment Date an amount in Cash sufficient to redeem on such Sinking Fund
Payment Date, at a Redemption Price equal to 100% of the aggregate principal
amount of the Securities so redeemed, an amount equal to $1,000,000 aggregate
principal amount of Securities or such lesser amount as may be outstanding,
plus all accrued and unpaid interest thereon; provided that such principal
amount of Securities to be redeemed may, at the option of the Company, be
reduced in inverse order of maturity by an amount equal to the sum of (i) the
principal amount of Securities theretofore issued and acquired at any time
by the Company and delivered to the Trustee for cancellation, and not
theretofore made the basis of a Sinking Fund payment and (ii) the principal
amount of Securities at any time
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redeemed and paid pursuant to the provisions of Paragraph 5 of the Securities
and this Article III, or which shall at any time have been duly called for
redemption (other than through operation of the Sinking Fund) and the
Redemption Price of which shall have been deposited in trust for that purpose
and which have not been theretofore made the basis of a Sinking Fund Payment.
(b) Each Sinking Fund payment shall be applied to the redemption of
Securities on the related Sinking Fund Payment Date.
(c) In the event that the Company elects to reduce the amount of any
Sinking Fund Payment pursuant to the provisions of Section 3.8(a), the notice
to the Trustee shall also state the amount of such reduction and the basis
for such reduction as provided in Section 3.8(a). Notice of redemption of
the Securities to redeemed on a Sinking Fund Payment Date, selection of such
Securities and the redemption of such Securities shall be made on the terms
and in the manner described in Sections 3.2, 3.3, 3.4, 3.5, 3.6 and 3.7
ARTICLE IV
COVENANTS
SECTION 4.1 Payment of Securities.
The Company shall pay the principal of, premium, if any, and interest on
the Securities on the dates and in the manner provided herein and in the
Securities. An installment of principal of, premium, if any, or interest on
the Securities shall be considered paid on the date it is due if the Trustee
or Paying Agent (other than the Company, a Subsidiary of the Company or an
Affiliate of the Company) holds for the benefit of the Holders, on or before
10:00 A.M., New York City time on that date, Cash deposited and designated
for and sufficient to pay such installment.
The Company shall pay interest on overdue principal and premium, if any,
and on overdue installments of interest, at the rates specified in the
Securities compounded semi-annually, to the extent lawful.
SECTION 4.2 Maintenance of Office or Agency.
The Company shall maintain in the City of Boston, the Commonwealth of
Massachusetts, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company
shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Company
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such
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presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 12.2.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided that no such designation or rescission shall in any manner relieve
the Company of its obligation to maintain an office or agency in the City of
Boston, the Commonwealth of Massachusetts, for such purposes. The Company
shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or
agency. The Company hereby initially designates the Corporate Trust Office
of the Trustee located at 225 Franklin Street, Boston, Massachusetts 02110.
SECTION 4.3 Limitation on Restricted Payments.
The Company shall not, and shall not permit any of their Subsidiaries to,
directly or indirectly, make any Restricted Payment, if, after giving effect
thereto on a pro forma basis, (a) a Default or an Event of Default shall have
occurred and be continuing, (b) the Company is not permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Consolidated Interest
Coverage Ratio in Section 4.11(a) or (c) the aggregate amount of all
Restricted Payments made by the Company and its Subsidiaries, including after
giving effect to such proposed Restricted Payment, from and after the Issue
Date, would exceed the sum of (i) $2,500,000, plus (ii) 50% of the aggregate
Consolidated Net Income of the Company for the period (taken as one
accounting period), commencing on the first day of the first full fiscal
quarter commencing after the Issue Date, to and including the last day of the
fiscal quarter ended immediately prior to the date of each such calculation
(or, in the event Consolidated Net Income for such period is a deficit, then
minus 100% of such deficit), plus (iii) 100% of the aggregate Net Cash
Proceeds received by the Company and not applied in connection with a
Qualified Exchange from the issue or sale after the Issue Date of its
Qualified Capital Stock or its debt securities that have been converted into
Qualified Capital Stock (other than an issue or sale to a Subsidiary of the
Company), including the Net Cash Proceeds received by the Company upon the
exercise, exchange or conversion of such securities into Qualified Capital
Stock), plus (iv) the Net Cash Proceeds received by the Company or any of its
Subsidiaries from its investment in, and the sale, disposition or other
liquidation of, any Restricted Investment.
The foregoing clauses (b) and (c) of the immediately preceding paragraph,
however, will not prohibit (v) a Qualified Exchange, (w) the payment of any
dividend on Qualified Capital Stock within 60 days after the date of its
declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions, (x) any redemption
or repurchase or payment on account of Capital Stock of the Company required
to be made under (i) the Restricted Stock Plans or (ii) the Stock Option
Plans, in an amount equal to the sum of the exercise prices paid to the
Company by the holder of such Capital Stock upon the exercise of such stock
options, (y) (i) any redemption or repurchase by the Company of its Capital
Stock, (ii) any contribution or dividend paid by the Company to the ESOP or
(iii) any loan made by the Company to the ESOP, in each case (A) only to the
extent made in the ordinary course of
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business consistent with past practice and pursuant to the terms of the ESOP
and the provisions of ERISA and the Code and (B) not to exceed in the
aggregate $300,000 per calendar year and (z) any contribution or dividend
paid by the ESOP, in each case only to the extent used by the ESOP (i) to pay
administrative expenses of the ESOP in an amount not to exceed $100,000 per
year or (ii) to repay Indebtedness of the ESOP owed to the Company or its
Subsidiaries. The full amount of any Restricted Payment made pursuant to the
foregoing clauses (w) and (x) of the immediately preceding sentence, however,
will be deducted in the calculation of the aggregate amount of Restricted
Payments available to be made which is referred to in clause (c) of the
immediately preceding paragraph.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.3 were computed, which calculations
may be based upon the Company's latest available internal financial
statements; provided that a failure to so deliver such Officers' Certificate
shall not constitute a Default if the Company provides the Officers'
Certificate within 30 days of the date of making such Restricted Payment and
conclusively demonstrates therein that the Restricted Payment was permitted
to be made on the date made. The Trustee may rely on such Officers'
Certificate without further inquiry.
SECTION 4.4 Corporate Existence.
Subject to Article V, the Company shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence and the corporate existence of its Subsidiaries in accordance with
the respective organizational documents of each of them (as the same may be
amended from time to time) and the rights (charter and statutory) and
corporate franchises of the Company and each of its Subsidiaries; provided
that the Company shall not be required to preserve, with respect to any of
its Subsidiaries, any such existence, right or franchise, if (a) the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of such entity and (b) the
loss thereof is not disadvantageous in any material respect to the Holders.
SECTION 4.5 Payment of Taxes and Other Claims.
Except with respect to immaterial items, the Company shall, and shall
cause each of its Subsidiaries to, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon the
Company or any of its Subsidiaries or any of their respective properties and
assets and (ii) all lawful claims, whether for labor, materials, supplies,
services or anything else, which have become due and payable and which by law
have or may become a Lien upon the property and assets of the Company or any
of its Subsidiaries; provided that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which disputed
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amounts adequate reserves with respect thereto are maintained on the books of
the Company in accordance with GAAP.
SECTION 4.6 Maintenance of Properties and Insurance.
The Company shall cause all material properties used or useful to the
conduct of its business and the business of each of its Subsidiaries to be
maintained and kept in good condition, repair and working order (reasonable
wear and tear excepted) and supplied with all necessary equipment and shall
cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in their reasonable judgment may be
necessary, so that the business carried on in connection therewith may be
properly conducted at all times; provided that nothing in this Section 4.6
shall prevent the Company from discontinuing any operation or maintenance of
any of such properties, or disposing of any of them, if such discontinuance
or disposal is (a) in the judgment of the Board of Directors of the Company,
desirable in the conduct of the business of such entity and (b) not
disadvantageous in any material respect to the Holders.
The Company shall provide, or cause to be provided, for itself and each
of its Subsidiaries, insurance (including appropriate self-insurance) against
loss or damage of the kinds that, in the reasonable, good faith opinion of
the Company is adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries.
SECTION 4.7 Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within 120 days after the
end of its fiscal year (commencing with the Company's 1997 fiscal year) an
Officers' Certificate complying with Section 314(a)(4) of the TIA and stating
that a review of its activities and the activities of its Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and further
stating, as to each such Officer signing such certificate, whether or not the
signer knows of any failure by the Company or any Subsidiary of the Company
to comply with any conditions or covenants in this Indenture and, if such
signer does know of such a failure to comply, the certificate shall describe
such failure with particularity. The Officers' Certificate shall also notify
the Trustee should the relevant fiscal year end on any date other than the
current fiscal year end date.
(b) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, promptly upon becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto. The Trustee shall not be deemed to have knowledge of
any Default, any Event of Default or any such fact unless one of its
Responsible Officers receives written notice thereof from the Company or any
of the Holders.
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SECTION 4.8 Reports and Other Information.
Whether or not the Company is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Company shall deliver to the
Trustee and to each Holder within 10 days after it is or would have been
required to file them with the SEC, annual and quarterly financial statements
substantially equivalent to financial statements that would have been
included in reports filed with the SEC, if the Company were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by the Company's
certified independent public accountants as such would be required in such
reports to the SEC, and, in each case, together with management's discussion
and analysis of financial condition and results of operations which would be
so required. Whether or not required by the rules and regulations of the
SEC, the Company shall file a copy of all such information and reports with
the SEC for public availability (unless the SEC will not accept such a
filing).
SECTION 4.9 Limitation on Status as Investment Company.
Neither the Company nor any of its Subsidiaries shall be required to
register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or otherwise become subject to
regulation as an investment company under the Investment Company Act.
SECTION 4.10 Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any of its Subsidiaries to,
enter into any contract, agreement, arrangement or transaction with any
Affiliate (an "Affiliate Transaction") or any series of related Affiliate
Transactions, unless such Affiliate Transaction is made in good faith, the
terms of such Affiliate Transaction are fair and reasonable to the Company or
such Subsidiary, as the case may be, and are on terms at least as favorable
as the terms which could be obtained by the Company or such Subsidiary, as
the case may be, in a comparable transaction made on an arm's-length basis
with Persons who are not Affiliates; provided that the foregoing restrictions
shall not apply to Exempted Affiliate Transactions.
Without limiting the foregoing, any Affiliate Transaction or series of
related Affiliate Transactions (i) involving consideration to either party in
excess of $2,000,000, must be evidenced by a resolution of a committee of
non-employee directors of the Company who are disinterested with respect to
such transaction (an "Independent Committee"), set forth in an Officers'
Certificate addressed and delivered to the Trustee, certifying that (a) the
terms of such Affiliate Transaction are fair and reasonable to the Company or
such Subsidiary, as the case may be, and no less favorable to the Company or
such Subsidiary, as the case may be, than could have been obtained in an
arm's-length transaction with a non-Affiliate and (b) such Affiliate
Transaction has been approved by a majority of the members of an Independent
Committee, and (ii) involving consideration to either party in excess of
$5,000,000 must be evidenced by a resolution of an Independent Committee in
accordance with the foregoing clause (i) and, prior to
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the consummation thereof, an Officers' Certificate addressed and delivered to
the Trustee certifying to the receipt of (and enclosing a copy of ) a written
favorable opinion as to the fairness of such transaction to the Company or
such Subsidiary, as the case may be, from a financial point of view from an
independent investment banking firm of national reputation; provided that the
foregoing restrictions shall not apply to Exempted Affiliate Transactions.
