UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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 0-11663
CHANCELLOR CORPORATION
(Exact name of Small Business Issuer)
MASSACHUSETTS 04-2626079
(State or other jurisdiction of (I.R.S. Employer I.D.
No.)
incorporation or organization)
210 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
(Address of principal executive offices) (Zip Code)
(617) 368 - 2700
(Issuer's telephone number, including area code)
Check mark whether the Issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ X ] No [ ]
As of April 30, 1999, 43,365,536 shares of Common Stock, $.01 par value per
share and 5,000,000 shares of Series AA Convertible Preferred Stock, $.01 par
value per share (with a liquidation preference of $.50 per share or $2,500,000)
were outstanding. Aggregate market value of the voting stock held by
non-affiliates of the issuer as of April 30, 1999 was approximately $9,060,000.
Aggregate market value of the total voting stock of the issuer as of April 30,
1999 was approximately $27,103,000.
<PAGE>
1
CHANCELLOR CORPORATION AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
of March 31, 1999 and December 31, 1998 2
Condensed Consolidated Statements of Operations for
the Three Months Ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information 10
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 11
<PAGE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
2
<TABLE>
<CAPTION>
CHANCELLOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except per Share Data)
MARCH 31, DECEMBER 31,
1999 1998
----------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,738 $ 644
Receivables, net 4,053 3,255
Inventory 10,201 10,758
Net investment in direct finance leases 306 359
Equipment on operating lease, net of accumulated depreciation
of $2,344 and $2,351 2,154 702
Residual values, net 205 219
Furniture and equipment, net of accumulated depreciation
of $1,380 and $1,290 917 999
Other investments 3,685 3,681
Intangibles, net 7,473 7,541
Other assets, net 1,902 1,411
----------- --------------
$ 32,634 $ 29,569
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 6,771 $ 6,366
Deferred reimburseable expenses 848 1,068
Indebtedness:
Revolving credit line 8,720 9,063
Notes -payable 740 942
Nonrecourse 765 889
Recourse 7,590 4,234
Total liabilities 25,434 22,562
----------- --------------
Stockholders' equity:
Prefered Stock, $.01 par value, 20,000,000 shares authorized:
Convertible Series AA, 5,000,000 shares issued and outstanding 50 50
Convertible Series B, 2,000,000 shares authorized,
none issued and outstanding --- ---
Common stock, $.01 par value; 75,000,000 shares authorized,
43,344,493 and 43,041,895 shares issued and outstanding 433 430
Additional paid-in capital 34,280 34,217
Accumulated deficit (27,563) (27,690)
7,200 7,007
----------- --------------
$ 32,634 $ 29,569
=========== ==============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
3
<TABLE>
<CAPTION>
CHANCELLOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
THREE MONTHS ENDED MARCH 31,
1999 1998
------------------------------ -----------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Transportation equipment sales $ 12,268 $ ----
Rental income 458 96
Lease underwriting income 10 9
Direct finance lease income 15 36
Interest income 80 18
Gains from portfolio remarketing 251 82
Fees from remarketing activities 237 423
Other income 71 18
13,390 682
------------------------------ -----------
Costs and expenses:
Cost of transportation equipment sales 9,871 ----
Selling, general and administrative 2,807 530
Interest expense 183 21
Depreciation and amortization 360 104
13,221 655
------------------------------ -----------
169 27
Provision for income taxes 42 ----
------------------------------ -----------
Net income $ 127 $ 27
============================== ===========
Basic net income per share $ .00 $ .00
============================== ===========
Diluted net income per share $ .00 $ .00
============================== ===========
Shares used in computing basic net income per share 43,240,194 25,403,127
============================== ===========
Shares used in computing diluted net income per share 59,403,596 25,403,127
============================== ===========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
4
<TABLE>
<CAPTION>
CHANCELLOR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED MARCH 31,
1999 1998
------------------------------ --------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 127 $ 27
------------------------------ --------
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 360 104
Residual value estimate realizations and
reductions, net of additions 14 17
Changes in assets and liabilities:
(Increase) decrease in receivables (797) 370
Decrease in inventory 557 ----
Increase (decrease) in accounts payable and accrued
expenses 405 (265)
Decrease in deferred reimburseable expenses (220) ----
------------------------------ --------
319 226
------------------------------ --------
Net cash provided by operating activities 446 253
------------------------------ --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net investments in direct finance leases 52 (97)
Equipment on operating lease (1,444) (442)
Net change in cash restricted ---- 2,207
Additions to furniture and equipment, net (24) (40)
