U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1997;
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ____________ to __________________
Commission File Number :811-3787
BANDO McGLOCKLIN CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1364345
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
W239 N1700 Busse Road
P.O. Box 190
Pewaukee, Wisconsin 53072-0190
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 523-4300
-----------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class Title of Class
Common Stock, 6-2/3 cents Preferred Stock, 6-2/3 cents
Par Value Par Value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
periods that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting and non-voting common equity
held by non-affiliates of the registrant at March 20, 1998 was $_________.
The number of shares of common stock outstanding at March 20, 1998 was
3,689,102
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Bando McGlocklin Capital Corporation Proxy Statement for the
1998 Annual Meeting of Shareholders (to be filed with the Securities and
Exchange Commission under Regulation 14A within 120 days after the end of
the Registrant's fiscal year and, and upon such filing, to be incorporated
by reference into Part III).
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION
Index to Annual Report on Form 10-K
For the Fiscal Year Ended
December 31, 1997
Page
Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Description of Business . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of Security Holders . . 6
Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 5. Market for Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 6. Selected Financial Data (In thousands, except per
share data) . . . . . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation (for the fiscal
years ended December 31, 1997 and June 30, 1996 and
1995) . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statement and Supplementary Data. . . . . . . 14
Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 48
Item 10. Directors and Executive Officers of the Registrant . . . 48
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . 48
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . 48
Item 13. Certain Relationships and Related Transactions . . . . . 48
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 48
<PAGE>
Part I
Item 1. Description of Business
Introduction
Bando McGlocklin Capital Corporation (the "Company"), was
originally incorporated in February 1980 to provide long-term secured
loans to finance the growth, expansion and modernization of small
businesses.
Beginning January 1, 1997, the Company, together with its
wholly-owned subsidiary has, and continues to, operate as a real estate
investment trust ("REIT") pursuant to the provisions of Section 856 of the
Internal Revenue Code of 1986, as amended. The Company is now engaged in
two business segments: the business of managing loan portfolios secured
by real estate, participating in loans with third party loan originators
and owning industrial and commercial real property and leasing such
property to small businesses (the "Lending Business") and manufacturing
dolls, plastic clocks and other licensed consumer products for
distribution through major retailers, as well as fourteen hundred dealers
across the country (the "Consumer Products Business").
On May 5, 1993, the Company formed Bando McGlocklin Investment
Company, a subsidiary of the Company ("BMIC"). In May 1993, the Company
transferred a fully developed real estate parcel to BMIC. In December
1996 one percent of the economic interest in BMIC was sold to an unrelated
third party. In January 1997, this one percent interest was sold to
George R. Schonath, President and Chief Executive Officer of the Company.
In a subsequent recapitalization of BMIC, the 99% voting common stock
interest in BMIC then held by the Company was converted to the ownership
of 100% of the non-voting common stock of BMIC. After the
recapitalization, the Company held 100% of the non-voting common stock of
BMIC, representing 99% of the total equity interest, and George R.
Schonath owned 100% of the voting common stock of BMIC, representing one
percent of the total equity interest. The recapitalization was effected
because applicable REIT tax provisions do not permit a REIT to own more
than 10% of the voting stock of any corporation.
On March 26, 1993, the Company transferred substantially all of
its assets and liabilities to Bando McGlocklin Small Business Lending
Corporation ("BMSBLC"), a wholly-owned subsidiary of the Company. In
1997, BMSBLC contributed its ownership interest in Lee Middleton Original
Dolls, Inc. ("Middleton Doll") and License Products, Inc. ("License
Products"), both 51% owned subsidiaries engaged in the consumer products
business, to BMIC. BMIC thus owns 51% of the common stock of both
Middleton Doll and License Products, with the other 49% interest in each
corporation being owned by unaffiliated parties. The consolidated
accounts of the Company reflect the consolidated financial position and
results of operations of BMIC, Middleton Doll and License Products.
Prior to January 2, 1997, the Company and BMSBLC were registered
as investment companies under the Investment Company Act of 1940 ("1940
Act"). Effective January 2, 1997, the Company and BMSBLC deregistered as
investment companies under the 1940 Act. The Company now reports under
the Securities Exchange Act of 1934 ("1934 Act") and operates as a REIT.
On September 3, 1997, the Company capitalized InvestorsBancorp,
Inc., a bank holding company, with approximately $6.2 million and then
distributed all its shares of InvestorsBancorp, Inc. to the Company's
shareholders.
The Company and InvestorsBancorp, Inc., together with its
wholly-owned subsidiary, InvestorsBank (the "Bank") share common offices
and personnel. Expenses are shared between the two entities in accordance
with a Management Services and Allocation of Expenses Agreement (the
"Management Agreement"). See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and Capital
Resources."
Lending Business
Loans
The Company, through its Lending Business, (i) manages its loan
portfolio comprised primarily of loans to small business entities secured
by first or second mortgages, (ii) purchases loan participants from banks,
including the Bank, specializing in lending to small business entities,
and (iii) owns industrial and commercial real estate for lease to small
businesses.
Until the distribution of the shares of InvestorsBancorp, Inc.
in September 1997, the Company had engaged in the business of originating
loans to small businesses. Concurrent with such distribution, the Company
and the Bank agreed in the Management Agreement that the Company would not
originate any loans unless agreed to by the Bank in writing. Thus, except
for the making of loans to Company customers who desire to increase their
loan amounts with the Company, the Company does not originate any loans.
The Company's loan portfolio is managed by the Bank for an
annual fee, payable monthly, equal to 25 basis points of the total dollar
amount of loans under management. Overhead expenses and rent are also
shared by the Bank and the Company, as well as certain expenses of
employees providing accounting, reporting and related services to the
Company.
The Company's loan portfolio is primarily comprised of long-
term, primarily variable rate, secured loans to small business entities.
The loans are primarily secured by first mortgages on real estate,
although some loans are secured by second mortgages. Over 95% of the
Company's loans by dollar volume are loans to borrowers located in the
State of Wisconsin. Substantially all of the Company's loan portfolio is
held by BMSBLC.
The Company's borrowers include manufacturers, wholesalers,
retailers, professionals and service providers. The Company funds its
lending operations through its equity capital, bank and institutional
borrowings, commercial paper sales and the sale of loan participations.
Real Estate
The Company currently owns two parcels of real estate on which
two multi-purpose buildings are being constructed. The Company has
entered into long-term lease agreements for such properties with two small
businesses. The Company anticipates that it will construct or purchase
additional industrial or commercial properties to lease.
The Company anticipates that substantially most of its rental
properties will be for industrial real estate, but also anticipates that
it may also own and lease commercial real estate properties, such as
office buildings and retail stores. The Company expects that
substantially all of its properties will be located in Wisconsin.
Competition
The Company, in managing its loan portfolio, competes primarily
with commercial banks and commercial finance companies, many of which have
substantially more assets and capital than the Company. Banks, in
particular, have been active in seeking to refinance outstanding loans.
The Company believes, however, that it is able to compete effectively to
maintain its loan portfolio because of its smaller size and more flexible
structure.
In owning and leasing real estate, the Company competes
primarily with other REITs and other investors such as insurance companies
and a variety of investment vehicles which seek to own and lease real
estate. In addition, the Company competes with banks and other financial
institutions, which seek to lend money to potential tenants of the Company
which would allow the potential tenants to construct and own the building
rather than lease a building owned by the Company.
Employees
On December 31, 1997, the Company employed only its President
and a Senior Vice President. All other duties are performed by Bank
employees pursuant to the Management Agreement.
Consumer Products Business
(a) Middleton Doll. Middleton Doll, located in Belpre, Ohio,
is a 51% owned subsidiary of BMIC and manufactures and distributes vinyl
dolls. Middleton Doll uses a three step process to manufacture its dolls
that include: (1) molding liquid vinyl to create the various body parts
of its dolls; (2) inserting weighted pellets on the inside of the dolls to
give the dolls the specified weight and (3) dressing the dolls in various
clothing and accessories.
Although it has one retail location, Middleton Doll does not
sell directly to the retail market. The majority of its dealers are small
independent owned stores and specialty shops that are located in shopping
malls, plazas, freestanding buildings and various other locations.
Middleton Doll uses a database of approximately 1,700 to 2,000 stores to
target potential customers. In addition, Middleton Doll sells directly to
a limited number of large retailers. In particular, it sells its dolls to
approximately 600 J.C. Penney stores.
Middleton Doll sells its products throughout the United States.
It competes with various other doll manufacturers including: Madam
Alexander, LL Nickerbocker, Ashton Drake and Pleasant Company. Middleton
Doll's strategy for future growth is to expand its channels of
distribution and its product lines. Middleton Doll purchases liquid vinyl
and weighted pellets from a number of suppliers in the United States and
its principal source of clothing and accessories is the Far East and
considers such items to be available from a number of sources.
Middleton Doll plans to expand its physical plant and
distribution during 1998.
(b) License Products. License Products is a 51% owned
subsidiary of BMIC. License Products, located in New Berlin, Wisconsin,
designs, manufactures and markets a selection of clocks under four
different brand names. It sells its products through more than 100 field
sales representatives that are associated with eleven geographically
placed sales agencies and sells directly to high volume retailers.
(c) Employees. The Consumer Products Business employs
approximately 135 persons.
(d) Seasonality. The Consumer Products Business tends to be
seasonal with the strongest months being September, October and November.
(e) Large Customers. Middleton Doll had one customer, J.C.
Penney, that accounted for approximately 17% of its total revenues for
fiscal 1997.
(f) Backlog. The backlog of the Consumer Products Business was
approximately $500,000 as of December 31, 1997, all of which should be
filled during 1998.
Segment Information
Financial information concerning the Company's business segments is
incorporated by reference in Note 17 to the Company's consolidated
financial statements on page 41 herein.
Executive Officers
George R. Schonath, 56, has served as Chief Executive Officer of
the Company since 1983 and President since July 1997. Mr. Schonath has
also served as President and Chief Executive Officer of InvestorsBancorp,
Inc. and the Bank since they were established in 1997. Until July, 1997,
he served as a director (since 1980) and Chairman of the Board (since
1983) of the Company.
Jon McGlocklin, 54, has served as a Senior Vice President of the
Company since July 1997. Mr. McGlocklin has also served as Senior Vice
President and Secretary of InvestorsBancorp, Inc. and Senior Vice
President of the Bank since they were established in 1997. He has also
served as President of Healy Manufacturing, Inc., Menomonee Falls,
Wisconsin, since 1997, and as an announcer for the Milwaukee Bucks since
1976. Until July 1997, he served as a director (since 1980) and President
(since 1991) of the Company.
Susan J. Hauke, 32, has been the Company's Vice
President - Finance, Secretary and Treasurer since 1997. In 1997, Ms.
Hauke was also appointed Controller, Vice President - Finance and
Assistant Secretary of InvestorsBancorp, Inc., and Controller, Vice
President-Finance, Secretary and Treasurer of the Bank. From 1991 until
1997, Ms. Hauke served as Controller for the Company, and was a senior
accountant at Price Waterhouse LLP before joining the Company.
Scott J. Russell, 38, has been a Senior Vice President of the
Company since 1997 and InvestorsBancorp, Inc. since February 1998 and a
Senior Vice President and Lending Officer of the Bank since 1997. From
1994 until 1997, Mr. Russell served as a Vice President of the Company and
was a corporate banker with the Bank of Tokyo, Chicago, Illinois, prior to
joining the Company.
Item 2. Properties
BMCC leases an approximately 16,000 square feet building from
Bando McGlocklin Real Estate Investment Corporation, a related party. The
term of the lease expires March 31, 2007 with the option to extend for
five years to March 31, 2012. The monthly rent is variable based upon
LIBOR interest rates. BMCC subleases approximately 11,200 square feet of
a building, of which approximately 4,750 square feet is subleased to the
Bank and approximately 6,450 is subleased to two other subleasors. Each
sublease has a one year term.
Middleton Doll owns an approximately 36,000 square feet building
that serves as its headquarters and manufacturing facility located at 1301
Washington Boulevard, Belpre, Ohio. The building is a one-story retail,
office and warehouse. In addition, Middleton Doll leases approximately
40,000 square feet warehouse in Belpre, Ohio which it uses to store raw
material and finished goods.
License Products leases approximately 9,500 square feet in a
multi-tenant building located at 16200 West Rogers Drive, New Berlin,
Wisconsin at a monthly rental rate of $3,790. The term of the lease is
month-to-month.
Item 3. Legal Proceedings
As of the date of this filing, neither the Company nor any of
its subsidiaries is a party to any legal proceedings, the adverse outcome
of which, in management's opinion, would have a material effect on the
Company's results of operations or financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the quarter ended December 31, 1997.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The common stock of the Company is traded on The Nasdaq Stock
Market under the symbol BMCC.
The table below represents the high and low sales prices for the
Company common stock as reported on The Nasdaq Stock Market and cash
dividends paid per share for fiscal 1997 and 1996:
Cash
Dividends
Common Stock per share
1997 High Low
First Quarter $13.50 $11.25 -
Second Quarter $14.25 $11.25 0.18
Third Quarter $14.75 $8.625 0.18
Fourth Quarter $13.00 $8.75 0.18
1996 High Low
First Quarter $13.00 $10.50 0.24
Second Quarter $12.00 $10.00 0.24
Third Quarter $12.25 $10.00 0.24
Fourth Quarter $12.50 $10.25 0.755
As of March 20, 1998, there were approximately 1,200
shareholders of record of the Company's common stock.
Item 6. Selected Financial Data (In thousands, except per share data)
The following table sets forth certain Selected Consolidated
Financial Data for the periods and as of the dates indicated:
Twelve Six Twelve months ended June 30,
months months
ended ended
December December
31, 1997 31, 1996 1996 1995
(In thousands, except per share data)
Total Revenues $ 30,984 $ 10,940 $ 10,617 $ 11,738
Net Income 3,506 1,142 3,130 3,208
Total Assets 140,337 79,519 85,379(1) 91,033(1)
Total Liabilities 111,002 46,370 50,285(1) 52,823(1)
Basic Earnings Per
Share $0.95 $0.31 $0.82 $0.82
(1) Unaudited and restated.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations (for the fiscal years ended December 31,
1997 and June 30, 1996 and 1995)
GENERAL
The following discussion provides additional analysis of the
financial statements presented in Item 8. Financial Statement and
Supplementary Data and should be read in conjunction with this
information.
Amounts presented as of December 31, 1997 and December 31, 1996
and for the twelve months ended December 31, 1997 and the six months ended
December 31, 1996 include the consolidation of the operations of the
following companies: Bando McGlocklin Capital Corporation (the "Company");
Bando McGlocklin Small Business Lending Corporation ("BMSBLC"), a 100%
owned subsidiary of the Company; Bando McGlocklin Investment Corporation
("BMIC"), a 99%-owned subsidiary of the Company; Lee Middleton Original
Doll, Inc. ("Middleton Doll") and License Products, Inc. ("License
Products"), 51%-owned subsidiaries. The twelve months ended June 30, 1996
and June 30, 1995 and the six months ended December 31, 1995 include the
consolidation of the operations of the following companies: the Company;
BMSBLC and BMIC, 100%-owned subsidiaries of the Company; and License
Products, a 51%-owned subsidiary of the Company. The Company has owned
49% of Middleton Doll since 1993; the acquisition of an additional two
percent of Middleton Doll was completed at the end of June 1996. Prior to
this acquisition, Middleton Doll was accounted for on the equity method.
The 1996 and 1995 reporting periods reflect the Company's
financial statements on a restated basis. Prior to January 2, 1997, the
Company and BMSBLC were registered investment companies, and therefore
they did not consolidate BMIC, Middleton Doll and License Products, which
were not registered investment companies. The 1997, 1996 and 1995
consolidated financial position and results of operations and cash flows
include the accounts of the Company and its 51% or greater owned
subsidiaries and are offset by the minority interest in BMIC's, Middleton
Doll's and License Products' ownership, as applicable.
RESULTS OF OPERATIONS
For the Twelve Months Ended December 31, 1997 and June 30, 1996
The Company's net income after income taxes and minority
interest for the twelve months ended December 31, 1997 equaled $3.5
million or $0.95 per share as compared to $3.1 million or $0.82 per share
for the twelve months ended June 30, 1996, a 13% increase.
Total revenues for the twelve months ended December 31, 1997
increased 192% to $31.0 million compared to $10.6 million for the twelve
months ended June 30, 1996. This increase is primarily due to the
consolidation of Middleton Doll's sales of $17.7 million for the twelve
months ended December 31, 1997. The acquisition of an additional two
percent of Middleton Doll was completed at the end of June 1996;
previously it was accounted for on the equity method and was not
consolidated in the financial statements. Primarily as a result of the
change in accounting for Middleton Doll, sales increased by $17.3 million.
Middleton Doll's sales of $17.7 million were offset by a decrease in
License Products' sales of $0.4 million for the twelve months ended
December 31, 1997.
Interest on loans increased $2.6 million for the twelve months
ended December 31, 1997 as a result of the new loans and the repurchase of
loans that were previously sold to a third party. Average loans under
management increased $5.7 million to $136.9 million for the twelve months
ended December 31, 1997, compared to $131.2 million for the twelve months
ended June 30, 1996. However, the increase in interest income as a result
of buying back loans is reduced by the decreasing yield on the portfolio
of loans due to the market's competitive pricing. The average prime rate
of 8.44% was slightly lower for the twelve months ended December 31, 1997
compared to 8.52% for the twelve months ended June 30, 1996.
The remaining $0.5 million increase in total revenues during
1997 was a result of receiving $0.5 million from an executive's life
insurance policy where BMCC was the beneficiary. This is non-recurring
income for 1997.
Total operating expenses for the twelve months ended December
31, 1997 increased 215% to $24.9 million compared to $7.9 million for the
year ended June 30, 1996. The consolidation of the Middleton Doll
operations was responsible for $13.3 million or 78% of the increase.
License Products' operating expenses decreased $0.3 million for the twelve
months ended December 31, 1997 compared to the twelve months ended June
30, 1996.
Interest expense increased 106% to $7.0 million from $3.4
million for the twelve months ended December 31, 1997 and June 30, 1996,
respectively. Interest expense increased for the twelve months ended
December 31, 1997 as a result of the repurchase of loans by BMSBLC. Those
repurchased loans were funded with new debt. This repurchase had no
impact on net operating income as both interest income and interest
expense increased by the same amount. Interest expense, which is offset
by swap income, increased by $0.2 million for the twelve months ended
December 31, 1997 because of a decline in swap income due to some
investment swaps maturing and no new ones being entered into.
The remaining $0.4 million increase in expenses over the
corresponding prior period are non-recurring expenses, of which $0.1
million is the result of a salary adjustment and $0.3 million are
restructuring expenses of the Company, including legal and accounting
fees, salaries and other miscellaneous expenses. Beginning in September
of 1997, certain operating expenses were allocated based on a Management
Services and Allocation of Operating Expenses Agreement between the
Company and the Bank. The effect of such agreement will be to reduce the
level of operating expenses in the Company.
As a result of the change in accounting for Middleton Doll,
equity earnings in this subsidiary decreased $0.4 million for the twelve
months ended December 31, 1997.
The minority interest ownership in the net earnings of Middleton
Doll and the net consolidated earnings of BMIC has reduced the Company's
consolidated net income by $1.0 million for the year ended December 31,
1997. Also, the Company's December 31, 1997 consolidated net income for
the year has been reduced by $1.6 million as an income tax provision for
Middleton Doll.
For the Twelve Months Ended June 30, 1996 and 1995
The Company's net income after income taxes and minority
interest for the twelve months ended June 30, 1996 equaled $3.1 million or
$0.82 per share as compared to $3.2 million or $0.82 per share for the
twelve months ended June 30, 1995, a 3% decrease.
Total revenues for the twelve months ended June 30, 1996
decreased 9% to $10.6 million compared to $11.7 million for the twelve
months ended June 30, 1995. Interest on loans decreased $1.6 million as a
result of the Company selling loans to a third party, offsetting the
increase in new loans. Average loans under management increased $15.3
million to $131.2 million for the twelve months ended June 30, 1996 from
$115.9 million for the twelve months ended June 30, 1995. Offsetting the
decrease in interest income is an increase of $0.5 million in License
Products' sales.
Total operating expenses for the twelve months ended June 30,
1996 decreased 6% to $7.9 million compared to $8.4 million for the twelve
months ended June 30, 1995. Interest expense for the twelve months ended
June 30, 1996 decreased 39% to $3.4 million compared to $5.6 million for
the twelve months ended June 30, 1995. Interest expense decreased by $1.6
million as a result of the sale of loans by BMSBLC to third parties. This
sale had no impact on net operating income as both interest income and
interest expense decreased by the same amount. Interest expense, which is
offset by swap income, decreased by $0.6 million for the twelve months
ended June 30, 1996 because of an increase in swap income due to the
Company's investment swaps and more favorable LIBOR rates.
Cost of goods sold for the twelve months ended June 30, 1996
increased $0.3 million as a result of License Products' increased sales.
Salaries and employee benefits increased $0.2 million as a result of a
supplemental benefit paid to executive officers and $0.2 million as a
result of salary increases and additional staff. The change in loan loss
reserve was a reduced benefit of $0.1 million as a result of reducing the
reserve during 1995 because of a change in status on a loan. The expense
resulting from the change in appreciation on investment swaps increased
$2.2 million for the twelve months ending June 30, 1996. No new
investment swaps were entered into during fiscal 1996. Realized losses
decreased $2.0 million as a result of minimal realized losses during
fiscal 1996. License Products had an increase of other operating expenses
of $0.5 million for the twelve months ended June 30, 1996. The remaining
$0.2 million increase in other operating expenses for the twelve months
ended June 30, 1996 is a non-recurring expense for prepayment of a long-
term debt obligation.
Equity earnings in subsidiary increased $0.5 million due to
Middleton Doll's increased profits during the twelve months ended June 30,
1996.
For the Six Months Ended December 31, 1996 and December 31, 1995.
The Company's net income after income taxes and minority
interest for the six months ended December 31, 1996 equaled $1.1 million
or $0.31 per share compared to $1.8 million or $0.47 per share for the six
months ended December 31, 1995, a 39% decrease.
Total revenues for the six months ended December 31, 1996
increased 91% to $10.9 million compared to $5.7 million for the six months
ended December 31, 1995. The increase is primarily due to the
consolidation of Middleton Doll's sales of $6.3 million for the six months
ended December 31, 1996. The acquisition of an additional two percent of
Middleton Doll was completed at the end of June 1996. For the six months
ended December 31, 1995 Middleton Doll was accounted for on the equity
method and was not consolidated in the financial statements. As a result
of the change in accounting for Middleton Doll, sales increased $6.3
million. License Products' sales for the six months ended December 31,
1996 decreased $0.1 million compared to the six months ended December 31,
1995.
Interest on loans for the six months ended December 31, 1996
decreased $1.0 million as compared to the six months ended December 31,
1995. The decrease was the result of declining interest rates and loans
sold. The average prime rate for the six months ended December 31, 1996
decreased to 8.25% from 8.74%. The decrease in interest income is offset
by the $1.0 million decrease in interest expense as a result of the
declining interest rates and loans sold. Average loans under management
for the six months ended December 31, 1996 increased $8.7 million to
$137.8 million compared to $129.1 million for the six months ended
December 31, 1995. Increase in interest income as a result of the
increase in loans under management was offset by the decrease in the prime
rate and the sale of loans to third parties.
Total operating expenses for the six months ended December 31,
1996 increased 105% to $8.4 million compared to $4.1 million for the six
months ended December 31, 1995. The consolidation of the Middleton Doll
operations resulted in $4.4 million of the increase. License Products'
operating expenses decreased by $0.2 million for the six months ended
December 31, 1996 compared to the six months ended December 31, 1995.
Interest expense for the six months ended December 31, 1996
decreased 48% to $1.1 million from $2.1 million. The decrease in interest
expense is the result of declining interest rates and loans sold as noted
above. Interest expense, which is offset by swap income, decreased
$0.6 million because of the increase in swap income due to LIBOR rates
decreasing as the prime rate decreases.
The change in loan loss reserve was an increase of $0.4 million
in operating expenses as a result of increasing the general reserve during
the six months ended December 31, 1996. The expense resulting from the
change in appreciation on investment swaps increased $0.4 million for the
six months ended December 31, 1996. The remaining $0.3 million increase
in other operating expenses for the six months ended December 31, 1996
compared to the six months ended December 31, 1995 were non-recurring
expenses, of which $0.2 million relates to a prepayment of a long-term
obligation and $0.1 million relates to professional fees incurred during
the Company's restructuring.
As a result of the change in accounting for Middleton Doll,
equity earnings in subsidiary decreased $0.2 million for the six months
ended December 31, 1996.
The Company's consolidated net income for the six months ended
December 31, 1996 has been reduced by the minority interest ownership in
the net earnings of Middleton Doll, which have been consolidated by the
Company. The minority interest in earnings of Middleton Doll equaled $0.6
million for the six months ended December 31, 1996. Also, the Company's
December 31, 1996 consolidated net income has been reduced by $0.8 million
as an income tax provision for Middleton Doll.
Liquidity and Capital Resources
Total investment in loans and loan-backed certificates on the
balance sheet increased $59.5 million, or 83% to $131.0 million at
December 31, 1997 from $71.5 million at December 31, 1996. During the
twelve months ending December 31, 1997 the Company repurchased $49.6
million of loans previously sold to a third party and made new loans of
$53.7 million. The increase in loans on the balance sheet was primarily
financed through secured borrowings. As a result of the repurchasing of
loans, retained loan discount and excess servicing asset decreased by $1.4
million and $1.5 million, respectively, for fiscal 1997 compared to fiscal
1996. The Company also collected $43.8 million of principal payments on
loans on the balance sheet and collected $13.4 million of principal
payments on loans that were sold to third parties. The Company's loans
under management decreased to $135.5 million as of December 31, 1997 from
$138.9 million as of December 31, 1996.
Cash and short-term securities decreased to $0.2 million at
December 31, 1997 from $1.3 million at December 31, 1996.
Accounts receivable increased to $2.0 million at December 31,
1997 from $1.1 million at December 31, 1996. An increase of $0.8 million
resulted from Middleton Doll's increased sales volume; the remaining $0.1
million resulted from License Products' increased sales volume.
Inventory is up $1.6 million at December 31, 1997 as compared to
December 31, 1996. An increase of $1.2 million resulted from Middleton
Doll's anticipated sales and $0.4 million resulted from License Products'
anticipated sales in a new merchandise line.
Interest receivable decreased from $1.3 million to $0.9 million
due to the Company sending out its invoices sooner and receiving more loan
payments by the end of the month.
Fixed assets increased by $0.5 million due to a $0.4 million
increase in Middleton Doll's fixed assets and a $0.1 million increase in
the Company's fixed assets.