The Trustee may conclusively rely upon an Officers' Certificate provided in
accordance with this paragraph that there has been compliance with the
covenants set forth in the preceding paragraph.
SECTION 4.11 Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock.
(a) The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, issue, assume, guaranty, incur, become directly
or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Funded Recourse Debt (including Acquired Indebtedness) or
any Disqualified Capital Stock; provided that, notwithstanding the foregoing,
(i) the Company may, and may permit any of its Subsidiaries to, incur Funded
Recourse Debt (including Acquired Recourse Debt) or Disqualified Capital
Stock if (A) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro forma
basis to, such incurrence of Funded Recourse Debt or Disqualified Capital
Stock and the application of the proceeds therefrom and (B) on the date of
such incurrence (the "Incurrence Date"), the Consolidated Interest Coverage
Ratio of the Company for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such incurrence
of such Funded Recourse Debt or Disqualified Capital Stock and, to the extent
set forth in the definition of Consolidated Interest Coverage Ratio, the use
of proceeds therefrom, would be at least 1.55 to 1.0 and (ii) the Company
may, and may permit any of its Subsidiaries to, incur any Permitted Recourse
Debt (including, without limitation, Secured Portfolio Debt) .
(b) The Company shall not, directly or indirectly, incur any unsecured
Funded Recourse Debt unless such unsecured Funded Recourse Debt is
subordinated in right of payment to payment of the Securities upon terms and
conditions no less favorable to the Holders that the subordination provisions
contained in Article XI of this Indenture.
(c) The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, incur any unsecured Funded Recourse Debt which by
its terms (or by the terms of any agreement covering such Funded Recourse
Debt) is subordinated to any other Indebtedness of the Company unless such
unsecured Funded Recourse Debt is also by its terms (or by the terms of any
agreement covering such Funded Recourse Debt) made expressly subordinate to
the Securities to the same extent and in the same manner as such unsecured
Funded Recourse Debt is subordinated pursuant to subordination provisions
that are most favorable to the holders of any other Indebtedness of the
Company. Unsecured Indebtedness is not deemed to be subordinate or junior to
secured Indebtedness merely because it is unsecured.
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(d) Indebtedness of any Person which is outstanding at the time such
Person becomes a Subsidiary of the Company or is merged with or into or
consolidated with the Company or a Subsidiary of the Company shall be deemed
to have been incurred at the time such Person becomes such a Subsidiary of
the Company or is merged with or into or consolidated with the Company or a
Subsidiary of the Company, as applicable.
SECTION 4.12 Limitations on Dividends and Other Payment Restrictions
Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, assume or suffer to exist any consensual
restriction on the ability of any Subsidiary of the Company to pay dividends
or make other distributions to or on behalf of, or otherwise to transfer
assets or property to, or make or pay loans or advances to or on behalf of,
the Company or any Subsidiary of the Company, except (a) restrictions imposed
by the Securities or this Indenture, (b) restrictions imposed by applicable
law, (c) existing restrictions under specified Indebtedness outstanding on
the Issue Date or under any Acquired Indebtedness not incurred in violation
of this Indenture or any agreement relating to any property, asset, or
business acquired by the Company or any of its Subsidiaries, which
restrictions, in each case, existed at the time of acquisition, were not put
in place in connection with or in anticipation of such acquisition and are
not applicable to any Person, other than to the Person acquired, or to any
property, asset or business, other than the property, assets and business so
acquired, (d) any such restriction or requirement imposed by Indebtedness of
the Company and its Subsidiaries under the Revolver Agreement (including any
Indebtedness issued to refinance, refund or replace such Indebtedness in
whole or in part, including any extended maturity or increase in the amount
thereof); provided that such restriction or requirement is no more
restrictive than that imposed by the Revolver Agreement in effect as of the
Issue Date, (e) restrictions with respect solely to a Subsidiary of the
Company imposed pursuant to a binding agreement which has been entered into
for the sale or disposition of all or substantially all of the Capital Stock
or assets of such Subsidiary; provided that such restrictions apply solely to
the Capital Stock or assets of such Subsidiary which are being sold, (f) in
connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clause (c) of this paragraph that are not
more restrictive than those being replaced and do not apply to any other
Person or assets than those that would have been covered by the restrictions
in the Indebtedness so refinanced, (g) any such restriction or requirement
imposed by non-recourse or limited-recourse Indebtedness of "special
purpose" Subsidiary of the Company which was or is incurred solely in
connection with the securitization of Customer Receivables in the ordinary
course of business consistent with past practice and (h) any Lien permitted
by the provisions of Section 4.13 hereof.
SECTION 4.13 Limitation on Liens.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien on
any of their respective Non-Receivable Assets, whether now owned or
hereinafter acquired, securing any Funded Recourse Debt of the Company unless
the Securities are equally and ratably secured; provided that (i) the
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foregoing restrictions shall not prohibit the Company or its Subsidiaries
from incurring Permitted Liens and (ii) if such Funded Recourse Debt is by
its terms expressly subordinate to the Securities, the Lien securing such
Funded Recourse Debt shall be subordinate and junior to the Lien securing the
Securities or the Guarantees, with the same relative priority as such
subordinated Funded Recourse Debt shall have with respect to the Securities.
SECTION 4.14 Waiver of Stay, Extension or Usury Laws.
The Company hereby covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law which would prohibit or forgive the Company from
paying all or any portion of the principal of, premium, if any, or interest
on the Securities as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance
of this Indenture; and (to the extent that it may lawfully do so) the Company
hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 4.15 Limitation on Lines of Business.
Neither the Company nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which, in the reasonable good faith judgment of the
Board of Directors of the Company, is a Related Business.
SECTION 4.16 Repurchase of Securities Upon Death of Holder.
(a) Option Upon Death Of Holders. Upon the death of any Holder of
Securities, and upon the further receipt by the Company of a written request
for repurchase and the other documents referred to in clauses (i), (ii) and
(iii) below, and satisfaction of the conditions set forth in subsection (b)
below, the Company shall be required to pay, in accordance with the terms of
this Section 4.16, the Repurchase Price of, and (except if the Repurchase
Date shall be an Interest Payment Date) any accrued interest on all or such
portion (which portion shall be an integral multiple of $1,000 in excess of
the minimum authorized denomination) of the Security or Securities held by
the deceased Holder at the date of such Holder's death as requested, provided
that the Company shall not be required to make repurchase payments
aggregating more than (i) $25,000 in principal amount (plus accrued interest)
in any calendar year on a Security or Securities held by any one deceased
Holder or (ii) $250,000 in principal amount (plus accrued interest) in any
calendar year on Securities held by any number of deceased Holders (the
"Maximum Annual Repurchase Amount"). Subject to subsection (b) below, the
repurchase of such Securities shall be made in the order in which requests
therefor are received (subject to the aforesaid Maximum Annual Repurchase
Amount limitation) within 30 days following receipt by the Company or the
Trustee of the following:
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(i) a written request for repurchase of the Security or
Securities signed by a duly authorized representative of the Holder,
which request shall set forth the name of the deceased Holder, the date
of death of the deceased Holder, and the principal amount of the Security
or Securities to be repaid;
(ii) the certificates (if any other than with respect to a global
Security) representing the Security or Securities to be repaid; and
(iii) evidence satisfactory to the Company and the Trustee of the
death of such deceased Holder and the authority of the representative to
such extent as may be required by the Trustee.
Securities not repaid in any calendar year because of the Maximum Annual
Repurchase Amount limitation may be held by the Trustee at the request of the
authorized representative of the deceased Holder and repaid in subsequent
years in the order in which such Securities are received.
Authorized representatives of a Holder shall include the following:
executors, administrators or other legal representatives of an estate;
trustees of a trust; joint owners of Securities owned in joint tenancy or
tenancy by the entirety; custodians; conservators; guardians;
attorneys-in-fact; and other Persons generally recognized as having legal
authority to act on behalf of another. For purposes of this Section 4.16,
the death of a Person owning a Security or Securities in joint tenancy or
tenancy by the entirety with another or others shall be deemed the death of
the Holder of the Security or Securities, and the entire principal amount of
the Security or Securities so held shall be subject to repurchase, together
with accrued interest thereon to the Repurchase Date, in accordance with the
provisions of this Section 4.16, the death of a Person owning a Security or
Securities by tenancy in common shall be deemed the death of a Holder of
Security or Securities only with respect to the deceased Holder's interest in
the Security or Securities so held by tenancy in common; except that in the
event a Security or Securities are held by husband and wife as tenants in
common, the death of either shall be deemed the death of the Holder of the
Security or Securities, and the entire principal amount of the Security or
Securities so held shall be subject to repurchase in accordance with the
provisions of this Section. A Person who, during such Person's lifetime, was
entitled to substantially all of the beneficial interests of ownership of
Securities will, upon such Person's death, be deemed the Holder thereof for
purposes of this Section, regardless of the registered holder, if such
beneficial interest can be established to the satisfaction of the Trustee.
Such beneficial interest will be deemed to exist in typical cases of nominee
ownership, ownership under the Uniform Transfers (or Gifts) to Minors Act,
community property or other joint ownership arrangements between a husband
and wife, and trust arrangements where one Person has substantially all of
the beneficial ownership interests in Securities during such Person's
lifetime. Beneficial interests shall include the power to sell, transfer or
otherwise dispose of Securities and the right to receive the proceeds
therefrom, as well as principal thereof and interest thereon.
If Securities are then issued in global form, the Company or the Trustee may
adopt appropriate procedures to allow beneficial owners of Securities to obtain
payment in accordance
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with the requirements of the Depository in the event of a request for
repurchase of the Securities pursuant to this Section 4.16.
(b) Conditions to Repurchase. A Security or Securities held by the
deceased Holder shall not be entitled to repurchase pursuant to this Section
unless all of the following conditions are met:
(i) the Securities to be repaid shall have been registered on the
Security register in the name of the deceased Holder (or, in the case of
a Security in global form, there is evidence that the deceased was the
Holder) since the issue date of such Securities or for a period of at
least six months prior to the date of the deceased Holder's death,
whichever is less;
(ii) the Company or the Trustee shall have received a written
request for repurchase within one year after the date of the deceased
Holder's death or, in the case of requests for a subsequent repurchase of
a Security or Securities held by such deceased Holder, within one year
after any such preceding request;
(iii) the Company shall not, after giving effect to such
repurchase, have made repurchase payments aggregating more than the
Maximum Annual Repurchase Amount in principal amount (plus accrued
interest) of Securities within the then current calendar year;
(iv) the Company shall not, after giving effect to such repurchase,
be in default with respect to any Funded Recourse Debt; and
(v) the Company shall not be subject to any law, regulation,
agreement or administrative directive preventing such repurchase.
