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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-11618
HPSC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 04-2560004
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
60 STATE STREET, BOSTON, MASSACHUSETTS 02109
(Address of principal executive offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (617) 720-3600
NONE
(Former name, former address, and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: COMMON STOCK, PAR VALUE $.01 PER
SHARE. SHARES OUTSTANDING AT August 5, 1998, 4,556,030.
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HPSC, INC.
INDEX
PAGE
----
PART I -- FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997......................................... 3
Condensed Consolidated Statements of Income for Each of
the Three and Six Months Ended June 30, 1998 and June 30, 1997..... 4
Condensed Consolidated Statements of Cash Flows for
Each of the Six Months Ended June 30, 1998 and June 30, 1997....... 5
Notes to Condensed Consolidated Financial Statements................. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 8
PART II -- OTHER INFORMATION
Other Information.................................................... 12
Signatures........................................................... 13
2
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HPSC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 2,206 $ 2,137
RESTRICTED CASH............................................. 8,303 7,000
INVESTMENT IN LEASES AND NOTES:
Lease contracts and notes receivable due in
installments.......................................... 254,274 219,147
Notes receivable....................................... 31,436 33,245
Retained interest in leases and notes sold............. 14,923 11,895
Estimated residual value of equipment at end of lease
term.................................................. 12,680 11,342
Less unearned income................................... (63,027) (53,868)
Less allowance for losses.............................. (5,858) (5,541)
Less security deposits................................. (6,246) (5,801)
Deferred origination costs............................. 6,103 5,300
-------- --------
Net investment in leases and notes.......................... 244,285 215,719
-------- --------
OTHER ASSETS:
Other assets........................................... 5,391 5,502
Refundable income taxes................................ 384 2,770
-------- --------
TOTAL ASSETS................................................ $260,569 $233,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
REVOLVING CREDIT BORROWINGS................................. $ 47,000 $ 39,000
SENIOR NOTES................................................ 143,890 123,952
SENIOR SUBORDINATED NOTES................................... 20,000 20,000
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES.................... 3,422 6,254
ACCRUED INTEREST............................................ 1,237 1,129
INCOME TAXES:
Currently payable...................................... -- 66
Deferred............................................... 8,189 7,553
-------- --------
TOTAL LIABILITIES........................................... 223,738 197,954
-------- --------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $1.00 par value; authorized 5,000,000
shares; issued - None................................. -- --
COMMON STOCK, $.01 par value; 15,000,000 shares
authorized; issued and outstanding 4,556,030 shares in
1998 and 4,912,530 in 1997............................. 46 49
Additional paid-in capital............................. 12,502 12,304
Retained earnings...................................... 27,345 26,472
Less: Treasury Stock (at cost) 274,400 shares in 1998 and
236,900 in 1997........................................... (1,413) (1,210)
Deferred compensation.................................. (1,355) (2,286)
Notes receivable from officers and employees........... (294) (155)
-------- --------
TOTAL STOCKHOLDERS' EQUITY.................................. 36,831 35,174
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $260,569 $233,128
======== ========
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements.
3
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HPSC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR EACH OF THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ -----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Earned income on leases and notes....... $ 8,033 $ 5,401 $ 15,527 $ 10,416
Gain on sales of leases and notes....... 1,225 486 1,750 1,468
Provisions for losses................... (681) (303) (1,265) (740)
---------- ---------- ---------- ----------
Net Revenues................................. 8,577 5,584 16,012 11,144
---------- ---------- ---------- ----------
EXPENSES:
Selling, general and administrative..... 3,991 2,437 7,202 5,244
Interest expense........................ 3,796 2,800 7,312 5,237
Interest income......................... (40) (93) (68) (185)
---------- ---------- ---------- ----------
Net operating expenses....................... 7,747 5,144 14,446 10,296
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES................... 830 440 1,566 848
---------- ---------- ---------- ----------
PROVISION FOR INCOME TAXES:
Federal, Foreign and State:
Current............................ 30 82 56 171
Deferred........................... 338 99 637 207
---------- ---------- ---------- ----------
TOTAL INCOME TAXES........................... 368 181 693 378
---------- ---------- ---------- ----------
NET INCOME................................... $ 462 $ 259 $ 873 $ 470
========== ========== ========== ==========
BASIC NET INCOME PER SHARE................... $ 0.12 $ 0.07 $ 0.24 $ 0.12
========== ========== ========== ==========
SHARES USED TO COMPUTE BASIC NET
INCOME PER SHARE............................. 3,714,784 3,758,317 3,683,117 3,774,451
DILUTED NET INCOME PER SHARE................. $ 0.11 $ 0.06 $ 0.21 $ 0.11
========== ========== ========== ==========
SHARES USED TO COMPUTE DILUTED NET
INCOME PER SHARE............................. 4,245,374 4,080,515 4,125,698 4,108,419
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements.
4
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HPSC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................. $ 873 $ 470
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 1,974 1,995
Deferred income taxes.................................. 636 208
Restricted stock compensation.......................... 673 99
Gain on sale of receivables............................ (1,750) (1,468)
Provision for losses on lease contracts and notes
receivable............................................ 1,265 740
Increase in accrued interest........................... 108 751
Decrease in accounts payable and accrued liabilities... (1,909) (3,945)
Increase (decrease) in accrued income taxes............ (66) 16
Decrease in refundable income taxes.................... 2,386 500
Decrease in other assets............................... 80 154
-------- --------
Cash provided by (used in) operating activities............. 4,270 (480)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Origination of lease contracts and notes receivable due
in installments....................................... (77,500) (60,682)
Portfolio receipts, net of amounts included in
income................................................ 27,835 34,257
Proceeds from sales of lease contracts and notes
receivable due in installments........................ 14,317 14,021
Net (increase) decrease in notes receivable............ 1,750 (6,228)
Net increase in security deposits...................... 445 577
Net (increase) decrease in other assets................ (223) 9
Net (increase) decrease in loans to employees.......... (139) 26
-------- --------
Cash (used in) investing activities......................... (33,515) (18,020)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior notes.............................. (24,543) (19,212)
Proceeds from issuance of senior notes, net of debt
issue costs........................................... 44,337 21,621
Proceeds from issuance of senior subordinated notes,
net of debt issuance costs............................ -- 18,255
Net proceeds of revolving credit borrowings............ 8,000 492
Purchase of treasury stock............................. (203) (442)
Increase (decrease) in restricted cash................. 1,303 (3,124)
Repayment of employee stock ownership plan promissory
note.................................................. 105 105
Exercise of employee stock options..................... 315 --
-------- --------
Cash provided by financing activities....................... 29,314 17,695
-------- --------
Net increase (decrease) in cash and cash equivalents........ 69 (805)
Cash and cash equivalents at beginning of period............ 2,137 2,176
-------- --------
Cash and cash equivalents at end of period.................. $ 2,206 $ 1,371
======== ========
Supplemental disclosures of cash flow information:
Interest paid.......................................... $ 6,964 $ 3,910
Income taxes paid...................................... 35 99
</TABLE>
The Accompanying Notes are an Integral Part of the Condensed Consolidated
Financial Statements.
5
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HPSC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The information presented for the interim periods is unaudited, but
includes all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of HPSC, Inc. (the "Company"), are necessary for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. The results for interim periods are not necessarily
indicative of results to be expected for the full fiscal year. Certain 1997
account balances have been reclassified to conform with 1998 presentation. Such
financial statements have been prepared in accordance with the instructions of
Form 10-Q pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures have been omitted
pursuant to such rules and regulations. As a result, these financial statements
should be read in conjunction with the audited consolidated financial statements
and related notes included in the Company's latest annual report on Form 10-K.
2. Statement of Financial Accounting Standards No. 128, "Earnings per
Share", effective for the Company for the year ended December 31, 1997, provided
new standards for computing and presenting earnings per share (EPS). The
Company's basic net income per share calculation is based on the weighted
average number of common shares outstanding, which does not include unallocated
shares under the Company's Employee Stock Ownership Plan, Supplemental Employee
Stock Ownership Plan (for 1997 only-see Note 3), restricted shares issued under
the Company's Incentive Stock Plans, treasury stock, or any shares issuable upon
the exercise of outstanding stock options. Diluted net income per share includes
the weighted average number of stock options and contingently issuable
restricted shares under the Company's Incentive Stock Plans outstanding as
calculated under the treasury stock method, but not unallocated shares under the
Company's ESOP and SESOP.
3. In April 1998, the Company canceled its Supplemental Employee Stock
Ownership Plan ("SESOP"). The Company had originally issued 350,000 shares of
common stock to this plan in July 1994 in consideration of a promissory note in
the principal amount of $1,225,000. No contributions or allocations had been
made to any participant accounts. The shares issued to the SESOP have been
retired and the promissory note canceled. In addition, 550,000 shares of the
Company's common stock were reserved for issuance pursuant to the Company's 1998
Stock Incentive Plan as approved by the stockholders. The Board of Directors
also approved the 1998 Outside Directors Stock Bonus Plan, pursuant to which
25,000 shares of the Company's common stock were reserved for issuance. During
the quarter ended June 30, 1998, the Company also extended certain 5-year
options which were scheduled to expire and certain of such options were
exercised. Additionally, as a result of increases in the Company's stock price
in May and June 1998, vesting events occurred with respect to restricted shares
issued under the 1995 Incentive Stock Plan. As a result of this activity, the
Company recognized additional compensation expense of $660,000 in the quarter
ended June 30, 1998. Furthermore, certain restricted shares issued under the
1995 Incentive Stock Plan were converted to stock options under such plan.
4. The terms of the HPSC Bravo Funding Corp. ("Bravo") revolving credit
facility were amended in June 1998 to increase available borrowings to
$225,000,000 and to allow up to $67,500,000 of the facility to be used to
finance sales of financing contracts. Under this facility, Bravo had Senior
Notes of $52,885,000 outstanding at June 30, 1998. Bravo incurs interest at
various rates in the commercial paper market and enters into interest rate swap
agreements to assure fixed rate funding. At June 30, 1998, Bravo had seventeen
separate swap contracts with BankBoston with a total notional value of
$58,867,000. These interest rate swaps are matched swaps, and as such, are
accounted for using settlement accounting. Monthly cash settlements on the swap
agreements are recognized in income as they accrue. In the case where the
notional value of the interest rate swap agreements significantly exceeds the
outstanding underlying debt, the excess swap agreements would be
marked-to-market through income until new borrowings are incurred which would be
subject to such swap agreements. All interest rate swap agreements entered into
by the Company are for other than trading purposes.
5. In March 1997, the Company completed the issuance of $20,000,000 of
unsecured senior subordinated notes (the "Notes") due in 2007, which bear
interest at a fixed rate of 11%. The Notes pay interest semi-annually on April 1
and October 1, with such payments beginning on October 1, 1997. The Notes are
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redeemable at the option of the Company, in whole or in part, other than through
the operation of a sinking fund, after April 1, 2002 at established redemption
prices, plus accrued but unpaid interest to the date of repurchase. Beginning
July 1, 2002, the Company is required to redeem through sinking fund payments,
on January 1, April 1, July 1, and October 1 of each year, a portion of the
aggregate principal amount of the Notes at a redemption price equal to 100% of
such principal amount redeemed plus accrued but unpaid interest to the
redemption date.
6. In April 1998, the HPSC Capital Funding Inc. ("Capital") Lease
Receivable Purchase Agreement was amended to increase availability to
$150,000,000. All other terms of the Agreement remain substantially the same.
Under this Agreement, Capital had Senior Notes outstanding of $87,435,000 at
June 30, 1998, and in connection with this facility had 10 separate interest
rate swap agreements with BankBoston with a total notional value of $77,654,000.