The Company's total consolidated indebtedness at December 31,
1997 increased 148% to $107.8 million from $43.5 million as of December
31, 1996. The Company, as of December 31, 1997, had $75.3 million
outstanding in long-term debt and $32.5 million outstanding in short-term
borrowings compared to $12.0 million of long-term debt and $31.5 million
of short-term borrowings at December 31, 1996. The $64.3 million increase
in consolidated indebtedness is primarily the result of repurchasing loans
previously sold to third parties and the capitalization of the bank
holding company referred to below.
On September 3, 1997, the Company capitalized InvestorsBancorp,
Inc., a bank holding company with approximately $6.2 million. On
September 6, 1997, the Company distributed its shares of InvestorsBancorp,
Inc. to shareholders. The capitalization of the bank holding company
resulted in the reduction of additional paid-in capital by $6.2 million,
thereby reducing shareholders' equity from approximately $15.6 million at
December 31, 1996 to approximately $10.7 million at December 31, 1997,
after accounting for additions. The principal business of the Company
will be management of its loan portfolio and participation in new loans
with third party loan originators, including InvestorsBancorp, Inc. and
possibly other banks. The Company is also expanding its real estate
lending business into ownership of real property, including related
buildings and improvements, for lease to small businesses. As a result of
expanding its business, the Company purchased additional land of $0.3
million for two new leased buildings. The Company anticipates that
adequate cash will be available to fund loans and new investments. On
March 11, 1998, the Company replaced its $37.5 million short-term credit
facility with a $50 million short-term credit facility. An additional $10
million long-term facility may close in the near future.
All employees of the Company terminated their employment with
the Company to become employees of InvestorsBank (the "Bank"), a wholly
owned subsidiary of InvestorsBancorp, Inc., except for certain executive
officers who are employees of both the Company and the Bank. The Company
and the Bank entered into a Management Services and Allocation of
Operating Expenses Agreement (the "Agreement"). The effect of such
agreement will be to reduce the level of operating expenses in the
Company. The investment and subsequent distribution of approximately $6.2
million of capital to InvestorsBancorp, Inc. is expected to lower the
Company's operating income. Management is unable to measure the net
impact of the Agreement and the capitalization of InvestorsBancorp, Inc.
on net operating income.
Year 2000 Compliance
A critical issue facing the financial services industry is
concern over the ability of computer systems to process year-data beyond
the year 1999. This issue could affect a variety of the Company's
computer systems, from its data processing systems used to process loan
information to ancillary systems such as alarms and locking devices.
Management has considered this issue and has attempted to ensure that the
data processing and other systems used by the Company are Year 2000
compliant, and based on representations made by its vendors, management
does not expect to incur material expenses in connection with upgrading
its computer systems to handle Year 2000 data. Nevertheless, if not
properly addressed, Year 2000 related computer issues could result in
interruptions to the operations of the Company and have a material adverse
effect on the Company's results of operations.
Safe Harbor Statement under the Private Securities Litigation Reform Act
of 1995
This report contains certain forward looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the 1934 Act. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995, and is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and
describe future plans, strategies and expectations of the Company, are
generally identifiable by use of words "believe," "expect," "intend,"
"anticipate," "estimate," "project" or similar expressions. The Company's
ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material
adverse affect on the operations and future prospects of the Company and
the subsidiaries include, but are not limited to, changes in: interest
rates, general economic conditions guidelines, including the condition of
the local real estate market, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality or composition of the
loan or investment portfolios, demand for loan products, competition,
demand for financial services in the Company's market area and accounting
principles and policies. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance
should not be placed on such statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
<PAGE>
Item 8. Financial Statement and Supplementary Data.
Bando McGlocklin Capital Corporation
Consolidated Financial Statements
Contents
Report of BDO Seidman LLP, Independent Auditors . . . . . . . . . . . . 15
Report of Price Waterhouse LLP, Independent Accountants . . . . . . . . 16
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . 17
Consolidated Statements of Operations - For the Twelve Months Ended
December 31, 1997 and June 30, 1996 and 1995 and six months
ended December 31, 1996 and December 31, 1995 (unaudited) . . . . . 19
Consolidated Statement of Changes in Shareholders' Equity . . . . . . . 21
Consolidated Statements of Cash Flows - For the Twelve Months Ended
December 31, 1997 and June 30, 1996 and 1995 and six months
ended December 31, 1996 and December 31, 1995 (unaudited) . . . . . 22
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 26
Financial Statement Schedules
Schedule I - Condensed Financial Information of Registrant . . . 46
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . 46
Schedule IV - Mortgage Loans on Real Estate . . . . . . . . . . . 47
<PAGE>
To the Shareholders and Board of Directors
of Bando McGlocklin Capital Corporation:
We have audited the accompanying consolidated balance sheets of Bando
McGlocklin Capital Corporation as of December 31, 1997 and the related
consolidated statements of income, stockholders' equity and cash flows for
the year then ended in conformity with generally accepted accounting
principles. We have also audited the schedules listed in Item 8. These
financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bando
McGlocklin Capital Corporation at December 31, 1997, and the results of
its operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
Also, in our opinion, the schedules present fairly, in all material
respects, the information set forth therein.
BDO Seidman, LLP
Milwaukee, Wisconsin
March 17, 1998
<PAGE>
To the Shareholders and Board of Directors
of Bando McGlocklin Capital Corporation:
In our opinion, the consolidated balance sheet as of December 31, 1996 and
the related consolidated statements of operations, of changes in
shareholders' equity and of cash flows for the six months ended
December 31, 1996 and the twelve months ended June 30, 1996 and 1995
present fairly, in all material respects, the financial position, results
of operations and cash flows of Bando McGlocklin Capital Corporation and
its subsidiaries as of December 31, 1996 and for the six months ended
December 31, 1996 and the twelve months ended June 30, 1996 and 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above. We
have not audited the consolidated financial statements of Bando McGlocklin
Capital Corporation for any period subsequent to December 31, 1996.
Our audits of the consolidated financial statements referred to in the
preceding paragraph also included an audit of the financial statement
schedules listed in the accompanying index as of December 31, 1996 and for
the six months ended December 31, 1996 and the twelve months ended June
30, 1996 and 1995. In our opinion, these financial statement schedules,
for the periods indicated, present fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
As discussed in Note 1, prior to January 2, 1997, the Company was
registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Effective January 2, 1997, the Company deregistered as
an investment company under the 1940 Act. The Company continues to
operate as a registrant under the Securities Act of 1933, but now reports
under the Securities Exchange Act of 1934 ("1934 Act"). The financial
position as of December 31, 1996 and the results of operations and cash
flows for the six months ended December 31, 1996 and for the twelve months
ended June 30, 1996 and June 30, 1995 have been restated as if the Company
had always reported under the 1934 Act. Under the 1940 Act, certain
investments were accounted for as common stock investments and stated at
"fair value" as determined in good faith by the Board of Directors. Under
the 1934 Act, these investments are consolidated or accounted for as
equity investments, as appropriate. The format and manner of presentation
of the financial statements has also been changed to conform with the
reporting requirements of the 1934 Act.
Price Waterhouse LLP
Milwaukee, Wisconsin
March 17, 1998
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1997 1996*
ASSETS
Loans $131,035,245 $69,468,291
Loan-backed certificates - 1,988,056
Land 635,745 369,577
Construction in progress 4,001 -
Less: reserve for loan losses (450,000) (450,000)
Less: retained loan discount (48,875) (1,482,657)
----------- ----------
Investments 131,176,116 69,893,267
Excess servicing asset 62,219 1,555,231
Investment in swap contracts at market
value 123,013 444,257
Accounts receivable (net of allowance
of $268,796 and $98,083 as of
December 31, 1997 and 1996,
respectively) 1,958,672 1,044,777
Inventory 3,280,172 1,700,814
Interest receivable 860,347 1,348,860
Cash 197,576 1,337,556
Fixed assets (net of accumulated
depreciation of $993,770 and $617,997,
as of December 31, 1997 and 1996,
respectively) 2,094,398 1,549,198
Other assets 584,717 645,438
----------- ----------
Total Assets $140,337,230 $79,519,398
============ ===========
LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Commercial Paper $25,009,972 $21,768,394
Notes payable to banks 7,500,000 9,700,000
----------- ----------
Short-term borrowings 32,509,972 31,468,394
State of Wisconsin Investment Board
note payable 6,000,000 6,666,667
Loan participations with repurchase
options 69,250,467 5,348,619
Accounts payable 948,075 565,803
Other notes payable 22,936 29,469
Other liabilities 2,270,441 2,290,570
----------- ----------
Total Liabilities 111,001,891 46,369,522
Minority interest in subsidiaries 1,684,512 602,150
Redeemable Preferred stock, 1 cent par
value, 3,000,000 shares authorized in
1997 and 1996; 674,791 shares issued
and outstanding after deducting
15,209 shares in treasury as of
December 31, 1997 and 1996 16,908,025 16,908,025
Shareholders' Equity
Common Stock, 6 2/3 cents par value,
15,000,000 shares authorized in 1997
and 1996, 4,001,540 and 3,955,744
shares issued and outstanding as of
December 31, 1997 and 1996,
respectively, before deducting
shares in treasury 266,769 263,716
Additional paid-in capital 13,671,947 19,498,326
Retained earnings (deficit) 656,597 (859,728)
Treasury stock, at cost (312,438 and
266,650 shares, as of December 31,
1997 and 1996, respectively) (3,852,511) (3,262,613)
----------- ----------
Total Shareholders' Equity 10,742,802 15,639,701
----------- ----------
Total Liabilities, Minority Interest,
Preferred Stock and Shareholders'
Equity $140,337,230 $79,519,398
============ ===========
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Months Ended
December 31, June 30,
1997 1996* 1995*
Revenues:
Interest on loans $11,021,265 $8,409,597 $10,058,072
Net sales of manufacturing
subsidiaries 19,000,778 1,702,357 1,183,165
Interest on short-term
securities 83,810 83,336 103,706
Premium (expense) income (59,230) 78,978 8,805
Other income 937,737 342,959 384,573
---------- ---------- ----------
Total Revenues 30,984,360 10,617,227 11,738,321
---------- ---------- ----------
Expenses:
Interest expense 6,943,304 3,399,344 5,648,895
Cost of goods sold of
manufacturing subsidiaries 10,381,039 1,116,876 784,131
Salaries and employee benefits
2,001,488 1,318,677 921,363
Provision for loan loss
reserve 6,335 (10,501) (72,093)
Change in appreciation
on investment swaps 321,244 253,796 (1,933,054)
Realized losses - 20,286 2,031,928
Other operating expenses 5,202,943 1,782,818 1,082,569
---------- ---------- ----------
Total Expenses 24,856,353 7,881,296 8,463,739
---------- ---------- ----------
Equity earnings (loss) in
subsidiary - 358,967 (116,077)
---------- ---------- ----------
Net operating income before
income taxes and minority
interest 6,128,007 3,094,898 3,158,505
(Provision) Benefit for income
taxes (1,539,265) 35,074 49,665
Minority interest in earnings
of Subsidiaries (1,082,362) - -
---------- ---------- ----------
Net Income $3,506,380 $3,129,972 $3,208,170
========== ========== ==========
Basic Earnings Per Share $0.95 $0.82 $0.82
===== ===== =====
Diluted Earnings Per Share $0.95 $0.82 $0.81
===== ===== =====
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Six Months Ended
December 31, December 31,
1996* 1995*
(Unaudited)
Revenues:
Interest on loans $3,579,266 $4,547,651
Net sales of manufacturing subsidiaries 7,226,130 1,049,870
Interest on short-term securities 43,452 50,958
Premium (expense) income (15,209) 12,994
Other income 105,951 64,230
---------- ---------
Total Revenues 10,939,590 5,725,703
---------- ---------
Expenses:
Interest expense 1,120,882 2,133,830
Cost of goods sold of
manufacturing subsidiaries 3,413,772 717,731
Salaries and employee benefits 931,908 635,381
Provision for loan loss reserve 411,209 (10,501)
Change in appreciation on investment swaps 263,345 (104,659)
Realized losses - 4,360
Other operating expenses 2,238,881 677,970
---------- ---------
Total Expenses 8,379,997 4,054,112
---------- ---------
Equity earnings in subsidiary - 176,760
---------- ---------
Net operating income before income
taxes and minority interest 2,559,593 1,848,351
---------- ---------
Provision for income taxes (844,262) -
Minority interest in earnings of subsidiaries (573,371) -
---------- ---------
Net Income $1,141,960 $1,848,351
========== ==========
Basic Earnings Per Share $0.31 $0.47
===== =====
Diluted Earnings Per Share $0.31 $0.47
===== =====
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
Additional Retained
Common Paid-in Earnings Treasury
Stock Capital (Deficit) Stock
BALANCE,
June 30, 1994* $ 261,590 $24,076,784 $(1,870,811) $ -
Proceeds from
exercise of
stock options 1,078 113,179 - -
Purchase of treasury
stock - - - (566,250)
Net income - - 3,208,170 -
Cash dividends on
common stock - (2,436,610) (1,484,634) -
BALANCE,
June 30, 1995* 262,668 21,753,353 (147,275) (566,250)
Proceeds from
exercise of
stock options 1,048 109,712 - -
Purchase of
treasury stock - - - (2,696,363)
Net income - - 3,129,972 -
Cash dividends
on common stock - (156,560) (3,521,916) -
BALANCE,
June 30, 1996* 263,716 21,706,505 (539,219) (3,262,613)
Net income - - 1,141,960 -
Cash dividends
on common stock - (2,208,179) (1,462,469) -
BALANCE,
December 31, 1996* 263,716 19,498,326 (859,728) (3,262,613)
Proceeds from
exercise of stock
options 3,053 333,621 - -
Purchase of
treasury stock - - - (589,898)
Net income - - 3,506,380 -
Cash dividends
on common stock - - (1,990,055) -
Capitalization of
InvestorsBancorp, Inc. - (6,160,000) - -
BALANCE,
December 31, 1997 $266,769 $13,671,947 $ 656,597 $(3,852,511)
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended
December 31, June 30,
1997 1996* 1995*
Cash Flows from Operating
Activities:
Net income $ 3,506,380 $3,129,972 $ 3,208,170
Adjustments to reconcile net
income to net cash (used)
provided by operating
activities:
Change in appreciation on
investment swaps 321,244 253,796 (1,933,054)
Provision for loan loss
reserve 6,335 (10,501) (72,093)
Amortization 92,169 86,739 92,169
Depreciation 375,773 54,348 48,493
Equity (earnings) loss in
subsidiary - (358,967) 116,077
Change in minority interest
in subsidiaries 1,082,362 - -
Increase (decrease) in cash
due to changes in:
Accounts receivable (913,895) 228,597 (316,695)
Inventory (1,579,358) 7,686 (109,712)
Interest receivable 488,513 (95,000) (276,339)
Other assets (31,448) (90,303) (171,767)
Accounts payable 382,272 143,398 70,678
Other liabilities (20,129) (288,946) 24,906
Net Cash Provided by Operations 3,710,218 3,060,819 680,833
Cash Flows from Investing
Activities:
Loans made (53,759,887) (42,745,527) (39,318,018)
Principal collected on loans 43,821,836 23,881,211 23,586,361
Loans sold - 28,087,037 33,644,334
Certificate purchased from
trust - (1,213,315) (1,294,198)
Premium expense (income) - net 59,230 (78,978) (8,805)
Loans purchased (49,647,182) - -
Land purchased and
construction in progress (399,844) - -
Purchase of fixed assets (920,973) (272,318) (36,705)
Real Estate sold 129,675 557,073 308,750
Purchase of short-term
securities - (1,439,255) -
Proceeds from maturity of
securities - - 15,652,000
Consolidation of Middleton
Doll - 400,325 -
Net Cash (Used) Provided by
Investing Activities (60,717,145) 7,176,253 32,533,719
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Twelve Months Ended
December 31, June 30,
1997 1996* 1995*
Cash Flows from Financing
Activities:
Increase (decrease) in
short-term borrowings $1,041,578 $ (3,435) $(9,024,189)
Proceeds from loan
participations with
repurchase options net 63,901,848 3,983,990 -
Repayment of SWIB note (666,667) (7,333,334) (1,333,333)
Repayment of SBA debenture - - (560,000)
Decrease in other notes
payable (6,533) - (17,600,000)
Capitalization and
distribution of
InvestorsBank (6,160,000) - -
Dividends paid (1,990,055) (3,678,476) (3,921,244)
Proceeds from exercise
of stock options 336,674 110,760 114,257
Repurchase of common stock (589,898) (2,696,363) (566,250)
Repurchase of preferred
stock - - (341,975)
Net Cash Provided (Used) in
Financing Activities 55,866,947 (9,616,858) (33,232,734)
Net (decrease) increase in
cash (1,139,980) 620,214 (18,182)
Cash, beginning of year 1,337,556 106,717 124,899
Cash, end of year $ 197,576 $ 726,931 $ 106,717
Supplemental Disclosure of
Cash Flow Information:
Interest paid $7,113,282 $3,680,381 $5,373,395
Taxes paid 1,179,023 - -
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31,
1995*
1996* (Unaudited)
Cash Flows from Operating Activities:
Net income $1,141,960 $1,848,351
Adjustments to reconcile net income to
net cash (used) provided by operating
activities:
Change in appreciation on investment
swaps 263,345 (104,659)
Provision for loan loss reserve 411,209 (10,501)
Amortization 96,743 92,169
Depreciation 77,537 46,326
Equity earnings in subsidiary - (176,760)
Change in minority interest in
subsidiaries 573,371 -
Other 10,533 -
Increase (decrease) in cash due to
changes in:
Accounts receivable (270,315) 346,458
Inventory (580,662) (14,520)
Interest receivable (71,189) (66,960)
Other assets 1,377 (269,452)
Accounts payable 76,989 (65,046)
Other liabilities 538,321 753,003
Net Cash Provided by Operations 2,269,219 2,378,409
Cash Flows from Investing Activities:
Loans made (23,729,026) (23,003,932)
Principal collected on loans 13,600,355 14,094,074
Loans sold 15,140,783 15,400,490
Certificate purchased from trust - (1,213,315)
Premium expense (income) - net 15,209 (12,994)
Purchase of fixed assets (314,166) (74,164)
Real estate sold - 74,575
Purchase of short-term securities - (1,442,778)
Proceeds from maturity of securities 1,829,255 -
Net Cash Provided by Investing Activities 6,542,410 3,821,956
Cash Flows from Financing Activities:
Increase (decrease) in short-term
borrowings $7,179,507 $(1,632,110)
Proceeds from loan participations
with repurchase options net 1,364,629 -
Repayment of SWIB note (333,333) (666,667)
Repayment of SBA debenture (12,620,000) -
Decrease in other notes payable (121,159) -
Dividends paid (3,670,648) (1,876,173)
Proceeds from exercise of stock options - 110,760
Repurchase of common stock - (1,234,045)
Net Cash Used in Financing Activities (8,201,004) (5,298,235)
Net increase in cash 610,625 902,130
Cash, beginning of period 726,931 106,717
Cash, end of period $1,337,556 $1,008,847
Supplemental Disclosure of
Cash Flow Information:
Interest paid $ 1,779,092 $ 2,004,408
Taxes paid 903,202 -
The accompanying notes are an integral part of the financial statements.
*Restated - See Note 1.
<PAGE>
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Bando McGlocklin Capital Corporation (the "Company'),
was originally incorporated in February 1980 to provide long-term secured
loans to finance the growth, expansion and modernization of small
businesses.
On March 26, 1993, the Company completed the formation of a holding
company structure by transferring substantially all of its assets and
liabilities to Bando McGlocklin Small Business Lending Corporation
("BMSBLC"), a wholly owned subsidiary of the Company. At the close of the
day on December 31, 1996, BMSBLC surrendered its Small Business
Administration ("SBA") license. BMSBLC was formerly known as Bando
McGlocklin Small Business Investment Corporation; the entity formerly
known as BMSBLC was liquidated on December 1, 1996.
On May 5, 1993, the Company formed Bando McGlocklin Investment Corporation
("BMIC"), a subsidiary of the Company. In May 1993, a partially developed
real estate parcel was transferred to BMIC. In December 1996, one percent
of the economic interest in BMIC was sold to an unrelated party. In
January 1997, this one percent interest was sold by the unrelated party to
an officer of the Company and he received 100% of the voting stock of BMIC
by the Company. In 1997, BMSBLC contributed its ownership interest in Lee
Middleton Original Doll, Inc. ("Middleton Doll") and License Products,
Inc. ("License Products"), both 51% owned subsidiaries engaged in the
manufacturing business, to BMIC.
Middleton Doll, located in Belpre, Ohio, manufactures and distributes
vinyl dolls that are considered collectors' dolls. License Products,
located in New Berlin, Wisconsin, designs, manufactures and markets a
selection of clocks under four different brand names.
Prior to January 2, 1997, the Company and BMSBLC were registered as
investment companies under the Investment Company Act of 1940 ("1940
Act"). Effective January 2, 1997, the Company and BMSBLC deregistered as
investment companies under the 1940 Act. The Company continues to operate
as a registrant under the Securities Act of 1933, but now reports under
the Securities Exchange Act of 1934 ("1934 Act"). The balance sheet as of
December 31, 1996 and the statements of operations and cash flows for the
six months ended December 31, 1996 and December 31, 1995 and for the
twelve months ended June 30, 1996 and June 30, 1995 have been restated as
if the Company had always reported under the 1934 Act. Under the 1940
Act, the investments in BMIC, Middleton Doll and License Products were
accounted for as common stock investments and stated at "fair value" as
determined in good faith by the Board of Directors. Under the 1934 Act,
these three investments are consolidated or accounted for as equity
investments, as appropriate. The format and manner of presentation of the
financial statements has also been changed to conform with the reporting
requirements of the 1934 Act. (See Note 3).
During 1996 the Company changed its year-end from June 30 to December 31.
On September 3, 1997, the Company capitalized InvestorsBancorp, Inc., a
bank holding company, with approximately $6.2 million and then distributed
all of its outstanding shares of InvestorsBancorp, Inc. to the Company's
shareholders. Subsequent to the spin-off of the bank holding company, the
principal business of the Company will be to manage its loan portfolio and
to participate in loans with third party loan originators. The Company is
also expanding its real estate lending business into ownership of real
property including related buildings and improvements for lease to small
businesses.
BASIS OF PRESENTATION - These financial statements are prepared in
accordance with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements as of
December 31, 1997 and December 31, 1996 and for the twelve months ended
December 31, 1997 and the six months ended December 31, 1996 include the
accounts of the Company, BMSBLC, BMIC, Middleton Doll and License
Products. During the twelve months ended June 30, 1996 and June 30, 1995
and for the six months ended December 31, 1995, the Company owned only 49%
of Middleton Doll and as a result during this period the investment is
accounted for on the equity method and is not consolidated. In late June
1996, BMCC acquired an additional 2% interest in Middleton Doll and,
therefore, the balance sheet of Middleton Doll was consolidated as of June
30, 1996. All significant intercompany accounts and transactions have
been eliminated in consolidation.
TREASURY STOCK - Preferred stock has been reduced by the cost of shares
acquired for treasury. The common treasury stock is shown as a reduction
in shareholders' equity at cost.
INVESTMENT VALUATION - The Company's investment swap contracts are valued
at current market value. Loans and loan-backed certificates are stated at
unpaid principal balance unless loss reserves are considered necessary.
Land owned is stated at the lower of cost or net realizable value.
When a portion of a loan is sold, the basis of the retained portion of the
loan is discounted by the differential between the face amount of the sold
portion of the loan and the relative market value of the sold portion of
the loan. This difference is referred to as the retained loan discount.
The relative market value is determined by the expected cash flows
discounted with assumptions made on prepayments and rate of return. At
the time of sale, premium income is reduced by the retained loan discount.
The retained loan discount is amortized over the life of the underlying
loan. When a loan is prepaid, the remaining retained loan discount is
recognized as an increase to interest income. When a loan is sold, the
remaining retained loan discount is included as a reduction to the basis
of the underlying loan.
EXCESS SERVICING ASSET - The excess servicing asset represents the
unamortized balance of the present valued cash flows of the interest rate
differential resulting from the sale of a loan with servicing rights
retained. For transactions entered into prior to January 1, 1997, the
interest rate differential is the difference between the interest rate on
the underlying loan and the interest rate paid to the purchaser on the
sold portion after considering normal servicing fees and transaction fees.
This amount is amortized over the life of the underlying loan, subject to
periodic review of prepayment speeds.
INTEREST RATE SWAP AGREEMENTS - The Company enters into interest rate swap
agreements as a means of managing its interest rate exposure. The
differential to be paid or received on all interest rate swap agreements
is accrued as interest rates change and is recognized over the life of the
agreements. Those agreements which are considered to be investments are
accounted for at market value in the financial statements.
ACCOUNTS RECEIVABLE - Accounts receivable represent sales on credit made
by Middleton Doll and License Products, net of an allowance for doubtful
accounts.
INVENTORY - Inventories of Middleton Doll and License Products are valued
at the lower of cost or market. Middleton Doll and License Products
utilize the average cost method to determine cost. The components of
inventory are as follows:
December 31,
1997 1996
Raw materials $ 1,975,002 $1,138,440
Work in process 282,484 170,779
Finished goods 1,230,298 517,951
Inventory reserve (207,612) (126,356)
Total $3,280,172 $1,700,814
FIXED ASSETS - Fixed assets primarily represent manufacturing property,
plant and equipment of Middleton Doll and License Products. Fixed assets
are stated at cost and are depreciated using the straight-line method for
financial statement purposes and accelerated methods for income tax
purposes. Maintenance and repair costs are charged to expense as
incurred, and renewals and improvements that extend the useful life of the
assets are added to the plant and equipment accounts. The major classes
of fixed assets are as follows:
December 31,
1997 1996
Land $ 173,590 $ 173,590
Building 698,876 694,360
Furniture & fixtures 551,838 424,118
Machinery & equipment 1,663,864 875,127
Total $3,088,168 $2,167,195
RECOGNITION OF INTEREST INCOME - Interest income is recorded on the
accrual basis to the extent that management anticipates that such amounts
will be collected. In all other cases, no entry is made to accrue
interest, but the unpaid interest is monitored, and interest is recorded
upon receipt.
PREMIUM (EXPENSE) INCOME - Premium (expense) income represents the
differential at the time a portion of a loan is sold between the present
valued excess servicing income on the sold portion and the retained loan
discount, and subsequent to sale, amortization of the retained loan
discount and excess servicing asset.