(c) Deposit of Repurchase Price. Within 30 days after the receipt by
the Company or the Trustee of any request for repurchase of a Security or
Securities or any portion thereof duly made pursuant to this Section 4.16,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust) an
amount of Cash sufficient to pay the Repurchase Price of, and (except if the
Repurchase Date shall be an Interest Payment Date) any accrued interest on
all the Securities or portions thereof which are to be repaid on that date.
(d) Securities Payable on Repurchase Date. A written request having
been made as described above, the Security or Securities so to be repurchased
shall, on the Repurchase Date, become due and payable at the Repurchase
Price, and from and after such date (unless the Company shall default in the
payment of the Repurchase Price and accrued interest) such Securities shall
cease to bear interest. Upon surrender of any such Security for repurchase
in accordance with said request, such Security shall be paid by the Company
at the Repurchase Price, together with any accrued interest to the Repurchase
Date; provided that installments of interest on Securities whose stated
maturity is on or prior to the Repurchase Date shall be payable to the
Holders of such Securities, registered as such at the close of business on
the record dates therefor
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according to their terms. If any Security to be repurchased shall not be so
repurchased upon surrender thereof for repurchase, the principal, until paid,
shall bear interest from the Repurchase Date at the rate prescribed therefor
in the Security.
(e) Securities Repurchased in Part. Any Security which is to be repaid
only in part shall be surrendered at any office or agency for such Security
(with, if the Company or the Trustee so requires, due endorsement by, or a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service
charge, a new Security or Securities, containing identical terms and
provisions, of any authorized denomination (in integral multiples of $1,000)
as requested by such Holder in aggregate principal amount equal to and in
exchange for the unpaid portion of the principal of the Security so
surrendered. If a Security in global form is so surrendered, the Company
shall execute, and the Trustee shall authenticate and deliver to the
Depository for such Security in global form as shall be specified in the
Officers Certificate with respect thereto to the Trustee, without service
charge, a new Security in global form in a denomination equal to and in
exchange for the unpaid portion of the principal of the Security in global
form so surrendered.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1 Limitation on Merger, Sale or Consolidation.
(a) The Company shall not, directly or indirectly, consolidate with or
merge with or into another Person or sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether
in a single transaction or a series of related transactions, to another
Person or group of affiliated Persons, unless (i) either (A) the Company is
the continuing entity or (B) the resulting, surviving or transferee entity is
a corporation organized under the laws of the United States, any state
thereof or the District of Columbia and expressly assumes by supplemental
indenture all of the obligations of the Company in connection with the
Securities and this Indenture; (ii) no Default or Event of Default shall
exist or shall occur immediately before or after giving effect on a pro forma
basis to such transaction; (iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the
consolidated resulting, surviving or transferee entity is at least equal to
the Consolidated Net Worth of the Company immediately prior to such
transaction; and (iv) immediately after giving effect to such transaction on
a pro forma basis, the consolidated resulting, surviving or transferee entity
would immediately thereafter be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Consolidated Interest Coverage Ratio
set forth in Section 4.11(a) hereof.
(b) For purposes of clause (a), the sale, lease, conveyance,
assignment, transfer or other disposition of all or substantially all of the
properties and assets of one or more
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Subsidiaries of the Company, which properties and assets, if held by the
Company instead of such Subsidiaries, would constitute all or substantially
all of the properties and assets of the Company on a consolidated basis,
shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
SECTION 5.2 Successor Corporation Substituted.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with Section 5.1 hereof, the
successor corporation formed by such consolidation or into which the Company
is merged or to which such transfer is made, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named herein as the Company, and when a successor corporation duly assumes
all of the obligations of the Company pursuant hereto and pursuant to the
Securities, the Company shall be released from such obligations (except with
respect to any obligations that arise from, or are related to, such
transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1 Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
caused voluntarily or involuntarily or effected, without limitation, by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) failure by the Company to pay any installment of interest upon the
Securities as and when the same becomes due and payable, and the continuance
of such default for a period of 15 days;
(2) failure by the Company to pay all or any part of the principal of,
or premium, if any, on the Securities when and as the same becomes due and
payable at maturity, upon redemption or repurchase, by acceleration or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price in accordance with Article X;
(3) failure by the Company to comply with the provisions of Article V;
(4) failure by the Company to observe or perform any covenant or
agreement contained in the Securities or this Indenture (other than a default
in the performance of any covenant or agreement which is specifically dealt
with elsewhere in this Section 6.1), and
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continuance of such failure for a period of 30 days after there has been
given, by registered or certified mail, to the Company by the Trustee, or to
the Company and the Trustee by Holders of at least 25% in aggregate principal
amount of the outstanding Securities, a written notice specifying such
default or breach, requiring it to be remedied and stating that such notice
is a "Notice of Default" hereunder;
(5) a default under Indebtedness of the Company or any of its
Subsidiaries with an aggregate principal amount in excess of $1,000,000 (a)
resulting from the failure to pay principal of, premium, if any, or interest
on such Indebtedness prior to the expiration of the grace period provided in
such Indebtedness or (b) as a result of which the maturity of such
Indebtedness has been accelerated prior to its stated maturity;
(6) the failure by the Company or any of its Subsidiaries to pay
final judgments aggregating in excess of $1,000,000 if (A) any creditor has
commenced an enforcement proceeding with respect to such final judgments or
(B) such final judgments remain undischarged for a period (during which
execution shall not be effectively stayed) of 30 days after their entry;
(7) a decree, judgment or order by a court of competent
jurisdiction shall have been entered adjudicating the Company or any of its
Subsidiaries as bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization of the Company or any of its Subsidiaries
under any bankruptcy or similar law, and such decree or order shall have
continued undischarged and unstayed for a period of 60 days; or a decree or
order of a court of competent jurisdiction over the appointment of a
Custodian of the Company or any of its Subsidiaries, or of the property of
any such Person, or for the winding up or liquidation of the affairs of any
such Person, shall have been entered, and such decree, judgment or order
shall have remained in force undischarged and unstayed for a period of 60
days; or
(8) the Company or any of its Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against it, or shall file a petition or
answer or consent seeking reorganization under any bankruptcy or similar law
or similar statute, or shall consent to the filing of any such petition, or
shall consent to the appointment of a Custodian of it or any of its assets or
property, or shall make a general assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts generally as they
become due, or shall, within the meaning of any Bankruptcy Law, become
insolvent, fail generally to pay its debts as they become due, or take any
corporate action in furtherance of or to facilitate, conditionally or
otherwise, any of the foregoing.
Notwithstanding the 30-day period and notice requirement contained in
Section 6.1(4) above, (i) with respect to a default under Article X the
30-day period referred to in Section 6.1(4) shall be deemed to have begun as
of the date the Change of Control notice is required to be sent in the event
that the Company has not complied with the provisions of Section 10.1, and
the Trustee or Holders of at least 25% in principal amount of the outstanding
Securities thereafter give the Notice of Default referred to in Section
6.1(4) to the Company and, if applicable, the Trustee; provided that if the
breach or default is a result of a default in the payment when due of
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the Change of Control Purchase Price, such default shall be deemed, for
purposes of this Section 6.1, to arise no later than on such due date.
If a Default occurs and is continuing, the Trustee must, within 90 days
after the occurrence of such Default, give to the Holders notice of such
default.
SECTION 6.2 Acceleration of Maturity Date; Rescission and Annulment.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in Section 6.1(7) or (8) relating to the Company or any of
its Subsidiaries), then, and in every such case, unless the principal of all
of the Securities shall have already become due and payable, either the
Trustee or the Holders of not less than 25% in aggregate principal amount of
then outstanding Securities, by notice in writing to the Company (and to the
Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal (and premium, if any) and accrued interest thereon of the
Securities (or the Change of Control Payment if the Event of Default includes
failure to pay the Change of Control Payment), determined as set forth below,
to be due and payable immediately; provided that in the event a declaration
of acceleration (or a Default which, after the giving of notice, the lapse of
time or both) resulting from an Event of Default described in Section 6.1(5)
or (6) above has occurred and is continuing, such declaration of acceleration
or such Default, as the case may be, shall be automatically annulled if such
default is cured or waived or the holders of the Indebtedness which is the
subject of such default have rescinded their declaration of acceleration in
respect of such Indebtedness within 30 days thereof (in the case of an Event
of Default under Section 6.1(5) above) or 45 days thereof (in the case of an
Event of Default under Section 6.1(6) above) and the Trustee has received
written notice of such cure, waiver or rescission and no other Event of
Default described in Section 6.1(5) or (6) as applicable, has occurred that
has not been cured or waived, or as to which the declaration has not been
rescinded, within such specified number of days of the declaration of such
acceleration in respect of such Indebtedness. If an Event of Default
specified in Section 6.1(7) or (8) relating to the Company or any Subsidiary
occurs, all principal (and premium, if any) and accrued interest thereon will
be immediately due and payable on all outstanding Securities without any
declaration or other act on the part of Trustee or the Holders.
At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of a
majority in aggregate principal amount of then outstanding Securities, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee Cash sufficient
to pay:
(A) all overdue interest on all Securities,
(B) the principal of, and premium, if any, payable with respect
to any Securities which would become due other than by reason of such
declaration of acceleration, and interest thereon at the rate borne by
the Securities,
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(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rates set forth in the Securities,
(D) all sums paid or advanced by the Trustee hereunder and the
compensation, expenses, disbursements and advances of the Trustee and its
agents and counsel and any other amounts due the Trustee under Section
7.7, and
(2) all Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on Securities which have become due solely
by such declaration of acceleration, have been cured or waived as provided in
Section 6.12, including, if applicable, any Event of Default relating to the
covenants contained in Section 10.1.
Notwithstanding the previous sentence of this Section 6.2, no waiver
shall be effective against any Holder for any Event of Default or event which
with notice or lapse of time or both would be an Event of Default with
respect to any covenant or provision which cannot be modified or amended
without the consent of the Holder of each outstanding Security affected
thereby, unless all such affected Holders agree, in writing, to waive such
Event of Default or other event. No such waiver shall cure or waive any
subsequent default or impair any right consequent thereon.
SECTION 6.3 Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if an Event of Default in payment of
principal, premium or interest specified in clause (1) or (2) of Section 6.1
occurs and is continuing, the Company shall, upon demand of the Trustee, pay
to it, for the benefit of the Holders of such Securities, the whole amount
then due and payable on such Securities for principal, premium, if any, and
interest and, to the extent that payment of such interest shall be legally
enforceable, interest on any overdue principal, premium, if any, or interest
at the rates set forth in the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including compensation to, and expenses, disbursements and
advances of the Trustee and its agents and counsel and all other amounts due
to the Trustee under Section 7.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust in favor of the
Holders, may institute a judicial proceeding for the collection of the sums
so due and unpaid, may prosecute such proceeding to judgment or final decree
and may enforce the same against the Company or any other obligor upon the
Securities and collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any other
obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem
most effective to protect and enforce any such rights,
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whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
SECTION 6.4 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal, premium,
if any, or interest) shall be entitled and empowered, by intervention in such
proceeding or otherwise to take any and all actions under the TIA, including:
(1) to file and prove a claim for the whole amount of principal,
premium, if any, or interest owing and unpaid in respect of the Securities
and to file such other papers or documents and take such other actions,
including participating as a member of any committee of creditors appointed
in the matter, as the Trustee may deem necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee and its
agent and counsel and all other amounts due the Trustee under Section 7.7)
and of the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any Custodian is hereby authorized by each Holder to make such payments
to the Trustee and, in the event that the Trustee shall consent to the making
of such payments directly to the Holders, to pay to the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and advances
of the Trustee and its agents and counsel, and any other amounts due the
Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.5 Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any
of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought
in its own name as trustee of an express trust in favor of the Holders, and
any recovery of judgment shall, after provision for the payment of
compensation to, and expenses, disbursements and advances of the Trustee and
its agents and counsel and all other amounts due
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the Trustee under Section 7.7, be for the ratable benefit of the Holders of
the Securities in respect of which such judgment has been recovered.