7. On June 30, 1998, the Company had restricted cash of $4,732,000 under
the Bravo facility and $3,571,000 under the Capital facility. All such
restricted cash is reserved for debt service.
8. The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
This statement, adopted January 1, 1998, establishes standards for reporting and
presenting comprehensive income and its components. There was no difference
between comprehensive income and net income as a result of the adoption of SFAS
No. 130.
9. Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," establishes standards for
public enterprises in reporting information about its operating segments,
products and services, geographic concentrations, and major customers. Statement
of Financial Accounting Standards No. 132, "Employer's Disclosures about
Pensions and Other Post-Retirement Benefits" provides new standards for
disclosures related to pension plans and other post retirement benefits. SFAS
Nos. 131 and 132 will be effective for the Company for the year ending December
31, 1998. It is not expected that the adoption of these standards will have a
material impact on the Company's consolidated operating results or financial
condition.
10. In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued. This
Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement will be
effective for all fiscal quarters of all fiscal years beginning after June 15,
1999. The Company is still evaluating the impact of this Statement on its
consolidated results of operations.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Earned income from leases and notes for the three months ended June 30,
1998 was $8,033,000 (including approximately $1,234,000 from the Company's
commercial lending subsidiary, American Commercial Finance Corporation ("ACFC"))
as compared to $5,401,000 (including approximately $983,000 from ACFC) for the
three months ended June 30, 1997. Earned income for the six months ended June
30, 1998 was $15,527,000 (including approximately $2,491,000 from ACFC) compared
to $10,416,000 (including approximately $1,843,000 from ACFC) for the comparable
period of 1997. The increases of 49% for the three and six month periods were
due principally to increases in net investment in leases and notes for both
periods in 1998 over 1997. The increases in net investment for both periods
resulted in part from a higher level of originations in the 1998 second quarter
of $41,818,000 compared to $39,563,000 for the second quarter of 1997 and
$81,003,000 for the six months ended June 30, 1998 compared to $66,671,000 in
the comparable 1997 period. Gains on sales of leases and notes were $1,225,000
in the three months ended June 30, 1998 compared to $486,000 for the 1997
quarter. Gains on sales of leases and notes for the six months ended June 30,
1998 were $1,750,000 compared to $1,468,000 in the comparable 1997 period. The
increase for the six month period was caused by improved margins associated with
current year asset sales offset by a lower level of asset sales activity.
Interest expense (net of interest income) for the second quarter of 1998
was $3,756,000 (47% of earned income) compared to $2,707,000 (50% of earned
income) in the comparable 1997 period. For the six months ended June 30, 1998,
net interest expense was $7,244,000 (47% of earned income) compared to
$5,052,000 (49% of earned income) in the six months ended June 30, 1997. The
increase in net interest expense was due primarily to a 51% increase in debt
levels from June 30, 1997 to June 30 1998. These higher debt levels resulted
primarily from borrowings to finance a higher level of contract originations.
Net financing margin (earned income less net interest expense) for the
second quarter of 1998 was $4,277,000 (53% of earned income) compared to
$2,694,000 (50% of earned income) for the second quarter of 1997. For the six
months, net financing margin in 1998 was $8,283,000 (53% of earned income)
compared to $5,364,000 (51% of earned income). The increases in amounts in the
three and six month periods were due to higher earnings on higher balances of
earning assets.
The provision for losses for the second quarter of 1998 was $681,000 (8% of
earned income) compared to $303,000 (6% of earned income) in the second quarter
of 1997. For the six months ended June 30, 1998, the provision for losses was
$1,265,000 (8% of earned income) compared to $740,000 (7% of earned income) for
the comparable 1997 period. The increase in the six month period is due to the
Company's continuing evaluation of its portfolio quality, loss history and
allowance for losses.
The allowance for losses at June 30, 1998 was $5,858,000 (2.4% of net
investment) compared to $4,832,000 (2.8% of net investment) at June 30, 1997.
Net charge offs for the six months ended June 30, 1998 were $941,000 compared to
$472,000 in 1997.
Selling, general and administrative expenses for the three months ended
June 30, 1998 were $3,991,000 (50% of earned income) compared to $2,437,000 (45%
of earned income) in the comparable 1997 period. For the six months ended June
30, 1998, selling, general and administrative expenses were $7,202,000 (46% of
earned income) compared to $5,244,000 (50% of earned income) in the same 1997
period. The increase in the three month period was caused by increased
compensation and related costs associated with the Company's 1995 Stock
Incentive Plan as higher HPSC stock prices caused certain performance benchmarks
in such plan to be met and certain five-year options scheduled to expire were
extended. In addition, increased staffing and related costs were required to
support higher levels of owned and managed assets.
The Company's income before income taxes for the quarter ended June 30,
1998 was $830,000 compared to $440,000 in the 1997 period. For the six months
ended June 30, 1998, income before income taxes was $1,566,000 compared to
$848,000 in the 1997 period. For the quarter ended June 30, 1998 the provision
for
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income taxes was $368,000 (44% of income before income taxes) compared to
$181,000 (41% of income before income taxes) in the second quarter of 1997. For
the six months ended June 30, 1998, the provision for income taxes was $693,000
(44% of income before income taxes) compared to $378,000 ( 45% of income before
income taxes) in the 1997 period. The increase in the three month provision in
1998 was caused by expenses related to the continuing wind-down of the Company's
Canadian operation in the second quarter that are not deductible in computing
the tax provision.
The Company's net income for the three months ended June 30, 1998 was
$462,000 ($.12 basic net income per share) compared to $259,000 ($.07 basic net
income per share) for the three months ended June 30, 1997. For the six months
ended June 30, 1998, the Company's net income was $873,000 ($.24 basic net
income per share) compared to $470,000 ($.12 basic net income per share) for the
six months ended June 30, 1997. The increases in both periods in 1998 as
compared to 1997 were due to higher earned income on leases and notes and higher
gains on sales offset by higher selling, general and administrative costs,
higher net interest costs and a higher effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had $10,509,000 in cash, cash equivalents and
restricted cash as compared to $9,137,000 at December 31, 1997. As described in
Note 7 to the Company's condensed consolidated financial statements included in
this report on Form 10-Q, $8,303,000 was restricted pursuant to financing
agreements as of June 30, 1998, compared to $7,000,000 at December 31, 1997.
Cash provided by operating activities was $4,270,000 for the six months
ended June 30, 1998 compared to cash used in operating activities of $480,000
for the six months ended June 30, 1997. The significant components of cash
provided by operating activities for the six months ended June 30, 1998, as
compared to the same period in 1997, were the decrease in accounts payable and
accrued liabilities of $1,909,000 as compared to $3,945,000 for the same period
of 1997, a decrease in refundable income taxes of $2,386,000 as compared to
$500,000 from the prior period, offset by a decrease in accrued income taxes.
Cash used in investing activities was $33,515,000 for the six months ended
June 30, 1998 compared to $18,020,000 for the six months ended June 30, 1997.
The significant components of cash used in investing activities for the first
six months of 1998 compared to the same period in 1997 were an increase in
originations of lease contracts and notes receivable to $77,500,000 from
$60,682,000 along with a decrease in portfolio receipts to $27,835,000 from
$34,257,000, offset by a decrease in notes receivable of $1,750,000 in 1998
compared to an increase of $6,228,000 in the comparable period ended June 30,
1997.
Cash provided by financing activities for the six months ended June 30,
1998 was $29,314,000 compared to $17,695,000 for the six months ended June 30,
1997. The significant components of cash provided by financing activities for
the first six months of 1998 as compared to 1997 were an increase in proceeds
from issuance of senior notes, net of debt issuance costs, to $44,337,000 from
$21,621,000, an increase in proceeds from revolving credit borrowings of
$8,000,000 compared to $492,000 in the prior period, and an increase in
restricted cash balances of $1,303,000 compared to a decrease of $3,124,000,
offset by higher repayments of Senior Notes of $24,543,000 for the six months
ended June 30, 1998 compared to $19,212,000 for the six months ended June 30,
1997 as well as no Senior Subordinated Note borrowings in 1998.
On December 27, 1993, the Company raised $70,000,000 through an asset
securitization transaction in which its wholly-owned subsidiary, HPSC Funding
Corp I ("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. 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, the Funding I Notes are paid off from the restricted cash and Funding
I terminates. This occurred during the second quarter of 1997, prior to the
scheduled termination of Funding I. Due to this early termination, the Company
incurred a $175,000 non-cash, non-operating charge against earnings in both the
first and second quarters of 1997 representing the partial early recognition of
certain unamortized deferred transaction origination costs.
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The Company's Second Amended and Restated Revolving Credit Agreement with
BankBoston as Agent Bank, dated December 12, 1996 ("the Revolver Agreement")
increased the Company's availability under the Revolver Agreement to
$95,000,000. On December 10, 1997, the Revolver Agreement was extended on the
same terms and conditions providing availability to $60,000,000. The Company
signed a Third Amended and Restated Revolving Credit Agreement with BankBoston
as Agent on March 16, 1998 providing the Company with availability up to
$100,000,000 through March 31, 1999. Under the Third Amended and Restated
Revolving Credit Agreement, the Company may borrow at variable rates of prime
and at LIBOR plus 1.35% to 1.50%, dependent on certain performance covenants. At
June 30, 1998, the Company had $47,000,000 outstanding under this facility and
$53,000,000 available for borrowing, subject to borrowing base limitations. The
Third Amended and Restated Revolving Credit 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 wholly-owned,
special-purpose subsidiary HPSC Bravo Funding Corp ("Bravo"), established a
$50,000,000 revolving credit facility structured and guaranteed by Capital
Markets Assurance Corporation ("CapMAC", subsequently acquired by MBIA in
February, 1998). Under the terms of the facility, Bravo, to which the Company
sells and may continue to sell or contribute certain of its portfolio assets
subject to certain covenants regarding Bravo's portfolio performance and
borrowing base calculations, 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. The Company is the
servicer of the Bravo portfolio, subject to the Company 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
facility. In November 1996, the Bravo facility was increased to $100,000,000 and
amended to allow up to $30,000,000 of the facility to be used for sale
accounting treatment. In June 1998, the Bravo facility was further amended by
increasing the availability of the facility to $225,000,000 with $67,500,000 of
the facility available to be used for sale accounting treatment. Bravo had
$22,532,000 outstanding at June 30, 1998 from sales of receivables under the
sale accounting portion of the Bravo facility. Bravo had $52,885,000 of
indebtedness outstanding under the loan portion of the facility at June 30,
1998, and in connection with this facility, had 17 separate interest rate swap
agreements with BankBoston with a total notional value of $58,867,000.
In April, 1995, the Company entered into a fixed rate, fixed term loan
agreement with Springfield Institution for Savings ("SIS") under which the
Company borrowed approximately $3,500,000 at 9.5% subject to certain recourse
and performance covenants. In July 1997, the Company entered into another fixed
rate, fixed term loan agreement with SIS under which the Company borrowed an
additional $3,984,000 at 8% subject to the same conditions as the first loan.
The Company had $3,571,000 outstanding under these agreements at June 30, 1998.
In March 1997, the Company completed a $20,000,000 offering of unsecured
senior subordinated notes due 2007 bearing interest at a fixed rate of 11% (the
"Note Offering"). The Note Offering was completed on the terms and conditions
described in Amendment No. 2 to the Company's Registration Statement No. 333-
20733 on Form S-1. The Company received approximately $18,300,000 in net
proceeds from the Note Offering and used such proceeds to repay in part amounts
outstanding under the Revolver Agreement.