INCOME TAXES - The Company and BMSBLC qualified as regulated investment
companies ("RICs") meeting certain requirements under the Internal Revenue
Code (the "Code") for the six months ended December 31, 1996 and the
twelve months ended June 30, 1996 and 1995. As such, the Company and
BMSBLC were not subject to income tax on investment company taxable income
which had been distributed to shareholders. Subsequent to December 31,
1996, the Company intends to qualify as a real estate investment trust
("REIT") under the code. Under REIT status, the Company, together with
its qualified REIT subsidiary, BMSBLC, will continue to not be subject to
income tax on taxable income which is distributed to shareholders. Due to
the change in status, the Company has changed its year end to December 31
for both tax and financial reporting purposes.
In order to qualify as a REIT under the Code, the Company, together with
its qualified REIT subsidiary, among other requirements, must meet certain
annual income and quarterly asset diversification tests including not
holding the securities of any one issuer valued at more than 5% of total
assets, and not holding more than 10% of the outstanding voting securities
of any one issuer.
For the non-qualified REIT subsidiaries of the Company, taxes are provided
using the liability approach which generally requires that deferred income
taxes be recognized when assets and liabilities have different values for
financial statement and tax reporting purposes.
During the year ended June 30, 1995, the Company made payments to modify
the terms of certain investment swap contracts which resulted in a
$2,031,928 realized loss for financial statement purposes. For tax
purposes, the realized loss has been amortized through 1997. As a result,
ordinary taxable income was reduced by $223,911 for the 12 months ended
December 31, 1997, $355,721 for the six months ended December 31, 1996 and
$820,598 and $631,698 for the years ended June 30, 1996 and 1995,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1997, the FASB issued SFAS No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 130 requires
that an enterprise report, by major components and as a single total, the
change in its net assets during the period from nonowner sources; and SFAS
No. 131 establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its
products, services, geographic areas and major customers. Adoption of
these statements will not impact the Company's financial position, results
of operations or cash flows and any effect will be limited to the form and
content of its disclosures. Both statements are effective for fiscal
years beginning after December 15, 1997, with earlier application
permitted.
NOTE 2 - INVESTORSBANCORP, INC.
InvestorsBancorp, Inc. is a bank holding company that was incorporated on
June 12, 1996 and capitalized on September 3, 1997 primarily by the
Company. The Company distributed all of its outstanding shares of
InvestorsBancorp, Inc. to its shareholders on September 6, 1997 to
shareholders of record on September 5, 1997.
InvestorsBank (the "Bank") is a newly-organized Wisconsin chartered
commercial bank with depository accounts insured by the Federal Deposit
Insurance Corporation. The Bank started providing a full range of
commercial and consumer banking services on September 8, 1997.
All employees ceased their employment with the Company on September 8,
1997 and became employees of the Bank. The officers of the Company became
officers of both the Company and the Bank.
The Company and the Bank entered into a Management Services and Allocation
of Expenses Agreement (the "Agreement") on September 2, 1997. The
Agreement allows the employees of the Bank to provide loan management and
accounting services to the Company for a fee, payable monthly. Management
fee expenses relating to the Agreement were $229,285 for the period from
September 3, 1997 to December 31, 1997. Overhead expenses and rent are
also shared between the two entities in accordance with the Agreement.
NOTE 3 - RESTATEMENT
As discussed in Note 1, previously reported amounts have been restated to
reflect the Company's accounts as required under the Securities Exchange
Act of 1934. The Company originally reported under the Investment Company
Act of 1940. The restatement primarily reflects the consolidation of
BMIC, Middleton Doll and License Products. The impact of these
adjustments on the consolidated financial statements of the Company is as
follows:
<TABLE>
<CAPTION>
Six Months
December Ended Year Ended Year Ended
31, December 31, June 30, June 30,
1996 1996 1996 1995
<S> <C> <C> <C> <C> <C>
Total Assets
As originally $ 79,449,366 N/A N/A N/A
reported
As restated 79,519,398 N/A N/A N/A
Total shareholders'
equity
As originally $ 17,573,872 N/A N/A N/A
reported
As restated 15,639,701 N/A N/A N/A
Net income
(net operating
income, realized
gain on investments
and unrealized
appreciation/
depreciation on
investments in
securities)
As originally $ - $2,549,124 $3,211,556 $2,997,895
reported
As restated - 1,141,960 3,129,972 3,208,170
</TABLE>
NOTE 4 - LOANS
The Company's exposure to loss in the event of nonperformance by the
borrower is represented by the outstanding principal amount of the loans.
Substantially all loans are fully secured by first or second mortgages on
owner-occupied real estate. Approximately 95% of the Company's loan
portfolio at December 31, 1997 is comprised of loans to borrowers located
within the State of Wisconsin. At December 31, 1997, the Company had
loans outstanding to its largest borrower totaling $12,848,595. No other
individual borrower had loans outstanding exceeding $4,000,000.
The Company routinely monitors its loan portfolio for evidence of loan
impairment. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan.
In determining the need for a loss reserve on the impaired loans,
management looks to the underlying collateral. A loss reserve is
established if the estimated value of the underlying collateral is
insufficient to cover the impaired loan. At December 31, 1997, a loss
reserve of $100,491 was recorded on impaired loans totaling $1,583,981.
At December 31, 1996, a loss reserve of $38,791 was recorded on impaired
loans totaling $1,022,434. The average impaired loan balance during the
twelve months ended December 31, 1997 was $1,313,813. The accrued
interest on the impaired loans totals $96,197 at December 31, 1997 and all
is considered fully collectible except for approximately $18,000.
The Company's loan portfolio consists primarily of variable-rate loans
with terms of five to fifteen years. The Company writes interest rate
caps for terms not exceeding five years on certain variable rate loans to
meet the financing needs of its borrowers. Interest rate caps written by
the Company enable borrowers to modify or reduce their interest rate risk.
The Company is exposed to interest rate risk to the extent that its cost
of funds exceeds the interest rate caps. Interest rate caps do not
represent exposure to credit loss for the Company in that they do not
affect the outstanding principal amounts of the loans.
The Company has made loans which have outstanding balances at December 31,
1997 of $4,428,578 to Bando McGlocklin Real Estate Investment Corporation,
a related party.
Undisbursed construction loan commitments and lines of credit totaled
$6,058,052 at December 31, 1997. The Company has entered into two
construction contracts totaling $2,683,644 as of December 31, 1997. In
addition the Company issued letters of credit totaling $4,165,514 as of
December 31, 1997.
NOTE 5 - LOANS SOLD
Since 1994, the Company has sold loans to third parties. During 1997 no
new loans were sold to third parties. The following table summarizes the
outstanding balance of loans sold.
Principal Principal
Balance Sold at Percentage Balance sold at Recourse
Date of Sale Sold December 31, Provision
1997
During the six months ended
December 31, 1996:
$ 197,795 75% $196,977 None
During the year ended
June 30, 1996:
$1,757,275 100% $1,003,827 None
During the year ended
June 30, 1995:
$2,837,677 75%-80% $ 632,555 None
During the year ended
June 30, 1994:
$10,397,410 75% $2,636,813 None
During the twelve months ended December 31, 1997, the Company repurchased
certain loans that had been sold to third parties, at unpaid principal
balances totaling $41,549,621. As a result of these transactions, the
excess servicing asset and retained loan discount related to the original
sale were reduced $859,172 and $842,649, respectively. Premium expense of
$16,523 was also recognized due to these transactions.
The Company also sells loans with the option to repurchase them at a later
date. As of December 31, 1997, the balance of loan participations with
repurchase options was $69,250,467. During the twelve months ended
December 31, 1997, the Company resold, with an option to repurchase, the
loans referred to in the preceding paragraph at unpaid principal balances
totaling $41,549,621. These sales have been accounted for as secured
financings.
For the loans sold with no recourse, the Company is susceptible to loss on
the loans up to the percentage of the retained interest to the extent the
underlying collateral is insufficient in the event of nonperformance by
the borrower. The Company's retained interest is subordinated to the
portion sold. For the loans sold with full recourse, the Company is
susceptible to loss equal to the total principal balance of the loan to
the extent the underlying collateral is insufficient in the event of
nonperformance. No associated loss reserve has been established as of
December 31, 1997 for loans which have been sold.
Under the terms of the agreements, the Company retains servicing rights
for the entire loan. (See Note 7). As servicer and provider of recourse,
certain agreements require the Company to comply with various covenants,
including the maintenance of net worth. As of December 31, 1997, the
company was in compliance with these covenants.
NOTE 6 - LOAN BACKED CERTIFICATES
During the years ended June 30, 1996 and June 30, 1995, the Company sold
loans to a trust, which issued two classes of certificates as noted in the
table below:
Principal Balance A Certificate B Certificate
Sold at Sold to A Certificate Sold to
Date of Sale Third Party Interest Rate Company
For year ended June 30, 1996:
$8,666,538 $7,453,223 (1) $1,213,315
For year ended June 30, 1995:
$6,540,358 $5,246,160 (2) $1,294,198
(1) The interest rate was reset monthly based upon the 30 day London
Interbank Offered Rate (LIBOR) plus one and one-half percent.
(2) The interest rate was reset every three years based upon the three-
year U.S. Treasury Bond yield plus one and one-half percent.
On May 1, 1997 the Company repurchased all of the loans sold to the trust.
The unpaid principal balances for the A and B certificates were $8,097,561
and $1,497,499, respectively. As a result of these transactions, the
excess servicing asset and retained loan discount related to the original
sale were reduced by $202,437 and $201,140, respectively. Premium expense
of $1,297 was also recognized due to these transactions.
NOTE 7 - EXCESS SERVICING ASSET
The Company has retained the servicing rights on each of the loans it has
sold to third parties. By retaining the right to service the loan, the
Company earns an interest rate spread equal to the difference between the
interest rate on the loan and the interest rate paid to the purchaser on
the sold portion (this difference is referred to as the "Servicing
Spread").
The value of this excess servicing asset has been estimated based upon the
present valued cash flow of the Servicing Spread after considering the
effects of estimated prepayments, normal servicing fees and transaction
fees. The value of the excess servicing asset is recognized as premium
income at the time of the sale and is concurrently capitalized on the
consolidated balance sheet. It is then amortized over the life of the
loan. If actual cash flows exceed the excess servicing asset, the Company
will recognize additional income in excess of the value of the excess
servicing asset. A shorter loan life than that estimated at the time the
excess servicing asset was established, will result in the carrying value
of the excess servicing asset being written down through a charge to
earnings. During 1997 no excess servicing fees were generated from the
sale of loans to third parties.
The carrying value of the excess servicing asset is analyzed quarterly by
the Company to determine whether prepayment and default experience has any
impact on this carrying value.
NOTE 8 - SHORT-TERM BORROWINGS
Commercial paper is issued for working capital purposes with maturities of
up to 90 days. The average yield on commercial paper outstanding at
December 31, 1997 was 6.07%.
BMSBLC has entered into three loan agreements with certain banks. The
current loan agreements provide for a maximum of $37,500,000 less the
outstanding principal amount of commercial paper. Two facilities bear
interest at the prime rate while the other facility bears interest at the
30-, 60- or 90-day LIBOR plus one and three-eighths percent. Interest is
payable monthly, and the loan agreements expire on February 28, 1998.
BMSBLC is also required to pay an availability fee to the two facilities
that bear interest at the prime rate for the use of those facilities. The
banks are party to an Intercreditor Agreement which grants each party a
proportionate security interest in substantially all of BMSBLC's assets
which are not securing long-term debt. (See Note 9.) At December 31,
1997, under these agreements, the outstanding principal balance was
$7,500,000.
Subsequent to year-end BMSBLC replaced the $37,500,000 loan agreements
with a new $50,000,000 commercial paper facility. The new facility
expires on April 30, 1999 and includes four participating banks.
NOTE 9 - LONG-TERM DEBT
Small Business Administration Debenture. This debenture had a maturity in
November, 1997 and an interest rate of 10.35%. On September 3, 1996 the
debenture was prepaid. A prepayment penalty of $261,234 was expensed in
other operating expenses during the six month period ended December 31,
1996.
State of Wisconsin Investment Board Notes Payable. On July 9, 1990,
BMSBLC entered into an agreement with the State of Wisconsin Investment
Board ("SWIB") providing for a term note of $10,000,000 bearing interest
at 10.1%. This note was prepaid as of January 30, 1996. A prepayment
penalty of $285,000 was expensed in other operating expenses during the
year ended June 30, 1996.
On November 7, 1991, BMSBLC borrowed an additional $10,000,000 from The
State of Wisconsin Investment Board ("SWIB") pursuant to a term note which
bears interest at a fixed rate of 9.05% per year through its maturity.
The note is payable in equal quarterly installments of $166,667 with a
final payment of unpaid principal due on November 7, 2006, and is secured
by specific loans. At December 31, 1997, the outstanding principal
balance was $6,000,000.
Revolving Line of Credit. On August 9, 1993, BMSBLC entered into a
revolving line of credit facility with a single bank providing for a
maximum amount of $5,000,000. Outstanding borrowings under this facility
were at the prime rate announced from time to time by such bank.
Outstanding indebtedness under this facility was secured by specific loans
of BMSBLC. On September 30, 1994, BMSBLC terminated this facility.
Notes Payable to Banks. On April 12, 1994, the Company entered into a
credit agreement with a bank for a maximum amount of $5,000,000 which was
secured by specific loans. On September 29, 1994, the note was paid in
full.
On May 19, 1994, BMSBLC entered into an additional credit agreement with
the bank for a maximum amount of $15,000,000 which was secured by specific
loans. On June 28, 1995, the note was paid in full.
The SWIB agreement and the loan agreements described in Note 8 contain
restrictions on BMSBLC's new indebtedness, acquisition of its common
stock, return of capital dividends, past due loans, and realized losses on
loans, and require maintenance of collateral, minimum equity and loan to
debt ratios, among others. As of December 31, 1997, BMSBLC is in
compliance with all such requirements.
Future annual maturities of long-term debt as of December 31, 1997 are as
follows:
December 31, 1998 $666,667
December 31, 1999 666,666
December 31, 2000 666,667
December 31, 2001 666,666
December 31, 2002 666,667
Later Years 2,666,667
$6,000,000
Based on the borrowing rates currently available to BMSBLC for loans with
similar maturities, the estimated fair market value of the long-term debt
at December 31, 1997 was approximately $6.2 million.
NOTE 10 - INTEREST RATE SWAPS
The Company enters into interest rate swap agreements primarily as a means
of managing interest rate risk. To the extent that the Company's
variable-rate loans are funded with fixed-rate debt, the Company is
subject to interest rate risk. To reduce interest rate risk, the Company
enters into certain interest rate swaps designed to convert variable-rate
loans into fixed-rate loans. Although these swaps reduce interest rate
risk, the potential for profit or loss on interest rate swaps still exists
depending upon fluctuations in interest rates. In addition, the Company
enters into interest rate swaps in an attempt to further manage interest
rate risk resulting from interest rate movements.
In accordance with applicable accounting principles, the Company's
interest rate swap agreements are held for purposes other than trading and
are further classified as either hedges or as investment contracts. Both
hedges and investment contracts have the potential for profit and loss.
Hedges are accounted for using the designation method, which matches the
swaps with the assets that are being hedged. When the designated asset
matures, or is sold, extinguished or terminated, the hedge would be
reclassified as an investment. Accounting principles dictate that those
contracts not meeting hedge criteria be classified as investments and
marked-to-market with any associated unrealized gain or loss recorded in
the financial statements, whereas those contracts meeting hedge criteria
are not to be classified as investments or marked-to-market in the
financial statements. On December 31, 1997 and December 31, 1996, the
investment contracts at market resulted in an unrealized gain of $123,013
and $444,257, respectively. The difference in the unrealized gain at
December 31, 1997 and December 31, 1996 is a decrease of $321,244 recorded
in the consolidated statement of operations for the twelve months ended
December 31, 1997.
The average notional amount of investment swaps outstanding during the
twelve months ended December 31, 1997, June 30, 1996 and June 30, 1995,
and for the six months ended December 31, 1996 was $45,750,000,
$142,750,00, $152,750,000, and $124,178,570, respectively.
Based on quoted market valuations, the estimated market value of the hedge
swaps at December 31, 1997 and December 31, 1996 was approximately $1.6
million and $1.9 million, respectively.
The following table summarizes the interest rate swap agreements in effect
at December 31, 1997. No funds were borrowed or are to be repaid under
these agreements:
<TABLE>
<CAPTION>
Current Interest
Rates Paid
Original
Company Bank Notional Expiration
Bank Payment Payment By Company By Bank Amount Date
<S> <C> <C> <C> <C> <C> <C>
Norwest Bank Minnesota, N.A. Floating Fixed 5.90625%(2) 5.29000% $15,000,000 09/16/98
Minneapolis, Minnesota
First Bank National Association Floating Fixed 6.10838%(3) 9.20000% $ 8,000,000(4) 06/16/99
Minneapolis, Minnesota (1)
LaSalle National Bank Floating Fixed 5.90625%(2) 6.34000% $ 5,400,000 03/21/01
Chicago, Illinois
Firstar Bank Milwaukee, N.A. Floating Fixed 6.05469%(2) 7.43500% $10,325,000(5) 09/28/01
Milwaukee, Wisconsin
LaSalle National Bank Floating Fixed 5.93750%(2) 7.60000% $ 5,000,000 03/10/05
Chicago, Illinois
LaSalle National Bank Floating Fixed 5.87500%(2) 6.66000% $ 5,250,000(6) 05/23/05
Chicago, Illinois
LaSalle National Bank Floating Fixed 5.90625%(2) 6.50000% $ 5,000,000(7) 09/29/05
Chicago, Illinois
LaSalle National Bank Floating Fixed 5.91797%(2) 7.09000% $12,500,000 09/05/06
Chicago, Illinois
(1) Investment Swap
(2) Adjusted every three months to the three-month LIBOR then in effect.
(3) Adjusted every month to the one-month LIBOR then in effect.
(4) The notional amount decreases by $83,333 each quarter and was $5,083,345 at December 31, 1997; $2,333,345 of this
contract was designated as a hedge; $2,750,000 was accounted for as an investment.
(5) The notional amount decreases by $166,667 each quarter and was $6,158,333 at December 31, 1997.
(6) The notional amount decreases by $100,000 each quarter and was $4,250,000 at December 31, 1997.
(7) The notional amount decreases by $75,000 each quarter and was $4,325,000 at December 31, 1997.
</TABLE>
As a result of hedge arrangements, the Company recognized a $1,193,877 and
$1,382,751, $1,193,506 and $732,066 reduction in interest expense for the
twelve months ended December 31, 1997, June 30, 1996 and June 30, 1995 and
for the six months ended December 31, 1996, respectively. In addition,
the Company recognized a $353,962, $412,129, $73,239 and $445,568
reduction in interest expense for the twelve months ended December 31,
1997, June 30, 1996 and June 30, 1995 and for the six months ended
December 31, 1996, respectively, as a result of the investment swap
contracts.
The Company may be susceptible to risk with respect to interest rate swap
agreements to the extent of nonperformance by the financial institutions
participating in the interest rate swap agreements. However, the Company
does not anticipate nonperformance by these counterparties.
NOTE 11 - MANDATORILY REDEEMABLE PREFERRED STOCK
On October 20, 1993, the Company issued 690,000 shares of Adjustable Rate
Cumulative Preferred Stock, Series A in a public offering at $25.00 per
share less an underwriting discount of $1.0625 per share and other
issuance costs amounting to $295,221. The preferred stock is redeemable,
in whole or in part at the option of the Company, on any dividend payment
date during the period from July 1, 2001 to June 30, 2003 and from July 1,
2006 to June 30, 2008 at $25 per share plus accrued and unpaid dividends.
Any shares of preferred stock not redeemed prior to July 1, 2008 are
subject to mandatory redemption on that date by the Company at a price of
$25 plus accrued dividends. Dividends on the preferred stock are paid
quarterly at the annual rate of 7.625% which is subject to adjustment
effective for the five year periods commencing July 1, 1998 and July 1,
2003. The adjusted dividend rate for each of the two five-year periods
will be a fixed dividend rate equal to the five year treasury rate plus
300 basis points. Through December 31, 1997, the Company purchased 15,209
shares for treasury.
Based on quoted market prices, the estimated fair market value of the
preferred stock outstanding as of December 31, 1997 was approximately
$16.2 million.
NOTE 12 - RETIREMENT PLANS
On September 8, 1997 the Company terminated its profit sharing plan and
money purchase plan. The Company continues to have an employee benefit
expense through the sharing of employees and expenses according to the
Agreement. (See Note 2.)
Prior to September 8, 1997 the Company maintained a profit sharing plan in
accordance with Section 401(k) of the Internal Revenue Code ("the Code")
and a money purchase plan covering all of its employees to provide for
their retirement. Participants in the 401(k) plan had elected to have the
Company make contributions to their accounts through payroll deductions
ranging from 2% to 10% of the participant's total cash compensation up to
the maximum amounts permitted by the Code. Contributions by the Company
to the 401(k) plan were dependent both upon the Company's earnings and
upon decisions made by the Compensation Committee of the Board of
Directors. The Company was obligated to make contributions to its money
purchase plan in amounts equal to 5% of each participant's total cash
compensation. All contributions were funded annually. Expense for
Company contributions to the 401(k) or money purchase plans for the twelve
months ended December 31, 1997, June 30, 1996 and June 30, 1995 were
$38,413, $56,407 and $47,826, respectively. In addition, the expense for
the Company for the six months ended December 31, 1996 was $29,180.
During 1997 the Company provided an additional supplemental retirement
benefit for an executive officer, such benefit totaled $38,347 for the
twelve months ended December 31, 1997. In the prior periods this benefit
was given to two executive officers. The benefits paid during the six
months ended December 31, 1996 and the fiscal year ended June 30, 1996
were $71,683 and $194,882, respectively. The Company paid nothing for the
year ended June 30, 1995. The payments were made in the sole discretion
of the outside members of the Board of Directors.
NOTE 13 - STOCK OPTION PLANS
The Company has four stock option plans, the 1987 Stock Option Plan, the
1990 Stock Option Plan, the 1993 Stock Option Plan and the 1997 Stock
Option Plan (the "Plans"). In accordance with the Plans' provisions, the
exercise prices for stock options may not be less than the fair market
value of the optioned stock at the date of grant. The exercise price of
all options granted was equal to the market value of the stock on the date
of grant. All of the options, except for the options granted under the
1997 Stock Option Plan, are "incentive stock options" as defined under
Section 422 of the Code. Options granted under the 1997 Stock Option Plan
are considered "non-qualified stock options" as defined by the Code. All
options must be exercised within ten years of the date of grant.
Additional information relating to the Plans is shown below:
<TABLE>
<CAPTION>
For the twelve months For the twelve months For the twelve months
Stock Option Plans ended December 31, 1997 ended June 30, 1996 ended June 30, 1995
Average Average Average
Number Option Number of Option Number of Option
of Price Options Price Options Price
Options
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January
1, 1997, July 1, 1995 and 1994
respectively 169,424 $10.45 147,144 $ 9.92 149,551 $ 8.92
Options granted 189,450 12.90 22,500 11.00 30,000 14.50
Options exercised (45,796) 7.35 (15,720) 7.05 (16,157) 7.07
Options terminated
unexercised (107,208) 11.70 - - (16,250) 12.00
Options outstanding at
December 31, 1997, June 30,
1996 and June 30, 1995,
respectively 205,870 12.73 153,924 10.37 147,144 9.92
Options available for grant at
December 31, 1997, June 30,
1996 and June 30, 1995,
respectively 173,188 - 70,930 - 93,430 -
Total Reserved Shares 379,058 - 224,854 - 240,574 -
Options exercisable at
December 31, 1997, June 30,
1996 and June 30, 1995,
respectively 187,950 $12.94 46,780 $ 8.58 47,968 $ 7.66
</TABLE>
<TABLE>
<CAPTION>
For the six months ended For the six months ended
Stock Option Plans December 31, 1996 December 31, 1995
(Unaudited)
Average Average
Number of Option Number of Option
Options Price Options Price
<S> <C> <C> <C> <C>
Options outstanding at
July 1, 1996 and 1995,
respectively 153,924 $10.37 147,144 $ 9.92
Options granted 15,500 11.25 - -
Options exercised - - (15,720) 7.05
Options terminated
unexercised - - - -
Options outstanding at
December 31, 1996 and
1995, respectively 169,424 10.45 131,424 10.26
Options available for
grant at December 31, 1996
and 1995, respectively 55,430 - 93,430 -
Total reserved shares 224,854 - 224,854 -
Options exercisable at
December 31, 1996 and
1995, respectively 46,780 $ 8.58 32,248 $ 7.96
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Remaining Average
Exercise Price Average Life Exercise Exercise
Range Shares (years) Price Shares Price
<S> <C> <C> <C> <C> <C>
$6.50-8.50 10,920 2.9 $ 8.00 - -
$11.00-$14.50 194,950 9.1 $13.00 187,950 $12.94
Total 205,870 8.8 $12.73 187,950 $12.94
</TABLE>
The Company adopted the disclosure only option under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." If the accounting provisions of the new statement had been
adopted as of July 1, 1995, the effect on net income would have been
immaterial.
NOTE 14 - EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." All prior-period
earnings per share data has been restated in accordance with SFAS 128.
Basic earnings per share is computed by dividing net income available to
common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
giving effect to all dilutive potential common shares. A reconciliation
of the income and shares issued in computing the basic and diluted
earnings per share for the years ended December 31, 1997, June 30, 1996
and 1995, and the six month periods ended December 31, 1996 and 1995,
respectively, are as follows:
For the Twelve Months Ended
December 31, June 30, 1996 June 30, 1995
1997
Net income $ 3,506,380(1) $ 3,129,972(1) $ 3,208,170(1)
Determination of
shares:
Weighted
average common
shares outstanding
(basic) 3,685,990 3,812,131 3,916,315
Assumed conversion of
stock options 11,597 27,354 43,925
Weighted average
common shares
outstanding (diluted) 3,697,587 3,839,485 3,960,240
Basic earnings per
share $ 0.95 $ 0.82 $ 0.82
Diluted earnings per
share $ 0.95 $ 0.82 $ 0.81
For the Six Months Ended
December 31,
1996 1995
(Unaudited)
Net income $ 1,141,960(1) $ 1,848,351(1)
Determination of
shares:
Weighted average
common shares
outstanding
(basic) 3,689,094 3,895,070
Assumed conversion
of stock options 22,261 30,180
Weighted average
common shares
outstanding
(diluted) 3,711,355 3,925,250
Basic earnings per
share $ 0.31 $ 0.47
Diluted earnings per
share $ 0.31 $ 0.47
(1) Net income includes the preferred stock dividend that was expensed
during those periods. The preferred stock dividend was $1,286,320
for the twelve months ended December 31, 1997 and June 30, 1996 and
$1,297,286 for the twelve months ended June 30, 1995. For the six
months ended December 31, 1996 and 1995 the preferred stock dividend
was $643,160.