SECTION 6.6 Priorities.
Any money collected by the Trustee pursuant to this Article VI shall be
applied in the following order, at the date or dates fixed by the Trustee
and, in case of the distribution of such money on account of principal,
premium, if any, or interest upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant to Section
7.7;
SECOND: To the Holders in payment of the amounts then due and unpaid for
principal of, premium, if any, and interest on the Securities in respect of
which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Securities for principal, premium, if any, or interest,
respectively; and
THIRD: To the Company or such other Person as may be lawfully entitled
thereto, the remainder, if any.
The Trustee may, but shall not be obligated to, fix a record date and
payment date for any payment to the Holders under this Section 6.6.
SECTION 6.7 Limitation on Suits.
No Holder or Holders of any Security or Securities shall have any right
to order or direct the Trustee to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(A) such Holder or Holders have previously given written notice to the
Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in aggregate principal amount of
then outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(C) such Holder or Holders have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities to be
incurred or reasonably probable to be incurred in compliance with such
request;
(D) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
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(E) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
aggregate principal amount of the outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision
of this Indenture or the Securities to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this
Indenture or the Securities, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.
SECTION 6.8 Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision of this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of, and premium, if any, and interest on
such Security on the dates such payments are required to be made, as set
forth in such Security (in the case of redemption, the Redemption Price on
the applicable Redemption Date and in the case of the Change of Control
Purchase Price, on the applicable Change of Control Payment Date) and to
institute suit for the enforcement of any such payment after such respective
dates, and such rights shall not be impaired without the consent of such
Holder.
SECTION 6.9 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in Section 2.7, no right
or remedy herein conferred upon or reserved to the Trustee or to the Holders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing
at law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.10 Delay or Omission Not Waiver.
No delay or omission by the Trustee or by any Holder of any Security to
exercise any right or remedy arising upon any Event of Default shall impair
the exercise of any such right or remedy or constitute a waiver of any such
Event of Default. Every right and remedy given by this Article VI or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
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SECTION 6.11 Control by Holders.
The Holder or Holders of a majority in aggregate principal amount of then
outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred upon the Trustee; provided that:
(1) such direction shall not be in conflict with any applicable law
(including the TIA) or with this Indenture,
(2) the Trustee shall not determine that the action so directed would
be unjustly prejudicial to the Holders not taking part in such direction or
may subject the Trustee to personal liability, and
(3) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
The record date for purposes of determining the identity of the Holders
of the Securities entitled to vote or consent to any action pursuant to this
Section 6.11 shall be determined as provided for in TIA Section 3.16(c).
SECTION 6.12 Waiver of Past Default.
Subject to Section 6.8, prior to the declaration of acceleration of the
maturity of the Securities, the Holder or Holders of not less than a majority
in aggregate principal amount of the outstanding Securities may, on behalf of
all Holders, waive any past default hereunder and its consequences, except a
default:
(A) in the payment of the principal of, premium, if any, or interest on
any Security as specified in clauses (1) and (2) of Section 6.1 which has not
yet been cured; or
(B) in respect of a covenant or provision hereof which, under Article
IX, cannot be modified or amended without the consent of the Holder of each
outstanding Security affected thereby.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture, but no such waiver shall extend to any subsequent
or other default or impair the exercise of any right arising therefrom.
SECTION 6.13 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or
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omitted to be taken by it as Trustee, any court may in its discretion require
the filing by any party to such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party to such suit, having
due regard to the merits and good faith of the claims or defenses made by
such party; provided that the provisions of this Section 6.13 shall not apply
to any suit instituted by the Company, to any suit instituted by the Trustee,
to any suit instituted by any Holder, or group of Holders, holding in the
aggregate more than 10% of the aggregate principal amount of the outstanding
Securities, or to any suit instituted by any Holder for enforcement of the
payment of principal of, premium, if any, or interest on any Security on or
after the respective Maturity Date set forth in such Security (including, in
the case of redemption, on or after the Redemption Date).
SECTION 6.14 Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders
shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the
Holders shall continue as though no such proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
SECTION 7.1 Duties of Trustee.
(a) If a Default or an Event of Default actually known to the Trustee
has occurred and is continuing, the Trustee shall exercise such of the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent Person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no others, and no covenants or obligations
shall be implied in or read into this Indenture which are adverse to the
Trustee, and
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein,
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upon certificates or opinions furnished to the Trustee and conforming to
the requirements of this Indenture. However, in the case of any such
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.1,
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts, and
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any
action under this Indenture or at the request, order or direction of the
Holders or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repurchase of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of this Section
7.1.
(f) The Trustee shall not be liable for interest on any assets received
by it except as the Trustee may agree in writing with the Company. Assets
held in trust by the Trustee need not be segregated from other assets except
to the extent required by law.
SECTION 7.2 Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections
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12.4 and 12.5. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or advice of
counsel.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent (other than any
agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by this Indenture, nor for any action permitted to
be taken or omitted hereunder by any Agent.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it
may see fit.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders, pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby.
(g) Unless otherwise specifically provided for in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an officer of the Company.
(h) The Trustee shall have no duty to inquire as to the performance of
the Company's covenants in Article IV hereof. In addition, the Trustee shall
not be deemed to have knowledge of any Default or Event of Default except (i)
any Event of Default occurring pursuant to Sections 5.1, 6.1(1), 6.1(2) or
(ii) any Default or Event of Default of which the Trustee shall have received
written notification or obtained actual knowledge.
(i) Whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate or, as to the amount and
holders of Secured Portfolio Debt, upon the certificate of the company's
independent auditors.
SECTION 7.3 Individual Rights of Trustee.
The Trustee, in its individual or any other capacity, may become the
owner or pledgee of Securities and may otherwise deal with the Company, any
of its Subsidiaries or their respective Affiliates with the same rights it
would have if it were not Trustee. Any Agent may do the same with like
rights. Notwithstanding the foregoing, the Trustee must comply with Sections
7.10 and 7.11 at all times.
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SECTION 7.4 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities and it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication (if executed by the Trustee), or the use or
application of any funds received by a Paying Agent other than the Trustee.
SECTION 7.5 Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail at the Company's expense to each
Securityholder notice of the uncured Default or Event of Default within 90
days after such Default or Event of Default occurs. Except in the case of a
Default or an Event of Default in payment of, principal of or premium, if
any, or interest on any Security (including the payment of the Change of
Control Purchase Price on the Change of Control Payment Date and the payment
of the Redemption Price on the Redemption Date), the Trustee may withhold the
notice if and so long as a Responsible Officer in good faith determines that
withholding the notice is in the interest of the Securityholders.
SECTION 7.6 Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, the Trustee shall, if required by law, mail to each
Securityholder a brief report dated as of such May 15 that complies with TIA
Section 313(a). The Trustee shall also comply with TIA Sections 313(b) and
313(c).
The Company shall promptly notify the Trustee in writing if the
Securities become listed on any stock exchange or automatic quotation system.
A copy of each report at the time of its mailing to Securityholders shall
be mailed to the Trustee and filed with the SEC and each stock exchange, if
any, on which the Securities are listed.
SECTION 7.7 Compensation and Indemnity.
The Company agrees to pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law concerning the compensation of a trustee of an express
trust. The Company shall reimburse the Trustee upon request for all
reasonable disbursements, expenses and advances incurred or made by it in
accordance with this Indenture. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents,
accountants, experts and counsel.
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The Company agrees to indemnify the Trustee (in its capacity as Trustee)
and each of its officers, directors, attorneys-in-fact and agents for, and
hold it harmless against, any claim, demand, expense (including but not
limited to reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel), loss or liability incurred by it without
negligence or bad faith on the part of the Trustee, arising out of or in
connection with the administration of this trust and its rights or duties
hereunder, including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance
of any of its powers or duties hereunder. The Trustee shall notify the
Company promptly of any claim asserted against the Trustee for which it may
seek indemnity. The Company shall defend the claim and the Trustee shall
provide reasonable cooperation at the Company's expense in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel; provided that the Company will not be
required to pay such fees and expenses if it assumes the Trustee's defense
and there is no conflict of interest between the Company and the Trustee in
connection with such defense. The Company need not pay for any settlement
made without its written consent. The Company need not reimburse any expense
or indemnify against any loss or liability to the extent incurred by the
Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.7, the
Trustee shall have a claim prior to the Securities on all assets held or
collected by the Trustee in its capacity as Trustee, except assets held in
trust to pay principal of, premium, if any, or interest on the Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(7) or (8) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any lien arising
hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Company's obligations pursuant to Article VIII of this
Indenture and any rejection or termination of this Indenture under any
Bankruptcy Law.
SECTION 7.8 Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing, to become
effective upon the appointment of a successor trustee. The Holder or Holders
of a majority in aggregate principal amount of the outstanding Securities may
remove the Trustee by so notifying the Company and the Trustee in writing and
may appoint a successor trustee with the Company's consent. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
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(c) a receiver, Custodian or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holder
or Holders of a majority in aggregate principal amount of the Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after that and
provided that all sums owing to the retiring Trustee provided for in Section
7.7 have been paid, the retiring Trustee shall transfer all property held by
it as trustee to the successor Trustee, subject to the lien provided in
Section 7.7, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holder or Holders of at least 10% in aggregate principal amount of the
outstanding Securities may petition any court of competent jurisdiction for
the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
the Company's obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee.
SECTION 7.9 Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10 Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of TIA Section
310(a)(1), (2) and (5). The Trustee shall have a combined capital and
surplus of at least $25,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA Section 310(b).
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SECTION 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE;
SATISFACTION AND DISCHARGE
SECTION 8.1 Option to Effect Legal Defeasance and Discharge.
The Company may, at its option and at any time, elect to have Section 8.2
or Section 8.3 applied to all outstanding Securities upon compliance with the
conditions set forth below in this Article VIII.
SECTION 8.2 Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 of the option applicable to
this Section 8.2, the Company shall be deemed to have been discharged from
their respective obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, such Legal Defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Securities, which shall thereafter be deemed
to be "outstanding" only for the purposes of Section 8.5 and the other
Sections of this Indenture referred to in (a) and (b) below, and the Company
shall be deemed to have satisfied all of its other obligations under such
Securities and this Indenture (and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Securities to receive solely from the trust fund described in Section 8.4,
and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Securities when such
payments are due, (b) the Company's obligations with respect to such
Securities under Sections 2.4, 2.6, 2.7, 2.10 and 4.2, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder and the
obligations of the Company in connection therewith and (d) this Article VIII.