In September 1997, the Company, along with its wholly-owned, special
purpose subsidiary, HPSC Capital Funding, Inc. ("Capital"), established a
$100,000,000 Lease Receivable Purchase Agreement with EagleFunding Capital
Corporation ("Eagle"). Under the terms of the facility, Capital, to which the
Company may sell certain of its portfolio assets from time to time, pledges or
sells its interests in these assets to Eagle, a commercial paper conduit entity.
Capital may borrow at variable rates in the commercial paper market and may
enter into interest rate swap agreements to assure fixed rate funding. Monthly
settlements of the borrowing base and any applicable principal and interest
payments are made from collections of Capital's portfolio. The Company is the
servicer of the Capital portfolio subject to certain covenants. In April 1998,
the facility was amended to increase availability under the facility to
$150,000,000. The Company had $18,389,000 outstanding at June 30, 1998 from
sales of receivables under the Capital facility. The Company had $87,435,000 of
indebtedness outstanding under the loan portion of the facility at June 30,
1998, and in
10
<PAGE> 11
connection with this facility had 10 separate interest rate swap agreements with
BankBoston with a total notional value of $77,654,000.
Management believes that the Company's liquidity, resulting from the
availability of credit under the Third Amended and Restated Revolving Credit
Agreement, the Bravo facility, the Capital facility, the Note Offering, and the
loans from SIS, along with cash obtained from the sales of its financing
contracts and from internally generated revenues, 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 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.
The Company has reviewed all significant areas within its operations,
including the application, underwriting and accounting management systems, for
date sensitive issues after December 31, 1999 ("Year 2000 Issues"). The Company
is also monitoring the progress of its major service providers. Based on this
review, the Company does not anticipate any material adverse impact from Year
2000 Issues.
FORWARD-LOOKING STATEMENTS
This Form 10-Q may contain forward-looking statements within the meaning of
Section 27A of the Securities Act. When used in this Form 10-Q, the words
"believes," "anticipates," "expects," "plans," "intends," "estimates,"
"continue," "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, including but not limited to
the following: the Company's dependence on funding sources; restrictive
covenants in funding documents; payment restrictions and default risks in asset
securitization transactions to which the Company, or its subsidiaries, are a
party; customer credit risks; competition for customers and for capital funding
at favorable rates relative to the capital costs of the Company's competitors;
changes in healthcare payment policies; interest rate risk; the risk that the
Company may not be able to realize the residual value on financed equipment at
the end of its lease term; risks associated with the sale of certain receivable
pools by the Company; dependence on sales representatives and the current
management team; and fluctuations in quarterly operating results. The Company's
filings with the Securities and Exchange Commission, including its Annual Report
on Form 10-K for the year ended December 31, 1997 contain additional information
concerning such risk factors. Actual results in the future could differ
materially from those described in any forward-looking statements as a result of
the risk factors set forth above, and the risk factors described in the Annual
Report. HPSC cautions the reader, however, that such list of risk factors 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.
11
<PAGE> 12
HPSC, INC.
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, AND 5 ARE OMITTED BECAUSE THEY ARE INAPPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS:
a) The Annual Meeting of Stockholders was held on April 23, 1998
b) Not applicable
c) The stockholders elected the following three persons to serve as Class
III Directors:
<TABLE>
<CAPTION>
FOR WITHHELD
--- --------
<S> <C> <C>
John W. Everets....................................... 4,014,631 48,379
Dollie A. Cole........................................ 4,038,031 24,979
J. Kermit Birchfield.................................. 4,038,031 24,979
</TABLE>
The stockholders approved the Company's 1998 Stock Incentive Plan:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<S> <C> <C> <C>
3,208,509 250,862 14,010 589,629
</TABLE>
The stockholders ratified the appointment of Deloitte & Touche LLP as
the independent auditors of the Company for the fiscal year ending
December 31, 1998:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
4,036,038 19,250 7,722
</TABLE>
d) Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<C> <S>
10.1 1998 Outside Directors Stock Bonus Plan, dated April 23,
1998
10.2 Employment Agreement with Rene Lefebvre, Vice President and
Chief Financial Officer, dated April 23, 1998
10.3 Amendment No. 1, dated April 30, 1998 to Liquidity Agreement
dated June 27, 1997, by and among EagleFunding Capital
Corporation (Borrower), BankBoston, N.A. (Liquidity
Provider) BKB (Liquidity Agent), and Bankers Trust Company
(Collateral Agent)
10.4 Amendment No. 2, dated April 30, 1998 to Lease Receivable
Purchase Agreement, dated June 27, 1997, by and among HPSC
Capital Funding, Inc. (Seller), EagleFunding Capital
Corporation (Purchaser), HPSC, Inc. (Servicer and
Custodian), and BancBoston Securities, Inc. (Deal Agent)
10.5 Amendment No. 1, dated June 29, 1998 to Lease Receivable
Purchase Agreement, dated October 18, 1996, by and among
HPSC Bravo Funding Corporation (Seller), Triple-A One
Funding Corporation, and Capital Markets Assurance
Corporation (Collateral Agent and Administrative Agent)
10.6 Amendment No. 3, dated June 29, 1998 to Credit Agreement,
dated January 31, 1995 by and among HPSC Bravo Funding
Corporation (Borrower), Triple-A One Funding Corporation,
and Capital Markets Assurance Corporation (Collateral Agent
and Administrative Agent)
10.7 Amendment No. 4, dated June 29, 1998 to Purchase and
Contribution Agreement, dated January 31, 1995 by and among
HPSC Bravo Funding Corporation (Buyer), and HPSC, Inc.
(Seller)
27 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the three months ended
June 30, 1998.
12
<PAGE> 13
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.
------------------------------------
(REGISTRANT)
By: /s/ JOHN W. EVERETS
------------------------------------
JOHN W. EVERETS
CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD
By: /s/ RENE LEFEBVRE
------------------------------------
RENE LEFEBVRE
VICE PRESIDENT
CHIEF FINANCIAL OFFICER
Dated: August 14, 1998
13
<PAGE> 1
EXHIBIT 10.1
HPSC, INC.
1998 OUTSIDE DIRECTOR STOCK BONUS PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
HPSC, Inc. (the "Company") and its shareholders by strengthening the ability of
the Company to attract, retain and motivate outside directors with a high level
of training, experience and ability, by providing outside directors with an
opportunity to acquire common stock of the Company under this Plan, thereby
permitting such persons to share in the Company's success while aligning their
interest with those of the Company's shareholders.
2. EFFECTIVE DATE. This Plan is effective as of April 23, 1998.
3. STOCK SUBJECT TO THE PLAN. The number of shares that may be issued
under this Plan (the "Bonus Shares") shall not exceed in the aggregate 25,000
shares of the Common Stock, $.01 par value, of the Company. Any Bonus Shares
which for any reason are reacquired by the Company may again be issued under the
Plan. Bonus Shares issued under the Plan may, in whole or in part, be either
authorized but unissued shares or issued shares reacquired by the Company.
4. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Company. Subject to the provisions of this Plan, the Board of
Directors shall have full power to construe and interpret the Plan and to
establish, amend and rescind rules and regulations for its administration.
5. ELIGIBLE PARTICIPANTS. Members of the Board of Directors who are not
employees of the Company ("Outside Directors") are eligible to receive Bonus
Shares. Each such director who is awarded Bonus Shares under the Plan shall be
deemed a "Participant" for purposes of this Plan.
6. AWARDS OF BONUS SHARES. Commencing on the date of adoption of this
Plan, one thousand (1,000) Bonus Shares shall be awarded annually at the
conclusion of the regular Annual Meeting of the Company's stockholders (the
"Annual Meeting") to each Outside Director who is such at the beginning of the
Annual Meeting, and who will continue to serve on the Board thereafter. Bonus
Shares issued under this Plan shall be issued in consideration of services
previously rendered to the Company.
7. DURATION OF THE PLAN. This Plan shall terminate five (5) years from
the effective date hereof, unless terminated earlier pursuant to Paragraph 10
hereafter, and no Bonus Shares may be issued thereafter.
<PAGE> 2
8. RIGHTS AS STOCKHOLDER. Each Participant shall have all of the rights
of a stockholder of the Company with respect to the Bonus Shares registered in
his or her name, including the right to vote such shares and receive the
dividends and other distributions paid or made with respect to such Bonus
Shares.
9. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS; RECAPITALIZATIONS.
The Board of Directors shall make appropriate adjustment in the maximum number
of shares of Common Stock subject to the Plan to give effect to any stock
dividends, stock splits, stock combinations, recapitalizations and other similar
changes in the capital structure of the Company after the effective date of the
Plan. The provisions contained in the Plan shall apply equally to any other
shares of the Company's capital stock, and any other securities, which may be
acquired by the Participant as a result of a stock dividend, stock split, stock
combination, or exchange for other securities resulting from any
recapitalization, reorganization or any other transaction affecting the Bonus
Shares.
10. TERMINATION OR AMENDMENT OF PLAN. The Board of Directors may at any
time terminate the Plan or make such changes in or additions to the Plan as it
deems advisable, provided that no such termination or amendment shall adversely
affect or impair any then issued and outstanding Bonus Shares without the
consent of the Participant holding such Bonus Shares.
2
<PAGE> 1
EXHIBIT 10.2
HPSC, Inc.
60 State Street
Boston, Massachusetts 02109
April 23, 1998
Rene Lefebvre
HPSC, Inc.
60 State Street
Boston, MA 02109
Dear Rene:
On behalf of the Board of Directors, I am pleased that you have accepted
our offer to continue to serve as Chief Financial Officer of HPSC, Inc. (the
"Company"). This agreement will formally record the arrangements to which we
agreed. I would appreciate your noting your acceptance of these terms and
returning a copy to me as soon as possible.
1. You have served as the Company's Chief Financial Officer since May 19,
1994, reporting to the Chairman and Chief Executive Officer. You will adhere to
policies established by the Chairman and Chief Executive Officer and by the
Board of Directors.
2. Your annual base salary will be established by the Compensation
Committee of the Board of Directors ( the "Compensation Committee") on an annual
basis but it shall not be less than $142,000 paid in accordance with our normal
payroll practices. The Compensation Committee has developed a performance-based
incentive compensation plan ("Incentive Plan") for key management based on
earnings, working capital management and achieving strategic objectives. The
Incentive Plan is designed to reward members of key management for achieving
superior results. You shall be eligible to receive awards under the Incentive
Plan, as determined annually by the Compensation Committee.
3. You will be eligible for the fringe benefit plans applicable to the
Company's key employees, including the Company's Employee Stock Ownership Plan.
The Company will provide you with an appropriate automobile. You will be
entitled to take four (4) weeks' vacation annually.
4. You will be eligible for awards under the Company's 1998 Stock
Incentive Plan, as it may be amended from time to time, and under any subsequent
similar plans, as determined by the Compensation Committee.
<PAGE> 2
5. While you are an employee of the Company you will devote your full
working time and your best efforts to its business. After your employment ends,
you will not in any manner compete with the Company's business or be employed by
a competitor of the Company while you are receiving severance payments. At all
times during your employment and thereafter you will maintain the confidence of
the trade secrets and other confidential and proprietary information of the
Company and you will not use any such information for any purpose other than the
business of the Company. For a period of one year after the end of your
employment, you will not make any offers of employment to any employees of the
Company.
6. This agreement will continue until April 23, 2001. Thereafter, it will
automatically renew from year to year unless you or the Company give notice of
an intention not to renew sixty (60) days in advance of any expiration date. You
or the Company may terminate your employment and this agreement at any time for
any reason on thirty (30) days' notice, except that the Company may terminate
you for cause (as defined in Exhibit A) without notice. Except as provided in
Paragraph 7, you will receive monthly severance payments, equal to your monthly
salary on the date your employment ends, as follows:
i. None, if you are terminated for cause, if you give notice of your
intention not to renew your employment agreement, or if you
terminate your employment at any other time;
ii. Six months, if the Company gives notice of its intention not to
renew your employment agreement; and
iii. Twelve months, if the Company otherwise terminates your employment.