NOTE 15 - INCOME TAXES
Taxes on income consist of the following:
Twelve Months ended Six Months ended
December
31, June 30, December 31,
1997 1996 1995 1996 1995
Current (Unaudited)
Federal $1,311,496 $- $- $ 860,201 $ -
State 227,126 - - 40,288 -
1,538,622 - - 900,489 -
Deferred
Federal 642 (35,074) (49,665) (55,102) -
State - - - (1,125) -
642 (35,074) (49,665) (56,227) -
Taxes on
income $1,539,264 $(35,074) (49,665) $844,262 $-
A reconciliation of the statutory federal income tax rate and the
effective tax rate as a percentage of income before taxes is as follows:
Twelve Months ended Six Months ended
December
31, June 30, December 31,
1997 1996 1995 1996 1995
(Unaudited)
Federal
Statutory
rate 34.0% 34.0% 34.0% 34.0% 34.0%
State income
taxes, net
of federal
tax benefits 2.3 - - 0.4 -
Income
passed
through to
shareholders (15.1) (35.4) (34.7) (10.2) (33.7)
Loss not
benefited 3.2 5.5 1.4 3.1 3.0
Equity in
(earnings)
loss of
subsidiary - (3.9) 1.2 - (3.3)
Other 0.6 (1.3) (3.5) 5.7 0.0
25.0% (1.1)% (1.6)% 33.0% -
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities, which were classified in other assets and other
liabilities in the Consolidated Balance Sheet, included:
December 31,
1997 1996
Deferred tax assets:
Accrued expenses and reserves $195,100 $106,421
Net operating loss carryforwards 584,600 612,145
779,700 718,566
Valuation allowance (584,600) (476,344)
195,100 242,222
Deferred tax liabilities
Depreciation (5,290) (51,770)
Net deferred tax assets $189,810 $190,452
The valuation allowance represents net operating loss carryforwards for
which utilization is uncertain. A portion of the deferred income tax
assets may be realized through carrybacks with the remainder dependent
on future income. Management believes that sufficient income will be
earned in the future to realize the remaining net deferred income tax
assets. The increase in the valuation allowance is a result of the
increased deferred tax asset associated with the net operating loss
carryforwards.
NOTE 16 - DISTRIBUTIONS
For the year ended December 31, 1997, the Company's board of directors
declared the following common stock distributions:
For the
year ended
December 31,
1997
Total distributions $ 8,150,055
Distributions per share (tax basis):
Ordinary income $0.61
Capital gains -
Return of capital 1.67
Total distributions declared per
share 2.28
Distribution in cash 0.61
Distribution in stock 1.67
NOTE 17 - SEGMENT INFORMATION
<TABLE>
<CAPTION>
Lending Manufacturing
Operations Operations Eliminations Consolidated
<S> <C> <C> <C> <C>
TOTAL REVENUES
Twelve months ended December 31, 1997 $12,250,149 $19,065,022 $(330,811) $30,984,360
Twelve months ended June 30, 1996 9,054,401 1,693,976 (131,150) 10,617,227
Twelve months ended June 30, 1995 10,596,534 1,251,151 (109,364) 11,738,321
Six months ended December 31, 1996 3,961,673 7,343,481 (365,564) 10,939,590
Six months ended December 31, 1995(1) 4,757,116 1,034,556 (65,969) 5,725,703
NET OPERATING INCOME BEFORE INCOME
TAXES AND MINORITY INTEREST
Twelve months ended December 31, 1997 $ 2,714,995 $ 3,413,012 $ - $ 6,128,007
Twelve months ended June 30, 1996 3,224,708 (129,810) - 3,094,898
Twelve months ended June 30, 1995 3,219,988 (61,483) - 3,158,505
Six months ended December 31, 1996 768,108 1,791,485 - 2,559,593
Six months ended December 31, 1995(1) 1,830,733 17,618 - 1,848,351
NET INCOME
Twelve months ended December 31, 1997 $ 2,707,898 $ 798,482 $ - $ 3,506,380
Twelve months ended June 30, 1996 3,224,708 (94,736) - 3,129,972
Twelve months ended June 30, 1995 3,219,988 (11,818) - 3,208,170
Six months ended December 31, 1996 768,108 373,852 - 1,141,960
Six months ended December 31, 1995(1) 1,830,733 17,618 - 1,848,351
ASSETS
December 31, 1997 $135,993,230 $8,636,647 $(4,292,647) $140,337,230
December 31, 1996 77,179,905 6,032,672 (3,693,179) 79,519,398
</TABLE>
(1) Unaudited
<PAGE>
NOTE 18 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters Ended
(In thousands, except per share data)
December September June March
31, 30, 30, 31,
1997 1997 1997 1997
Total revenues $9,629 $7,920 $7,993 $5,442
Net operating income
before income taxes
and minority interest 1,277 1,653 2,153 1,045
Net income 720 853 1,303 630
Basic earnings per share $ 0.20 $ 0.23 $ 0.35 $ 0.17
Diluted earnings per share $ 0.20 $ 0.23 $ 0.35 $ 0.17
December September June March
31, 30, 30, 31,
1996* 1996* 1996* 1996*
Total revenues $6,311 $4,629 $2,538 $2,353
Net operating income
before income taxes
and minority interest 995 1,565 518 729
Net income 167 975 533 749
Basic earnings per share $ 0.05 $ 0.26 $ 0.14 $ 0.20
Diluted earnings per share $ 0.04 $ 0.26 $ 0.14 $ 0.20
*Restated - See Note 1.
NOTE 19- BANDO McGLOCKLIN CAPITAL CORPORATION (PARENT ONLY)
Pursuant to covenants contained in its debt agreements, BMSBLC
is prohibited from declaring or paying any dividend on its common stock
which would constitute a return-of-capital dividend for income tax
purposes. The Company's balance sheet as of December 31, 1997 and 1996
and related statements of operations and cash flows for the years ended
December 31, 1997, June 30, 1996 and 1995 and the six months ended
December 31, 1996 and 1995 on an unconsolidated basis follow.
Bando McGlocklin Capital Corporation
Balance Sheets (Parent Only)
December 31,
1997 1996
Assets
Loans $ 1,600,000 $ 5,838,861
Loan-backed certificates - 1,988,056
Less: Retained loan discount (48,875) (507,197)
Investments in BMSBLC 26,236,596 24,187,906
Investments in other subsidiaries 1,126,677 335,290
Investments 28,914,398 31,842,916
Other assets - net 757,750 1,577,997
Total Assets $29,672,148 $33,420,913
Liabilities
Loan participations with repurchase $ 1,600,000 $ -
options
Other liabilities 421,321 873,187
Total Liabilities 2,021,321 873,187
Preferred stock 16,908,025 16,908,025
Shareholders' Equity
Common stock 266,769 263,716
Additional paid-in capital 13,671,947 19,498,326
Retained earnings/(deficit) 656,597 (859,728)
Treasury stock, at cost (3,852,511) (3,262,613)
Total Shareholders Equity 10,742,802 15,639,701
Total Liabilities,
Preferred Stock, Common
Stock & Other
Shareholders' Equity $29,672,148 $33,420,913
Bando McGlocklin Capital Corporation
Statements of Operations (Parent Only)
For the Years Ended
December 31, June 30,
1997 1996 1995
Revenues:
Interest on loans $ 551,793 $1,071,037 $1,208,168
Equity in income of BMSBLC 4,791,300 4,792,902 4,429,445
Equity in income of other
subsidiaries 798,482 146,110 234,679
Other income 881,967 168,762 103,741
Total Revenues 7,023,542 6,178,811 5,976,033
Expenses:
Interest expense 1,443,739 1,358,422 1,392,218
Salaries and employee
benefits 916,574 1,081,106 760,896
Other operating expenses 1,156,849 609,311 614,749
Total Expenses 3,517,162 3,048,839 2,767,863
Net Income $3,506,380 $3,129,972 $3,208,170
For the Six Months Ended
December 31,
1995
1996 (Unaudited)
Revenues:
Interest on loans $ 477,729 $ 613,782
Equity in income of BMSBLC 2,018,071 2,615,094
Equity in income of other subsidiaries 425,944 47,879
Other income 23,051 64,055
Total Revenues 2,944,795 3,340,810
Expenses:
Interest expense 667,908 691,788
Salaries and employee benefits 601,361 510,368
Other operating expenses 533,566 290,303
Total Expenses 1,492,459
1,802,835
Net operating income before minority 1,848,351
interest 1,715,331
Minority interest -
(573,371)
Net Income $1,141,960 $1,848,351
Bando McGlocklin Capital Corporation
Statements of Cash Flows (Parent Only)
For the For the Twelve Months
Twelve Ended June 30,
Months Ended
December 31,
1997 1996 1995
Cash Flows from Operating
Activities:
Net income $3,506,380 $3,129,972 $3,208,170
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Equity in subsidiaries' (5,693,211) (4,939,012) (4,664,124)
earnings
Dividends from subsidiaries 2,846,038 4,677,698 4,889,884
Other (162,070) 53,794 (236,814)
Net Cash Provided by 497,137 2,922,452 3,197,116
Operations
Cash Flows from Investing
Activities:
Loans made - (2,951,633) (4,054,913)
Principal collected on 6,226,917 1,658,743 1,376,500
loans
Loans sold - 11,173,648 8,685,504
Certificate purchased from - (1,213,315) (1,294,198)
trust
Loans purchased - (4,767,544) -
Proceeds from maturity of - - 2,245,000
securities
Increase in note receivable - (543,689) (746,171)
from subsidiary
Other (235,290) 110,291 (7,328)
Net Cash Provided by 5,991,627 3,466,501 6,204,394
Investing Activities
Cash flows from Financing
Activities:
Proceeds from loan 1,600,000 - -
participations with
repurchase options - net
Decrease in other notes - - (3,600,000)
payable
Capitalization & (6,160,000) - -
distribution of
InvestorsBank
Dividends paid (1,990,055) (3,678,476) (3,921,244)
Repurchase of common stock (589,898) (2,696,363) (566,250)
Common stock investment in - - (999,000)
subsidiaries
Other 336,674 110,760 (227,718)
Net Cash Used in Financing (6,803,279) (6,264,079) (9,314,212)
Activities
Net (decrease) increase in (314,515) 124,874 87,298
cash
Cash, beginning of year 341,725 103,379 16,081
Cash, end of year $ 27,210 $ 228,253 $ 103,379
Bando McGlocklin Capital Corporation
Statements Cash Flows - continued (Parent Only)
For the Six Months Ended
December 31,
1996 1995
Cash Flows from Operating Activities:
Net income $1,141,960 $1,848,351
Other adjustments to reconcile net
income to net cash (used) by
operating activities:
Equity in subsidiaries' earnings (2,444,015) (2,662,973)
Dividends from subsidiaries 3,857,425 2,418,731
Other 439,316 812,901
Net Cash Provided by Operations 2,994,686 2,417,010
Cash Flows from Investing Activities:
Loans made (5,269,882) (630,149)
Principal collected on loans 631,872 233,092
Loans sold 4,340,001 8,666,538
Certificate purchased from trust - (1,213,315)
Loans purchased - (4,767,544)
Proceeds from maturity of securities - 250,000
Decrease (increase) in note receivable
from subsidiary 1,087,443 (1,054,120)
Other - (27,040)
Net Cash Provided by Investing Activities 789,434 1,457,462
Cash Flows from Financing Activities:
Dividends paid (3,670,648) (1,876,173)
Repurchase of common stock - (1,234,045)
Other - 110,760
Net Cash Used in Financing Activities
(3,670,648) (2,999,458)
Net increase in cash 113,472 875,014
Cash, beginning of period 228,253 103,379
Cash, end of period $ 341,725 $ 978,393
<PAGE>
Schedule I
Condensed Financial Information of Registrant
(Refer to footnote 19 of the financial statements)
Schedule II
Valuation and Qualifying Accounts
Changes in the reserves deducted from assets in the consolidated balance
sheet other than accumulated depreciation for the years ended December 31,
1997 and June 30, 1996 and 1995, respectively and for the six months ended
December 31, 1996 and 1995, respectively.
Charges for
Additions purposes for
Reserve for loan Beginning charged which reserve Ending
losses: balance to Income was created balance
Year ended:
December 31, 1997 $450,000 $ 6,335 $ 6,335 $450,000
June 30, 1996 51,943 (10,501) 2,651 38,791
June 30, 1995 124,036 (72,093) - 51,943
Six months ended:
December 31, 1996 38,791 411,209 - 450,000
December 31, 1995(1) 51,943 (10,501) - 41,442
Charges for
Additions purposes for
Reserve for doubtful Beginning charged which reserve Ending
accounts: balance to Income was created balance
Year ended:
December 31, 1997 $ 98,083 $170,713 $ - $268,796
June 30, 1996 2,450 58,377 - 60,827
June 30, 1995(2) 2,450 - - 2,450
Six months ended:
December 31, 1996 60,827 37,256 - 98,083
December 31, 2,450 - - 2,450
1995(1)(2)
(1) Unaudited.
(2) These periods include only License Products reserve for doubtful
accounts.
Schedule IV
Mortgage Loans on real estate
<TABLE>
<CAPTION>
Principal
amount of
loans
subject
Carrying to
Face amount of delinquent
Periodic Amount Mortgages as Principal
Final Payment Prior of of December or
Description Interest Rate Maturity Date Terms Liens Mortgages 31, 1997 Interest(1)
<S> <C> <C> <C> <C> <C> <C> <C>
Residential
1st Mortgage 7.75% to 10.99% 09/01/98 to 11/01/27 N/A N/A N/A $1,710,576
2nd Mortgage 8.50% to 11.00% 06/01/98 to 05/01/11 N/A N/A N/A 1,058,952
Construction 6.75% to 8.13% 05/01/98 to 09/01/27 N/A N/A N/A 1,423,364
Total Residential 4,192,892
Commercial
1st Mortgage 7.18% to 12.00% 04/01/98 to 01/01/16 N/A N/A N/A $106,308,327 $816,214
2nd Mortgage 8.25% to 12.00% 01/01/99 to 09/01/07 N/A N/A N/A 6,868,048 65,049
3rd Mortgage 9.50% to 11.50% 05/01/02 to 11/01/07 N/A N/A N/A 1,123,396
Construction 8.75% to 9.25% 01/01/07 to 05/01/07 N/A N/A N/A 3,497,929
Total Commercial 117,797,700
All others(2) N/A N/A N/A N/A N/A 9,044,653
Total loans(3) $131,035,245
Footnotes to Schedule IV:
(1) Delinquent is defined as 90 days or more past due.
(2) This category includes all non-mortgage loans on the balance sheet.
(3) No individual mortgage loan exceeded 3% of the total carrying value of mortgages.
</TABLE>
<TABLE>
Reconciliation of Loans on the Balance Sheet
<CAPTION>
06/30/95
12/31/96 06/30/95 06/30/94 06/30/96 to
to to to to 12/31/95
12/31/97 06/30/96 06/30/95 12/31/96 (Unaudited)
<S> <C> <C> <C> <C> <C>
Loans on balance sheet,
beginning of period(1) $71,456,347 $86,571,594 $103,190,073 $76,468,459 $86,571,594
Additions during period:
Loans made 53,759,887 42,745,527 39,318,018 23,729,026 23,003,932
Loans purchased 49,647,182 - - - -
Certificate purchased from trust - 1,213,315 1,294,198 - 1,213,315
Deductions during period:
Principal collected on loans 43,821,836 23,881,211 23,586,361 13,600,355 14,094,074
Loans sold - 28,087,037 33,644,334 15,140,783 15,400,490
Principal charged off 6,335 2,651 - - -
Consolidation of Middleton Doll - 2,091,078 - - -
Loans on balance sheet, end of period(1) $131,035,245 $76,468,459 $86,571,594 $71,456,347 $81,294,277
(1) Loans on balance sheet includes Loan-backed certificates where applicable.
</TABLE>
<PAGE>
Part III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable because required information has been previously
reported as that term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended. Reference should be made to a report on
Form 8-K filed by the Company on December 30, 1997 regarding change in
accountants.
Item 10. Directors and Executive Officers of the Registrant
Pursuant to Instruction G, the information required by this item
(with respect to directors of the registrant) is incorporated herein by
reference from the Company's definitive Prosy Statement involving the
election of directors. The information with respect to executive officers
of the Company has been included in Part I hereof. The definitive proxy
statement will be filed with the Securities and Exchange Commission within
120 days after the end of the Company's fiscal year.
Item 11. Executive Compensation
Pursuant to Instruction G, information required by this item is
hereby incorporated by reference from the Company's definitive proxy
statement for its 1998 annual meeting of shareholders under the caption
"Board of Directors-Director Compensation" and "Executive Compensation";
provided, however, that the subsection entitled "Executive Compensation-
Report on Executive Compensation" shall not be deemed to be incorporated
herein by reference. The definitive proxy statement will be filed with
the Securities and Exchange Commission within 120 days after the end of
the Company's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Pursuant to Instruction G, information required by this item is
hereby incorporated by reference from the Company's definitive proxy
statement for its 1998 annual meeting of shareholders under the caption
"Principal Shareholders". The definitive proxy statement will be filed
with the Securities and Exchange Commission within 120 days after the end
of the Company's fiscal year.
Item 13. Certain Relationships and Related Transactions
Pursuant to Instruction G, information required by this item is
hereby incorporated by reference from the Company's definitive proxy
statement for its 1998 annual meeting of shareholders under the caption
"Related Party Transactions". The definitive proxy statement will be
filed with the Securities and Exchange Commission with 120 days after the
end of the Company's fiscal year.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. Exhibits
Reference is made to the separate exhibit index contained on
pages I-1 through I-2 hereof.
2. Financial Statements and Financial Statement Schedules
Reference is made to the separate index in Item 8 of this Annual
Report on Form 10-K with respect to the financial statements and
schedules filed herewith.
3. Reports on Form 8-K
A Report on Form 8-K was filed by the Company dated December 30,
1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on March 30, 1998.
BANDO McGLOCKLIN CAPITAL
CORPORATION
By: /s/ George R. Schonath
George R. Schonath,
President and Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities indicated on March 30, 1998.
Signature Title
/s/ George R. Schonath President and Chief Executive Officer
George R. Schonath (Principal Financial Officer)
/s/ Susan J. Hauke Vice President Finance
Susan J. Hauke (Principal Accounting Officer)
/s/ Robert A. Cooper Director
Robert A. Cooper
/s/ Peter A. Fischer Director
Peter A. Fischer
/s/ David A. Geraldson, Sr. Director
David A. Geraldson, Sr.
/s/ Albert O. Nicholas Director
Albert O. Nicholas
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Description
3.1 Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 to the Company's Form 10-Q for
the quarterly period ended March 31, 1997).
3.2 By-laws (incorporated by reference to Exhibit 3.2 to the
Company's Form 10-Q for the quarterly period ended
March 31, 1997).
4.1 Loan and Security Agreement, dated March 11, 1998, by and
between Firstar Bank Milwaukee and Bando McGlocklin
Capital Corporation.
4.2 Amended and Restated Loan Agreement dated as of June 28,
1996 between First Bank (N.A.) and Bando McGlocklin Small
Business Investment Corporation (incorporated by reference
to Exhibit 4.1 to the Company's Form 10-Q for the
quarterly period ended March 31, 1997).
4.3 Modification Agreement dated as of October 31, 1996
between First Bank (N.A.) and Bando McGlocklin Small
Business Investment Corporation (incorporated by reference
to Exhibit 4.1 to the Company's Form 10-Q for the
quarterly period ended March 31, 1997).
4.4 Loan Agreement dated as of June 28, 1996 between LaSalle
National Bank and Bando McGlocklin Small Business
Investment Corporation (incorporated by reference to
Exhibit 4.2 to the Company's Form 10-Q for the quarterly
period ended March 31, 1997).
4.5 First Amendment to Loan Documents dated as of December 2,
1996 by LaSalle National Bank and Bando McGlocklin
(incorporated by reference to Exhibit 4.3 to the Company's
Form 10-Q for the quarterly period ended March 31, 1997).
4.6 First Amendment to Amended and Restated Loan Agreement
dated as of October 31, 1996 between Firstar Bank
Milwaukee, N.A. and Bando McGlocklin Small Business
Investment Corporation (incorporated by reference to
Exhibit 4.4 to the Company's Form 10-Q for the quarterly
period ended March 31, 1997).
4.7 First Amendment to Amended and Restated Loan Agreement
dated as of October 31, 1996 between Firstar Bank
Milwaukee, N.A. and Bando McGlocklin Small Business
Investment Corporation (incorporated by reference to
Exhibit 4.5 to the Company's Form 10-Q for the quarterly
period ended March 31, 1997).
4.8 Second Amendment to Amended and Restated Loan Agreement
dated as of May 14, 1997 between Firstar Bank Milwaukee,
N.A. and Bando McGlocklin Small Business Investment
Corporation (incorporated by reference to Exhibit 4.6 to
the Company's Form 10-Q for the quarterly period ended
March 31, 1997).
4.9 Master Note Purchase Agreement dated as of January 1, 1997
between the State of Wisconsin Investment Board, Bando
McGlocklin Small Business Lending Corporation and Bando
McGlocklin Capital Corporation (incorporated by reference
to Exhibit 4.7 to the Company's Form 10-Q for the
quarterly period ended March 31, 1997).
10.1 Bando McGlocklin Capital Corporation 1987 Incentive Stock
Option Plan (incorporated by reference to Exhibit 7.3 to
the Company's Form N-5 Registration Statement,
Registration No. 33-12939).
10.2 Bando McGlocklin Capital Corporation 1990 Incentive Stock
Option Plan (incorporated by reference to Exhibit 7.4 to
the Company's Form N-5 Registration Statement,
Registration No. 33-51406).
10.3 Bando McGlocklin Capital Corporation 1993 Incentive Stock
Option Plan (incorporated by reference to Exhibit (i)(6)
to the Company's Pre-Effective Amendment No. 1 to Form N-2
Registration Statement, Registration No. 33-66258).
10.4 Bando McGlocklin Capital Corporation 1997 Stock Option
Plan (incorporated by reference to Exhibit 10.4 to the
Company's Form 10-Q for the quarterly period ended march
31, 1997).
10.5 Management Services and Allocation of Expenses Agreement,
dated September 2, 1997, by and between InvestorsBank and
Bando McGlocklin Capital Corporation.
21 List of subsidiaries of Bando McGlocklin Capital
Corporation
27 Financial Data Schedule (with EDGAR filing only)
27.1 Revised Financial Data Schedule for the Quarter Ended
September 30, 1997
27.2 Revised Financial Data Schedule for the Qurater Ended
June 30, 1997
27.3 Revised Financial Dat Schedule for the Qurater Ended
March 31, 1997
99 Proxy Statement for 1998 Annual Meeting of Shareholders
The Proxy Statement for the 1998 Annual Meeting of
Shareholders will be filed with the Securities and
Exchange Commission under Regulation 14A within 120 days
after the end of the Company's fiscal year; except to the
extent incorporated by reference, the Proxy statement for
the 1998 Annual Meeting of Shareholders shall not be
deemed to be filed with the Securities and Exchange
Commission as part of this Annual Report on Form 10-K
Exhibit 4.1
CREDIT AGREEMENT
AMONG
BANDO MCGLOCKLIN SMALL BUSINESS LENDING CORPORATION,
THE FINANCIAL INSTITUTIONS PARTIES HERETO
AND
FIRSTAR BANK MILWAUKEE, N.A.,
AS AGENT
DATED AS OF MARCH 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions 1
2. The Credit Facilities; Fees
2.1 Revolving Loans 14
2.2 Interest Rate Option 15
2.3 Borrowing Procedure for Revolving Loans 16
2.4 Continuation and Conversion Procedure 17
2.5 Commitment Fee 18
2.6 Reduction or Termination of Revolving
Loan Commitment 18
2.7 Interest Rates 19
2.8 Payments 19
2.9 Prepayments 20
2.10 Additional LIBOR Rate Loan Provisions 20
2.11 Setoff 21
2.12 Pro Rata Treatment; Sharing of Payments 21
2.13 Capital Adequacy 22
2.14 Yield Protection 23
2.15 Other Fees 23
3. Representations and Warranties
3.1 Organizations, Subsidiaries; Corporate Power; REIT Status 24
3.2 Authorization and Binding Effect 24
3.3 Financial Statements 24
3.4 Litigation 25
3.5 Restricted Payments 25
3.6 Indebtedness; No Default 25
3.7 Ownership of Properties; Liens and Encumbrances 25
3.8 Tax Returns Filed 26
3.9 Margin Stock 26
3.10 Investment Company 26
3.11 ERISA Liabilities 26
3.12 No Burdensome Agreements 27
3.13 Trademarks, Etc. 27
3.14 Dump Sites 27
3.15 Tanks 27
3.16 Other Environmental Conditions 27
3.17 Changes in Laws 27
3.18 Environmental Judgments, Decrees and Orders 28
3.19 Environmental Permits and Licenses 28
3.20 Year 2000 28
3.21 Accuracy of Information 28
4. Conditions for Borrowing
4.1 On or Before the Closing Date 28
4.2 On or Before Each Subsequent Borrowing Date 30
5. Affirmative Covenants
5.1 Monthly Financial Statement 31
5.2 Other Financial Information 31
5.3 Books and Records; Inspection 31
5.4 Insurance 31
5.5 Condition of Property 32
5.6 Payment of Taxes 32
5.7 Compliance with Law 32
5.8 ERISA Certificate 32
5.9 Compliance with Other Loan Documents 33
5.10 Notice of Default or Claimed Default 33
5.11 Deposit Accounts 34
6. Negative Covenants
6.1 Restricted Payments 34
6.2 Limitations on Indebtedness 34
6.3 Limitations on Contingent Obligations 34
6.4 Limitation on Liens and Encumbrances 34
6.5 Limitation on Mergers, Etc. 34
6.6 Limitation on Acquisitions, Advances and
Investments 34
6.7 Lines of Business 35
6.8 Sale and Leaseback 35
6.9 Adjusted Tangible Net Worth 35
6.10 Leverage Ratio 35
6.11 Nonperforming Loans 35
6.12 Third Party Loan Concentration 35
6.13 Net Earnings 35
6.14 Lease Portfolio Coverage Ratio 35
6.15 Transactions with Affiliates 35
6.16 Concessions to Borrowers 36
7. Events of Default
7.1 Events of Default 36
7.2 Remedies 37
7.3 Revolving Loans to Retire Commercial Paper 38
8. The Agent
8.1 Appointment and Duties of Agent 39
8.2 Discretion and Liability of the Agent 39
8.3 Notice of Default 39
8.4 Consultation 40
8.5 Communications To and From the Agent 40
8.6 Limitations of Agency 40
8.7 No Representation or Warranty 40
8.8 Lender Credit Decision 40
8.9 Indemnity 41
8.10 Resignation or Removal of Agent; Successor
Agent 41
9. Miscellaneous
9.1 Survival of Representations and Warranties 42
9.2 Indemnification 42
9.3 Expenses 43
9.4 Notices 43
9.5 Participations 43
9.6 Titles 44
9.7 Parties Bound; Waiver 44
9.8 Governing Law 44
9.9 Submission to Jurisdiction; Service of
Process 44
9.10 Waiver of Jury Trial 45
9.11 Limitation of Liability 45
9.12 Amendments 45
9.13 Counterparts 46
9.14 Entire Agreement 46
Schedules
Schedule 1: Existing Liens and Security Interests
Schedule 3.1: Subsidiaries
Schedule 3.4: Litigation
Schedule 3.20: Year 2000 Compliance
Schedule 6.2: Existing Indebtedness
Schedule 6.3: Existing Contingent Obligations
Schedule 6.12: Third Party Loan Concentration
Exhibits
Exhibit A: Form of Revolving Note
Exhibit B: Form of Notice of Borrowing
Exhibit C: Form of Conversion/Continuation Notice
Exhibit D: Form of Borrowing Base Certificate
Exhibit E: Form of Compliance Certificate
Exhibit F: Form of Opinion of Company Counsel
Exhibit G: Form of Parent Guaranty
Exhibit H: Form of Collateral Custodian Agreement
Exhibit I: Form of Notice Regarding Nonperforming Loan
Exhibit J: Form of Notice Regarding Nonperforming Lease
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 11, 1998, is among
BANDO MCGLOCKLIN SMALL BUSINESS LENDING CORPORATION, a Wisconsin
corporation (the "Company"), the financial institutions parties hereto
(individually a "Lender" and collectively the "Lenders") and FIRSTAR BANK
MILWAUKEE, N.A., as agent for the Lenders (in such capacity, the "Agent").
The parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Adjusted LIBOR Rate" means, with respect to a LIBOR Rate
Loan for the relevant Interest Period, a rate per annum (rounded upward,
if necessary, to the next higher 1/16 of 1%) determined according to the
following formula:
Adjusted LIBOR Rate = LIBOR Rate
1.00 - LIBOR Reserve Requirement
"Adjusted Tangible Assets" means, with respect to the
Company on any date of determination, all assets except: (a) trademarks,
tradenames, franchises, goodwill, and other similar intangibles;
(b) assets located and notes and receivables due from obligors domiciled
outside the United States of America, Puerto Rico, or Canada; and
(c) accounts, notes, and other receivables due from Affiliates or
employees.
"Adjusted Tangible Net Worth" means, with respect to the
Company on any date of determination, the remainder of (a) net book value
(after deducting related depreciation, obsolescence, amortization and
other proper reserves) at which the Adjusted Tangible Assets of the
Company would be shown on a balance sheet of the Company at such date, but
excluding any amounts arising from write-ups of assets, minus (b) the
amount at which the Company's liabilities (other than preferred stock,
capital stock, surplus, and retained earnings) would be shown on such
balance sheet, and including as liabilities all reserves for contingencies
and other potential liabilities.
"Affiliate" of any Person means any other Person, directly
or indirectly controlling, controlled by or under common control with such
Person. A Person shall be deemed to control another Person if the
controlling Person owns 10% or more of any class of voting securities (or
other ownership interests) of the controlled Person or possesses, directly
or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether by ownership of
stock (or other ownership interests), by contract or otherwise. Although
not Affiliates within the definition of this term, for purposes of this
Agreement, Lee Middleton Original Dolls, Inc. and Licensed Products, Inc.
shall be deemed Affiliates.
"Applicable Margin" means (a) in the case of Base Rate
Loans, 0% and (b) in the case of LIBOR Rate Loans, 1.375%.
"Applicable Percentage" means, with respect to each Third
Party Loan, (a) 100% in the case of a Third Party Loan which is totally
owned and funded by the Company and with respect to which the Company has
neither assigned such loan nor granted a participation interest therein,
(b) 0% in the case of either (i) a Third Party Loan for which the Company
has sold a 50% or greater participation interest to a third party or (ii)
a Third Party Loan for which the Company has sold a participation interest
to a third party and such third party is entitled to receive principal and
interest payments on a preferential basis and (c) in all other cases, the
Applicable Percentage shall be the percentage interest in such Third Party
Loan retained by the Company.
"Appraised Value" means the fair market value of real
property securing a Third Party Loan or constituting Eligible Leased Real
Estate as determined by an MAI appraiser acceptable to the Agent in a
written appraisal which satisfies all regulatory requirements applicable
to the Lenders; provided, however, that in each circumstance in which the
Appraised Value exceeds $1,000,000 or for an appraisal of property
securing a Nonperforming Loan, such appraisal shall be reviewed by the
Agent and if the Agent, in its reasonable judgment, determines that the
value of such real property is less that the amount shown in the
applicable appraisal, then the Appraised Value shall be such lesser amount
determined by the Agent; provided, further, that in the case of a
Nonperforming Loan, the Appraised Value shall be $0 until the date the
Agent receives a new appraisal of the relevant real property, or the
Company and the Majority Lenders otherwise agree.
"Base Rate" means, for any day, the Prime Rate in effect
for such day.
"Base Rate Loan" means a Revolving Loan that bears interest
at a rate determined by reference to the Base Rate.
"Borrowing Base Amount" means, on each date of
determination, an amount equal to the sum of:
(a) the Owner-Occupied Real Estate Loan Borrowing Base
Amount;
(b) the Leased Real Estate Borrowing Base Amount;
(c) the lesser of (i) 80% of the Applicable Percentages of
the outstanding principal balances of Eligible Current Asset Loans and
(ii)[a] during the period from the Closing Date through December 30, 1998,
$10,000,000 and [b] thereafter, $0;
(d) the lesser of (i) 80% of the Applicable Percentage of
the outstanding principal balances of Eligible Construction Loans and
(ii)[a] during the period from the Closing Date through December 30, 1998,
$8,000,000 and [b] thereafter, $0; and
(e) 80% of Eligible Construction Costs.
"Borrowing Base Certificate" means a certificate in
substantially the form of Exhibit D.
"Borrowing Date" means each date on which a Revolving Loan
is made by a Lender to the Company.
"Business Day" means a day (other than Saturday or Sunday)
on which banks are open for business in Milwaukee, Wisconsin and Chicago,
Illinois and, with respect to the making, payment or rate determination of
a LIBOR Rate Loan, a day on which dealings in United States dollars are
carried on in the London interbank market.
"Capital Funds" means the sum of Adjusted Tangible Net
Worth plus the outstanding principal amount of all Subordinated Debt.
"Capitalized Lease" means any lease, the obligations under
which have been, or in accordance with GAAP are required to be, recorded
as a capital lease liability on the balance sheet of the Company.
"Closing Date" means the first Borrowing Date.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Custodian" means Firstar Trust Company or any
successor appointed as the Collateral Custodian pursuant to the Collateral
Custodian Agreement.
"Collateral Custodian Agreement" means the Collateral
Agency Agreement in substantially the form of Exhibit H, as amended,
revised, supplemented or restated from time to time.
"Commercial Paper" means commercial paper issued by the
Company and placed by a CP Placement Agent.
"Compliance Certificate" means a certificate in
substantially the form of Exhibit E.
"Contingent Obligation" means, as to any Person, any direct
or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the "primary
obligation") of another Person, including (a) any obligation to purchase,
repurchase or otherwise acquire a primary obligation or any security
therefor, (b) any obligation to advance or provide funds for the payment
or discharge of a primary obligation or to maintain the working capital or
net worth of another Person and (c) any obligation to assure or hold
harmless the holder of a primary obligation against loss.
"Controlled Group" means a group of trades or businesses
(whether or not incorporated) under common control, as defined in the
regulations issued pursuant to section 414(c) of the Code or such other
regulations prescribed by the Pension Benefit Guaranty Corporation
pursuant to section 4001(b)(1) of ERISA, of which the Company is a part.
"Conversion/Continuation Notice" means a notice in
substantially the form of Exhibit C.
"CP Placement Agent" means either Firstar or First Bank
acting in their capacity as a placement agent for the Commercial Paper
under a CP Placement Agreement.
"CP Placement Agreement" means the commercial paper
placement agreements, letter agreements or such other documents or
agreements between the Company and Firstar or First Bank, as the case may
be, setting forth the terms under which Firstar or First Bank, as the case
may be, will place Commercial Paper, as amended, revised, supplemented or
restated from time to time.
"Default" means any act, event, condition or omission
which, with the giving of notice or lapse of time, would constitute an
Event of Default if uncured or unremedied.
"Eligible Construction Costs" means, with respect to the
construction of a facility that upon completion will constitute Eligible
Leased Real Estate, all costs relating to acquiring, constructing,
designing, engineering and equipping the facility to be owned by the
Company, provided that Soft Costs shall not exceed 5% of total Eligible
Construction Costs.
"Eligible Construction Loan" means a Third Party Loan to
fund the purchase of land and the construction of a facility to be owned
and occupied by the borrower (which is not an Affiliate of the Company)
(a) which facility, upon completion, will be utilized by the borrower in
the ordinary course of its business, (b) with respect to which no default
has occurred under the loan documents evidencing such Third Party Loan and
(c) with respect to which the Company has granted the Agent a first
priority security interest in the underlying promissory note executed by
such borrower, an assignment of the mortgage securing such promissory note
and a security interest in or lien upon any other collateral related
thereto as required by the provisions of the Collateral Custodian
Agreement. Upon occupancy of such facility the Third Party Loan shall
become an Owner-Occupied Real Estate Loan.
"Eligible Current Asset Loan" means a Third Party Loan
secured solely by the accounts receivable and inventory of the borrower
(which is not an Affiliate of the Company) (a) with respect to which the
Company has a perfected, first priority security interest in such accounts
receivable and inventory, and all proceeds thereof, (b) with respect to
which no default has occurred under the loan documents evidencing such
Third Party Loan and (c) with respect to which the Company has granted the
Agent a first priority security interest in the promissory note executed
by such borrower, an assignment of the Company's security interest in the
accounts receivable, inventory and proceeds of the borrower, a uniform
commercial code financing statement evidencing such assignment and a
security interest in or lien upon any other related collateral as required
by the provisions of the Collateral Custodian Agreement.
"Eligible Leased Real Estate" means real property owned by
the Company and leased to a lessee (a) which is used by the lessee in the
conduct of its business activities and (b) with respect to which the
Company has provided the Collateral Custodian with the documents,
instruments and agreements described in section 3.3 of the Collateral
Custodian Agreement. The only Eligible Leased Real Estate with an
Affiliate of the Company as a tenant are (or will be) (a) the existing
lease of its principal executive office to InvestorsBank and (b) the
existing facility leased to Licensed Products, Inc.
"Eligible Owner-Occupied Real Estate Loan" means an Owner-
Occupied Real Estate Loan with respect to which the Company has provided
the Collateral Custodian with the documents, instruments and agreements
described in section 3.4 of the Collateral Custodian Agreement. The only
Owner-Occupied Real Estate Loans to an Affiliate of the Company which may
be an Eligible Owner-Occupied Real Estate Loan is a loan to Lee Middleton
Original Dolls, Inc. in an amount not to exceed 80% of Appraised Value,
subject to a maximum of $2,500,000.
"Eligible Third Party Loans" means Eligible Construction
Loans, Eligible Current Asset Loans and Eligible Owner-Occupied Real
Estate Loans.
"Environmental Laws" means all federal, state and local
laws including statutes, regulations, ordinances, codes, rules and other
governmental restrictions and requirements relating to the discharge of
air pollutants, water pollutants or process waste water or otherwise
relating to the environment or hazardous substances including, but not
limited to, the Federal Solid Waste Disposal Act, the Federal Clean Air
Act, the Federal Clean Water Act, the Federal Resource Conservation and
Recovery Act of 1976, the Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, regulations of the Environmental
Protection Agency, regulations of the Nuclear Regulatory Commission and
regulations of any state department of natural resources or state
environmental protection agency now or at any time hereafter in effect.
"ERISA" means, at any date, the Employee Retirement Income
Security Act of 1974, and the regulations thereunder, all as the same
shall be in effect at such date.
"Established Value" means (a) in the case of an Eligible
Construction Loan, the lower of cost or Appraised Value of the real
property financed thereby, (b) in the case of Eligible Leased Real Estate,
the lesser of the Appraised Value or the net book value (determined in
accordance with GAAP) of such real property and (c) in the case of an
Eligible Owner-Occupied Real Estate Loan, the Appraised Value of the real
property securing such loan.
"Event of Default" means the occurrence of any of the
events described in section 7.1.
"Federal Funds Rate" means, for any day, an interest rate
per annum equal to the weighted average of the rates on overnight, Federal
funds transactions with brokers of the Federal Reserve System, as
published for such day by the Federal Reserve Bank of New York in the
weekly statistical release designated as H.15(519), or any successor
publication, on the preceding Business Day opposite the caption "Federal
Funds Rate (Effective)", or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for such day on
such transactions received by the Agent from three Federal funds brokers
of recognized standing selected by it. In the case of a day which is not
a Business Day, the Federal Funds Rate for such day shall be the Federal
Funds Rate for the preceding Business Day.
"Firstar" means Firstar Bank Milwaukee, N.A., and its
successors.
"First Bank" means First Bank National Association, and its
successors.
"GAAP" means generally accepted accounting principles in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed
money created, incurred or assumed by a Person, (b) all obligations
issued, undertaken or assumed as the deferred purchase price of property
or services (other than trade payables entered into in the ordinary course
of business), (c) all non-contingent reimbursement or payment obligations
with respect to letters of credit and surety instruments, (d) all
obligations evidenced by notes, bonds, debentures or similar instruments,
(e) all indebtedness created or arising under conditional sale or other
title retention agreements, (f) Capitalized Leases, (g) indebtedness for
borrowed money secured by any mortgage, lien, pledge or security interest
on property of a Person even though it has not assumed or otherwise become
liable for the payment thereof and (h) a Person's obligations under Swap
Contracts.
"Interest Period" means, with respect to a LIBOR Rate Loan,
a period of one, two or three months commencing on (and including) a
Business Day selected by the Company pursuant to section 2.3(a) or 2.4(c)
of this Agreement and ending on (but excluding) the day which corresponds
numerically to such date one, two or three months thereafter (or, if such
month has no numerically corresponding date, on the last Business Day of
such month), provided that:
(a) if an Interest Period would otherwise end on a
day which is not a Business Day, such Interest Period shall end on the
next following Business Day (unless such next following Business Day is in
a new calendar month in which case such Interest Period shall end on the
immediately preceding Business Day); and
(b) no Interest Period may end later than the
Maturity Date.
"Lease Portfolio Coverage Ratio" means the relationship,
expressed as a numerical ratio, between:
(a) an amount equal to the rental income received by the
Company's leasing division during the month preceding the date of
determination multiplied by 12; and
(b) the net book value of the properties owned by the
Company's leasing division;
all as determined in accordance with GAAP.
"Leased Real Estate Borrowing Base Amount" means an amount
equal to the lesser of:
(a) $20,000,000; or
(b) the sum of:
(i) in the case of Eligible Leased Real Estate which
is not a Nonperforming Lease, an amount equal to 80% of the Established
Value of such Eligible Leased Real Estate; and
(ii) in the case of Eligible Leased Real Estate which
is a Nonperforming Lease, an amount equal to 50% of the Established Value
of such Eligible Leased Real Estate.
"Leverage Ratio" means, on each date of determination, the
relationship, expressed as a numerical ratio, between (a) Total
Liabilities and (b) Capital Funds; all as determined for the Company in
accordance with GAAP.
"LIBOR Rate" means, with respect to a LIBOR Rate Loan for
the applicable Interest Period, the interest rate at which deposits in
United States dollars, in an amount approximately equal to the requested
LIBOR Rate Loan and having a maturity approximately equal to the requested
Interest Period, are offered by the Agent to prime banks in the London
interbank market at approximately 11 a.m. (London time) two Business Days
prior to the first day of such Interest Period. The LIBOR Rate determined
by the Agent shall, in the absence of manifest error, be conclusive.
"LIBOR Rate Loan" means a Revolving Loan bearing interest
at a rate determined by reference to the Adjusted LIBOR Rate.
"LIBOR Reserve Requirement" means, with respect to a LIBOR
Rate Loan for the applicable Interest Period, the percentage (expressed as
a decimal) equal to the maximum aggregate reserve requirements (including,
without limitation, any marginal, special, emergency and supplemental
reserves) established by the Board of Governors of the Federal Reserve
System for "eurocurrency liabilities" (as defined in Regulation D of such
Board), or for other liabilities which include deposits of the type used
in determining the LIBOR Rate, having a term approximately equal to the
applicable Interest Period.
"Loan Documents" means this Agreement, the Notes, the
Security Documents, the Collateral Custodian Agreement, the Parent
Guaranty and all other documents, instruments and agreements related to or
executed in connection with this Agreement and the transactions
contemplated hereby.
"Majority Lenders" means the Lenders holding in the
aggregate at least 66 2/3% of the aggregate outstanding principal balance
of the Revolving Loans or, if there are no Revolving Loans outstanding,
Lenders whose aggregate Percentage is at least 66 2/3%.
"Maturity Date" means April 30, 1999, or such earlier date
on which the Agent declares the Notes to be, or the Notes automatically
become, immediately due and payable pursuant to section 7.2 of this
Agreement.
"Multiemployer Plan" means any pension benefit plan subject
to Title IV of ERISA as defined in section 4001(a)(3) of ERISA, to which
the Parent, the Company or any member of the Controlled Group is required
to contribute on behalf of its employees.
"Net Earnings" means the excess of:
(a) all revenues and income derived from operations in the
ordinary course of business, including gains on the sale of Company-owned
real estate (excluding extraordinary gains and profits upon the
disposition of investments and fixed assets),
over
(b) all expenses and other proper charges against income
(including payment or provision for all applicable income and other taxes,
but excluding extraordinary losses and losses upon the disposition of
investments and fixed assets),
all as determined in accordance with GAAP, applied on a consistent basis
to the Company.
"Nonperforming Lease" means Eligible Leased Real Estate if
(a) the lease has been terminated, (b) the tenant has abandoned the
property or (c) the tenant is more than 90 days past due on a lease
payment. Unless otherwise agreed to by the Majority Lenders and notice
thereof , in the form of Exhibit J atteach hereto, has been sent to the
Company, a Nonperforming Lease shall continue as a Nonperforming Lease
until the property is leased to a new tenant and a new appraisal is
furnished to the Agent, even if the tenant fully cures all payment
defaults.
"Nonperforming Loans" means a Third Party Loan which the
Company has accelerated the maturity thereof or with respect to which the
borrower is more than 90 days past due on a payment of principal or
interest. Unless otherwise agreed to by the Majority Lenders and notice
thereof, in the form of Exhibit I attached hereto, has been sent to the
Company, a Third Party Loan which becomes a Nonperforming Loan shall
continue as a Nonperforming Loan even if the borrower subsequently cures
the payment default.
"Note" means a promissory note of the Company in the form
of Exhibit A, appropriately completed, evidencing Revolving Loans made by
a Lender to the Company.
"Notice of Borrowing" means a notice in substantially the
form of Exhibit B.
"Owner-Occupied Real Estate Loan" means a Third Party Loan
secured by a first priority mortgage lien on real property owned and
occupied by the borrower, an Affiliate of the borrower or other party
related to the borrower.
"Owner-Occupied Real Estate Loan Borrowing Base Amount"
means an amount equal to the sum of:
(a) in the case of an Eligible Owner-Occupied Real Estate
Loan which is not a Nonperforming Loan, an amount equal to the Applicable
Percentage of the lesser of [a] the outstanding principal balance of such
Eligible Owner-Occupied Real Estate Loan and [b] 64% of the Established
Value of the real property securing such Eligible Owner-Occupied Real
Estate Loan; plus
(b) in the case of an Eligible Owner-Occupied Real Estate
Loan which is a Nonperforming Loan, an amount equal to the Applicable
Percentage of the lesser of [a] the outstanding principal balance of such
Eligible Owner-Occupied Real Estate Loan and [b] 50% of the Established
Value of the real property securing such Eligible Owner-Occupied Real
Estate Loan;
provided, however, that the Owner-Occupied Real Estate Loan Borrowing Base
Amount shall be reduced, if and to the extent necessary, so that the
Applicable Percentage of the outstanding principal balances of Owner-
Occupied Real Estate Loans is not less than 110% of the Owner-Occupied
Real Estate Loan Borrowing Base Amount.
"Parent" means Bando McGlocklin Capital Corporation, a
Wisconsin corporation.
"Parent Guaranty" means a guaranty agreement in
substantially the form of Exhibit G.
"Percentage" means, for each Lender:
(a) with respect to the Revolving Loan Commitment of a
Lender, a percentage equal to such Lender's Revolving Loan Commitment
divided by the aggregate Revolving Loan Commitments of all Lenders; and
(b) with respect to the Revolving Loans outstanding at any
time, a percentage equal to the outstanding principal amount of Revolving
Loans made by such Lender divided by the aggregate outstanding principal
amount of Revolving Loans made by all Lenders;
and the Percentage of each Lender is set forth opposite its signature
hereto.
"Permitted Liens" means (a) security interests and liens
listed on Schedule 1 attached hereto, provided that the Indebtedness
secured thereby shall not be increased; (b) liens for taxes, assessments
or governmental charges not delinquent or being contested in good faith by
the Company for which adequate reserves are established and maintained in
accordance with GAAP; (c) construction lien claims not delinquent;
(d) liens or deposits in connection with worker's compensation or other
insurance or to secure the performance of bids, trade contracts (other
than for borrowed money), leases, public or statutory obligations, surety
or appeal bonds or other obligations of like nature incurred in the
ordinary course of business; (e) security interests and liens in favor of
the Agent for the benefit of the Lenders; (f) security interests and liens
in favor of a Lender provided that such security interests and liens are
subordinate to any security interests and liens granted by the Company in
favor of the Agent; (g) security interest and liens for Indebtedness
created, incurred or assumed by the Company after the date of this
Agreement and permitted under section 6.2(g); and (h) easements,
restrictions, minor title irregularities and similar matters which have no
material adverse effect as a practical matter upon the ownership or use of
its property by the Company.
"Permitted Swap Contract" means a Swap Contract between the
Company and a Lender (or any Affiliate of a Lender); provided that such
agreement is entered into in the ordinary course of business by the
Company for the purpose of mitigating the Company's risks with respect to
interest rate volitility and not for the purpose of speculation.
"Person" means any natural person, corporation, limited
liability company, joint venture, partnership, association, trust or other
entity or any government or political subdivision or any agency,
department or instrumentality thereof.
"Plan" means any pension benefit plan subject to Title IV
of ERISA, including any Multiemployer Plan, maintained by the Parent, the
Company or any member of the Controlled Group or any such Plan to which
the Parent, the Company or any member of the Controlled Group is required
to contribute on behalf of its employees.
"Prime Rate" means the rate of interest announced by the
Agent from time to time as its prime rate. The Prime Rate may or may not
be the lowest interest rate charged by the Agent.
"Reportable Event" means a reportable event as that term is
defined in ERISA.
"Restricted Payments" means dividends or other
distributions by the Company based upon the stock of the Company (except
dividends payable solely in stock of the Company) and purchases,
redemptions and other acquisitions, direct or indirect, by the Company of
its stock.
"Revolving Loan" means an extension of credit made by a
Lender to the Company pursuant to section 2.1 of this Agreement.
"Revolving Loan Commitment" means the obligation of each
Lender to make Revolving Loans to the Company. The total Revolving Loan
Commitment of the Lenders is initially $50,000,000 and is subject to
reduction from time to time pursuant to section 2.6. The Revolving Loan
Commitment of each Lender is such Lender's Percentage of the total
Revolving Loan Commitment and the initial Revolving Loan Commitment of
each Lender in set forth opposite its signature hereto.
"Security Documents" means the documents described in
section 4.1(b) and any other document, instrument or agreement furnished
by the Company to the Agent which provides collateral for the obligations
of the Company under the Loan Documents.
"Soft Costs" means, with respect to an Eligible
Construction Loan, any loan fees, debt service costs, developer's fees,
including all contingencies, overhead expenses, administrative expenses
and profit, insurance premiums, survey expenses, surveyor's fees, title
fees and expenses, broker's fees and architect's fees and expenses.
"Subordinated Debt" means Indebtedness of the Company, the
payment of which is fully subordinated, in a manner satisfactory to the
Lenders, to the prior payment of the Notes.
"Subsidiary" means as of a particular date (a) any
corporation more than 50% of whose outstanding stock having ordinary
voting power for the election of directors shall at the time be owned or
controlled by the Company or by one of its Subsidiaries and (b) any
limited liability company more than 50% of whose outstanding ownership
interests shall at the time be owned or controlled by the Company or by
one of its Subsidiaries.
"Swap Contract" means an interest rate swap, cap, floor or
collar agreement, including any master agreement relating to or governing
any of the foregoing.
"Swing Line Loan" means a Revolving Loan made to the
Company by Firstar pursuant to Section 2.1(b). Swing Line Loans shall be
a subfacility of Firstar's Revolving Loan Commitment and thus, a
subfacility of the Lenders' total Revolving Loan Commitment.
"Third Party Loans" means commercial loans extended by the
Company to third parties and commercial loans extended by InvestorsBank
for which the promissory note evidencing the borrower's underlying
obligations and all collateral securing such obligations have been fully
assigned to the Company.
"Total Liabilities" means (a) all items which, in
accordance with GAAP, would be classified as liabilities on the balance
sheet of the Company, including all Capitalized Leases, and
(b) indebtedness for borrowed money secured by any mortgage, lien, pledge
or security interest on property of the Company even though it has not
assumed or otherwise become liable for the payment thereof.
"Type" means, with respect to any Revolving Loan, its
nature as a Base Rate Loan or as a LIBOR Rate Loan.
2. The Credit Facilities; Fees.
2.1 Revolving Loans.
(a) During the period from the date of this Agreement
to the Maturity Date, each Lender will make Revolving Loans to the
Company, subject to the terms and conditions hereof, in an amount equal to
such Lender's Percentage of the amount of Revolving Loans requested by the
Company on the applicable Borrowing Date, up to the maximum amount at any
time outstanding of such Lender's Revolving Loan Commitment; provided,
however, that the Lenders shall have no obligation to make Revolving Loans
to the Company if, after giving effect thereto, the sum of the aggregate
outstanding principal amount of Revolving Loans plus the outstanding
principal amount of Commercial Paper would exceed the lesser of the total
Revolving Loan Commitments or the Borrowing Base Amount. Within such
maximum amount Revolving Loans may be made, repaid and made again. The
Revolving Loans made by a Lender shall be evidenced by the Note payable to
the order of such Lender and shall be payable on the Maturity Date.