Subject to compliance with this Article VIII, the Company may exercise its
option under this Section 8.2 notwithstanding the prior exercise of its
option under Section 8.3 with respect to the Securities.
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SECTION 8.3 Covenant Defeasance.
Upon the Company's exercise under Section 8.1 of the option applicable to
this Section 8.3, the Company shall be released from its obligations under
the covenants contained in Sections 4.3, 4.5, 4.6, 4.7, 4.10, 4.11, 4.12,
4.13, 4.14, 4.15 and 4.16 and Article V with respect to the outstanding
Securities on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Securities shall thereafter be
deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such Covenant Defeasance
means that, with respect to the outstanding Securities, the Company need not
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document (and Sections 6.1(3) and (4) shall not apply to any such
covenant), but, except as specified above, the remainder of this Indenture
and such Securities shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.1 of the option applicable to this Section
8.3, Sections 6.1(5) and 6.1(6) shall not constitute Events of Default.
SECTION 8.4 Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.2 or Section 8.3 to the outstanding Securities:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements of
Section 7.10 who shall agree to comply with the provisions of this Article
VIII applicable to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (i) Cash in an
amount, or (ii) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, Cash in an amount, or (iii) a combination thereof, in such amounts,
as in each case will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge,
the principal of, premium, if any, and interest on the outstanding Securities
on the stated maturity or on the applicable Redemption Date, as the case may
be, of such principal or installment of principal, premium, or interest;
provided that the Trustee shall have been irrevocably instructed to apply
such Cash and the proceeds of such U.S. Government Obligations to said
payments with respect to the Securities and the Holders of Securities must
have a valid, perfected, fist priority security interest in such trust.
(b) In the case of an election under Section 8.2, the Company shall
have delivered to the Trustee an Opinion of Counsel confirming that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service, a ruling or (ii) since the date hereof, there has been a
change in the applicable Federal income tax law, in either case to the effect
that, and
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based thereon such opinion shall confirm that, the Holders of the outstanding
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such Legal Defeasance and will be subject to Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) In the case of an election under Section 8.3, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the outstanding Securities will not recognize income, gain or loss
for Federal income tax purposes as a result of such Covenant Defeasance and
will be subject to Federal income tax in the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred;
(d) No Default or Event of Default with respect to the Securities shall
have occurred and be continuing on the date of such deposit or, insofar as
Section 6.1(7) or 6.1(8) is concerned, at any time in the period ending on
the 91st day after the date of such deposit (it being understood that this
condition is a condition subsequent which shall not be deemed satisfied until
the expiration of such period, but in the case of Covenant Defeasance, the
covenants which are defeased under Section 8.3 will cease to be in effect
unless an Event of Default under Section 6.1(7) or 6.1(8) occurs during such
period);
(e) Such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them is bound;
(f) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit made by the Company pursuant to its
election under Section 8.2 or 8.3 was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; and
(g) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for in, in the case of the Officers' Certificate, (a)
through (f) and, in the case of the Opinion of Counsel, clauses (a) (with
respect to the validity and perfection of the security interest), (b) (if
applicable), (c) and (e) of this Section 8.4 have been complied with.
SECTION 8.5 Deposited Cash and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.6, all Cash and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 in respect of the outstanding Securities
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent as
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the Trustee may determine, to the Holders of such Securities of all sums due
and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to
the extent required by law.
SECTION 8.6 Repayment to the Company.
(a) Anything in this Article VIII to the contrary notwithstanding, the
Trustee or the Paying Agent, as applicable, shall deliver or pay to the
Company from time to time, upon the request of the Company, any Cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which
may be the opinion delivered under Section 8.4(a) hereof), are in excess of
the amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
(b) Any Cash and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee or any Paying Agent, or then held by the
Company, in trust for the payment of the principal of, premium, if any, or
interest on any Security and remaining unclaimed for two years after such
principal, premium or interest have become due and payable shall be paid to
the Company on its request, and the Holder of such Security shall thereafter
look only to the Company for payment thereof, and all liability of the
Trustee or such Paying Agent with respect to such trust money shall thereupon
cease; provided that the Trustee or such Paying Agent, before being required
to make any such repurchase, may at the expense of the Company cause to be
published once, in The New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 8.7 Reinstatement.
If the Trustee or Paying Agent is unable to apply any Cash or U.S.
Government Obligations in accordance with Section 8.2 or 8.3, as the case may
be, by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
obligations of the Company under this Indenture and the Securities shall be
revived and reinstated as though no deposit had occurred pursuant to Section
8.2 or 8.3 until such time as the Trustee or Paying Agent is permitted to
apply such money in accordance with Section 8.2 and 8.3, as the case may be;
provided that if the Company makes any payment of principal of, premium, if
any, or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the Cash or U.S. Government
Obligations held by the Trustee or Paying Agent.
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SECTION 8.8 Satisfaction and Discharge.
In addition to the Company's rights under Section 8.1, the Company may
terminate all of its obligations under this Indenture when:
(1) all Securities theretofore authenticated and delivered (other than
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.7) have been delivered to the
Trustee for cancellation;
(2) the Company has paid or caused to be paid all other sums payable
hereunder and under the Securities; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
specified herein relating to the satisfaction and discharge of this
Indenture have been complied with.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1 Supplemental Indentures Without Consent of Holders.
Without the consent of any Holder, the Company (when authorized by Board
Resolutions) and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, typographical error or
inconsistency, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent with
the provisions of this Indenture, provided such action pursuant to this
clause (1) shall not adversely affect the interests of any Holder in any
respect;
(2) to provide for uncertificated Securities in addition to or in place
of certificated Securities;
(3) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Company
or to make any other change that does not adversely affect the legal rights
of any Holder under this Indenture, provided, that the Company has delivered
to the Trustee an Opinion of Counsel stating that such change does not
adversely affect the rights of any Holder;
(4) to provide collateral for the Securities or additional obligors
upon, or guarantors of payment of, the Securities;
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(5) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the obligations of the Company herein
and in the Securities in accordance with Article V;
(6) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(7) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities.
SECTION 9.2 Amendments, Supplemental Indentures and Waivers with Consent
of Holders.
Subject to Section 6.8, with the consent of the Holders of not less than a
majority in aggregate principal amount of then outstanding Securities
(including consents obtained in connection with a tender offer or exchange
offer for Securities), by written act of said Holders delivered to the
Company and the Trustee, the Company (when authorized by a Board Resolution)
and the Trustee may amend or supplement this Indenture or the Securities or
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or the Securities or of modifying in any manner
the rights of the Holders under this Indenture or the Securities; provided
that no such amendment or supplement to Article XI of this Indenture, or
indenture or indentures supplemental hereto which adds any provision to or
changes in any manner or eliminates any of the provisions of Article XI of
this Indenture or which modifies in any manner the rights of the Holders
under Article XI of this Indenture shall be effective unless such amendment,
supplement or indenture or indentures supplemental has been approved in
writing by the Representative or Representatives of the holders of all
Designated Secured Portfolio Debt then outstanding. Subject to Section 6.8,
the Holder or Holders of not less than a majority in aggregate principal
amount of then outstanding Securities may waive compliance by the Company
with any provision of this Indenture or the Securities; provided that no
waiver of compliance by the Company with any provision of Article XI of this
Indenture shall be effective unless such waiver has been approved in writing
by the Representative or Representatives of the holders of all Designated
Secured Portfolio Debt then outstanding. Notwithstanding any of the above,
however, no such amendment, supplemental indenture or waiver shall, without
the consent of the Holder of each outstanding Security affected thereby (and,
in the case of any amendment, supplemental indenture or waiver of any
provision of Article XI of this Indenture, without the written consent of
each Representative of the holders of any Designated Secured Portfolio Debt
then outstanding):
(1) reduce the percentage of principal amount of the outstanding
Securities whose Holders must consent to an amendment, supplement or waiver
of any provision of this Indenture or the Securities;
(2) reduce the rate or extend the time for payment of interest on any
Security;
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(3) reduce the principal amount of any Security, or reduce the Change
of Control Purchase Price or the Redemption Price;
(4) change the Stated Maturity or the Change of Control Purchase Date
of any Security;
(5) alter the redemption provisions of Article III or the provisions of
Section 4.16 or Article X in a manner adverse to any Holder;
(6) make any changes in the provisions concerning waivers of Defaults
or Events of Default by Holders of the Securities or the rights of Holders to
recover the principal of, premium, if any, or interest on, or redemption
payment with respect to, any Security, including without limitation any
changes in Section 6.8, 6.12 or this third sentence of this Section 9.2;
(7) reduce the principal of, premium, if any, or interest on any
Security payable as provided for in this Indenture and the Securities (or
change the place of payment where, or the coin, currency or manner in which,
any Security or any principal, premium, or interest is payable); or
(8) make any change to this Indenture that would adversely affect the
contractual ranking of the Securities.
It shall not be necessary for the consent of the Holders under this
Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not in any way
impair or affect the validity of any such supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section 9.2 or
Section 9.4 becomes effective, it shall bind each Holder.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of any outstanding
Securities for or as an inducement to any consent, waiver or amendment of any
terms or provisions of the outstanding Securities unless such consideration
is offered to be paid or agreed to be paid to all Holders of the Securities
which so consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
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SECTION 9.3 Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
SECTION 9.4 Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by written notice to
the Company or the Person designated by the Company as the Person to whom
consents should be sent if such revocation is received by the Company or such
Person before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities
have consented (and have not theretofore revoked such consent) to the
amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is
fixed, then notwithstanding the last sentence of the immediately preceding
paragraph, those Persons who were Holders at such record date, and only those
Persons (or their duly designated proxies), shall be entitled to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 9.2, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such
waiver shall not impair or affect the right of any Holder to receive payment
of principal of, premium, if any, and interest on a Security, on or after the
respective dates set for such amounts to become due and payable expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates.
SECTION 9.5 Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee or require the Holder to put an appropriate notation on the Security.
The Trustee may place an appropriate notation on the Security briefly
describing the changed terms and return it to the Holder. Alternatively, if
the Company or the Trustee so determines, the Company, in exchange for the
Security, shall issue
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and the Trustee shall authenticate a new Security that reflects the changed
terms. Any failure to make the appropriate notation or to issue a new
Security shall not affect the validity of such amendment, supplement or
waiver.
SECTION 9.6 Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to this Article IX; provided that the Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects
the Trustee's own rights, duties or immunities under this Indenture. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article IX is authorized or
permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE UPON CHANGE OF CONTROL
SECTION 10.1 Repurchase of Securities at Option of the Holder Upon a
Change of Control.
(a) In the event that a Change of Control occurs, each Holder shall
have the right, at such Holder's option, pursuant to an irrevocable and
unconditional offer by the Company (the "Change of Control Offer") subject to
the terms and conditions of this Indenture, to require the Company to
repurchase all or any part of such Holder's Securities (provided, that the
principal amount of such Securities at maturity must be $1,000 or an integral
multiple thereof) on a date selected by the Company that is no later than 45
Business Days after the occurrence of such Change of Control (the "Change of
Control Purchase Date"), at a cash price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof, plus (subject to the
right of Holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such repurchase date and subject
to clause (b)(4) below) accrued and unpaid interest to and including the
Change of Control Purchase Date.