You will also be entitled to your normal employee benefits during such time
period.
7. A. In the event a "Change of Control" (as defined in Exhibit
A) occurs and during the three (3) year period thereafter:
(x) your employment is terminated by the Company for any
reason other than "for cause" (as defined in Exhibit A);
or
(y) you terminate your employment due to a Change in Your
Employment (as defined in Exhibit A) made by the Company,
the following will apply as of the date that the termination described in either
(x) or (y) above occurs:
(i) you will receive an amount equal to the average of your
total compensation from the Company which was includable
in your gross income for federal income tax purposes (as
reported on IRS Form W-2) for each of the preceding five
(5) calendar years ending before the date of the Change
of Control (or if you have not been employed for five (5)
years
-2-
<PAGE> 3
for such lesser period as you have been employed, with
your compensation to be annualized for any portion of a
calendar year of your employment that is shorter than
twelve months) multiplied by 2.99, provided, however,
that you may choose, in your discretion, to receive a
lesser amount than you are entitled to receive under this
Section 7A(i) if after consultation with the Compensation
Committee you determine that it is in your best interests
to accept a lesser amount;
(ii) the non-compete provisions of paragraph 5 will no longer
apply to you;
(iii) your stock options and restricted stock awards, to the
extent not already vested, will entirely vest; and
(iv) your normal employee benefits will be payable for the
next twelve (12) months.
B. In the event a "Change of Control" (as defined in Exhibit
A) occurs and during the three (3) year period thereafter you terminate your
employment for any reason other than a "Change in Your Employment" (as defined
in Exhibit A) by the Company, the following will apply as of the date of
termination:
(i) you will receive your base monthly pay for the next
twelve (12) months plus an additional monthly payment
equal to the maximum incentive compensation you would
have earned for the next twelve (12) months; and
(ii) your normal employee benefits will be payable for the
next twelve (12) months.
C. In the event a "Change of Control" (as defined in Exhibit
A) occurs and during the three (3) year period thereafter your employment is
terminated by the Company "for cause" (as defined in Exhibit A), the Company's
only liability to you will be to pay any arrearages of salary or bonus as of the
date of termination.
8. This Agreement may not be changed orally but only a written
agreement signed by you and an authorized representative of the Company. If any
provision of this agreement is found by a court to be unenforceable, the
remaining provisions shall continue in effect. This agreement will be governed
by Massachusetts law.
9. The Company shall (a) indemnify you for fees and expenses incurred
in successfully enforcing against the Company your rights under this Agreement,
and (b) pay your expenses incurred in enforcing your rights under this
Agreement, in advance of a final disposition of the action relating to such
enforcement, upon receipt of your undertaking to repay the amount advanced if
the Company prevails upon the final disposition of such action.
<PAGE> 4
Sincerely,
HPSC, Inc.
By: /s/ John W. Everets
-------------------------------------
John W. Everets
Chairman and Chief Executive Officer
ACCEPTED:
/s/ Rene Lefebvre
- -------------------------
Rene Lefebvre
-4-
<PAGE> 5
EXHIBIT A
DEFINITIONS
1. DEFINITION OF "CHANGE IN CONTROL"
A "Change in Control" has the meaning set forth in the Company's
1998 Stock Incentive Plan, as amended to the date hereof.
2. DEFINITION OF "CHANGE IN YOUR EMPLOYMENT"
A "Change in Your Employment" by the Company which would entitle you to
terminate and receive benefits in accordance with Section 7 hereof would be:
(i) Diminution in your duties and responsibilities so that
you are no longer Chief Financial Officer of the
Company; or
(ii) reduction in pay or benefits; or
(iii) forced relocation outside of the greater Boston area.
3. DEFINITION OF "CAUSE"
"Cause" which would entitle the Company to terminate you would be:
(i) Your conviction of a crime involving moral turpitude; or
(ii) Any act of dishonesty which is material to the business
of the Company.
-5-
<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 1
to
LIQUIDITY AGREEMENT
Dated as of June 27, 1997
THIS AMENDMENT NO. 1 ("Amendment") dated as of April 30, 1998, is
entered into among EAGLEFUNDING CAPITAL CORPORATION (as Borrower), BANKBOSTON,
N.A. ("BKB") (as a Liquidity Provider), BKB (as Liquidity Agent) and BANKERS
TRUST COMPANY (as Collateral Agent). Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the "Agreement"
referred to below.
PRELIMINARY STATEMENTS. Each of the Borrower, the Liquidity
Providers, the Liquidity Agent and the Collateral Agent are parties to that
certain Liquidity Agreement dated as of June 27, 1997 (the "Agreement").
Each of the parties hereto has consented to the proposed
amendment to the Agreement, as hereinafter set forth.
SECTION 1. AMENDMENT TO THE AGREEMENT. The Agreement is,
effective as of the date first written above and subject to the satisfaction of
the condition precedent set forth in Section 2 hereof, hereby amended to
(i) increase the Liquidity Commitment of BKB from $102,000,000
to $153,000,000, and
(ii) delete the reference in the definition of the term
"Scheduled Liquidity Commitment Termination Date" appearing in Section
1.01 thereof to "June 29, 1998", and to replace the same with a
reference to "April 4, 1999".
SECTION 2. CONDITION PRECEDENT. This Amendment shall become
effective as of April 30, 1998, upon receipt by the Liquidity Agent or its
counsel of counterpart signature pages of this Amendment, executed by each of
the parties hereto.
SECTION 3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE
BORROWER.
(a) Upon the effectiveness of this Amendment, the Borrower hereby
(i) reaffirms all covenants, representations and warranties made by it in the
Agreement to the extent the same are not amended hereby, (ii) agrees that all
such covenants, representations and warranties shall be deemed to have been
re-made as of the effective date of this Amendment, and (iii) represents and
warrants that no Event of Default, or event which with the giving of notice or
the passage of time or both would constitute an Event of Default, is in effect
or is continuing.
<PAGE> 2
(b) The Borrower hereby represents and warrants that this
Amendment constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms.
SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
(a) Upon the effectiveness of this Amendment, (i) each reference
in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import shall mean and be a reference to the Agreement, as amended
hereby, and (ii) each reference to the Agreement in any other Facility Document,
or any other document, instrument or agreement executed and/or delivered in
connection therewith, shall mean and be a reference to the Agreement as amended
hereby.
(b) Except as specifically amended above, the terms and
conditions of the Agreement, of all other Facility Documents and of any other
documents, instruments and agreements executed and/or delivered in connection
therewith, shall remain in full force and effect and are hereby ratified and
confirmed.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Liquidity
Providers, the Liquidity Agent or the Collateral Agent under the Agreement or
any other Facility Document or any other document, instrument or agreement
executed in connection therewith, nor constitute a waiver of any provision
contained therein, in each case except as specifically set forth herein.
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. HEADINGS. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
THE BORROWER
EAGLEFUNDING CAPITAL CORPORATION
By: BancBoston Securities Inc.,
as its attorney-in-fact
By: /S/ Mitchell B. Feldman
----------------------------
Title: Managing Director
-------------------------
THE LIQUIDITY AGENT
BANKBOSTON, N.A.
By: /s/ Amy S. Roberts
-----------------------------
Title: Director
-------------------------
THE COLLATERAL AGENT
BANKERS TRUST COMPANY
By: /s/ Karla Leonffu
---------------------------
Title: Assistant Treasurer
-------------------------
<PAGE> 4
LIQUIDITY PROVIDER
BANKBOSTON, N.A.
By: /s/ Amy S. Roberts
-----------------------------
Title: Director
---------------------------
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 2
to
LEASE RECEIVABLES PURCHASE AGREEMENT
Dated as of June 27, 1997
THIS AMENDMENT NO. 2 ("Amendment") dated as of April 30, 1998, is
entered into among HPSC CAPITAL FUNDING, INC., a Delaware corporation
("FUNDING"), as Seller (the "SELLER"), EAGLEFUNDING CAPITAL CORPORATION, a
Delaware corporation ("EAGLEFUNDING"), as Purchaser (the "PURCHASER"), HPSC,
INC., a Delaware corporation ("HPSC"), as Servicer (the "SERVICER") and as
Custodian (the "CUSTODIAN"), and BANCBOSTON SECURITIES INC., a Massachusetts
corporation ("BSI"), as Deal Agent (the "DEAL AGENT"). Capitalized terms used
herein without definition shall have the meanings ascribed thereto in the
"Receivables Purchase Agreement" referred to below.
PRELIMINARY STATEMENTS. Each of the Seller, the Servicer, the
Custodian, the Purchaser and the Deal Agent are parties to that certain Lease
Receivables Purchase Agreement dated as of June 27, 1997, as amended pursuant to
Amendment No.1 dated as of January 30, 1998 (the "Receivables Purchase
Agreement").
The Seller, the Servicer and the Custodian have agreed with the
Deal Agent and the Purchaser to make an amendment to the Receivables Purchase
Agreement. Each of the parties hereto has consented to such proposed amendment,
as hereinafter set forth.
SECTION 1. AMENDMENT TO THE RECEIVABLES PURCHASE AGREEMENT. The
Receivables Purchase Agreement is, effective as of the date first written above
and subject to the satisfaction of the conditions precedent set forth in Section
2 hereof, hereby amended to delete the reference to "$100,000,000" in the
definition of the term "Purchase Limit" set forth in Appendix A of the
Receivables Purchase Agreement, and to replace the same with a reference to
"$150,000,000".
SECTION 2. CONDITIONS PRECEDENT. This Amendment shall become
effective as of April 30, 1998 upon receipt by the Deal Agent or its counsel of
(i) counterpart signature pages of this Amendment, executed by each of the
parties hereto, (ii) counterpart signature pages of Amendment No. 1 to the
Liquidity Agreement, dated as of April __, 1998, executed by each of the parties
thereto, and (iii) written confirmation from each of Moody's, DCR and S&P of the
rating of the commercial paper notes of EagleFunding, after giving effect to the
amendments contemplated by this Amendment and Amendment No. 1 to the Liquidity
Agreement.
SECTION 3. COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE
SELLER AND THE SERVICER.
<PAGE> 2
(a) Upon the effectiveness of this Amendment, each of the Seller,
the Servicer and the Custodian hereby (i) reaffirms all covenants,
representations and warranties made by it in the Receivables Purchase Agreement
to the extent the same are not amended hereby, (ii) agrees that all such
covenants, representations and warranties shall be deemed to have been re-made
as of the effective date of this Amendment, and (iii) represents and warrants
that no Event of Termination, Unmatured Event of Termination, Wind-Down Event,
Unmatured Wind-Down Event, Servicing Termination Event or event which with the
giving of notice or the passage of time or both would constitute a Servicing
Termination Event, is in effect or is continuing.
(b) Each of the Seller, the Servicer and the Custodian hereby
represents and warrants that this Amendment constitutes its legal, valid and
binding obligation, enforceable against such Person in accordance with its
terms.
SECTION 4. REFERENCE TO AND EFFECT ON THE FACILITY DOCUMENTS.
(a) Upon the effectiveness of this Amendment, (i) each reference
in the Receivables Purchase Agreement to "this EagleFunding Purchase Agreement",
"this Agreement", "hereunder", "hereof", "herein" or words of like import shall
mean and be a reference to the Receivables Purchase Agreement, as amended
hereby, and (ii) each reference to the Receivables Purchase Agreement in any
other Facility Document or any other document, instrument or agreement executed
and/or delivered in connection therewith, shall mean and be a reference to the
Receivables Purchase Agreement as amended hereby.