Although each Note shall be expressed to be payable in the amount of the
payee Lender's initial Revolving Loan Commitment, the Company shall be
obligated to pay only the amount of Revolving Loans actually disbursed to
or for the account of the Company by the payee Lender, together with
interest on the unpaid balance of the sums so disbursed, which remain
outstanding from time to time as shown on the records of the payee Lender.
The Revolving Loans made by the Lenders on a Borrowing Date shall be made
ratably in accordance with each Lender's Percentage.
(b) The parties agree that for ease of administration
and to avoid frequent transfers of funds, Firstar may at its option and
from time to time make Swing Line Loans to the Company without
proportionate loans by the other Lenders. Notwithstanding any provision
of this Agreement to the contrary:
(i) The aggregate outstanding principal amount
of all outstanding Swing Line Loans shall not exceed $2,500,000;
(ii) The Company may request a Swing Line Loan by
a telephonic request therefor to Firstar no later than 4 p.m., Milwaukee,
Wisconsin time on the requested Borrowing Date;
(iii) Swing Line Loans shall be evidenced by
the Revolving Note payable to the order of Firstar;
(iv) Swing Line Loans shall be Base Rate Loans;
and
(v) Swing Line Loans may be prepaid at any time
in whole or in part without premium or penalty and all payments of
principal and interest on Swing Line Loans shall be made to and retained
by Firstar.
Except as expressly set forth to the contrary in this
Agreement, Swing Line Loans shall be governed by the provisions of this
Agreement applicable to Revolving Loans.
During any period that Swing Line Loans are
outstanding, the Lenders agree that at any time upon the request of
Firstar, each Lender will make a Revolving Loan to the Company by
transferring to Firstar an amount equal to such Lender's Percentage of the
aggregate principal amount of Swing Line Loans then outstanding. Such
transfer shall be considered a Revolving Loan by that Lender to the
Company and a payment of the Swing Line Loans by the Company to Firstar.
If an Event of Default occurs while Swing Line Loans are outstanding, each
Lender agrees to purchase from Firstar a participation in such Swing Line
Loans in an amount equal to such Lender's Percentage of the then
outstanding principal amount of Swing Line Loans. The Company and Firstar
agree that the aggregate outstanding principal balance of Swing Line Loans
shall be reduced to $0 for at least one day each calendar week.
2.2 Interest Rate Options. Revolving Loans may be Base
Rate Loans or LIBOR Rate Loans, or a combination thereof. The Company
shall select the Type of Revolving Loan (and in the case of LIBOR Rate
Loans, the applicable Interest Period) in accordance with sections 2.3(a)
and 2.4(c). The aggregate principal amount of LIBOR Rate Loans made by
the Lenders on a Borrowing Date, or pursuant to an election by the Company
to either (a) convert Base Rate Loans to LIBOR Rate Loans or (b) continue
LIBOR Rate Loans, shall be in a minimum amount of $500,000 and in integral
multiples of $100,000 above such minimum. After giving effect to any
advance under section 2.1 or conversion or continuation under section 2.4,
there may not be more than 10 different Interest Periods in effect.
2.3 Borrowing Procedure for Revolving Loans.
(a) The Company shall request Revolving Loans by
submitting a Notice of Borrowing to the Agent. The Notice of Borrowing
must be received by the Agent (i) in the case of LIBOR Rate Loans, not
later than 11 a.m., Milwaukee, Wisconsin time, on the date which is three
Business Days prior to the requested Borrowing Date (which must be a
Business Day) and (ii) in the case of Base Rate Loans, not later than 11
a.m., Milwaukee, Wisconsin time, on the requested Borrowing Date (which
must be a Business Day). Each Notice of Borrowing must specify the amount
of the requested Revolving Loans, the Type of requested Revolving Loans
and, if the Company requests LIBOR Rate Loans, the applicable Interest
Period. The aggregate amount of Revolving Loans made on each Borrowing
Date shall be in a minimum amount of $500,000 and in integral multiples of
$100,000 above such minimum. Each Notice of Borrowing shall be
irrevocable and shall constitute a certification by the Company that the
borrowing conditions specified in sections 4.2(b) and 4.2(c) will be
satisfied on the specified Borrowing Date. The Agent will promptly notify
the Lenders of the requested Revolving Loans. On or before 2 p.m.,
Milwaukee, Wisconsin time, on the specified Borrowing Date each Lender
shall deposit its Percentage of the requested Revolving Loans with the
Agent in immediately available funds. The Agent shall, on or before
3 p.m., Milwaukee, Wisconsin time, notify the Company if the Agent has not
received each Lender's deposit of its Percentage of the requested
Revolving Loan. On or before 3 p.m., Milwaukee, Wisconsin time, provided
the Agent has received each Lender's Percentage of the requested Revolving
Loan and upon fulfillment of the applicable borrowing conditions, the
Agent shall deposit the Revolving Loans in the Company's account
maintained with the Agent.
(b) Unless the Agent shall have been notified by
telephone, confirmed promptly thereafter in writing, by a Lender not later
than 2 p.m., Milwaukee, Wisconsin time, on a Borrowing Date that such
Lender will not make available to the Agent such Lender's Percentage of
the requested Revolving Loans, the Agent may assume that such Lender has
made such amount available to the Agent and, in reliance upon such
assumption, the Agent may (but shall not be required) to make available to
the Company on such Borrowing Date a corresponding amount. If and to the
extent that such Lender shall not have so made such amount available to
the Agent and the Agent in such circumstances has made such amount
available to the Company, such Lender shall on the Business Day following
the Borrowing Date make such amount, together with interest at the Federal
Funds Rate for each day during such period, available to the Agent. If
such amount is so made available, such payment to the Agent shall
constitute such Lender's Revolving Loan on the Borrowing Date for all
purposes of this Agreement. If such amount is not made available to the
Agent on the Business Day following the Borrowing Date, the Agent shall
notify the Company of such failure to fund and, upon demand by the Agent,
the Company shall pay such amount to the Agent for the Agent's account
together with interest thereon, for each day from the date the Agent made
such amount available to the Company to the date such amount is repaid to
the Agent, at the interest rate applicable to such amount as selected by
the Company on the Borrowing Date for such amount.
(c) The failure of any Lender to make a Revolving
Loan shall not relieve any other Lender of its obligation hereunder to
make a Revolving Loan on the applicable Borrowing Date, but no Lender
shall be responsible for the failure of any other Lender to make the
Revolving Loan to be made by such other Lender on the applicable Borrowing
Date.
2.4 Continuation and Conversion Procedure.
(a) Base Rate Loans shall continue as Base Rate Loans
unless and until converted into LIBOR Rate Loans. The Company may elect
from time to time, subject to the terms and conditions of this Agreement,
to convert all or any part of the outstanding Base Rate Loans into LIBOR
Rate Loans.
(b) At the end of the applicable Interest Period for
LIBOR Rate Loans, such LIBOR Rate Loans shall be automatically converted
into Base Rate Loans unless the Company shall have given the Agent notice
in accordance with section 2.4(c) requesting that, at the end of such
Interest Period, such LIBOR Rate Loans continue as LIBOR Rate Loans.
(c) The Company shall deliver a Conversion/
Continuation Notice to the Agent for each conversion of Base Rate Loans or
continuation of LIBOR Rate Loans. The Conversion/Continuation Notice must
be received by the Agent not later than 11 a.m., Milwaukee time, at least
three Business Days prior to the date of the requested conversion or
continuation and must specify (i) the requested date (which shall be a
Business Day) of such conversion or continuation, (ii) the amount of
Revolving Loans to be converted or continued and (iii) the duration of the
Interest Period applicable thereto.
(d) The Agent will promptly notify each Lender of its
receipt of a Conversion/Continuation Notice or, if no notice is timely
provided by the Company, the Agent will promptly notify each Lender of the
details of any automatic conversion. All conversions and continuations
shall be made ratably according to the respective outstanding principal
amounts of the Revolving Loans with respect to which the notice was given.
(e) Notwithstanding anything to the contrary
contained in this section, Revolving Loans may not be converted into or
continued as LIBOR Rate Loans when any Default or Event of Default has
occurred and is continuing.
2.5 Commitment Fee. As consideration for the Lenders'
Revolving Loan Commitments, the Company will pay to the Agent, for the
account of the Lenders, on the last Business Day of each quarter
commencing March 31, 1998 and on the Maturity Date, a commitment fee equal
to 1/2 of 1% per year of the daily average unused amount of the Revolving
Loan Commitment during the preceding quarter or other applicable period;
provided that for purposes of computing the commitment fee due on March
31, 1998, the applicable period shall be the date of this Agreement
through March 31, 1998. Commitment fees shall be calculated for the
actual number of days elapsed on the basis of a 360-day year.
2.6 Reduction or Termination of Revolving Loan Commitment.
The Company may, upon three Business Days' prior written notice to the
Agent, permanently reduce the amount of the total Revolving Loan
Commitment; provided that (i) no such reduction shall reduce the amount of
the total Revolving Loan Commitment to an amount less than the sum of the
aggregate unpaid principal balances of the Notes on the date of such
reduction plus the aggregate outstanding principal amount of Commercial
Paper on such date, (ii) the Revolving Loan Commitments may not be
terminated by the Company unless there is no Commercial Paper outstanding
and (iii) upon any termination of the Revolving Loan Commitments the
Company shall pay to the Agent, for the account of the Lenders, the
outstanding principal balance of the Revolving Loans, all accrued interest
and all fees, expenses and other amounts payable under this Agreement as
of the termination date. Each reduction in the total Revolving Loan
Commitment shall be in a minimum amount of $5,000,000 and in integral
multiples of $1,000,000 above such minimum. Each reduction in the total
Revolving Loan Commitment shall ratably reduce each Lender's Revolving
Loan Commitment.
2.7 Interest Rates.
(a) The unpaid principal balance of Base Rate Loans
outstanding from time to time shall bear interest prior to the Maturity
Date at an annual rate equal to the Base Rate plus the Applicable Margin
for Base Rate Loans, and such rate shall change on each day on which the
Base Rate changes. Accrued interest shall be due on the first Business
Day of each month, commencing March 2,1998, and on the Maturity Date.
(b) The unpaid principal balance of each LIBOR Rate
Loan shall bear interest during the applicable Interest Period at the
corresponding Adjusted LIBOR Rate plus the Applicable Margin for Libor
Rate Loans. Accrued interest for each LIBOR Rate Loan shall be due on the
last day of the applicable Interest Period.
(c) Notwithstanding the provisions of sections 2.7(a)
and 2.7(b) above, upon the occurrence and during the continuance of an
Event of Default, the unpaid principal balance of each Note shall, upon
notice from the Agent to the Company, bear interest at an annual rate
equal to the Base Rate plus two percentage points (the "Default Rate"),
payable upon demand. On and after the Maturity Date, the unpaid principal
balance of the Notes and all accrued interest thereon shall bear interest
at the Default Rate and shall be payable upon demand.
(d) Interest shall be calculated for the actual
number of days elapsed on the basis of a 360-day year.
2.8 Payments. All payments of principal and interest on
the Notes and of all fees and other amounts due hereunder shall be made at
the office of the Agent, for the account of the Lenders, in immediately
available funds not later than 2 p.m., Milwaukee, Wisconsin time, on the
date due; funds received after that time shall be deemed to have been
received on the next Business Day. Whenever any payment to be made shall
otherwise be due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day and such extension of time
shall be included in computing interest and fees, if any, in connection
with such payment. The Agent may charge any account of the Company at the
Agent or at any Lender for any payment due under the Notes, or any fee or
expense payable hereunder, on or after the date due. Except as otherwise
provided in section 2.12(b), the Agent shall forward to each Lender,
promptly after receipt, such Lender's Percentage of such payments received
by the Agent.
2.9 Prepayments. The Company shall immediately and
without demand by the Agent or any Lender make a mandatory prepayment of
the Notes if and to the extent that the sum of the aggregate outstanding
principal balances of the Notes plus the aggregate outstanding principal
amount of the Commercial Paper exceeds the Borrowing Base Amount. The
Company may at any time repay, without premium or penalty, Base Rate Loans
in a minimum amount of $500,000 (or, if less, all outstanding Base Rate
Loans). The Company may prepay LIBOR Rate Loans (in a minimum amount of
$500,000 and in integral multiples of $100,000 above such minimum) at any
time; provided, that, in the event of a prepayment of LIBOR Rate Loans on
any day other than the last day of the applicable Interest Period, the
Company shall also pay to the Bank on the prepayment date the amounts
referred to in section 2.10(c).
The Company will give the Agent notice of any
optional prepayment of the Revolving Notes not later than 1 p.m.,
Milwaukee, Wisconsin time, on the Business Day prior to the prepayment
date, specifying the prepayment date (which must be a Business Day) and
the amount to be prepaid. The amount of such prepayment and any amounts
related thereto shall be due and payable on the specified prepayment date.
2.10 Additional LIBOR Rate Loan Provisions
(a) If any Lender determines that the making or
maintaining of a LIBOR Rate Loan would violate any applicable law, rule
regulation or directive, whether or not having the force of law, then the
obligation of the Lenders to make or continue LIBOR Rate Loans, or to
convert Base Rate Loans into LIBOR Rate Loans, shall be suspended until
the Agent notifies the Company that the circumstances causing such
suspension no longer exist. During any such period, all LIBOR Rate Loans
shall automatically convert into Base Rate Loans at the end of the
applicable Interest Period or sooner if required by law.
(b) If the Agent is unable to determine the LIBOR
Rate in respect of a requested Interest Period or the Majority Lenders are
unable to obtain deposits of United States dollars in the London interbank
market in the applicable amounts and for the requested Interest Period,
then, upon notice from the Agent to the Company, the obligation of the
Lenders to make or continue LIBOR Rate Loans, or to convert Base Rate
Loans into LIBOR Rate Loans, shall be suspended until the Agent notifies
the Company that the circumstances causing such suspension no longer
exist.
(c) If any Lender shall incur any loss or expense
(including any loss or expense incurred by reason of a liquidation or
redeployment of deposits or other funds acquired by such Lender to make,
continue or maintain any portion of a LIBOR Rate Loan, or to convert any
portion of a Base Rate Loan into a LIBOR Rate Loan) as a result of (in
each case other than as a result of the occurrence of an event described
in section 2.10(b) hereof): (i) any conversion or repayment or prepayment
of the principal amount of LIBOR Rate Loan on a date other than the last
day of the Interest Period applicable thereto (whether as a result of
acceleration, prepayment or otherwise); (ii) any Revolving Loan not being
made as a LIBOR Rate Loan in accordance with the Notice of Borrowing
therefore; or (iii) any Revolving Loan not being continued as, or
converted into, a LIBOR Rate Loan in accordance with the Continuation/
Conversion Notice therefore, then, upon written notice from such Lender to
the Company, the Company shall, within five days of its receipt thereof,
pay to such Lender such amount as will (in the reasonable determination of
such Lender) reimburse such Lender for such loss or expense. Such written
notice (which shall include calculations in reasonable detail) shall, in
the absence of manifest error, be conclusive and binding on the Company.
2.11 Setoff. Each Lender shall, upon the occurrence and
during the continuance of an Event of Default, have the right to apply to
the payment of the Note held by such Lender (whether or not then due) any
and all balances, credits, deposits, accounts or monies of the Company
then or thereafter maintained with such Lender. Each Lender agrees to
promptly notify the Company and the Agent after any such setoff and
application made by such Lender; provided, however, that the failure to
give such notice shall not affect the validity of such setoff and
application.
2.12 Pro Rata Treatment; Sharing of Payments.
(a) Except as otherwise provided in this Agreement,
all payments of principal, interest and fees made by the Company shall be
distributed pro rata to the Lenders according to their respective
Percentages. If any Lender shall obtain any payment or other recovery
(whether voluntary, involuntary, by application of setoff or otherwise) in
excess of its pro rata share of payments then or therewith obtained by all
Lenders, such Lender shall immediately purchase, without recourse and for
cash, from the other Lenders, such participations in the Notes of such
other Lenders so that each Lender shall thereafter have a percentage
interest in all of such obligations equal to such Lender's Percentage;
provided, however, that if any payment so received shall be recovered in
whole or in part from such purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of any such
recovery, but without interest. The Company agrees that any Lender so
purchasing a participation from another Lender pursuant to this section
may, to the fullest extent permitted by law, exercise all of its rights of
payment (including its right of setoff) with respect to such participation
as if such Lender were the direct creditor of the Company in the amount of
such participation.
(b) Notwithstanding anything to the contrary
contained in this Credit Agreement, any Lender that fails to make
available to the Agent its pro rata share of any Revolving Loan as, when
and to the full extent required by the provisions of this Credit
Agreement, shall be deemed delinquent (a "Delinquent Lender") until such
time as such delinquency is satisfied. A Delinquent Lender shall be
deemed to have assigned any and all payments due to it from the Company to
the Agent and the nondelinquent Lenders for application to, and reduction
of, their respective pro rata shares of all outstanding Revolving Loans.
The Delinquent Lender hereby authorizes the Agent to (i) retain such
payments to the extent the Agent funded such delinquency or (ii)
distribute such payments to the nondeliquent Lenders in proportion to
their respective pro rata shares of all outstanding Revolving Loans to the
extent the nondelinquent Lenders funded such delinquency. A Delinquent
Lender shall be deemed to have satisfied in full a delinquency when and
if, as a result of the application of the assigned payments to the Agent
and/or the nondelinquent Lenders, all advances funded by the Agent have
been repaid in full and the Lenders' respective pro rata shares of all
outstanding Revolving Loans have returned to their respective Percentages.
2.13 Capital Adequacy. As used in this section, the term
"Regulatory Change" means any change enacted or issued after the date of
this Agreement of any (or the adoption after the date of this Agreement of
any new) federal or state law, regulation, interpretation, direction,
policy or guideline, or any court decision, which affects (or, in the case
of a court decision would, if the decision were applicable to any Lender,
affect) the treatment of any Revolving Loan or any commitment of any
Lender hereunder as an asset or other item included for the purpose of
calculating the appropriate amount of capital to be maintained by such
Lender or any corporation controlling such Lender. If such Regulatory
Change has the effect of reducing the rate of return on such Lender's or
such corporation's capital as a consequence of the Revolving Loans or
commitments of such Lender hereunder to a level below that which such
Lender or such corporation could have achieved but for such Regulatory
Change (taking into account such Lender's or such corporation's policies
with respect to capital adequacy) by an amount deemed in good faith by
such Lender to be material, then from time to time following notice by
such Lender to the Company of such Regulatory Change, within ten days
after demand from such Lender, the Company shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such
corporation, as the case may be, for such reduction. Such notice (which
shall include calculations in reasonable detail) shall, in the absence of
manifest error, be conclusive and binding on the Company.
2.14 Yield Protection. If any law or any governmental
rule, regulation, policy, guideline or directive (whether or not having
the force of law), or any interpretation thereof, or the compliance of any
Lender therewith,
(a) subjects any Lender to any tax, duty, charge or
withholding on or from payments due from the Company (excluding federal
taxation of the overall net income of any Lender and any such tax, duty,
charge or withholding in effect as of the date of this Agreement), or
changes the basis of taxation of payments to any Lender in respect of its
Revolving Loans or other amounts due it hereunder (excluding federal
taxation of the overall net income of any Lender);
(b) imposes or increases or deems applicable any
reserve, assessment, insurance charge, special deposit or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, any lender (other than reserves and assessments taken
into account in determining the interest rate applicable to LIBOR Rate
Loans) with respect to its Revolving Loans; or
(c) imposes any other condition the result of which
is to increase the cost to any Lender of making, funding or maintaining
the Revolving Loans or reduces any amount received by any Lender in
connection with the Revolving Loans or requires any Lender to make any
payment calculated by reference to the amount of Revolving Loans held or
interest received by it, by an amount deemed material by such Lender;
then, within 15 days of demand by such Lender, the Company shall pay such
Lender that portion of such increased expense incurred or reduction in an
amount received which such Lender determines is attributable thereto. Such
notice (which shall include calculations in reasonable detail) shall, in
the absence of manifest error, be conclusive and binding on the Company.
2.15 Other Fees. In addition to the other fees described
herein, the Company shall pay to Firstar the arrangement fees and annual
agency fees described in the fee letter dated December 19, 1997 from
Firstar to the Company (the "Fee Letter").
3. Representations and Warranties. In order to induce the
Lenders to make the Revolving Loans, the Company represents and warrants
to the Lenders that:
3.1 Organization; Subsidiaries; Corporate Power; REIT
Status. The Company is a corporation validly existing under the laws of
the State of Wisconsin. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction
in which the nature of its business or the ownership of its properties
requires such qualification and in which the failure to so qualify would
materially adversely affect the business operations or financial condition
of the Company. The Company has no Subsidiaries. The Company has the
corporate power to own its properties and carry on its business as
currently being conducted. The Company has elected, and is duly
qualified, to operate as a "real estate investment trust" ("REIT")
pursuant to section 856 of the Code and applicable regulations issued by
the Internal Revenue Service. The Company has no knowledge of any facts
or circumstances that would disqualify the Company as a REIT and has no
knowledge of any pending or threatened action by the Internal Revenue
Service to revoke or terminate the Company's election to operate, or
status, as a REIT.
3.2 Authorization and Binding Effect. The execution and
delivery by the Company of the Loan Documents to which it is a party, and
the performance by the Company of its obligations thereunder, are within
its corporate power, have been duly authorized by proper corporate action
on the part of the Company, are not in violation of any existing law, rule
or regulation of any governmental agency or authority, any order or
decision of any court, the Articles of Incorporation or By-Laws of the
Company or the terms of any agreement, restriction or undertaking to which
the Company is a party or by which it is bound, and do not require the
approval or consent of the shareholders of the Company, any governmental
body, agency or authority or any other person or entity. The Loan
Documents to which the Company is a party, when executed and delivered,
will constitute the valid and binding obligations of the Company
enforceable in accordance with their terms, except as limited by
bankruptcy, insolvency or similar laws of general application affecting
the enforcement of creditors' rights and except to the extent that general
principles of equity might affect the specific enforcement of such Loan
Documents.
3.3 Financial Statements. The Company has furnished to
the Lenders (a) the consolidated balance sheet of the Parent and its
consolidated subsidiaries as of December 31, 1996, and related statements
of income, retained earnings and cash flows for the year ended on that
date, certified by Price Waterhouse LLP and (b) the unconsolidated balance
sheet of the Company dated November 30, 1997 and related statements of
income and cash flows for the period ended on such date, prepared by the
Company. Such financial statements were prepared in accordance with GAAP
consistently applied throughout the periods involved, are correct and
complete and fairly present the consolidated financial condition of the
Parent and its subsidiaries of the Company, respectively, as of such dates
and the results of their operations for the periods ended on such dates,
subject, in the case of the interim statements, to normal year-end
adjustments. There has been no material adverse change in the condition
or prospects of the Parent or its consolidated subsidiaries, financial or
otherwise, since the date of the most recent financial statement furnished
to the Lenders.
3.4 Litigation. Except for the matters described on
Schedule 3.4, there is no litigation or administrative proceeding pending
or, to the knowledge of the Company, threatened against or affecting the
Company or the properties of the Company which if determined adversely
would have a material adverse effect upon the business, financial
condition or properties of the Company.
3.5 Restricted Payments. The Company has not, since the
date of the most recent financial statements referred to in section 3.3,
made any Restricted Payments except for Restricted Payments permitted
under section 6.1.
3.6 Indebtedness; No Default. The Company has no
outstanding Indebtedness or Contingent Obligations, except those permitted
under sections 6.2 and 6.3. There exists no default nor has any act or
omission occurred which, with the giving of notice or the passage of time,
would constitute a default under the provisions of (a) any instrument
evidencing such Indebtedness or Contingent Obligation or any agreement
relating thereto or (b) any other agreement or instrument to which the
Company is a party and which is material to the financial condition,
business operations or prospects of the Company.
3.7 Ownership of Properties; Liens and Encumbrances. The
Company has good and marketable title to all property, real and personal,
reflected on the most recent financial statement of the Company furnished
to the Lenders, and all property purported to have been acquired since the
date of such financial statement, except property sold or otherwise
disposed of in the ordinary course of business subsequent to such date;
and all such property is free of any lien, security interest, mortgage,
encumbrance or charge of any kind or any agreement not to grant a security
interest, mortgage or lien, except Permitted Liens. All owned and leased
buildings and equipment of the Company are in good condition, repair and
working order (reasonable wear and tear excepted) and, to the Company's
knowledge, conform in all material respects to all applicable laws,
ordinances and regulations.
3.8 Tax Returns Filed. The Parent and the Company have
filed when due all federal and state income and other tax returns which
are required to be filed. The Company has paid or made provision for the
payment of all taxes shown on such returns, and on all assessments
received by it to the extent that such taxes or assessments have become
due, except any such taxes or assessments which are being contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP have been established. The Company has no knowledge
of any liabilities which may be asserted against it upon audit of its
federal or state tax returns.
3.9 Margin Stock. The Company will not use, directly or
indirectly, any part of the proceeds of any Note for the purpose of
purchasing or carrying, or to extend credit to others for the purpose of
purchasing or carrying, any margin stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, or
any amendments thereto. The Company is not engaged principally, or as one
of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock.
3.10 Investment Company. The Company is not an "investment
company" or a company controlled by an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
3.11 ERISA Liabilities. The Company has no knowledge of
the occurrence of any event with respect to any Plan which could result in
a liability of the Company or any member of the Controlled Group to any
Plan, the Internal Revenue Service or to the Pension Benefit Guaranty
Corporation other than the payment of contributions in the normal course
or premiums (but not a late payment charge) pursuant to section 4007 of
ERISA. With respect to any Plan there is no (a) accumulated funding
deficiency within the meaning of section 412(a) of the Code;
(b) nondeductible contribution to any Plan within the meaning of section
4972 of the Code; (c) excess contribution within the meaning of section
4979(c) of the Code which would result in tax under section 4979(a) of the
Code; (d) prohibited transaction within the meaning of ERISA section 406
which is not exempt under ERISA section 408; (e) failure to make required
contributions to any Multiemployer Plan; or (f) withdrawal or partial
withdrawal from any Multiemployer Plan within the meaning of ERISA
sections 4203 and 4205.
3.12 No Burdensome Agreements. The Company is not a party
to or bound by any agreement, instrument or undertaking, or subject to any
other restriction (a) which materially adversely affects, or is likely in
the future to so affect, the property, financial condition or business
operations of the Company or (b) under or pursuant to which the Company is
or will be required to grant (or under which any other Person may obtain)
a security interest or lien upon any of its property (other than a
Permitted Lien), either upon demand or upon the fulfillment of a
condition, with or without demand.