(b) In the event of a Change of Control, the Company shall be required
to commence an offer to purchase Securities (a "Change of Control Offer") as
follows:
(1) the Change of Control Offer shall commence within 15 Business
Days following the occurrence of the Change of Control;
(2) the Change of Control Offer shall remain open for 20 Business
Days, except to the extent that a longer period is required by applicable
law, rule or regulation (the "Change of Control Offer Period");
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(3) upon the expiration of a Change of Control Offer, the Company
shall purchase all of the properly tendered Securities at the Change of
Control Purchase Price;
(4) if the Change of Control Purchase Date is on or after a
Record Date and on or before the related Interest Payment Date, any
accrued interest will be paid to the Person in whose name a Security is
registered at the close of business on such Record Date, and no
additional interest will be payable to Securityholders who tender
Securities pursuant to the Change of Control Offer;
(5) the Company shall provide the Trustee and the Paying Agent
with notice of the Change of Control Offer at least three Business Days
before the commencement of any Change of Control Offer; and
(6) on or before the commencement of any Change of Control Offer,
the Company or the Registrar (upon the request and at the expense of the
Company) shall send, by first-class mail, a notice to each of the
Securityholders, which (to the extent consistent with this Indenture)
shall govern the terms of the Change of Control Offer and shall state:
(i) that the Change of Control Offer is being made pursuant
to such notice and this Section 10.1 and that all Securities, or
portions thereof, tendered will be accepted for payment;
(ii) the Change of Control Purchase Price (including the
amount of accrued and unpaid interest, subject to clause (b)(4)
above), the Change of Control Purchase Date and the Change of
Control Put Date (as defined below);
(iii) that any Security, or portion thereof, not tendered or
accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in depositing Cash
with the Paying Agent in accordance with the last paragraph of this
Article X or such payment is prevented, any Security, or portion
thereof, accepted for payment pursuant to the Change of Control
Offer shall cease to accrue interest after the Change of Control
Purchase Date;
(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Change of Control Offer will be
required to surrender the Security, with the section entitled
"Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent (which may not for purposes of this
Section 10.1, notwithstanding anything in this Indenture to the
contrary, be the Company or any Affiliate of the Company) at the
address specified in the notice prior to the close of business on
the earlier of (a) the third Business Day prior to the Change of
Control Purchase Date and (b) the third Business Day following the
expiration of the Change of Control Offer (such earlier date being the
"Change of Control Put Date");
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(vi) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent (which may not
for purposes of this Section 10.1, notwithstanding anything in this
Indenture to the contrary, be the Company or any Affiliate of the
Company) receives, up to the close of business on the Change of
Control Put Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount
of the Securities the Holder is withdrawing and a statement that
such Holder is withdrawing his election to have such principal amount
of Securities purchased; and
(vii) a brief description of the events resulting in such
Change of Control.
Any such Change of Control Offer shall comply with all applicable
provisions of Federal and state laws, including those regulating tender
offers, if applicable, and any provisions of this Indenture which conflict
with such laws (A) shall be deemed to be superseded by the provisions of such
laws and (B) shall not be deemed to have been breached by virtue thereof.
On or before the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof properly tendered pursuant
to the Change of Control Offer and (ii) deposit with the Paying Agent Cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest subject to clause (b)(4) above) for all Securities or
portions thereof so tendered. Promptly following the Change of Control
Purchase Date the Company shall deliver to the Registrar Securities so
accepted, together with an Officers' Certificate listing the Securities or
portions thereof being purchased by the Company. The Paying Agent shall on
the Change of Control Purchase Date or promptly thereafter mail to Holders of
Securities so accepted payment in an amount equal to the Change of Control
Purchase Price (together with accrued and unpaid interest and Liquidated
Damages, if any, subject to clause (b)(4) above), for such Securities
(subject to clause (b)(4) above), and the Trustee or its authenticating agent
shall promptly authenticate and the Registrar shall mail or deliver (or cause
to be transferred by book entry) to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered;
provided that each such new Security will be in a principal amount of $1,000
or an integral multiple thereof. Any Securities not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The
Company shall publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Purchase Date.
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ARTICLE XI
SUBORDINATION OF SECURITIES
SECTION 11.1. Securities Subordinated to Secured Portfolio Debt.
The Company and each Securityholder, by its acceptance of Securities,
agree that (a) the payment of the principal of and interest on the Securities
and (b) any other payment or obligations in respect of the Securities,
including on account of the acquisition or redemption of the Securities by
the Company (including, without limitation, pursuant to Articles III or X) is
subordinated, to the extent and in the manner provided in this Article XI, to
the prior payment in full in Cash or Cash Equivalents of all Secured
Portfolio Debt of the Company and that these subordination provisions are for
the benefit of the holders of Secured Portfolio Debt.
This Article XI shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold,
Secured Portfolio Debt, and such provisions are made for the benefit of the
holders of Secured Portfolio Debt, and such holders are made obligees
hereunder and any one or more of them may enforce such provisions.
The Securities shall in all respects rank (i) pari passu with all other
unsecured Funded Recourse Debt of the Company outstanding on the Issue Date
and (ii) senior to any Funded Recourse Debt of the Company issued after the
Issue Date, and only Indebtedness of the Company which is Secured Portfolio
Debt shall rank senior to the Securities in accordance with the provisions
set forth herein.
SECTION 11.2. No Payment on Securities in Certain Circumstances.
(a) No payment (by set-off or otherwise) shall be made by or on
behalf of the Company, as applicable, on account of the principal of,
premium, if any, or interest on the Securities (including any repurchases of
Securities), or on account of the redemption provisions of the Securities or
any obligation in respect of the Securities, for Cash or property, (i) upon
the maturity of any Secured Portfolio Debt of the Company, as applicable, by
lapse of time, acceleration (unless waived) or otherwise, unless and until
all principal of and the interest on such Secured Portfolio Debt are first
paid in full in Cash or Cash Equivalents, or (ii) in the event of default in
the payment of any principal or interest on or fee in respect of Secured
Portfolio Debt of the Company when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise (a
"Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist; provided that the Company may pay
the Securities without regard to the foregoing if the Company and the Trustee
receive written notice approving such payment from the Representative of the
Designated Secured Portfolio Debt with respect to which such payment default
has occurred and is continuing.
(b) In furtherance of the provisions of Section 11.1, in the
event that, notwithstanding the foregoing provisions of this Section 11.2,
any payment or distribution of assets of the Company shall be received by the
Trustee or the Securityholders at a time when such payment or distribution is
prohibited by the provisions of this Section 11.2, such payment or
distribution shall be held in trust for the benefit of the holders of such
Secured Portfolio Debt, and shall be paid or delivered by the Trustee or such
Securityholders, as the case may be, to the holders of such Secured Portfolio
Debt remaining unpaid or to their Representative or Representatives, ratably
according to the aggregate principal amounts remaining unpaid on account of
such Secured Portfolio Debt held or represented by each, for application to
the payment of all such Secured Portfolio Debt remaining unpaid, to the
extent necessary to pay all such Secured
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Portfolio Debt in full in Cash or Cash Equivalents after giving effect to any
concurrent payment or distribution to the holders of such Secured Portfolio
Debt.
SECTION 11.3. Securities Subordinated to Prior Payment of All Secured
Portfolio Debt on Dissolution, Liquidation or Reorganization.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or
a similar proceeding or upon assignment for the benefit of creditors or any
marshalling of assets or liabilities:
(a) the holders of all Secured Portfolio Debt of the Company, as
applicable, will first be entitled to receive payment in full in Cash or Cash
Equivalents before the Securityholders are entitled to receive any payment on
account of the principal of, premium, if any, and interest on the Securities
or any obligation in respect of the Securities;
(b) any payment or distribution of assets of the Company of any
kind or character from any source, whether in Cash, property or securities to
which the Securityholders or the Trustee on behalf of the Securityholders
would be entitled (by set-off or otherwise), except for the provisions of
this Article XI, shall be paid by the liquidating trustee or agent or other
person making such a payment or distribution directly to the holders of such
Secured Portfolio Debt or their Representative to the extent necessary to
make payment in full on all such Secured Portfolio Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders
of such Secured Portfolio Debt; and
(c) in the event that, notwithstanding the foregoing, any payment
or distribution of assets of the Company shall be received by the Trustee or
the Securityholders at a time when such payment or distribution is prohibited
by the foregoing provisions, such payment or distribution shall be held in
trust for the benefit of the holders of such Secured Portfolio Debt, and
shall be paid or delivered by the Trustee or such Securityholders, as the
case may be, to the holders of such Secured Portfolio Debt remaining unpaid
or to their Representative or Representatives ratably according to the
aggregate principal amounts remaining unpaid on account of such Secured
Portfolio Debt held or represented by each, for application to the payment of
all such Secured Portfolio Debt remaining unpaid, to the extent necessary to
pay all such Secured Portfolio Debt in full in Cash or Cash Equivalents after
giving effect to any concurrent payment or distribution to the holders of
such Secured Portfolio Debt.
SECTION. 11.4. Securityholders to Be Subrogated to Rights of Holders of
Secured Portfolio Debt.
Subject to the payment in full in Cash or Cash Equivalents of all Secured
Portfolio Debt of the Company as provided herein, the Securityholders shall
be subrogated to the rights of the holders of such Secured Portfolio Debt to
receive payments or distributions of assets of the Company applicable to the
Secured Portfolio Debt until all amounts owing on the Securities shall be
paid in full, and for the purpose of such subrogation no such payments or
distributions to the holders of such Secured Portfolio Debt by or on behalf
of the Company, or by or on behalf of the
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Securityholders by virtue of this Article XI, which otherwise would have been
made to the Securityholders shall, as between the Company and the
Securityholders, be deemed to be payment by the Company or on account of such
Secured Portfolio Debt, it being understood that the provisions of this
Article XI are and are intended solely for the purpose of defining the
relative rights of the Securityholders, on the one hand, and the holders of
such Senior Debt, on the other hand.
If any payment or distribution to which the Securityholders would
otherwise have been entitled but for the provisions of this Article XI shall
have been applied, pursuant to the provisions of this Article XI, to the
payment of amounts payable under Secured Portfolio Debt of the Company, then
the Securityholders shall be entitled to receive from the holders of such
Secured Portfolio Debt any payments or distributions received by such holders
of Secured Portfolio Debt in excess of the amount sufficient to pay all
amounts payable under or in respect of such Secured Portfolio Debt in full in
Cash or Cash Equivalents.
SECTION 11.5. Obligations of the Company Unconditional.
Nothing contained in this Article XI or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as between the Company and the
Securityholders, the obligation of the Company, which is absolute and
unconditional, to pay to the Securityholders the principal of, premium, if
any, and interest on the Securities as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Securityholders and creditors of the Company other
than the holders of the Secured Portfolio Debt, nor shall anything herein or
therein prevent the Trustee or any Securityholder from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article XI, of the
holders of Secured Portfolio Debt in respect of Cash, property or securities
of the Company received upon the exercise of any such remedy.