(b) Except as specifically amended above, the terms and
conditions of the Receivables Purchase Agreement, of all other Facility
Documents and any other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of the Deal Agent or
the Purchaser under the Receivables Purchase Agreement or any other Facility
Document or any other document, instrument or agreement executed in connection
therewith, nor constitute a waiver of any provision contained therein, in each
case except as specifically set forth herein.
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. HEADINGS. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for
<PAGE> 3
any other purpose.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective officers thereunto duly authorized as of the
date first above written.
HPSC CAPITAL FUNDING, INC.
By: /s/ John W. Everets
----------------------------------
Title: President
Sixty State Street
35th Floor
Boston, MA 02109-1803
Attn: President
Telecopy: (617) 720-7299
HPSC, INC., as Servicer and as Custodian
By: /s/ John W. Everets
---------------------------------
Title: Chairman and CEO
By: /s/ John W. Everets
---------------------------------
Title: Chairman and CEO
Sixty State Street
35th Floor
Boston, MA 02109-1803
Attn: Vice President, Finance
Telecopy: (617) 720-7272
EAGLEFUNDING CAPITAL CORPORATION
By: BancBoston Securities Inc., its
attorney-in-fact
By: /s/ Mitchell B. Feldman
---------------------------
<PAGE> 5
Title: Managing Director
100 Federal Street
Boston, MA 02110
Mail Stop: 01-09-02
Attn: Mitchell Feldman
Telecopy: (617) 434-1533
BANCBOSTON SECURITIES INC., as Deal Agent
By: /s/ Mitchell R. Feldman
----------------------------
Title: Managing Director
100 Federal Street
Boston, MA 02110
Mail Stop: 01-09-02
Attn: Mitchell Feldman
Telecopy: (617) 434-1533
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 1
Dated as of June 29, 1998
to
LEASE RECEIVABLES PURCHASE AGREEMENT
Dated as of October 18, 1996
THIS AMENDMENT NO. 1 dated as of June 29, 1998 ("AMENDMENT") is
entered into by and among HPSC BRAVO FUNDING CORP., a Delaware corporation, as
Seller (the "SELLER"), HPSC, INC., a Delaware corporation, as Servicer (the
"SERVICER"), TRIPLE-A ONE FUNDING CORPORATION, a Delaware corporation
("TRIPLE-A") and CAPITAL MARKETS ASSURANCE CORPORATION, a New York stock
insurance company ("CAPMAC"), as Collateral Agent and as Administrative Agent
(in such capacities, the "COLLATERAL AGENT" or the "ADMINISTRATIVE AGENT").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Definitions List referred to below.
PRELIMINARY STATEMENTS
A. The Seller, the Servicer, Triple-A and CapMAC are parties to
that certain Lease Receivables Purchase Agreement dated as of October 18, 1996
(the "TRIPLE-A PURCHASE AGREEMENT"), pursuant to which Triple-A has agreed to
make Receivables Purchases from the Seller, the proceeds of which have been used
to purchase new Transferred Assets from the Originator in accordance with the
terms of the Purchase Agreement;
B. The Seller, the Servicer, Triple-A and CapMAC wish to increase
the purchase limit and certain other terms and conditions set forth in the
Triple-A Purchase Agreement and as a result have agreed to amend the Triple-A
Purchase Agreement on the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Seller, the Servicer, Triple-A and CapMAC agree as
follows:
1.1 DEFINITIONS. The Definitions List referenced in Section 1.01
of the Triple-A Purchase Agreement is hereby amended as follows:
1.1 (a) The definition of "AGGREGATE RESERVES" is hereby
deleted and
<PAGE> 2
replaced with the following:
""AGGREGATE RESERVES" means, on any day, an amount equal to the
Discounted Eligible Receivables Balance times the GREATEST of (i) 10%, (ii) the
Default Reserve Ratio as computed in the most recent Settlement Report and (iii)
the Excess Concentration Reserve Ratio as computed on the most recent Settlement
Date; PROVIDED, that the Aggregate Reserves shall not be less than the greatest
of (a) $1,000,000, (b) the sum of the Outstanding Balances of all Receivables
owed by the five (5) Obligors who owe the largest Outstanding Balances of
Receivables owed by any single Obligor, and (c) twenty-five percent (25%) of the
highest dollar amount of Aggregate Reserves as of any previous time."
1.1 (b) The definition of "Contract" is hereby modified to
insert immediately after the phrase "Leasehold Improvement Note" the phrase "or
Practice Finance Loan."
1.1 (c) The definition of "DISCOUNT RATE" is hereby modified
to delete the text thereof in its entirety and to substitute therefor the
following:
"DISCOUNT RATE" means (i) with respect to any Lease or
Conditional Sale Agreement, the discount rate used to calculate the
aggregate Discounted Value of the Scheduled Contract Payments payable
under the related Contract as of the last day of the month immediately
preceding the month in which such Receivable was acquired from the
Originator and (ii) with respect to any other Receivable, the interest
rate set forth in the documents creating such Receivable. The Discount
Rate for the Leases or Conditional Sale Agreements transferred on any
date shall be a rate equal to the sum of (i) the interest rate per annum
quoted to the Seller by the Swap Provider as the rate at which such Swap
Provider is willing to enter into an Interest Rate Hedge pursuant to
which the Seller will pay an interest rate calculated in conjunction
with an Interest Rate Hedge amortization prepared by the Seller and
which complies with SECTION 5.01(N) of the Triple-A Purchase Agreement,
and in return shall receive a floating interest rate (calculated against
the same principal amount) approximately equal to the Eurodollar Rate,
PLUS (ii) .15% per annum PLUS (iii) the Carrying Costs Percentage at
such time; PROVIDED, that the Seller may, at its option, with respect to
the Receivables transferred on any Settlement Date, designate a rate
which is higher than the rates calculated above to be the "Discount
Rate" for such Receivables.
1.1 (d) The definition of "DISCOUNTED VALUE" is hereby
modified to delete therefrom the phrase "means, with respect to any Receivable,"
and to substitute therefor the phrase "means, (i) with respect to any Lease or
Conditional Sale Agreement," and to delete therefrom the phrase "purchase option
shall be zero." and to substitute therefor the phrase "purchase option shall be
zero; and (ii) with respect to any other Receivable, as of any date of
determination, the outstanding principal amount thereof".
1.1 (e) For the definition of "ELIGIBLE RECEIVABLE":
<PAGE> 3
(i) Paragraph (iii) is hereby modified to insert immediately
after the phrase "commencement date of such Contract", the phrase ", except for
Practice Finance Loans, which are required to be paid in full within 84 months
of the original commencement dates of such Loans"
(ii) Paragraph (v) is hereby deleted and replaced with the
following:
"(v) the original Outstanding Balance of which, when added
to the Outstanding Balance of all other Receivables owing by the same Obligor at
such time, does not exceed the lesser of (i) $1,000,000 and (ii) 1.5% of the
Discounted Eligible Receivables Balance at such time;"
(iii) Paragraph (xvi) is hereby modified to delete therefrom
the phrase "except pursuant to a provision therein requiring payment of a
Termination Amount" and to substitute therefor the phrase "except, in the case
of a Practice Finance Loan, pursuant to a provision therein requiring payment of
a Termination Amount".
(iv) Paragraph (xxii) is hereby deleted and replaced with
the following:
"(xxii) The Discounted Value of which, (A) if arising under
a Leasehold Improvement Note, when added to the Discounted Value of all Eligible
Receivables arising under Leasehold Improvement Notes, does not exceed 25% of
the Discounted Eligible Receivables Balance, (B) if arising under a promissory
note, when added to the Discounted Value of all Eligible Receivables arising
under promissory notes, does not exceed 10% of the Discounted Eligible
Receivables Balance, and (C) if arising under either a Leasehold Improvement
Note or a promissory note, when added to the Discounted Value of all Eligible
Receivables arising under both Leasehold Improvement Notes and promissory notes,
does not exceed 30% of the Discounted Eligible Receivables Balance;"
(v) Paragraph (xxiii) is hereby deleted and replaced with
the following:
"(xxiii) the Contract for which is either (A) a Lease in
substantially the same form of EXHIBIT K-1 to the Purchase Agreement, (B) a
Conditional Sale Agreement in substantially the same form of EXHIBIT K-2
thereto, (C) a Leasehold Improvement Note in substantially the same form of
EXHIBIT K-3 thereto, (D) a Practice Finance Loan in substantially the same form
of EXHIBIT K-4 thereto, underwritten in accordance with Practice Finance Loan
underwriting criteria, as attached to EXHIBIT K-4, and which, when added to all
Practice Finance Loans, does not exceed 10% of the Discounted Eligible
Receivables Balance; or (E) a promissory note, the Discounted Value of which,
when added to the Discounted Value of all Eligible Receivables owed by such
Obligor and not described under (A), (B), (C) or (D) above, does not exceed
$150,000;"
-3-
<PAGE> 4
(vi) Paragraph (xxviii) is hereby deleted and replaced with
the following:
"the Obligors of which are either (i) licensed dental,
medical or veterinary professionals or (ii) corporations or similar entities
engaged in a dental, medical or veterinary practice, and which are licensed
and/or qualified, as appropriate, in each jurisdiction in which the nature of
their practices would require such license or qualification;"
1.1 (f) The definition of "EXCESS CONCENTRATION RESERVE
RATIO" is hereby modified to delete therefrom the number ".14" and substitute
therefor the number ".10".
1.1 (g) The definition of "FACILITY LIMIT" is hereby
modified to delete therefrom the number "$30,000,000" and substitute therefor
the number "$67,500,000".
1.1 (h) In the definition of "FEE LETTER", the phrase "that
certain amended and restated Fee Letter Agreement, dated October 18, 1996," is
hereby deleted and replaced with "that certain second amended and restated Fee
Letter Agreement, dated June 29, 1998,".
1.1 (i) The following is hereby inserted alphabetically with
the other definitions contained in the Definitions List referred to in Section
1.01 of the Triple-A Purchase Agreement:
""PRACTICE FINANCE LOAN" means a note or instrument
substantially in the form of EXHIBIT K-4 to the Purchase and Contribution
Agreement, evidencing an Obligor's indebtedness on account of a loan made to
finance working capital needs of such Obligor, in connection with such Obligor's
professional dental, medical or veterinary practice."
1.1(j) The definition of "SCHEDULED TERMINATION DATE" is
hereby deleted and replaced with the following:
""SCHEDULED TERMINATION DATE" means June 29, 2003."
1.1 (k) The definition of "TERMINATION DATE" is hereby
modified to delete therefrom each occurrence of the phrase "five Business Days"
and substitute therefor the phrase "thirty calendar days".
1.2 SECTION 1.01. Section 1.01 is hereby amended to insert
after the first sentence contained therein the following:
"Any reference in the Facility Documents to a note,
instrument, or other agreement substantially in the form of Exhibit K-1, K-2,
K-3 or K-4 to the Purchase Agreement, as applicable, shall mean and be a
reference to a note, instrument or other agreement in substantially one of the
forms included in such Exhibit."
-4-
<PAGE> 5
1.3 SECTION 2.01. The first sentence of Section 2.01 is
hereby amended to delete therefrom the phrase "may, in its sole discretion and
otherwise" and substitute therefor the word "shall,". Section 2.01 also is
amended to insert after the first sentence contained therein the following:
"Notwithstanding the foregoing, if, at any time, two or
more of the individuals who held the positions of Chief Executive Officer, Chief
Financial Officer and President of the Servicer as of April 30, 1998 no longer
remain actively involved in the day-to-day management of the Servicer, then
Triple-A is no longer required to, but may, in its sole discretion, make
Receivables Purchases.