3.13 Trademarks, Etc. The Company possesses adequate
trademarks, trade names, copyrights, patents, permits, service marks and
licenses, or rights thereto, for the present and planned future conduct of
their respective businesses substantially as now conducted, without any
known conflict with the rights of others which would result in a material
adverse effect on the Company.
3.14 Dump Sites. With respect to the period during which
the Company owned or occupied its real estate, and to the Company's
knowledge after reasonable investigation, with respect to the time before
the Company owned or occupied its real estate, no person or entity has
caused or permitted materials to be stored, deposited, treated, recycled
or disposed of on, under or at any real estate owned or occupied by the
Company, which materials, if known to be present, would require cleanup,
removal or some other remedial action under Environmental Laws.
3.15 Tanks. There are not now, nor, to the Company's
knowledge after reasonable investigation, have there ever been tanks or
other facilities on, under, or at any real estate owned or occupied by the
Company which contained materials which, if known to be present in soils
or ground water, would require cleanup, removal or some other remedial
action under Environmental Laws.
3.16 Other Environmental Conditions. There are no
conditions existing which would subject the Company to damages, penalties,
injunctive relief or cleanup costs under any Environmental Laws or which
require or are likely to require cleanup, removal, remedial action or
other response pursuant to Environmental Laws by the Company.
3.17 Changes in Laws. To the Company's knowledge after
reasonable investigation, there are no proposed or pending changes in
Environmental Laws that would adversely affect the Company.
3.18 Environmental Judgments, Decrees and Orders. The
Company is not subject to any judgment, decree, order or citation related
to or arising out of Environmental Laws. The Company has not been named
as a potentially responsible party by a governmental body or agency in a
matter arising under any Environmental Law.
3.19 Environmental Permits and Licenses. The Company and
each Subsidiary has all permits, licenses and approvals required under
Environmental Laws.
3.20 Year 2000. Except as set forth on Schedule 3.20
attached hereto, the information technology systems used by the company in
its business operations accurately process date/time data (including
without limitation calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, the year 1999 and 2000
and leap year calculations.
3.21 Accuracy of Information. All information furnished by
the Company to the Lenders is true, correct and complete in all material
respects as of the date furnished and does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make such information not misleading.
4. Conditions for Borrowing. The Lenders' obligations to make
Revolving Loans is subject to the satisfaction, on or before the following
Borrowing Dates, of the following conditions:
4.1 On or Before the Closing Date. The Agent shall have
received the following, all in form, detail and content satisfactory to
the Lenders:
(a) Notes. The Notes, duly executed by the Company.
(b) Security Documents.
(i) a security agreement, granting the Agent,
for the benefit of the Lenders, a security interest in all of the personal
property of the Company;
(ii) all financing statements required to perfect
the security interests granted to the Agent by the Company; and
(iii) a collateral assignment of deposit
accounts, assigning to the Agent, for the benefit of the Lenders, the
Company's deposit accounts at InvestorsBank.
Each of the Security Documents shall be duly executed
by the Company.
(c) Collateral Custodian Agreement. The Collateral
Custodian Agreement, duly executed by the parties thereto.
(d) Parent Guaranty. The Parent Guaranty, duly
executed by the Parent.
(e) Amendment to Master Note Purchase Agreement. An
amendment to the Master Note Purchase Agreement dated as of January 1,
1997 among the State of Wisconsin Investment Board, the Company and the
Parent.
(f) Certified Articles of Incorporation. A copy of
the Articles of Incorporation of the Company and of the Parent, certified
as of a recent date by the Wisconsin Department of Financial Institutions.
(g) Certificates of Status and Good Standing.
Certificates of status and good standing with respect to the Company and
the Parent, issued as of a recent date by the Secretary of State (or
comparable governmental authority) of each state in which the Company or
the Parent is incorporated or is qualified to transact business as a
foreign corporation.
(h) Closing Certificate of the Company. Copies,
certified by the Secretary of the Company to be true and correct and in
full force and effect on the Closing Date, of (i) the By-Laws of the
Company; (ii) resolutions of the Board of Directors of the Company
authorizing the execution and delivery of the Loan Documents to which the
Company is a party; and (iii) a statement containing the names and titles
of the officer or officers of the Company authorized to sign such Loan
Documents, together with true signatures of such officers.
(i) Closing Certificate of the Parent. Copies,
certified by the Secretary of the Parent to be true and correct and in
full force and effect on the Closing Date, of (i) the By-Laws of the
Parent; (ii) resolutions of the Board of Directors of the Parent
authorizing the execution and delivery of the Loan Documents to which the
Parent is a party; and (iii) a statement containing the names and titles
of the officer or officers of the Parent authorized to sign such Loan
Documents, together with true signatures of such officers.
(j) Personal Property Searches. Searches of the
appropriate public offices demonstrating that no security interest, tax
lien, judgment lien or other charge or encumbrance is of record affecting
the Company or its properties except those which are acceptable to the
Agent.
(k) Borrowing Base Certificate. A completed
Borrowing Base Certificate as of the Closing Date.
(l) No Default Certificate. The representations and
warranties contained in section 3 hereof and in the other Loan Documents
shall be true and correct on and as of the Closing Date; there shall exist
on the Closing Date no Default or Event of Default; and the Lenders shall
have received a certificate to those effects, signed by the President of
the Company.
(m) Opinion of Counsel. An opinion from Foley &
Lardner, counsel to the Company, in the form of Exhibit F attached hereto.
(n) Proceedings Satisfactory. Such other documents
as the Lenders may reasonably request; and all proceedings taken in
connection with the transactions contemplated by this Agreement, and all
instruments, authorizations and other documents applicable thereto, shall
be satisfactory to the Lenders.
(o) Fees. The closing fees set forth in the Fee
Letter.
4.2 On or Before Each Subsequent Borrowing Date:
(a) Borrowing Procedure. The Company shall have
complied with the borrowing procedure specified in section 2.3.
(b) Representations and Warranties True and Correct.
The representations and warranties contained in section 3 hereof and in
the other Loan Documents shall be true and correct on and as of the
relevant Borrowing Date except (i) that the representations and warranties
contained in section 3.3 shall apply to the most recent financial
statements delivered pursuant to section 5.1 of this Agreement and
section 8(b) of the Parent Guaranty and (ii) for changes contemplated or
permitted by this Agreement.
(c) No Default. There shall exist on that Borrowing
Date no Default or Event of Default.
(d) Proceedings and Documentation. The Lenders shall
have received such instruments and other documents as they may reasonably
request in connection with the making of such Revolving Loans, and all
such instruments and documents shall be in form and content satisfactory
to the Lenders.
5. Affirmative Covenants. The Company covenants that it will,
until the Lenders' Revolving Loan Commitment has terminated or expired and
the Notes, and all fees and expenses payable hereunder, have been paid in
full:
5.1 Monthly Financial Statements and Reports. Furnish to
the Agent within 30 days after the end of each month a copy for each
Lender of a balance sheet of the Company as of the end of such month and a
related statement of income for the period from the beginning of the
fiscal year to the end of such month, prepared in accordance with GAAP,
subject to normal year-end adjustments. Such monthly financial statements
shall be accompanied by (a) a Borrowing Base Certificate as of the last
day of such month and (b) a Compliance Certificate as of the last day of
such month.
5.2 Other Financial Information. Furnish to the Agent,
(a) immediately upon any increase in the Company's outstanding Commercial
Paper obligations, a notice setting forth the then outstanding balance of
such Commercial Paper obligations, and (b) as soon as available, copies
for each Lender of such other financial information as any Lender may from
time to time reasonably request.
5.3 Books and Records; Inspection. Keep proper, complete
and accurate books of record and account and permit any representative of
the Agent or any Lender to visit and inspect any of the properties and
examine and copy any of the books and records of the Company at any
reasonable time and as often as may reasonably be desired. Without
limiting the generality of the foregoing, the Company agrees to permit a
third party auditor selected by the Agent, at the expense of the Company,
to conduct on an annual basis an audit of all Third Party Loans, the scope
and timing of which audit are more particularly described in that certain
letter dated March 11, 1998 from the Agent to the Company.
5.4 Insurance. Maintain insurance coverage as may be
required by law or the Security Documents but in any event not less than
insurance coverage, in the forms, amounts and with companies, which would
be carried by prudent management in connection with similar properties and
businesses. Without limiting the foregoing, the Company will (a) keep all
its physical property insured against fire and extended coverage risks in
amounts and with deductibles at least equal to those generally maintained
by businesses engaged in similar activities in similar geographic areas;
(b) maintain all such worker's compensation and similar insurance as may
be required by law; and (c) maintain, in amounts and with deductibles at
least equal to those generally maintained by businesses engaged in similar
activities in similar geographic areas, general public liability insurance
against claims for bodily injury, death or property damage occurring on,
in or about the properties of the Company and insurance covering the
Company's risk of loss if tenant fails to maintain required insurance.
5.5 Condition of Property. Keep its properties (whether
owned or leased) in good condition, repair and working order (reasonable
wear and tear excepted).
5.6 Payment of Taxes. Pay and discharge all lawful taxes,
assessments and governmental charges upon it or against its properties
prior to the date on which penalties are attached thereto, unless and to
the extent only that the same shall be contested in good faith and by
appropriate proceedings by the Company and appropriate reserves with
respect thereto are established and maintained in accordance with GAAP.
5.7 Compliance with Law. Do all things necessary to
(a) maintain its corporate existence in its state of incorporation and
maintain its qualification as a foreign corporation in any other state
where the ownership of property or the conduct of business make
qualification necessary and where the failure to so qualify would have a
material adverse effect upon its business, operations or financial
condition, (b) preserve and keep in full force and effect its rights and
franchises necessary to continue its business and (c) comply with all
applicable laws, regulations and ordinances, including all applicable
Environmental Laws, except those being contested in good faith and
involving no possibility of criminal liability.
5.8 ERISA Certificate. Comply with all applicable
requirements of ERISA for each Plan and furnish to the Agent, as soon as
possible and in any event within 30 days after the Company shall have
obtained knowledge that a Reportable Event has occurred with respect to
any Plan, a certificate of an officer of the Company setting forth the
details as to such Reportable Event and the action which the Company
proposes to take with respect thereto, and a copy of each notice of a
Reportable Event sent to the Pension Benefit Guaranty Corporation by the
Company and, with respect to a Multiemployer Plan, furnish to the Agent as
soon as possible after the Company receives notice or obtains knowledge
that the Company or any member of the Controlled Group may be subject to
withdrawal liability, or required to post a bond to avoid such liability,
to a Multiemployer Plan, a certificate of an officer of the Company
setting forth the details as to such event and the actions which the
Company plans to take with respect thereto.
5.9 Compliance with Other Loan Documents. Timely comply
with all of its obligations under the other Loan Documents.
5.10 Notice of Default or Claimed Default. Furnish to the
Agent (a) immediately upon becoming aware of any Default or Event of
Default, a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto; (b) immediately upon becoming aware that the holder of
any other Indebtedness issued or assumed by the Company, or the lessor
under any lease as to which the Company is the lessee, has given notice or
has taken any action with respect to a claimed default thereunder, or
under any agreement under which any such Indebtedness was issued or
secured, a written notice specifying the notice given or action taken, the
nature of the claimed default and what action the Company is taking or
proposes to take with respect thereto; (c) immediately upon receipt,
copies of any correspondence, notice, pleading, citation, indictment,
complaint, order, decree or other document from any source asserting or
alleging a circumstance or condition which requires or may require a
financial contribution by the Company or a cleanup, removal, remedial
action or other response by or on the part of the Company under
Environmental Laws or which seeks damages or civil, criminal or punitive
penalties from the Company for an alleged violation of Environmental Laws;
and (d) written notice of any condition or event which would make the
warranties contained in section 3 inaccurate, as soon as the Company
becomes aware of such condition or event.
5.11 Deposit Accounts. The Company shall maintain all of
its primary operating and investment accounts at a Lender or at
InvestorsBank. The Company shall, promptly upon request by the Agent,
cause InvestorsBank to report to the Agent the individual and aggregate
balances of all the Company's deposit and investment accounts maintained
at InvestorsBank, and the Company shall, within 5 days following request
by the Agent, transfer all such accounts to, and thereafter maintain such
accounts at, a Lender.
6. Negative Covenants. The Company covenants that, without
the prior written consent of the Majority Lenders, it will not, until the
Lenders' Revolving Loan Commitment has terminated or expired and the
Notes, and all fees and expenses payable hereunder, have been paid in
full:
6.1 Restricted Payments. Make any Restricted Payments
except that so long as no Default or Event of Default exists and no
Default or Event of Default would arise after giving effect to any such
Restricted Payment, the Company may make, declare and pay dividends to the
Parent, provided that in no event shall the Company pay any dividend that
constitutes a return-of-capital to the Parent nor shall the Company pay
any dividend during any fiscal quarter following a fiscal quarter for
which the Company achieved Net Earnings of less than $0.
6.2 Limitations on Indebtedness. Create, incur, assume or
permit to exist any Indebtedness except (a) Indebtedness owed to the
Lenders arising under this Agreement; (b) Indebtedness secured by
Permitted Liens; (c) Subordinated Debt; (d) Commercial Paper; (e) the
Company's obligations under Permitted Swap Contracts; (f) existing
Indebtedness listed on Schedule 6.2 attached hereto; (g) Indebtedness
created after the date of this Agreement secured by Third Party Loans
pledged to the lender, provided that the aggregate outstanding principal
balance of such Third Party Loans shall not at any time exceed 110% of the
unpaid principal balance of the Company's Indebtedness to such lender; and
(h) unsecured Indebtedness.
6.3 Limitations on Contingent Obligations. Create, incur,
assume or permit to exist any Contingent Obligations except for (a) the
endorsement of negotiable or nonnegotiable instruments for collection in
the ordinary course of business, (b) the Contingent Obligations listed on
Schedule 6.3 which shall not be extended, renewed or increased and (c)
Contingent Obligations in favor of a Lender.
6.4 Limitations on Liens and Encumbrances. Create, assume
or permit to exist any mortgage, security interest, lien or charge of any
kind, including any restriction against mortgages, security interests,
liens or charges upon any of its properties or assets, whether now owned
or hereafter acquired, except for Permitted Liens.
6.5 Limitations on Mergers, Etc. Merge or consolidate
with or into any other corporation or entity (other than the merger of
Bando McGlocklin Real Estate Investment Corporation into the Company) or
sell, lease, transfer or otherwise dispose of in a single transaction or a
series of transactions, all or a substantial part of its assets other than
sales of Third Party Loans or pro rata participation interests therein on
a nonrecourse basis made in the ordinary course of business.
6.6 Limitations on Acquisitions, Advances and Investments.
Acquire stock issued by a corporation, an ownership interest in any
limited liability company or any partnership or joint venture interest, or
all or substantially all of the assets of another Person, or make any
loan, advance or extension of credit to any Person except (a) the purchase
of United States government bonds and obligations; (b) Third Party Loans
to borrowers in the ordinary course of business of the Company;
(c) commercial paper with a maturity not exceeding 90 days; (d) deposits
in deposit accounts at banks; (e) investments in bank repurchase
agreements; (f) loans and advances to employees and agents in the ordinary
course of business for travel and entertainment expenses and similar
items; (g) the purchase by the Company of properties owned by Bando
McGlocklin Real Estate Investment Corporation; and (h) the purchase of
Third Party Loans from InvestorsBank.
6.7 Lines of Business. Engage in any business other than
those in which it is now engaged and any business directly related thereto
if, as a result thereof, the general nature of the businesses engaged in
by the Company would be substantially changed from the general nature of
its businesses as of the Closing Date.
6.8 Sale and Leaseback. Sell or transfer any fixed assets
and then or thereafter rent or lease as lessee any such assets.
6.9 Adjusted Tangible Net Worth. Permit Adjusted Tangible
Net Worth to be less than $21,000,000 at any time.
6.10 Leverage Ratio. Permit the Leverage Ratio to be
greater than 7.0:1.0 at any time.
6.11 Nonperforming Loans. Permit the ratio of (a) the
aggregate outstanding principal balance of Nonperforming Loans (excluding
the aggregate outstanding principal balance of such loans which have been
sold without recourse) to (b) the aggregate outstanding principal balance
of all Third Party Loans (excluding the aggregate outstanding principal
balance of such loans which have been sold without recourse) to exceed
.05:1.0 at any time.
6.12 Third Party Loan Concentration. Permit the aggregate
outstanding principal balance of Third Party Loans to a single borrower
and all Affiliates of such borrower to exceed $5,000,000 other than the
existing loans to the Lang Company and its Affiliates as set forth on
Schedule 6.12 attached hereto.
6.13 Net Earnings. Permit Net Earnings for any fiscal year
of the Company to be less than $1.
6.14 Lease Portfolio Coverage Ratio. Permit the Lease
Portfolio Coverage Ratio to be less than .09:1.0 at any time that the net
book value of properties in the Company's leasing division exceeds
$10,000,000.
6.15 Transactions with Affiliates. Enter into or be a
party to any transaction with any Affiliate except as otherwise provided
herein or in the ordinary course of business and upon fair and reasonable
terms which are no less favorable than a comparable arm's length
transaction with an entity which is not an Affiliate.
6.16 Concessions to Borrowers. Make advances to a Third
Party Loan borrower to permit such borrower to meet its debt service
payments on such Third Party Loan or agree to capitalize any interest
payment owed by a Third Party Loan borrower.
7. Events of Default; Remedies.
7.1 Events of Default. The occurrence of any of the
following shall constitute an Event of Default:
(a) Failure to Pay Note. The Company fails to pay
(a) principal on any Note when due, whether at a stated payment date, or a
date fixed by the Company for prepayment or by acceleration, or (b)
interest on any Note, or any fee or other amount payable hereunder, when
due and such default in payment of interest, fees or other amounts
continues uncured for a period of five days; or
(b) Falsity of Representations and Warranties. Any
representation or warranty made in any Loan Document (including, without
limitation, any Borrowing Base Certificate) is false in any material
respect on the date as of which made or as of which the same is to be
effective; or
(c) Breach of Covenants. The Company fails to comply
with any term, covenant or agreement contained in (a) sections 5.2, 5.3,
5.4, 5.5, 5.7, 5.8 or 5.10 and such failure continues uncured for a period
of 20 days, or (b) sections 5.1, 5.6, 5.9, 5.11 or section 6 hereof; or
(d) Breach of Other Provisions. The Company fails to
comply with any other agreement contained herein and such default
continues for a period of 30 days after written notice to the Company from
the Agent; or
(e) Default Under Permitted Swap Contract. There
occurs under any Swap Contract an Early Termination Date (as defined in
such Swap Contract) resulting from (1) any event of default under such
Swap Contract as to which the Company is the defaulting party, or (2) any
Termination Event ( as defined in such Swap Contract) as to which the
Company is the "affected party", and, in either event, the liability of
the Company as a result thereof is greater than $100,000.
(f) Default Under Other Agreements. The Company or
the Parent fails to pay when due any other Indebtedness issued or assumed
by the Company or the Parent, or fails to comply with the terms of any
agreement under which such Indebtedness was created and such default
continues beyond the period of grace, if any, therein provided; or
(g) Entry of Final Judgments. A final judgment is
entered against the Company or the Parent which, together with all
unsatisfied final judgments entered against the Parent, the Company and
all Subsidiaries, exceeds the sum of $500,000, and such judgment shall
remain unsatisfied or unstayed for a period of 60 days after the entry
thereof; or
(h) ERISA Liability. Any event in relation to any
Plan which the Lenders determine in good faith could result in any of the
occurrences set forth in section 3.11 above; or
(i) Default Under Other Loan Documents. An "Event of
Default" (as defined therein) shall occur under any other Loan Document or
the party to any other Loan Document (other than a Lender) fails to timely
comply with any term, covenant or agreement contained therein; or
(j) Insolvency, Failure to Pay Debts or
Appointment of Receiver, Etc. The Company or the Parent becomes insolvent
or the subject of state insolvency proceedings, fails generally to pay its
debts as they become due or makes an assignment for the benefit of
creditors; or a receiver, trustee, custodian or other similar official is
appointed for, or takes possession of any substantial part of the property
of, the Company or the Parent; as used herein, the term "insolvent" means
that the sum of the Company's liabilities, which in accordance with GAAP
appear on the balance sheet of the Company, exceeds the sum of the
Company's assets which appear on such balance sheet; or
(k) Subject of United States Bankruptcy Proceedings.
The taking of corporate action by the Company or the Parent to authorize
such organization to become the subject of proceedings under the United
States Bankruptcy Code; or the execution by the Company or the Parent of a
petition to become a debtor under the United States Bankruptcy Code; or
the filing of an involuntary petition against the Company or the Parent
under the United States Bankruptcy Code which remains undismissed for a
period of 60 days; or the entry of an order for relief under the United
States Bankruptcy Code against the Company or the Parent.
7.2 Remedies. Upon the occurrence of any of the events
described in sections 7.1(a) through 7.1(i), inclusive, the Agent shall,
at the direction of the Majority Lenders, at the same or different times,
take any of the following actions:
(a) declare the Lenders' Revolving Loan Commitments
to be terminated, whereupon the Lenders' Revolving Loan Commitments shall,
except as otherwise provided in section 7.3, immediately terminate; or
(b) declare the Revolving Loans, and all accrued
interest thereon, to be immediately due and payable, whereupon the
Revolving Loans, all accrued interest thereon and all other amounts owing
or payable under the Loan Documents shall be immediately due and payable
without presentment, demand, protest or notice of any kind, all of which
are expressly waived by the Company.
Promptly following the making of such declaration, the
Agent shall give notice thereof to the Company and each Lender but the
failure to give such notice shall not impair any of the effects of such
declaration. Upon the occurrence of any of the events described in
sections 7.1(j) or (k), the Lenders' Revolving Loan Commitments shall,
except as otherwise provided in section 7.3, immediately terminate and the
Notes, together with accrued interest thereon and all other amounts owing
or payable under the Loan Documents shall be immediately due and payable
without presentment, demand, protest or notice of any kind, all of which
are expressly waived by the Company.
7.3 Revolving Loans to Retire Commercial Paper.
Notwithstanding anything to the contrary contained in this Agreement
(including any insufficiency in the Borrowing Base Amount to support
advances pursuant to this section 7.3), if there is Commercial Paper
outstanding on the date the Revolving Loan Commitments would otherwise
terminate under section 7.2, to the extent that such Commercial Paper was
issued prior to the date of delivery of any notice of Default or Event of
Default from the Agent to the Company, unless at the time the Revolving
Loan Commitments would so terminate an Event of Default described in
sections 7.1(j) or (k) has occurred and is continuing, and except as
otherwise prohibited by applicable law, the Lenders shall remain obligated
to make Revolving Loans in the manner set forth in this section.
On the Business Day after the Agent provides the notice of
termination of the Revolving Loan Commitment under section 7.2 each CP
Agent shall provide to the Agent a schedule specifying the maturity dates
of outstanding Commercial Paper placed by such CP Agent, the principal and
interest due on each maturity date and the aggregate amount of principal
and interest to become due with respect to such Commercial Paper. The
Agent shall promptly forward such schedules to the Lenders. No later than
1 p.m. Milwaukee, Wisconsin time on the day following the day the Lenders
receive copies of such schedules, provided that no Event of Default under
sections 7.1(j) or (k) then exists, each Lender shall forward to the Agent
such Lender's Percentage of the aggregate principal and interest to become
due on Commercial Paper after the termination of the Revolving Loan
Commitments. Such funds shall be held in a noninterest bearing account in
the name of the Agent and the Agent shall forward the appropriate amount
of principal and interest to each CP Agent on each respective maturity
date as set forth in the schedules provided to the Agent by each CP Agent.
The advance by a Lender under this section 7.3 shall
constitute a Revolving Loan to the Company, shall be a Base Rate Loan
bearing interest at the Default Rate and shall be immediately due and
payable by the Company.
The Company acknowledges and consents to the provisions of
this section 7.3. The Company further acknowledges that the placement of
Commercial Paper by the CP Placement Agents under the CP Placement
Agreements is solely at the discretion of the CP Placement Agents and the
CP Placement Agents may decline at any time to continue to so place such
Commercial Paper.
8. The Agent.
8.1 Appointment and Duties of the Agent. The Lenders
hereby appoint Firstar, subject to the terms and conditions of this
section 8, as the Agent for the Lenders under and for purposes of this
Agreement and the other Loan Documents. Each of the Lenders hereby
irrevocably, authorizes, and directs the Agent to take such action on its
behalf and to exercise such powers hereunder as are delegated to the Agent
herein, together with such powers as are reasonably incident thereto, in
connection with the administration of and enforcement of any rights or
remedies with respect to this Agreement and the other Loan Documents. The
Agent shall use reasonable diligence to examine the face of each document
received by it hereunder to determine whether such document, on its face,
appears to be what it purports to be. However, the Agent shall not be
under any duty to examine into or pass upon the validity or genuineness of
any documents received by it hereunder and the Agent shall be entitled to
assume that any of the same which appears regular on its face is genuine
and valid and what it purports to be.
8.2 Discretion and Liability of the Agent. Subject to
sections 8.3, 8.5 and 9.12 hereof, the Agent shall be entitled to use its
discretion with respect to exercising or refraining from exercising any
rights which may vested in it by, or with respect to, taking or refraining
from taking any action or actions which it may be able to take under or in
respect of this Agreement and the other Loan Documents. Neither the Agent
nor any of its directors, officers, employees, agents or representatives
shall be liable for any action taken or not taken under any Loan Document
in the absence of gross negligence or willful misconduct.
8.3 Notice of Default. The Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to a failure by the Company to pay principal,
interest or fees required to be paid to the Agent, unless the Agent has
actual knowledge of such facts or has received notice from the Company or
a Lender in writing that the Company or such Lender considers that a
Default or Event of Default has occurred and is continuing and which
specifies the nature thereof.
If the Agent shall acquire actual knowledge of or
receive notice from a Lender that a Default or Event of Default has
occurred, the Agent shall promptly notify the Lenders and the Company of
such Default or Event of Default.
8.4 Consultation. The Agent in good faith may consult
with legal counsel or other advisors selected by it and shall be entitled
to fully rely upon any opinion of such counsel or other advisor in
connection with any action taken or not taken by the Agent in accordance
with such opinion.
8.5 Communications To and From the Agent. Upon any
occasion requiring or permitting an approval, consent, waiver, election or
other action on the part of the Lenders, unless action by the Agent alone
is expressly permitted hereunder, action shall be taken by the Agent for
and on behalf or for the benefit of the Lenders upon the direction of the
Majority Lenders or, if required under section 9.12, all the Lenders. The
Company may rely upon any communication from the Agent hereunder and need
not inquire into the propriety of or authorization for such communication.