Notwithstanding anything to the contrary in this Article XI or elsewhere in
this Indenture or in the Securities, upon any distribution of assets of the
Company referred to in this Article XI, the Trustee, subject to the
provisions of Sections 7.1 and 7.2, and the Securityholders shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction
in which such dissolution, winding up, liquidation or reorganization
proceedings are pending, or a certificate of the liquidating Trustee or agent
or other Person making any distribution to the Trustee or the Securityholders
for the purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of the Secured Portfolio Debt and other
Indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article XI so long as such court has been apprised of the
provisions of, or the order, decree or certificate makes reference to, the
provisions of this Article XI. Nothing in this Section 11.5 shall apply to
the claims of, or payments to, the Trustee under or pursuant to Section 7.7.
SECTION 11.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or
by the Trustee unless and until a Responsible Officer of the Trustee shall
have received, no later than one Business Day prior to such
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payment, written notice thereof from the Company or from one or more holders
of Secured Portfolio Debt or from any Representative therefor and, prior to
the receipt of any such written notice, the Trustee, subject to the
provisions of Sections 7.1 and 7.2, shall be entitled in all respects
conclusively to assume that no such fact exists.
SECTION 11.7. Application by Trustee of Assets Deposited with It.
Amounts deposited by the Company in trust with the Trustee pursuant to
and in accordance with Article VIII shall be for the sole benefit of
Securityholders and, to the extent (i) the making of such deposit did not, or
after giving effect to such deposit does not, result in any contravention of
any term or provision of the Revolver Agreement and (ii) allocated for the
payment of Securities, shall not be subject to the subordination provisions
of this Article XI. Otherwise, any deposit of assets with the Trustee or the
Paying Agent (whether or not in trust) for the payment of principal of or
interest on any Securities shall be subject to the provisions of Sections
11.1, 11.2, 11.3 and 11.4; provided that, if prior to one Business Day
preceding the date on which by the terms of this Indenture any such assets
may become distributable for any purpose (including without limitation, the
payment of either principal of or interest on any Security) the Trustee or
such Paying Agent shall not have received with respect to such assets the
written notice provided for in Section 11.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be
affected by any notice to the contrary which may be received by it on or
after such date.
SECTION 11.8. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Secured Portfolio Debt.
No right of any present or future holders of any Secured Portfolio Debt
to enforce subordination provisions contained in this Article XI shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have
or be otherwise charged with. The holders of Secured Portfolio Debt may
extend, renew, modify or amend the terms of the Secured Portfolio Debt or any
security therefor and release; sell or exchange such security and otherwise
deal freely with the Company, all without affecting the liabilities and
obligations of the parties to this Indenture of the Securityholders.
SECTION 11.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities.
Each Securityholder by his acceptance thereof authorizes and expressly
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provisions contained in this
Article XI and to protect the rights of the Securityholders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings or upon an assignment for the benefit of creditors
or any other marshalling of assets and liabilities of the Company), the
immediate
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filing of a claim for the unpaid balance of his Securities in the form
required in said proceedings and cause said claim to be approved. If the
Trustee does not file a proper claim or proof of debt in the form required in
such proceeding prior to 30 days before the expiration of the time to file
such claim or claims, then the holders of the Secured Portfolio Debt or their
representative are or is hereby authorized to have the right to file and are
or is hereby authorized to file an appropriate claim for and on behalf of the
Securityholders. Nothing herein contained shall be deemed to authorize the
Trustee or the holders of Secured Portfolio Debt or their Representative to
authorize or consent to or accept or adopt on behalf of any Securityholder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Securityholder thereof, or to authorize
the Trustee or the holders of Secured Portfolio Debt or their Representative
to vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 11.10. Right of Trustee to Hold Secured Portfolio Debt.
The Trustee shall be entitled to all of the rights set forth in this
Article XI in respect of any Secured Portfolio Debt at any time held by it to
the same extent as any other holder of Secured Portfolio Debt, and nothing in
this Indenture shall be construed to deprive the Trustee of any of its rights
as such holder.
SECTION 11.11. Article XI Not to Prevent Events of Default.
This failure to make a payment on account of principal of, premium, if
any, or interest on the Securities by reason of any provision of this Article
XI shall not be construed as preventing the occurrence of a Default or an
Event of Default under Section 6.1 or in any way limit the rights of the
Trustee or any Securityholder to pursue any other rights or remedies with
respect to the Securities.
SECTION 11.12. No Fiduciary Duty of Trustee to Holders of Secured
Portfolio Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Secured Portfolio Debt, and shall not be liable to any such holders (other
than for its willful misconduct or negligence) if it shall in good faith
mistakenly pay over or distribute to the Securityholders of the Securities or
the Company or any other Person, Cash, property or securities to which any
holders of Secured Portfolio Debt shall be entitled by virtue of this Article
XI or otherwise. Nothing in this Section 11.12 shall affect the obligation
of any other such Person to hold such payment for the benefit of, and to pay
such payment over to, the holders of Secured Portfolio Debt or their
representative. In the event of any conflict between the fiduciary duty of
the Trustee to the Holders of Securities and to the holders of Secured
Portfolio Debt, the Trustee is expressly authorized to resolve such conflict
in favor of the Securityholders.
SECTION 11.13. Acceleration of Payment of Securities.
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify the holders of the Designated
Secured Portfolio Debt (or their Representative) of the acceleration. If any
Designated Secured Portfolio Debt is outstanding, the Company
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may not pay the Securities until five days after such holders or the
Representative of the Designated Secured Portfolio Debt receive notice of
such acceleration and, thereafter, may pay the Securities only if this
Article XI otherwise permits payment at that time.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by operation of the TIA, the imposed duties, upon
qualification of this Indenture under the TIA, shall control.
SECTION 12.2 Notices.
Any notices or other communications to the Company or the Trustee
required or permitted hereunder shall be in writing, and shall be
sufficiently given if made by hand delivery, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as
follows:
if to the Company:
HPSC, Inc.
60 State Street, 35th Floor
Boston, Massachusetts 02109-1803
Attention: President
Telecopy: (617) 720-7299
if to the Trustee:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02210
Attention: Corporate Trust
Telecopy: (617) 664-5371
Any party by notice to each other party may designate additional or
different addresses as shall be furnished in writing by such party. Any
notice or communication to any party shall be deemed to have been given or
made as of the date so delivered, if personally delivered; when receipt is
acknowledged, if telecopied; and five Business Days after mailing if sent by
registered or certified mail, postage prepaid (except that a notice of change
of address shall not be deemed to have been given until actually received by
the addressee).
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Any notice or communication mailed to a Securityholder shall be mailed to
him or her by first class mail or other equivalent means at his or her
address as it appears on the registration books of the Registrar and shall be
sufficiently given to him or her if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it.
SECTION 12.3 Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person
shall have the protection of TIA Section 312(c).
SECTION 12.4 Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, such Person shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of the signers, all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been met; and
(2) an Opinion of Counsel (in form and substance reasonably
satisfactory to the Trustee) stating that, in the opinion of such counsel,
all such conditions precedent have been met;
provided, however, that in the case of any such request or application as to
which the furnishing of particular documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished under this Section.
SECTION 12.5 Statements Required in Certificate or Opinion.
Each Officers' Certificate or Opinion of Counsel with respect to
compliance with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that the Person making such Officers' Certificate or
Opinion of Counsel has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
Officers' Certificate or Opinion of Counsel are based;
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(3) a statement that, in the opinion of such Person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
met; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been met; provided, however, that with
respect to matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
SECTION 12.6 Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 12.7 Non-Business Days.
If a payment date is not a Business Day, any payment required to be paid
to Holders may be made on the next succeeding day that is a Business Day, and
no interest shall accrue for the intervening period.
SECTION 12.8 Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING
IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT
SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND
THE SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID
COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION
OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY
SECURITYHOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
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SECTION 12.9 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10 No Recourse Against Others.
No direct or indirect , incorporator, stockholder, director, officer or
employee, as such, past, present or future, of the Company, or any successor
entity, shall have any personal liability in respect of the obligations of
the Company under the Securities or this Indenture by reason of his, her or
its status as such incorporator, stockholder, director, officer or employee.
Each Securityholder by accepting a Security waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
SECTION 12.11 Successors.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 12.12 Duplicate Originals.
All parties may sign any number of copies or counterparts of this
Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 12.13 Severability.
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions shall not in
any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 12.14 Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and headings of the Articles
and the Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
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SECTION 12.15 Qualification of Indenture.
The Trustee shall be entitled to receive from the Company any such
Officers' Certificates, Opinions of Counsel or other documentation as it may
reasonably request in connection with any qualification of this Indenture
under the TIA.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the date first written above.
HPSC , INC.
By: /s/ John W. Everets
------------------------------
Name: John W. Everets
Title: Chief Executive Officer
Attest: /s/ Rene LeFebvre
------------------------------------
Name: Rene LeFebvre
-----------------------
Chief Financial Officer
STATE STREET BANK AND
TRUST COMPANY,
as Trustee
By: /s/ Gary Dougherty
-------------------------------
Name: Gary Dougherty
Title: Assistant Vice President
Attest: /s/ Carolina D. Altomare
-------------------------------
Name: Carolina D. Altomare
Title: Assistant Secretary
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EXHIBIT 10.28
EXHIBIT A
[FORM OF SECURITY]
HPSC, INC.
11% SENIOR SUBORDINATED NOTE DUE 2007
CUSIP NO. 404264 AC 7
NO. _______________ $ __________
HPSC, Inc., a Delaware corporation (hereinafter called the "Company",
which term includes any successors under the Indenture hereinafter referred
to), for value received, hereby promises to pay to __________________, or
registered assigns, the principal sum of ____________________ DOLLARS
($_____________), less the principal amount of Sinking Fund Payments
previously made and applied, as described herein, on April 1, 2007.
Interest Payment Dates: April 1 and October 1, commencing October 1, 1997.
Record Dates: March 15 and September 15.
Sinking Fund Payment Dates: January 1, April 1, July 1 and October 1,
commencing July 1, 2002
Reference is made to the further provisions of this Security on the
reverse side, which will, for all purposes, have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
DATED: March 26, 1997.
HPSC, INC.,
[Seal]
By: _____________________________
Name: John W. Everets
Title: Chief Executive Officer
Attest: _________________________________
Name:
Title: Vice President of Finance
and Chief Financial
Officer
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This is one of the Securities described in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY
As Trustee
By: _____________________________
Authorized Signatory
HPSC, INC.
__% SENIOR SUBORDINATED NOTE DUE 2007
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor Depository or a nominee of such
successor Depository. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York,
New York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative of
DTC (and any payment is made to Cede & Co. or such other entity as is
requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an interest herein.
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<PAGE>
(BACK OF SECURITY)
1. INTEREST.
HPSC, Inc., a Delaware corporation (hereinafter called the "Company,"
which term includes any successors of the Company under the Indenture
hereinafter referred to), promises to pay interest on the principal amount of
this Security at the rate of 11% per annum To the extent it is lawful, the
Company promises to pay interest on overdue installments of interest (without
regard to applicable grace periods) at the rate of 11% per annum compounded
semi-annually.