The fifth sentence of Section 2.01, beginning with the
phrase "Nothing in this Triple-A Purchase Agreement" is hereby deleted.
1.4. SECTION 4.01. Section 4.01 is hereby amended to insert,
at the conclusion thereof, the following clauses (y) and (z):
(y) SELECTION OF RECEIVABLES. Each Receivable has been
randomly selected from the Originator's portfolio of receivables in accordance
with its normal standards and procedures used for all of its standard
securitization transactions and no selection procedures adverse to Triple-A have
been employed in such selections.
(z) HISTORIC LOSS DATA. Attached hereto as EXHIBIT F is a
summary of historical static loss data suffered by the Originator as a result of
defaults under the Originator's receivables, which summary is true and accurate
with respect to the periods described therein and does not omit any information
necessary to make such summary not misleading.
1.5 SECTION 6.08. Section 6.08 is hereby amended to delete
therefrom the number "1.15%" and substitute therefor the number "1.0%". Section
6.08 also is hereby amended to insert immediately after the first sentence
contained therein the following:
"Notwithstanding the foregoing, to the extent that
Advances under the Liquidity Agreement are used to fund or maintain Borrowings
or Purchases, then the Servicing Fee shall be .75% TIMES the Outstanding Balance
of the Receivables as of the last day of the prior calendar month TIMES a
fraction, the numerator of which is the number of actual days elapsed in such
calendar month and the denominator of which equals 360.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants as follows:
(a) This Amendment and the Triple-A Purchase Agreement as
previously executed and as amended hereby, constitute legal, valid and binding
obligations of the Seller and are enforceable against the Seller in accordance
with their terms.
(b) Upon the effectiveness of this Amendment, the Seller
hereby reaffirms that
-5-
<PAGE> 6
the representations and warranties contained in ARTICLE IV of the Triple-A
Purchase Agreement are true and correct.
(c) Upon the effectiveness of this Amendment, the Seller
hereby reaffirms all covenants made in the Triple-A Purchase Agreement and the
other Facility Documents to the extent the same are not amended hereby and
agrees that all such covenants shall be deemed to have been remade as of the
effective date of this Amendment.
(d) No Wind-Down Event or Unmatured Wind-Down Event has
occurred or is continuing.
SECTION 3. CONDITIONS PRECEDENT. This Amendment shall become
effective as of June 29, 1998, PROVIDED that all of the following conditions are
met in form and substance satisfactory to Triple-A.
(a) This Amendment shall have been executed and delivered by
the Seller, the Servicer and CapMAC.
(b) On the date the last of the conditions listed herein is
satisfied (the "DELIVERY DATE") there shall exist no Wind-Down Event or
Unmatured Wind-Down Event.
(c) All conditions precedent to the effectiveness of
Amendment No. 3 to the Credit Agreement, dated as of even date herewith, shall
have been satisfied.
(d) Each of the Rating Agencies shall have delivered written
confirmation to the Administrative Agent to the effect that (i) the Loans and
Receivables Purchases constitute "investment grade risks", without giving effect
to the Surety Bonds and (ii) the then current rating of the "Transaction
Commercial Paper Notes" (as defined in the Amended and Restated Liquidity
Agreement) shall not be withdrawn or downgraded by virtue of this Amendment and
the transactions contemplated hereby.
(e) All fees and expenses due and owing CapMAC and/or MBIA
Insurance Corporation shall have been paid, subject to the terms of that certain
letter agreement between the Originator and Triple-A dated April 23, 1998.
SECTION 4. REFERENCE TO THE EFFECT ON THE TRIPLE-A PURCHASE
AGREEMENT. Except as specifically set forth above, the Triple-A Purchase
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein and for the
limited purposes set forth herein, operate as a waiver of any right, power or
remedy of Triple-A, nor constitute a waiver of any provisions of the Credit
Agreement, or any other documents, instruments and agreements executed and/or
delivered in connection therewith.
-6-
<PAGE> 7
SECTION 5. HEADINGS. Section headings in the Amendment are
included herein for convenience of reference only and shall not constitute part
of this Amendment for any other purpose.
SECTION 6. GOVERNING LAW. This Amendment shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Amendment may be executed by
one or more of the parties to this Amendment on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first above written.
HPSC BRAVO FUNDING CORP.,
as Seller
By: /s/ John W. Everets
------------------------
Title: President
HPSC, INC., as Servicer
By: /s/ Rene Lefebvre
---------------------------
Title: CFO
TRIPLE-A ONE FUNDING
CORPORATION
By CAPITAL MARKETS ASSURANCE
CORPORATION, Its Attorney-In-Fact
By: /s/ Richard Pfaltzgraff
--------------------------
Title: Vice President
CAPITAL MARKETS ASSURANCE
CORPORATION, as Collateral Agent
and Administrative Agent
By: /s/ Richard Pfaltzgraff
-----------------------------
Title: Vice President
-8-
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 3
Dated as of June 29, 1998
to
CREDIT AGREEMENT
Dated as of January 31, 1995
THIS AMENDMENT NO. 3 dated as of June 29, 1998 ("AMENDMENT") is
entered into by and between HPSC BRAVO FUNDING CORP. (the "BORROWER"), TRIPLE-A
ONE FUNDING CORPORATION, a Delaware corporation ("TRIPLE-A") and CAPITAL MARKETS
ASSURANCE CORPORATION, a New York stock insurance company ("CapMAC"), as
Collateral Agent and as Administrative Agent. Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Amended and Restated Definitions List referred to below.
PRELIMINARY STATEMENTS
A. The Borrower, Triple-A and CapMAC are parties to that certain
Credit Agreement dated as of January 31, 1995 (as amended by that certain
Amendment No. 1 dated as of December 19, 1995 and that certain Amendment No. 2
dated as of October 18, 1996, the "CREDIT AGREEMENT"), pursuant to which
Triple-A agreed to make Triple-A Loans to the Borrower, the proceeds of which
have been used to purchase Transferred Assets from the Seller in accordance with
the terms of the Purchase Agreement;
B. The Borrower, Triple-A and CapMAC wish to increase the
facility limit and certain other terms and conditions set forth in the Credit
Agreement and as a result have agreed to amend the Credit Agreement on the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Borrower, Triple-A and CapMAC agree as follows:
SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT. Effective as of the
date first above written, subject to the satisfaction of the conditions
precedent set forth in SECTION 3 below, the Credit Agreement is hereby amended
as follows:
1.1 DEFINITIONS. The Amended and Restated Definitions List
referenced in Section 1.01 of the Credit Agreement is hereby amended as follows:
1.1 (a) The definition of "AGGREGATE RESERVES" is hereby
deleted and
<PAGE> 2
replaced with the following:
""AGGREGATE RESERVES" means, on any day, an amount equal to
the Discounted Eligible Receivables Balance times the GREATEST of (i) 10%, (ii)
the Default Reserve Ratio as computed in the most recent Settlement Report and
(iii) the Excess Concentration Reserve Ratio as computed on the most recent
Settlement Date, PROVIDED, that the Aggregate Reserves shall be no less than the
greatest of (a) $2,500,000; (b) the sum of the Outstanding Balances of all
Receivables owed by the five (5) Obligors who owe the largest Outstanding
Balances of Receivables owed by any single Obligor, (c) twenty-five percent
(25%) of the highest dollar amount of Aggregate Reserves as of any previous time
and (d) from and after the date that the "Capital" outstanding under the
Triple-A Purchase Agreement has been reduced to zero, the sum of (1) $2,500,000
PLUS (2) the lesser of (x) $1,000,000 and (y) the Outstanding Balance of the
Purchased Receivables at the time such Capital was reduced to zero."
1.1 (b) The definition of "CONTRACT" is hereby modified to
insert immediately after the phrase "Leasehold Improvement Note" the phrase "or
Practice Finance Loan".
1.1(c) The definition of "DISCOUNT RATE" is hereby modified
to delete the text thereof in its entirety and to substitute therefor the
following:
"DISCOUNT RATE" means (i) with respect to any Lease or
Conditional Sale Agreement, the discount rate used to calculate the
aggregate Discounted Value of the Scheduled Contract Payments payable
under the related Contract as of the last day of the month immediately
preceding the month in which such Receivable was acquired from the
Seller and (ii) with respect to any other Receivable, the interest rate
set forth in the documents creating such Receivable. The Discount Rate
for the Leases or Conditional Sale Agreements transferred on any date
shall be a rate equal to the sum of (i) the interest rate per annum
quoted to the Borrower by the Swap Provider as the rate at which such
Swap Provider is willing to enter into an Interest Rate Hedge pursuant
to which the Seller will pay an interest rate calculated in conjunction
with an Interest Rate Hedge amortization prepared by the Borrower and
which complies with Section 5.01(n) of the Credit Agreement, and in
return shall receive a floating interest rate (calculated against the
same principal amount) approximately equal to the Eurodollar Rate, PLUS
(ii) .15% per annum PLUS (iii) the Carrying Costs Percentage at such
time; PROVIDED, that the Seller may, at its option, with respect to the
Receivables transferred on any Settlement Date, designate a rate which
is higher than the rates calculated above to be the "Discount Rate" for
such Receivables.
1.1 (d) The definition of "DISCOUNTED VALUE" is hereby
modified to delete therefrom the phrase "means, with respect to any Receivable,"
and to substitute therefor the phrase "means, (i) with respect to any Lease or
Conditional Sale Agreement," and to delete
-2-
<PAGE> 3
therefrom the phrase "purchase option shall be zero." and to substitute therefor
the phrase "purchase option shall be zero; and (ii) with respect to any other
Receivable, as of any date of determination, the outstanding principal amount
thereof."
1.1(e) For the definition of "ELIGIBLE RECEIVABLE":
(i) Paragraph (iii) is hereby modified to insert immediately
after the phrase "commencement date of such Contract", the phrase ", except for
Practice Finance Loans, which are required to be paid in full within 84 months
of the original commencement dates of such Loans"
(ii) Paragraph (v) is hereby deleted and replaced with the
following:
"(v) the original Outstanding Balance of which, when added
to the Outstanding Balance of all other Receivables owing by the same Obligor at
such time, does not exceed the lesser of (i) $1,000,000 and (ii) 1.5% of the
Discounted Eligible Receivables Balance at such time;"
(iii) Paragraph (xvi) is hereby modified to delete therefrom
the phrase "except pursuant to a provision therein requiring payment of a
Termination Amount" and to substitute therefor the phrase "except in the case of
a Practice Finance Loan, pursuant to a provision therein requiring payment of a
Termination Amount".
(iv) Paragraph (xxii) is hereby deleted and replaced with
the following:
"(xxii)The Discounted Value of which, (A) if arising under a
Leasehold Improvement Note, when added to the Discounted Value of all Eligible
Receivables arising under Leasehold Improvement Notes, does not exceed 25% of
the Discounted Eligible Receivables Balance, (B) if arising under a promissory
note, when added to the Discounted Value of all Eligible Receivables arising
under promissory notes, does not exceed 10% of the Discounted Eligible
Receivables Balance, and (C) if arising under either a Leasehold Improvement
Note or a promissory note, when added to the Discounted Value of all Eligible
Receivables arising under both Leasehold Improvement Notes and promissory notes,
does not exceed 30% of the Discounted Eligible Receivables Balance;"
(v) Paragraph (xxiii) is hereby deleted and replaced with
the following:
"(xxiii) the Contract for which is either (A) a Lease in
substantially the same form of EXHIBIT K-1 to the Purchase Agreement, (B) a
Conditional Sale Agreement in substantially the same form of EXHIBIT K-2
thereto, (C) a Leasehold Improvement Note in substantially the same form of
EXHIBIT K-3 thereto, (D) a Practice Finance Loan in substantially the same form
of EXHIBIT K-4 thereto, underwritten in accordance with Practice Finance Loan
-3-
<PAGE> 4
underwriting criteria, as attached to EXHIBIT K-4, and which, when added to all
Practice Finance Loans, does not exceed 10% of the Discounted Eligible
Receivables Balance; or (E) a promissory note, the Discounted Value of which,
when added to the Discounted Value of all Eligible Receivables owed by such
Obligor and not described under (A), (B), (C) or (D) above, does not exceed
$150,000;"
(vi) Paragraph (xxviii) is hereby deleted and replaced with
the following:
the Obligors of which are either (i) licensed dental,
medical or veterinary professionals or (ii) corporations or similar entities
engaged in a dental, medical or veterinary practice, and which are licensed
and/or qualified, as appropriate, in each jurisdiction in which the nature of
their practices would require such license or qualification;".