Upon receipt by the Agent from the Company or any Lender of any
communication calling for an action on the part of the Lenders, the Agent
will, in turn, promptly inform the other Lenders in writing of the nature
of such communication. In addition, the Agent shall forward to each
Lender, promptly after receipt, copies of information provided by the
Company pursuant to the requirements of the Loan Documents including,
without limitation, the financial statements referred to in section 5.1
and section 8(b) of the Parent Guaranty, the Borrowing Base Certificates
and the notices referred to in section 5.10.
8.6 Limitations of Agency. The Agent will act under the
Loan Documents solely as the agent of the Lenders and only to the extent
specifically set forth in the Loan Documents and will, under no
circumstances, be considered to be a fiduciary of any nature whatsoever in
respect of any other Person. The relationship between the Agent and the
Lenders is that of agent and principal only and the Agent shall not be
deemed to be a trustee or fiduciary for any Lender. The Agent may
generally engage in any kind of banking or trust business with the Company
as if it were not the Agent.
8.7 No Representation or Warranty. No Lender (including
the Agent) makes to any other Lender any representation or warranty,
express or implied, or assumes any responsibility with respect to the
execution, validity or enforceability of this Agreement or the other Loan
Documents.
8.8 Lender Credit Decision. Each Lender acknowledges that
it has, independent of and without reliance upon any other Lender
(including the Agent) or any information provided by any other Lender
(including the Agent) and based upon the financial statements of the
Company and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independent of and
without reliance upon any other Lender (including the Agent) and based
upon such documents and information as it shall deem appropriate at that
time, continue to make its own credit decision in taking or not taking
action under this Agreement and the other Loan Documents.
8.9 Indemnity. Each Lender hereby indemnifies (which
indemnity shall survive the termination of this Agreement) the Agent, pro
rata according to such Lender's Percentage, from and against any and all
liabilities, obligations, losses, damages, claims, costs, or expenses of
any kind or nature whatsoever including reasonable attorneys' fees which
may at any time be imposed on, incurred by, or asserted against, the Agent
in any way related to or arising out of this Agreement or the other Loan
Documents and as to which the Agent is not reimbursed by the Company;
provided, however, that no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, claims, costs
or expenses which are determined by a court of competent jurisdiction in a
final proceeding to have resulted solely from the Agent's gross negligence
or willful misconduct. The Agent shall not be required to take any action
hereunder or under any other Loan Document, or to prosecute or defend any
suit in respect of the transactions contemplated hereby, unless it is
indemnified hereunder to its satisfaction. If any indemnity in favor of
the Agent shall be or become, in the Agent's determination, inadequate,
the Agent may call for additional indemnification from the Lenders and
cease to do the acts indemnified against hereunder until such additional
indemnity is given.
8.10 Resignation or Removal of Agent; Successor Agent. The
Agent may resign as such at any time upon at least 30 days' prior notice
to the Company and all Lenders. The Agent may be removed at any time by
the Majority Lenders upon at least 30 days' prior notice by the Majority
Lenders to the Company and the Agent, but only for cause consisting of its
gross negligence or willful misconduct or following a declaration of
insolvency by the appropriate regulators. If the Agent at any time shall
resign or be removed, the Majority Lenders may appoint another Lender as a
successor Agent which shall thereupon become the Agent hereunder. If no
successor Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf
of the Lenders, appoint the successor Agent, which shall be one of the
Lenders. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall be entitled to receive from
the retiring Agent such documents of transfer and such assignments as such
successor Agent may reasonably request, and shall thereupon succeed to and
become vested with all rights, powers, privileges and duties of the
retiring Agent and the retiring Agent shall be discharged from its duties
and obligations as Agent under this Agreement.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. The
Company's representations and warranties contained in section 3 hereof
shall survive closing and execution and delivery of the Notes.
9.2 Indemnification. The Company agrees to defend,
indemnify and hold harmless the Agent, the Collateral Custodian, the
Lenders and their respective directors, officers, employees and agents
from and against any and all loss, cost, expense or liability (including
reasonable attorneys' fees) incurred in connection with any and all claims
or proceedings (whether brought by a private party or governmental agency)
as a result of, or arising out of or relating to:
(a) bodily injury, property damage, abatement or
remediation, environmental damage or impairment or any other injury or
damage resulting from or relating to any hazardous or toxic substance or
contaminated material (as determined under Environmental Laws) located on
or migrating into, from or through property previously, now or hereafter
owned or occupied by the Company, which the Agent or any Lender may incur
due to the making of the Revolving Loans, the exercise of any of its
rights under the Security Documents, or otherwise;
(b) any transaction financed or to be financed, in
whole or in part, directly or indirectly, with the proceeds of any
Revolving Loan;
(c) any claim that the offering, issuance, placement
or sale of Commercial Paper, or any document used in connection therewith,
resulted in a violation of law, including any federal or state securities
law
(d) the entering into, performance of and exercise of
their rights under this Agreement or any other Loan Document by the Agent,
the Collateral Custodian and the Lenders.
This indemnity will survive foreclosure of any
security interest or mortgage or conveyance in lieu of foreclosure and the
repayment of the Revolving Loans and the discharge and release of the
Security Documents.
9.3 Expenses. The Company agrees, whether or not the
transaction hereby contemplated shall be consummated, to pay on demand
(a) all out-of-pocket expenses incurred by the Agent in connection with
the negotiation, execution, administration, or amendment of this Agreement
and the other Loan Documents, including reasonable counsel fees and
expenses, (b) all out-of-pocket expenses incurred by the Agent, the
Collateral Custodian or any Lender in connection with the enforcement of
this Agreement or any other Loan Document, (c) any taxes (including any
interest and penalties relating thereto) payable by any Lender (other than
taxes based upon such Lender's net income) on or with respect to the
transactions contemplated by this Agreement (the Company hereby agreeing
to indemnify each Lender with respect thereto) and (d) all out-of-pocket
expenses, including reasonable counsel fees and expenses, incurred by the
Agent, the Collateral Custodian or any Lender in connection with any
litigation, proceeding or dispute in any way related to the Agent's, the
Collateral Agent's and the Lenders' relationships with the Company,
whether arising hereunder or otherwise. The obligations of the Company
under this section will survive payment of the Revolving Loans.
9.4 Notices. All notices provided for herein shall be in
writing and shall be (a) delivered; (b) sent by express or first-class
mail; or (c) sent by facsimile transmission and confirmed in writing
provided to the recipient in a manner described in (a) or (b), and, if to
the Agent or a Lender, addressed to it at the address set forth below its
signature, and if to the Company, addressed to it at P.O. Box 190,
W239 N1700 Busse Road and Highway J, Pewaukee, Wisconsin 53072, Attention:
Vice President of Finance, Facsimile No. 414-523-4193, or to such other
address with respect to any party as such party shall notify the others in
writing; such notices shall be deemed given when delivered or mailed or so
transmitted.
9.5 Participations. The Company agrees that each Lender
may, at its option, sell to another financial institution or institutions
participating interests in the Note payable to such Lender and, in
connection with each such sale, and thereafter, disclose to the purchaser
or prospective purchaser of each such participating interest financial and
other information concerning the Company; provided, however, (a) such
Lender's obligations under this Agreement shall remain unchanged, (b) such
Lender shall remain solely responsible for the performance of such
obligations, (c) the Company and the Agent shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents and (d) no
Lender shall transfer or grant any participating interest under which the
participant has rights to approve any amendment to, or any consent or
waiver with respect to this Agreement or any other Loan Document except to
the extent such amendment, consent or waiver would require unanimous
consent of the Lenders as described in section 9.12(b) and (c). The
Company agrees that if amounts outstanding under this Agreement or a Note
are due and unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each such
purchaser shall be deemed to have, to the extent permitted by applicable
law, the right of setoff in respect of its participating interest in
amounts owing under this Agreement and such Note to the same extent as if
the amount of its participating interest were owed directly to it. The
Company further agrees that each such purchaser shall be entitled to the
benefits of sections 2.13 and 2.14 with respect to its participation in
the selling Lender's Revolving Loan Commitment; provided that no such
purchaser shall be entitled to receive any greater amount pursuant to that
section than the Lender would have been entitled to receive if no such
sale had occurred.
9.6 Titles. The titles of sections in this Agreement are
for convenience only and do not limit or construe the meaning of any
section.
9.7 Parties Bound; Waiver. The provisions of this
Agreement shall inure to the benefit of and be binding upon any successor
of any of the parties hereto and shall extend and be available to any
holder of a Note; provided that the Company's rights under this Agreement
are not assignable. No delay on the part of the Agent or any Lender in
exercising any right, power or privilege hereunder shall operate as a
waiver thereof, and no single or partial exercise of any right, power or
privilege hereunder shall preclude other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and
remedies herein specified are cumulative and not exclusive of any rights
or remedies which the Agent or a Lender would otherwise have.
9.8 Governing Law. This Agreement is being delivered in
and shall be deemed to be a contract governed by the laws of the State of
Wisconsin and shall be interpreted and enforced in accordance with the
laws of that state without regard to the principles of conflicts of laws.
9.9 Submission to Jurisdiction; Service of Process. As a
material inducement to the Agent and the Lenders to enter into this
Agreement:
(a) THE COMPANY AGREES THAT ALL ACTIONS OR
PROCEEDINGS IN ANY MANNER RELATING TO OR ARISING OUT OF THIS AGREEMENT OR
THE OTHER LOAN DOCUMENTS MAY BE BROUGHT ONLY IN COURTS OF THE STATE OF
WISCONSIN LOCATED IN MILWAUKEE COUNTY OR THE FEDERAL COURT FOR THE EASTERN
DISTRICT OF WISCONSIN AND THE COMPANY CONSENTS TO THE JURISDICTION OF SUCH
COURTS. THE COMPANY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH COURT AND ANY RIGHT IT MAY HAVE NOW OR HEREAFTER
HAVE TO CLAIM THAT ANY SUCH ACTION OR PROCEEDING IS IN AN INCONVENIENT
COURT; and
(b) The Company consents to the service of process in
any such action or proceeding by certified mail sent to the address
specified in section 9.4.
Nothing contained herein shall affect the right of the
Agent or the Lenders to serve process in any other manner permitted by law
or to commence an action or proceeding in any other jurisdiction.
9.10 Waiver of Jury Trial. THE COMPANY, THE AGENT AND THE
LENDERS HEREBY KNOWINGLY AND VOLUNTARILY WAIVE THE RIGHT EACH OF THEM MAY
HAVE TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM BASED ON OR
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ANY OTHER ACTION OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO THE AGENT AND THE LENDERS TO ENTER INTO THIS
AGREEMENT.
9.11 Limitation of Liability. THE COMPANY, THE AGENT AND
THE LENDERS HEREBY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO CLAIM OR
RECOVER FROM ANY OTHER PARTY ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES, OF WHATEVER NATURE, OTHER THAN
ACTUAL DAMAGES.
9.12 Amendments. No provision of this Agreement or the
other Loan Documents may be amended, modified, supplemented, changed,
waived, discharged or terminated unless the consent of the Majority
Lenders and the Company is obtained in writing, provided, however, that no
such amendment, modification or waiver which would:
(a) modify any requirement hereunder that any
particular action be taken by all the Lenders or by the Majority Lenders
shall be effective unless consented to by each Lender;
(b) modify this section 9.12, change the definition
of "Majority Lenders," increase any Revolving Loan Commitment or the
Percentage of any Lender, change the definition of "Borrowing Base
Amount," or reduce, or extend the scheduled due date for payment of, any
fees payable hereunder, shall be effective unless consented to by each
Lender;
(c) extend the scheduled due date for the payment of
principal or interest on any Note (or reduce the principal amount of or
rate of interest on any Note) shall be made without the consent of the
holder of such Note;
(d) release any collateral (except as permitted
herein or in the applicable Loan Document) shall be effective unless
consented to by each Lender; or
(e) adversely affect the interests, rights, or
obligations of the Agent shall be made without the consent of the Agent.
9.13 Counterparts. This Agreement and any amendment hereof
may be executed in several counterparts, each of which shall be executed
by the Agent and the Company and be deemed to be an original and all of
which together shall constitute one instrument. This Agreement shall
become effective when counterparts hereof executed on behalf of the
Company, the Agent and each Lender shall have been received by the Agent
and notice thereof shall have been given by the Agent to the Company and
each Lender.
9.14 Entire Agreement. This Agreement and the other Loan
Documents shall constitute the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior or contemporaneous
agreements and understandings of the parties in connection therewith.
[Intentionally Left Blank, Signatures Continue on Next Page]
<PAGE>
BANDO MCGLOCKLIN SMALL BUSINESS LENDING
CORPORATION
BY_____________________________
Its__________________________
Revolving
Loan
Commitment Percentage
FIRSTAR BANK MILWAUKEE, N.A.,
as the Agent
BY_____________________________
Its__________________________
Address: 777 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Jon Beggs
Facsimile No.: 414-765-6236
$17,500,000 35% FIRSTAR BANK MILWAUKEE, N.A.,
as a Lender
BY_____________________________
Its__________________________
Address: 777 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Jon Beggs
Facsimile No.: 414-765-6236
$17,500,000 35% FIRST BANK NATIONAL ASSOCIATION
BY_____________________________
Its__________________________
Address: 201 West Wisconsin Avenue
Milwaukee, WI 53259
Attn: Dennis Bowgren
Facsimile No.: 414-227-5416
$7,500,000 15% LASALLE NATIONAL BANK
BY_____________________________
Its__________________________
Address: 135 South LaSalle Street
Chicago, IL 60603
Attn: Terry Keating
Facsimile No.: 312-904-2903
$7,500,000 15% HARRIS TRUST AND SAVINGS BANK
BY_____________________________
Its__________________________
Address: 111 West Monroe Street
Chicago, IL 60603
Attn: Robert Bomben
Facsimile No.: 312-765-8382
<PAGE>
SCHEDULE 1
Existing Liens and Security Interests
SCHEDULE 3.4
Litigation
SCHEDULE 3.20
Year 2000 Compliance
SCHEDULE 6.2
Existing Indebtedness
SCHEDULE 6.3
Existing Contingent Obligations
Exhibit 10.5
MANAGEMENT SERVICES AND ALLOCATION OF EXPENSES AGREEMENT
AGREEMENT, made as of this 2nd day of September, 1997, by and between
InvestorsBank, a Wisconsin banking organization, located at W239 N1700
Busse Road, Pewaukee, Wisconsin ("Bank"), and Bando McGlocklin Capital
Corporation, a Wisconsin corporation, located at W239 N1700 Busse Road &
Highway J, Pewaukee, Wisconsin 53072-0190 ("Bando").
WHEREAS, the Bank and Bando wish to establish a contractual
relationship to permit employees of the Bank to manage the loans (i) made
by Bando as of the date hereof that are either on Bando's balance sheet or
sold by Bando but for which Bando retains servicing obligations and (ii)
originated by the Bank after the date hereof which are purchased by Bando
(in whole or in part) (collectively, the "Bando Loans"), to permit Bank
employees to provide accounting services to Bando and to share certain
overhead and lease expenses as between the Bank and Bando, all in
accordance with the terms and conditions of this Agreement; and
WHEREAS, Bando and the Bank each retain similar loan assets requiring
loan administration services and expertise; and
WHEREAS, the Bank employs persons with the necessary qualifications
and expertise to manage and provide loan administration services to the
Bando Loans and to provide accounting services to Bando; and
WHEREAS, it is in the best interest of the Bank and Bando to share
certain overhead and lease expenses in order to maximize the savings to
the Bank and Bando.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1, Loan Management Services
(a) The Bank shall service and administer the Bando Loans and
shall have full power and authority, acting alone, to do any and all
things in connection with such servicing and administration which the Bank
may deem necessary or desirable including, but not limited to, the
following.
The Bank may waive, modify or vary any term of any Bando Loan or
consent to the postponement of strict compliance with any such term or in
any manner grant indulgence to any obligor if, in the Bank's
determination, such wavier, modification, postponement or indulgence is
not materially adverse to the interests of Bando, provided, however, that,
unless the obligor is in default with respect to the Bando Loan, or such
default is, in the judgment of the Bank, imminent, the Bank may not permit
any modification with respect to any Bando Loan that would change the loan
interest rate, defer or forgive the payment of any principal or interest
(unless in connection with the liquidation of the related Bando Loan), or
extend the final maturity date on such Bando Loan. All out-of-pocket
costs incurred by the Bank, including but not limited to, the cost of
appraisals, title insurance and attorneys' fees shall be added to the
amount owing under the related Bando Loan. Without limiting the
generality of the foregoing, the Bank shall continue and is hereby
authorized and empowered to execute and deliver on behalf of Bando all
instruments of satisfaction or cancellation, or of partial or full
release, discharge and all other comparable instruments, with respect to
the Bando Loans and with respect to any mortgaged properties or other
collateral. If reasonably required by the Bank, Bando shall furnish the
Bank with any powers of attorney and other documents necessary or
appropriate to enable the Bank to carry out its servicing and
administrative duties under this Agreement.
(b) In consideration for the Bank's loan management services to
Bando under this Agreement, the Bank shall charge and Bando shall pay on a
monthly basis a fee equal to one-twelfth of twenty-five (25) basis points
multiplied by the amount of Bando Loans outstanding at the end of the
preceding month plus all of the Bank's out-of-pocket expenses described in
paragraph 1(a).
2. Accounting Services. The Bank shall provide accounting services
to Bando in accordance with the terms of this Agreement, which services
shall include, but not be limited to, the following:
a. Preparation of internal management reports.
b. Preparation of external reports to shareholders and any
applicable regulatory agencies.
The Bank shall maintain a record of the actual time spent by its
employees in providing such accounting services and shall charge and Bando
shall pay on a monthly basis for the actual cost of providing such
services. The actual cost shall be the employee's hourly rate, plus a pro
rata share of the cost of bonuses and other benefits and perquisites of
employment made available to such employee(s).
3. Audits. Bando shall have the authority to audit the activities
and services provided by the Bank on reasonable notice to the Bank and at
Bando's expense during the term of this Agreement.
4. Standard of Care. The Bank shall perform its responsibilities
under this Agreement in accordance with its usual practices and shall
employ or cause to be employed procedures (including collection,
foreclosure and foreclosed property management procedures) and shall
exercise the same degree of care to protect Bando's interest in the Bando
Loans managed by the Bank as it does its own loans assets. So long as the
Bank exercises such care in the servicing and management of the Bando
Loans, it shall not be under any liability to Bando with respect to
anything it may do or refrain from doing in the exercise of its judgment
or which may seem to the Bank to be necessary or desirable in the
servicing and management of the Bando Loans, except for it willful
misconduct.
5. Representations. The Bank has not made and does not make any
representations or warranties, express or implied, with respect to, and
the Bank does not assume and has no responsibility or liability for, the
collectibility, enforceability or the validity of any of the Bando Loans,
the documents evidencing such loans, or the financial condition of any
borrower or any obligor on the loans or collateral securing the loans, or
other information furnished by the Bank to Bando.
6. Overhead Expenses. The Bank and Bando shall share on an equal
50/50 basis, their overhead expenses. These expenses shall include, but
not be limited to, expenses for telephones, receptionist services,
depreciation and other miscellaneous expenses. Bando shall pay these
expenses and shall charge and the Bank shall pay for the Bank's one-half
of the expenses on a monthly basis.
7. Sublease. Bando has entered into a lease agreement with Bando
McGlocklin Real Estate Investment Corp. ("BMREIC") pursuant to which Bando
will lease the Demised Premises (as defined in such lease) for a monthly
rent established in the lease. The lease is a triple net lease. The Bank
acknowledges that Bando may lease a portion of the Demised Premises to
other subtenants. The Bank shall pay Bando on a monthly basis 29.67% of
the amounts due under the lease, including 29.67% of the charges for gas
and maintenance. The Bank shall pay Bando on a monthly basis 50% of
Bando's charges for electricity. At no time shall the Bank be charged any
amount as a result of any action or inaction by any other subtenant which
would require Bando to pay additional amounts under the lease.
8. Netting. The Bank shall subtract from the amount it charges to
Bando for the Loan Management Services and Accounting Services, pursuant
to paragraph 2 and 3 of this Agreement, the amount the Bank owes to Bando
for overhead and lease payments pursuant to paragraphs 7 and 8 of this
Agreement. The net amount shall be the amount the Bank shall charge and
Bando shall pay on a monthly basis.
9. Noncompetition. Bando agrees that, except as specifically
approved in writing by the Bank, Bando shall not originate any loans
during the term of this agreement and any renewal thereof.
Notwithstanding the foregoing, Bando may, at its option, purchase loan
participations (100% or less) from any other lending institution,
including, but not limited to, the Bank.
10. Term. The term of this Agreement shall be one (1) year from the
effective date of this Agreement, at which time this Agreement shall be
automatically renewed for successive one (1) year terms unless prior to
the original termination date or any subsequent renewal date either party
provides the other party with written notice at least sixty (60) days in
advance of the termination date of its intent that this Agreement not be
automatically renewed upon the occurrence of the next scheduled
termination date. This Agreement may also be terminated at any time by
mutual written consent of the Bank and Bando or by either party if the
other party fails to perform as required by this Agreement. Upon
termination, Bando or its designee shall assume all of the rights and
obligations of the Bank. The Bank shall, upon request of Bando but at the
expense of the Bank, deliver to Bando all documents and records relating
to the Bando Loans and an accounting of amounts collected and held by the
Bank and otherwise use its best efforts to effect the orderly and
efficient transfer of servicing rights and obligations to the assuming
party.
11. Confidentiality. The Bank agrees that it shall not disclose to
any third party any information concerning the customers, trade secrets,
methods, processes or procedures or any other confidential, financial or
business information of Bando of which it learns during the course of its
performance under this Agreement, without the prior consent of Bando.
12. Books and Records. All books and records maintained by or for
Bando shall be the property of Bando and shall be returned or provided to
Bando by the Bank immediately upon Bando's request.
13. Miscellaneous.
a. This Agreement sets forth the entire understanding of the
parties as to its subject matter and any not be modified except in writing
executed by both parties.
b. If any provision of this Agreement is held invalid or
otherwise unenforceable, the validity or enforceability of the remaining
provisions shall not be impaired thereby.
c. This Agreement shall be governed by and construed under the
laws of the State of Wisconsin.
INVESTORSBANK
By
/s/ George Schonath
George R. Schonath, Its President
BANDO MCGLOCKLIN CAPITAL CORPORATION
By
/s/ George Schonath
George R. Schonath, Its President
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Name of Subsidiary Jurisdiction of
Incorporation
Bando McGlocklin Small
Business Lending Corporation Wisconsin
Bando McGlocklin Investment Company(1) Wisconsin
Lee Middleton Original Dolls, Inc.(2) Wisconsin
License Products, Inc.(2) Wisconsin
(1) The registrant owns 100% of the non-voting stock and 99% of the
equity stock
(2) Bando McGlocklin Investment Company owns 51% of the common stock of
these companies
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 197,576
<SECURITIES> 131,176,116
<RECEIVABLES> 3,087,815
<ALLOWANCES> (268,796)
<INVENTORY> 3,280,172
<CURRENT-ASSETS> 769,949
<PP&E> 3,088,168
<DEPRECIATION> (993,770)
<TOTAL-ASSETS> 140,337,230
<CURRENT-LIABILITIES> 3,218,516
<BONDS> 109,467,887
16,908,025
0
<COMMON> 266,769
<OTHER-SE> 10,476,033
<TOTAL-LIABILITY-AND-EQUITY> 140,337,230
<SALES> 19,000,778
<TOTAL-REVENUES> 30,984,360
<CGS> 10,381,039
<TOTAL-COSTS> 10,381,039
<OTHER-EXPENSES> 8,608,037
<LOSS-PROVISION> 6,335
<INTEREST-EXPENSE> 6,943,304
<INCOME-PRETAX> 5,045,645
<INCOME-TAX> 1,539,265
<INCOME-CONTINUING> 3,506,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,506,380
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 440,867
<SECURITIES> 135,255,667
<RECEIVABLES> 3,461,655
<ALLOWANCES> 196,885
<INVENTORY> 3,605,662
<CURRENT-ASSETS> 1,259,664
<PP&E> 3,026,619
<DEPRECIATION> (941,208)
<TOTAL-ASSETS> 146,012,041
<CURRENT-LIABILITIES> 4,056,189
<BONDS> 112,828,402
266,769
16,908,025
<COMMON> 0
<OTHER-SE> 11,952,656
<TOTAL-LIABILITY-AND-EQUITY> 146,012,041
<SALES> 12,446,386
<TOTAL-REVENUES> 21,443,060
<CGS> 6,445,142
<TOTAL-COSTS> 6,445,142
<OTHER-EXPENSES> 6,214,639
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,862,157
<INCOME-PRETAX> 3,921,122
<INCOME-TAX> (1,133,784)
<INCOME-CONTINUING> 2,787,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,787,338
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,086,235
<SECURITIES> 128,070,318
<RECEIVABLES> 3,213,195
<ALLOWANCES> (5,367)
<INVENTORY> 2,377,412
<CURRENT-ASSETS> 4,184,539
<PP&E> 2,454,064
<DEPRECIATION> (620,970)
<TOTAL-ASSETS> 140,759,426
<CURRENT-LIABILITIES> 4,378,993
<BONDS> 101,362,394
266,006
16,908,025
<COMMON> 0
<OTHER-SE> 17,844,008
<TOTAL-LIABILITY-AND-EQUITY> 140,759,426
<SALES> 7,654,936
<TOTAL-REVENUES> 13,435,355
<CGS> 4,058,523
<TOTAL-COSTS> 4,058,523
<OTHER-EXPENSES> 3,852,500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,897,900
<INCOME-PRETAX> 2,626,380
<INCOME-TAX> 694,056
<INCOME-CONTINUING> 1,932,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,932,324
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF BANDO MCGLOCKLIN CAPITAL
CORPORATION AS OF AND FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 549,663
<SECURITIES> 106,060,067
<RECEIVABLES> 2,344,846
<ALLOWANCES> (12,162)
<INVENTORY> 1,657,287
<CURRENT-ASSETS> 2,676,227
<PP&E> 2,154,115
<DEPRECIATION> (578,910)
<TOTAL-ASSETS> 114,851,133
<CURRENT-LIABILITIES> 4,116,993
<BONDS> 76,797,613
265,035
16,908,025
<COMMON> 0
<OTHER-SE> 16,763,467
<TOTAL-LIABILITY-AND-EQUITY> 114,851,133
<SALES> 3,029,640
<TOTAL-REVENUES> 5,442,414
<CGS> 1,637,134
<TOTAL-COSTS> 1,637,134
<OTHER-EXPENSES> 1,679,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,264,316
<INCOME-PRETAX> 861,654
<INCOME-TAX> (232,073)
<INCOME-CONTINUING> 629,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629,581
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