The Company will pay interest semi-annually on April 1 and October 1 of
each year (each, an "Interest Payment Date"), commencing October 1, 1997.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities,
from March 26, 1997. Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company shall pay interest on the Securities (except defaulted
interest )to the Persons who are the registered Holders at the close of
business on the Record Date immediately preceding the Interest Payment Date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. Except as provided below, the Company shall pay principal, premium,
if any, and interest in such coin or currency of the United States of America
as at the time of payment shall be legal tender for payment of public and
private debts ("U.S. Legal Tender"). The Securities will be payable as to
principal, premium, if any, and interest, and the Securities may be presented
for registration of transfer or exchange, at the office or agency of the
Company maintained for such purpose within or without the City of Boston, the
Commonwealth of Massachusetts or, at the option of the Company, such payments
may be made by check mailed to the Holders at their addresses set forth in
the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of,
premium, if any, and interest on all Global Securities and all other
Securities the Holders of which shall have provided wire transfer
instructions to the Company or the Paying Agent. Until otherwise designated
by the Company, the Company's office or agency will be the corporate trust
office of the Trustee.
3. PAYING AGENT AND REGISTRAR.
Initially, State Street Bank and Trust Company (the "Trustee"), will act
as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or co- Registrar without notice to the Holders. The Company or any
of its Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
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<PAGE>
4. INDENTURE.
The Company issued the Securities under an Indenture, dated as of March
20, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized
terms herein have the meanings set forth in the Indenture unless otherwise
defined herein. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the TIA, as in
effect on the date of the Indenture. The Securities are subject to all such
terms, and Holders of Securities are referred to the Indenture and the TIA
for a statement of them. The Securities are general unsecured obligations of
the Company limited in aggregate principal amount to $23,000,000.
5. REDEMPTION.
The Securities may be redeemed in whole or from time to time in part at
any time on and after April 1, 2002, at the option of the Company, at the
Redemption Price (expressed as a percentage of principal amount) set forth
below with respect to the indicated Redemption Date, in each case, plus any
accrued but unpaid interest, if any, to the Redemption Date. The Securities
may not be so redeemed prior to April 1, 2002.
If redeemed during
the 12-month period
beginning April 1 Redemption Price
---------------------- -----------------
2002 105%
2003 104%
2004 103%
2005 102%
2006 AND THEREAFTER 101%
Any such redemption will comply with Article III of the Indenture.
6. SINKING FUND.
As more fully set forth in the Indenture, the Company is required to
redeem on January 1, April 1, July 1, and October 1 of each year, commencing
July 1, 2002 and continuing through and including April 1, 2007, a portion of
the principal amount of the Securities at a Redemption Price equal to 100% of
the aggregate principal amount of the Securities so redeemed, plus accrued
and unpaid interest to the Redemption Date.
7. NOTICE OF REDEMPTION.
Notice of redemption will be sent by first class mail, at least 30 days
and not more than 60 days prior to the Redemption Date to the Holder of each
Security to be redeemed at such Holder's last address as then shown upon the
registry books of the Registrar. Securities may be redeemed in part in
integral multiples of $1,000 only.
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Except as set forth in the Indenture, from and after any Redemption Date,
if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent on such Redemption Date and payment
of the Securities called for redemption is not prohibited under the
Indenture, the Securities called for redemption will cease to bear interest
and the only right of the Holders of such Securities will be to receive
payment of the Redemption Price, plus any accrued and unpaid interest if any,
to the Redemption Date.
8. DENOMINATIONS; TRANSFER; EXCHANGE.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof. A Holder may register the transfer
of, or exchange Securities in accordance with, the Indenture. No service
charge will be made for any registration of transfer or exchange of the
Securities, but the Company may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Registrar need
not register the transfer of or exchange any Securities selected for
redemption.
9. PERSONS DEEMED OWNERS.
The registered Holder of a Security may be treated as the owner of it for
all purposes.
10. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, and interest
remains unclaimed for two years, the Trustee and the Paying Agent(s) will pay
the money back to the Company at its written request. After that, all
liability of the Trustee and such Paying Agent(s) with respect to such money
shall cease.
11. DISCHARGE PRIOR TO REDEMPTION OR MATURITY.
Except as set forth in the Indenture, if the Company irrevocably deposits
with the Trustee, in trust, for the benefit of the Holders, Cash, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient in the opinion of a nationally recognized firm of independent
public accountants selected by the Trustee, to pay the principal of, premium,
if any, and interest , on the Securities to redemption or maturity and
complies with the other provisions of the Indenture relating thereto, the
Company will be discharged from certain provisions of the Indenture and the
Securities (including the restrictive covenants described below, but
excluding their obligation to pay the principal of, premium, if any, and
interest on the Securities). Upon satisfaction of certain additional
conditions set forth in the Indenture, the Company may elect to have its
obligations discharged with respect to outstanding Securities.
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12. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding,
and any existing Default or Event of Default or compliance with any provision
may be waived with the consent of the Holders of a majority in aggregate
principal amount of the Securities then outstanding. Without notice to or
consent of any Holder, the parties thereto may under certain circumstances
amend or supplement the Indenture or the Securities to, among other things,
cure any ambiguity, defect, typographical error or inconsistency, or make any
other change that does not adversely affect the rights of any Holder of a
Security.
13. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Company
and its Subsidiaries to, among other things, incur additional Funded Recourse
Debt and Disqualified Capital Stock, pay dividends or make certain other
Restricted Payments, enter into certain transactions with Affiliates, incur
Liens, sell assets, merge or consolidate with any other Person or transfer
(by lease, assignment or otherwise) substantially all of the properties and
assets of the Company. The limitations are subject to a number of important
qualifications and exceptions. The Company must periodically report to the
Trustee on compliance with such limitations.
14. RANKING; SUBORDINATION.
Payment of principal of, premium, if any, and interest on the Securities
is subordinated in the manner and to the extent set forth in the Indenture,
in right of payment to the prior payment in full of all Secured Portfolio
Debt. Payment of principal of, premium, if any, and interest on the
Securities will rank pari passu in right of payment with all existing
unsecured Funded Recourse Debt and senior in right of payment to all future
unsecured Funded Recourse Debt of the Company.
15. REPURCHASE AT OPTION OF HOLDER.
If there is a Change of Control, the Company shall be required to offer
to purchase on the Change of Control Payment Date all outstanding Securities
at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, to the Change of Control Payment Date. Holders
of Securities will receive a Change of Control Offer from the Company prior
to any related Change of Control Payment Date and may elect to have such
Securities purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
16. REPURCHASE AT OPTION OF HOLDER UPON DEATH.
Upon the death of any Holder of Securities, and upon the further receipt
by the Company or the Trustee of a written request for repurchase and
satisfaction of the conditions set forth in the Indenture, the Company shall
be required to pay the Repurchase Price of, and (except if the Repurchase
Date shall be an Interest Payment Date) any accrued interest on all or such
portion
6
<PAGE>
(which portion shall be an integral multiple of $1,000 in excess of the
minimum authorized denomination) of the Security or Securities held by the
deceased Holder at the date of such Holder's death as requested, PROVIDED
that the Company shall not be required to make repurchase payments
aggregating more than (i) $25,000 in principal amount (plus accrued interest)
in any calendar year on a Security or Securities held by any one deceased
Holder or (ii) $250,000 in principal amount (plus accrued interest) in any
calendar year on Securities held by any number of deceased Holders.
17. SUCCESSORS.
When a successor assumes all the obligations of its predecessor under the
Securities and the Indenture, the predecessor will be released from those
obligations.
18. DEFAULTS AND REMEDIES.
If an Event of Default occurs and is continuing (other than an Event of
Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
securities shall have already become due and payable, either the Trustee or
the Holders of 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately
in the manner and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in aggregate principal amount of the
Securities then outstanding may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders of Securities notice
of any continuing Default or Event of Default (except a Default in payment of
principal, premium, if any, or interest if it determines in good faith that
withholding notice is in their interest.
19. TRUSTEE OR AGENT DEALINGS WITH COMPANY.
Subject to certain limitations, the Trustee and each Agent under the
Indenture, in its individual or any other capacity, may make loans to, accept
deposits from, and perform services for the Company or its Affiliates, and
may otherwise deal with the Company or its Affiliates as if it were not the
Trustee or such Agent.
20. NO RECOURSE AGAINST OTHERS.
No direct or indirect incorporator, stockholder, director, officer or
employee, as such, past, present or future, of the Company, or any successor
entity, shall have any personal liability in respect of the obligations of
the Company under the Securities or the Indenture by reason of his, her or
its status as such incorporator, stockholder, director, officer or employee.
Each Holder of a Security by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issuance of the Securities.
7
<PAGE>
21. AUTHENTICATION.
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this
Security.
22. ABBREVIATIONS AND DEFINED TERMS.
Customary abbreviations may be used in the name of a Holder of a Security or
an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not
as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
23. CUSIP NUMBERS.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused CUSIP numbers to
be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
8
<PAGE>
ASSIGNMENT
I or we assign this security to
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
_____________________ and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
DATED: _________________________ SIGNED: ____________________
(Sign exactly as name
appears on the other side
of this Security)
9
<PAGE>
OPTION OF HOLDER TO ELECT REPURCHASE
If you want to elect to have this Security repurchased by the Company
pursuant to Section 4.16 (upon the death of the Holder of this Note) or
Article X of the Indenture, check the appropriate box:
/ / Section 4.16 / / Article X
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.16 or Article X of the Indenture, as the case
may be, state the amount you want to be purchased (in an amount which must be
$1,000 or an integral multiple thereof): $_________
Date: ___________________ Signature: _______________________________
(Sign exactly as name appears on
the other side of this Security)
10
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
Amount
Amount of Increase Principal Signature
of Decrease in Amount of of
in Principal Principal this Global Authorized
Amount Amount Security Officer or
of this of this following Trustee or
Date Global Global such Securities
of Exchange Security Security decrease/increase Custodian
- ----------- ------------ ------------ ----------------- -------------
11
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF HPSC, INC.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
<S> <C>
Credient, Inc. Canada
American Commercial Finance Corporation Delaware
HPSC Funding Corp. I Delaware
HPSC Bravo Funding Corp. Delaware
</TABLE>
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-60077, 33-60073, 33-10796, and 33-6075 of HPSC, Inc. on Form S-8 of our
report dated February 28, 1997 (March 26, 1997 as to Note K), appearing in
this Annual Report on Form 10-K of HPSC, Inc. for the year ended December 31,
1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 28, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in the registration
statements of HPSC, Inc. on Form S-8 (File Nos. 33-60073, 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 for the two years then ended, which report
is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,945
<SECURITIES> 0
<RECEIVABLES> 178,737
<ALLOWANCES> 4,082
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,379
<DEPRECIATION> 902
<TOTAL-ASSETS> 163,217
<CURRENT-LIABILITIES> 0
<BONDS> 76,737
0
0
<COMMON> 48
<OTHER-SE> 34,332
<TOTAL-LIABILITY-AND-EQUITY> 163,217
<SALES> 0
<TOTAL-REVENUES> 17,515
<CGS> 0
<TOTAL-COSTS> 8,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,564
<INTEREST-EXPENSE> 8,146
<INCOME-PRETAX> 1,579
<INCOME-TAX> 704
<INCOME-CONTINUING> 875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 875
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