1.1 (f) The definition of "EXCESS CONCENTRATION RESERVE
RATIO" is hereby modified to delete therefrom the number ".14" and substitute
therefor the number ".10".
1.1 (g) The definition of "FACILITY LIMIT" is hereby
modified to delete therefrom the number "$100,000,000" and substitute therefor
the number "$225,000,000".
1.1 (h) The definition of "FEE LETTER" on page (i) is hereby
modified to delete therefrom the phrase "Amended and Restated Fee Letter
Agreement, dated October 18, 1996" and substitute therefor the phrase "Second
Amended and Restated Fee Letter Agreement, dated June 29, 1998".
1.1 (i) The following is hereby inserted alphabetically with
the other definitions contained in the Definitions List referred to in Section
1.01 of the Credit Agreement:
""PRACTICE FINANCE LOAN" means a note or instrument
substantially in the form of EXHIBIT K-4 to the Purchase Agreement, evidencing
an Obligor's indebtedness to the Seller on account of a loan made to finance
working capital needs of such Obligor, in connection with such Obligor's
professional dental, medical or veterinary practice."
1.1 (j) The definition of "SCHEDULED TERMINATION DATE" is
hereby deleted and replaced with the following: ""SCHEDULED TERMINATION DATE"
means June 29, 2003."
1.1 (k) The definition of "TERMINATION DATE" is hereby
modified to delete therefrom each occurrence of the phrase "five Business Days"
and substitute therefor the phrase "thirty calendar days".
1.2 SECTION 1.01. Section 1.01 is hereby amended to insert after
the first
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<PAGE> 5
sentence contained therein the following:
"Any reference in the Facility Documents to a note, instrument,
or other agreement substantially in the form of Exhibit K-1, K-2, K-3 or K-4 to
the Purchase Agreement, as applicable, shall mean and be a reference to a note,
instrument or other agreement in substantially one of the forms included in such
Exhibit."
1.3 SECTION 2.01. The first sentence of Section 2.01 is hereby
amended to delete the character "(a)" that precedes the phrase "Triple-A agrees
that it may," and to delete therefrom the phrase "may, in its sole discretion
and otherwise" and substitute therefor the word "shall,". Section 2.01 also is
amended to insert, after the first sentence contained therein, the following:
"Notwithstanding the foregoing, if, at any time, two or more of
the individuals who held the positions of Chief Executive Officer, Chief
Financial Officer and President of the Seller as of April 30, 1998 no longer
remain actively involved in the day-to-day management of the Seller, then
Triple-A is no longer required to, but may, in its sole discretion, make the
above-mentioned Triple-A Loans."
1.4 SECTION 2.03. Section 2.03(c) is hereby amended to delete
therefrom the time "3:00 P.M." and substitute therefor the time "3:30 P.M.".
1.5 SECTION 2.06. Paragraph (a)(iii) is hereby amended to delete
therefrom the number ".50%" and substitute therefor the number ".40%"
1.6 SECTION 2.07. Paragraphs (b) and (c) of Section 2.07 are
hereby amended to delete therefrom the phrase "Termination Date" and substitute
therefor the phrase "Designated Termination Date".
1.7 SECTION 4.01. Section 4.01 is hereby amended to insert, at
the conclusion thereof, the following clauses (v) and (w):
(v) SELECTION OF RECEIVABLES. Each Receivable has been randomly
selected from the Originator's portfolio of receivables in accordance with its
normal standards and procedures used for all of its standard securitization
transactions and no selection procedures adverse to Triple-A have been employed
in such selections.
(w) HISTORIC LOSS DATA. Attached hereto as EXHIBIT G is a summary
of historical static loss data of the Originator suffered as a result of
defaults under the Originator's receivables, which summary is true and accurate
with respect to the periods described therein and does not omit any information
necessary to make such summary not misleading.
1.8 The Exhibits to the Credit Agreement are hereby amended to
add, as
-5-
<PAGE> 6
EXHIBIT G to the Credit Agreement, the summary data concerning historical losses
attached to this Amendment as EXHIBIT G.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants as follows:
(a) This Amendment and the Credit Agreement as previously
executed and as amended hereby, constitute legal, valid and binding obligations
of the Borrower and are enforceable against the Borrower in accordance with
their terms.
(b) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms that the representations and warranties contained in ARTICLE IV of the
Credit Agreement are true and correct.
(c) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms all covenants made in the Credit Agreement and the other Facility
Documents to the extent the same are not amended hereby and agrees that all such
covenants shall be deemed to have been remade as of the effective date of this
Amendment.
(d) No Wind-Down Event or Unmatured Wind-Down Event has occurred
or is continuing.
SECTION 3. CONDITIONS PRECEDENT. This Amendment shall become
effective as of June 29, 1998, PROVIDED that all of the following conditions are
met in form and substance satisfactory to Triple-A.
(a) This Amendment shall have been executed and delivered by the
Borrower, Triple-A and CapMAC.
(b) On the date the last of the conditions listed herein is
satisfied (the "DELIVERY DATE") there shall exist no Wind-Down Event or
Unmatured Wind-Down Event.
(c) The Amended and Restated Liquidity Agreement shall have been
executed and delivered by the Liquidity Borrower, the Liquidity Banks and the
Liquidity Agent and shall be in full force and effect.
(d) The Second Amended and Restated Surety Bonds shall have been
executed and delivered by CapMAC.
(e) Each of the Rating Agencies shall have delivered written
confirmation to the Administrative Agent to the effect that (i) the Loans and
Receivables Purchases constitute "investment grade risks", without giving effect
to the Surety Bonds and (ii) the then current
-6-
<PAGE> 7
rating of the "Transaction Commercial Paper Notes" (as defined in the Amended
and Restated Liquidity Agreement) shall not be withdrawn or downgraded by virtue
of this Amendment and the transactions contemplated hereby.
(f) All fees and expenses due and owing CapMAC and/or MBIA
Insurance Corporation shall have been paid, subject to the terms of that certain
letter agreement between the Seller and Triple-A dated April 23, 1998.
SECTION 4. REFERENCE TO THE EFFECT ON THE CREDIT AGREEMENT.
Except as specifically set forth above, the Credit Agreement, and all other
documents, instruments and agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein and for the limited purposes set forth
herein, operate as a waiver of any right, power or remedy of Triple-A, nor
constitute a waiver of any provisions of the Credit Agreement, or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
SECTION 5. HEADINGS. Section headings in the Amendment are
included herein for convenience of reference only and shall not constitute part
of this Amendment for any other purpose.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first above written.
HPSC BRAVO FUNDING CORP.,
as Borrower
By: /s/ John W. Everets
----------------------------
Title: President
TRIPLE-A ONE FUNDING
CORPORATION
By CAPITAL MARKETS ASSURANCE
CORPORATION, Its Attorney-In-Fact
By: /s/ Richard Pfaltzgraff
----------------------------
Title: Vice President
CAPITAL MARKETS ASSURANCE
CORPORATION, as Collateral Agent and
Administrative Agent
By: /s/ Richard Pfaltzgraff
-----------------------------
Title: Vice President
-8-
<PAGE> 1
EXHIBIT 10.7
AMENDMENT NO. 4
Dated as of June 29, 1998
to
PURCHASE AND CONTRIBUTION AGREEMENT
Dated as of January 31, 1995
THIS AMENDMENT NO. 4 dated as of June 29, 1998 ("AMENDMENT") is
entered into by and between HPSC BRAVO FUNDING CORP. (the "BUYER") and HPSC,
INC., a Delaware corporation (the "SELLER"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings assigned to such terms in
the Definitions List referred to below.
PRELIMINARY STATEMENTS
A. The Buyer and the Seller are parties to that certain Purchase
and Contribution Agreement dated as of January 31, 1995 (as amended by that
certain Amendment No. 1 dated as of December 19, 1995, that certain Amendment
No.2 dated as of October 18, 1996, and that certain Amendment No.3 dated as of
May 29, 1997, the "PURCHASE AGREEMENT"), pursuant to which the Buyer has agreed
to purchase certain Transferred Assets from the Seller from time to time
pursuant to the terms of the Purchase Agreement.
B. The Buyer and the Seller have agreed to amend the Purchase
Agreement on the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Buyer and the Seller agree as follows:
SECTION 1. AMENDMENT TO THE PURCHASE AGREEMENT. Effective as of
the date first above written, subject to the satisfaction of the conditions
precedent set forth in SECTION 3 below, the Purchase Agreement is hereby amended
as follows:
1.1 EXHIBITS. The List of Exhibits on page iii is hereby amended
to insert after "EXHIBIT K-3 Form of Leasehold Improvement Note" the following:
"EXHIBIT K-4 Form of Practice Finance Loan and Practice Finance
Loan Underwriting Criteria"
1.2 DEFINITIONS. The Amended and Restated Definitions List
referenced in Section 1.01 of the Purchase Agreement is hereby amended as
follows:
<PAGE> 2
1.2(a) The definition of "AGGREGATE RESERVES" is hereby deleted
and replaced with the following:
""AGGREGATE RESERVES" has the meaning set forth in the Credit
Agreement."
1.2(b) The definition of "CONTRACT" is hereby modified to insert
immediately after the phrase "Leasehold Improvement Note" the phrase "or
Practice Finance Loan".
1.2(c) The definition of "DISCOUNT RATE" is hereby modified to
delete the text thereof in its entirety and to substitute therefor the
following:
"DISCOUNT RATE" means (i) with respect to any Lease or
Conditional Sale Agreement, the discount rate used to calculate the
aggregate Discounted Value of the Scheduled Contract Payments payable
under the related Contract as of the last day of the month immediately
preceding the month in which such Receivable was acquired from the
Seller and (ii) with respect to any other Receivable, the interest rate
set forth in the documents creating such Receivable. The Discount Rate
for the Leases or Conditional Sale Agreements transferred on any date
shall be a rate equal to the sum of (i) the interest rate per annum
quoted to the Borrower by the Swap Provider as the rate at which such
Swap Provider is willing to enter into an Interest Rate Hedge pursuant
to which the Seller will pay an interest rate calculated in conjunction
with an Interest Rate Hedge amortization prepared by the Borrower and
which complies with Section 5.01(n) of the Credit Agreement, and in
return shall receive a floating interest rate (calculated against the
same principal amount) approximately equal to the Eurodollar Rate, PLUS
(ii) .15% per annum PLUS (iii) the Carrying Costs Percentage at such
time; PROVIDED, that the Seller may, at its option, with respect to the
Receivables transferred on any Settlement Date, designate a rate which
is higher than the rates calculated above to be the "Discount Rate" for
such Receivables.
1.2(d) The definition of "DISCOUNTED VALUE" is hereby modified to
delete therefrom the phrase "means, with respect to any Receivable," and to
substitute therefor the phrase "means, (i) with respect to any Lease or
Conditional Sale Agreement," and to delete therefrom the phrase "purchase option
shall be zero." and to substitute therefor the phrase "purchase option shall be
zero; and (ii) with respect to any other Receivable, as of any date of
determination, the outstanding principal amount thereof".
1.2(e) For the definition of "ELIGIBLE RECEIVABLE":
(i) Paragraph (iii) is hereby modified to insert immediately
after the phrase "commencement date of such Contract", the phrase ", except for
Practice Finance Loans, which are required to be paid in full within 84 months
of the original commencement dates of
-2-
<PAGE> 3
such Loans"
(ii) Paragraph (v) is hereby deleted and replaced with the
following:
"(v) the original Outstanding Balance of which, when added to the
Outstanding Balance of all other Receivables owing by the same Obligor at such
time, does not exceed the lesser of (i) $1,000,000 and (ii) 1.5% of the
Discounted Eligible Receivables Balance at such time;"
(iii) Paragraph (xxiii) is hereby deleted and replaced with the
following:
"(xxiii) the Contract for which is either (A) a Lease in
substantially the same form of EXHIBIT K-1 to the Purchase Agreement, (B) a
Conditional Sale Agreement in substantially the same form of EXHIBIT K-2
thereto, (C) a Leasehold Improvement Note in substantially the same form of
EXHIBIT K-3 thereto, (D) a Practice Finance Loan in substantially the same form
of EXHIBIT K-4 thereto, underwritten in accordance with Practice Finance Loan
underwriting criteria, as attached to EXHIBIT K-4, and which, when added to all
Practice Finance Loans, does not exceed 10% of the Discounted Eligible
Receivables Balance; or (E) a promissory note, the Discounted Value of which,
when added to the Discounted Value of all Eligible Receivables owed by such
Obligor and not described under (A), (B), (C) or (D) above, does not exceed
$150,000;"
(iv) Paragraph (xxii) is hereby deleted and replaced with the
following:
"(xxii)The Discounted Value of which, (A) if arising under a
Leasehold Improvement Note, when added to the Discounted Value of all Eligible
Receivables arising under Leasehold Improvement Notes, does not exceed 25% of
the Discounted Eligible Receivables Balance, (B) if arising under a promissory
note, when added to the Discounted Value of all Eligible Receivables arising
under promissory notes, does not exceed 10% of the Discounted Eligible
Receivables Balance, and (C) if arising under either a Leasehold Improvement
Note or a promissory note, when added to the Discounted Value of all Eligible
Receivables arising under both Leasehold Improvement Notes and promissory notes,
does not exceed 30% of the Discounted Eligible Receivables Balance;"
(v) Paragraph (xxviii) is hereby deleted and replaced with the
following:
"the Obligors of which are either (i) licensed dental, medical or
veterinary professionals or (ii) corporations or similar entities engaged in a
dental, medical or veterinary practice, and which are licensed and/or qualified,
as appropriate, in each jurisdiction in which the nature of their practices
would require such license or qualification;"
-3-
<PAGE> 4
1.2 (f) The definition of "EXCESS CONCENTRATION RESERVE RATIO" is
hereby modified to delete therefrom the number ".14" and substitute therefor the
number ".10".
1.2 (g) The definition of "FACILITY LIMIT" is hereby modified to
delete therefrom the number "$100,000,000" and substitute therefor the number
"$225,000,000".
1.2 (h) The definition of "FEE LETTER" on page (i) is hereby
modified to delete therefrom the phrase "Amended and Restated Fee Letter
Agreement, dated October 18, 1996" and substitute therefor the phrase "Second
Amended and Restated Fee Letter Agreement, dated June 29, 1998"
1.2 (i) The following is hereby inserted alphabetically with the
other definitions contained in the Definitions List referred to in Section 1.01
of the Purchase Agreement:
""PRACTICE FINANCE LOAN" means a note or instrument substantially
in the form of EXHIBIT K-4 to the Purchase Agreement, evidencing an Obligor's
indebtedness on account of a loan made to finance working capital needs of such
Obligor, in connection with such Obligor's professional dental, medical or
veterinary practice."
1.2 (j) The definition of "SCHEDULED TERMINATION DATE" is hereby
deleted and replaced with the following:
""SCHEDULED TERMINATION DATE" means June 29, 2003."
1.2 (k) The definition of "TERMINATION DATE" is hereby modified
to delete therefrom each occurrence of the phrase "five Business Days" and
substitute therefor the phrase "thirty calendar days".
1.3 SECTION 1.01. Section 1.01(a) is hereby amended to insert
after the first sentence contained therein the following:
"Any reference in the Facility Documents to a note, instrument,
or other agreement substantially in the form of Exhibit K-1, K-2, K-3 or
K-4 to this Agreement, as applicable, shall mean and be a reference to a
note, instrument or other agreement in substantially one of the forms
included in such Exhibit."
1.4 SECTION 4.01. (i) Section 4.01(r)(i) is hereby amended to
insert, immediately after the phrase "is in substantially the same form of
Exhibit K-3 hereto" the following:
"and (d) if it constitutes a Practice Finance Loan, is in
substantially the form of Exhibit K-4 hereto".
-4-
<PAGE> 5
(ii) Section 4.01 is hereby amended to insert, at the conclusion
thereof, the following clauses (v) and (w):
(v) SELECTION OF RECEIVABLES. Each Receivable has been randomly
selected from the Originator's portfolio of receivables in accordance with its
normal standards and procedures used for all of its standard securitization
transactions and no selection procedures adverse to Triple-A have been employed
in such selections.
(w) HISTORIC LOSS DATA. Attached hereto as a part of EXHIBIT D is
a summary of historical static loss data of the Originator suffered as a result
of defaults under the Originator's receivables, which summary is true and
accurate with respect to the periods described therein and does not omit any
information necessary to make such summary not misleading.
1.5 SECTION 5.04. Section 5.04(a)(i) is hereby deleted and
replaced with the following:
"CONSOLIDATED TANGIBLE NET WORTH. The Seller will not permit
Consolidated Tangible Net Worth (as defined below) at any time to be less than
the sum of (i) $26,500,000 plus (ii) on a cumulative basis, 75% of positive
Consolidated Net Income (as defined below) for each fiscal quarter beginning
with the fiscal quarter commencing on or after April 1, 1997, PLUS (iii) 100% of
the proceeds of any sale by the Seller or any of its Subsidiaries (other than
Credident Inc., a Canadian corporation ("Credident"), a previously-sold
Subsidiary) of (A) equity securities issued by the Seller or any of its
Subsidiaries (other than Credident), or (B) warrants or subscription rights for
equity securities issued by the Seller or any of its Subsidiaries (other than
Credident)." and
1.6 SECTION 6.08. Section 6.08 is hereby amended to delete
therefrom the number "1.15%" and substitute therefor the number "1.0%". Section
6.08 also is hereby amended to insert immediately after the first sentence
contained therein the following:
"Notwithstanding the foregoing, to the extent that Advances
under the Liquidity Agreement are used to fund or maintain Borrowings or
Purchases, then the Servicing Fee shall be .75% TIMES the Outstanding Balance of
the Receivables as of the last day of the prior calendar month TIMES a fraction,
the numerator of which is the number of actual days elapsed in such calendar
month and the denominator of which equals 360.
1.7 SECTION 7.01. Paragraph (l) of Section 7.01 is hereby deleted
and Paragraph (m) is re-lettered "(l)".
1.8 The Exhibits to the Purchase Agreement are hereby amended (i)
by deleting EXHIBIT D and replacing it with the EXHIBIT D attached to this
Amendment, (ii) by adding to Exhibits K-1 through K-3 the forms of leases,
Conditional Sales Agreements, and Leasehold Improvement Notes, respectively, in
the forms attached hereto, as Exhibits K-1, K-2, and K-3,
-5-
<PAGE> 6
respectively, and (iii) by adding, as Exhibit K-4 to the Purchase Agreement, the
forms of Loan and Security Agreements attached hereto as Exhibits K-4-1 and
K-4-2.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The Seller represents
and warrants as follows:
(a) This Amendment and the Purchase Agreement as previously
executed and as amended hereby, constitute legal, valid and binding obligations
of the Seller and are enforceable against the Seller in accordance with their
terms.
(b) Upon the effectiveness of this Amendment, the Seller hereby
reaffirms that the representations and warranties contained in ARTICLE IV of the
Purchase Agreement are true and correct.
(c) Upon the effectiveness of this Amendment, the Seller hereby
reaffirms all covenants made in the Purchase Agreement and the other Facility
Documents to the extent the same are not amended hereby and agrees that all such
covenants shall be deemed to have been remade as of the effective date of this
Amendment.
(d) No Event of Termination or Unmatured Event of Termination has
occurred or is continuing.
SECTION 3. CONDITIONS PRECEDENT. This Amendment shall become
effective as of June 29, 1998, PROVIDED that all of the following conditions are
met in form and substance satisfactory to the Buyer.
(a) This Amendment shall have been executed and delivered by the
Buyer and the Seller.
(b) On the date the last of the conditions listed herein is
satisfied (the "DELIVERY DATE") there shall exist no Event of Termination or
Unmatured Event of Termination.
(c) All conditions precedent to the effectiveness of Amendment
No. 3 to the Credit Agreement, dated as of even date herewith, shall have been
satisfied.
(d) Each of the Rating Agencies shall have delivered written
confirmation to the Administrative Agent to the effect that (i) the Loans and
Receivables Purchases constitute "investment grade risks", without giving effect
to the Surety Bonds and (ii) the then current rating of the "Transaction
Commercial Paper Notes" (as defined in the Amended and Restated Liquidity
Agreement) shall not be withdrawn or downgraded by virtue of this Amendment and
the transactions contemplated hereby.
(e) All fees and expenses due and owing CapMAC and/or MBIA
Insurance
-6-
<PAGE> 7
Corporation shall have been paid subject to the terms of that certain letter
agreement between the Seller and Triple-A dated April 23, 1998.
SECTION 4. REFERENCE TO THE EFFECT ON THE PURCHASE AGREEMENT.
Except as specifically set forth above, the Purchase Agreement, and all other
documents, instruments and agreements executed and/or delivered in connection
therewith, shall remain in full force and effect, and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein and for the limited purposes set forth
herein, operate as a waiver of any right, power or remedy of the Buyer, nor
constitute a waiver of any provisions of the Purchase Agreement, or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
SECTION 5. HEADINGS. Section headings in the Amendment are
included herein for convenience of reference only and shall not constitute part
of this Amendment for any other purpose.
SECTION 6. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. COUNTERPARTS. This Amendment may be executed by one or
more of the parties to this Amendment on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been duly executed as of
the day and year first above written.
HPSC, INC., as Seller
By: /s/ John W. Everets
--------------------------
Title: Chairman
HPSC BRAVO FUNDING CORP.,
as Buyer
By: /s/ John W. Everets
--------------------------
Title: President
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 10,509
<SECURITIES> 0
<RECEIVABLES> 300,633
<ALLOWANCES> 5,858
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,830
<DEPRECIATION> 1,422
<TOTAL-ASSETS> 260,569
<CURRENT-LIABILITIES> 0
<BONDS> 163,890
0
0
<COMMON> 46
<OTHER-SE> 36,785
<TOTAL-LIABILITY-AND-EQUITY> 260,569
<SALES> 0
<TOTAL-REVENUES> 17,277
<CGS> 0
<TOTAL-COSTS> 7,202
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,265
<INTEREST-EXPENSE> 7,312
<INCOME-PRETAX> 1,566
<INCOME-TAX> 693
<INCOME-CONTINUING> 873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 873
<EPS-PRIMARY> .24
<EPS-DILUTED> .21
</TABLE>