Increase in intangibles, net (229) ----
Net change in other assets (459) (1,614)
Net cash provided (used) by investing activities (2,104) 14
------------------------------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving line of credit (343) ----
Increase in notes payable 200 ----
Increase in indebtedness - recourse 3,746 ----
Repayments of notes payable (287) ----
Repayments of indebtedness - nonrecourse (124) (88)
Repayments of indebtedness - recourse (505) (32)
Issuance of common stock, net 65 ----
Net cash provided (used) by financing activities 2,752 (120)
------------------------------ --------
Net increase in cash and cash equivalents 1,094 147
Cash and cash equivalents at beginning of period 644 97
Cash and cash equivalents at end of period $ 1,738 $ 244
============================== ========
Cash paid for interest $ 197 $ 21
============================== ========
</TABLE>
CHANCELLOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
CHANCELLOR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial statements. Accordingly, the interim statements do not include all of
the information and disclosure required for annual financial statements. In the
opinion of the Company's management, all adjustments (consisting solely of
adjustments of a normal recurring nature) necessary for a fair presentation of
these interim results have been included. Intercompany accounts and
transactions have been eliminated. These financial statements and related notes
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998. The balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements included in the
Annual Report on Form 10-KSB. The results for the interim period ended March
31, 1999 are not necessarily indicative of the results to be expected for the
entire year.
2. LOAN AGREEMENT
In connection with the purchase of certain transportation equipment (the
"Equipment") on lease to certain lessees, the Company entered into a $2,500,000
loan agreement (the "Loan") with a financial institution (the "Lender"). The
Loan provides for the payment of twenty-four equal monthly installments,
beginning May 1, 1999, of principal in the approximate amount of $104,000 and
interest at 3.75% plus the average of the one (1) and two (2) month London
Interbank Offered Rates. In addition, proceeds from the sale of the Equipment
will be paid to the Lender as additional principal reduction up to $1,034,000.
In connection with the Loan, the lender retained $300,000 as a security deposit
to secure repayment of the Loan. The Loan is secured by all of the Equipment
and the lease contracts specifically associated with this transaction.
<PAGE>
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues. Total revenues for the three-month period ended March 31, 1999
was $13,390,000 as compared to $682,000 for the corresponding prior period, an
increase of $12,708,000 or 1,863.3%. For the three-month period ended March 31,
1999, transportation equipment sales were $12,268,000 as compared to no sales
for the corresponding prior period. This significant revenue stream from
transportation equipment sales is primarily attributable to significant sales of
used transportation equipment through the operating activities of the Company's
wholly owned subsidiary, Chancellor Asset Management Inc. ("CAM"). CAM's used
transportation equipment retail and wholesale business unit accounted for
approximately $10,797,000 of used transportation equipment sales. CAM's
revenues from the sales of used transportation equipment for the three month
period ended March 31, 1999 increased by $2,434,000 or 22.5% as compared to the
corresponding period for 1998. The increase in revenues provided by CAM is
primarily a result of the full ramp-up of its Richmond, Virginia retail center,
the addition of its Kansas City, Missouri retail center in late 1998, and
increased lines of credit in the latter half of 1998 enabling increased purchase
of inventory for both wholesale and retail sales. Through CAM, the Company
seeks to continue to expand its retail centers geographically. The Company also
seeks to utilize the competitive advantage provided by its access to retail
pricing for residual values of its leased equipment to increase competitiveness
within the Company's lease origination business unit. For the three-month
period ended March 31, 1999, rental income increased by $362,000 or 377.1% as
compared to the corresponding prior period. The increase in rental income is
attributable primarily to the addition to the Company's portfolio of certain
equipment acquired in connection with the purchase of several leases from trust
portfolios administered by the Company. For the three month period ended March
31, 1999, lease underwriting income increased by $1,000 or 11.1% and direct
finance lease income decreased by $21,000 or 58.3%, both as compared to the
corresponding prior period. This resulted in a net decrease in lease
origination activity of $20,000 or 44.4%. The Company is in the final phase of
its lease origination rebuilding process, having completed the addition of key
senior management and sales personnel, and development of strategic alliances to
provide future growth in this area. For the three-month period ended March 31,
1999, interest income increased by $62,000 or 344.4% as compared to the
corresponding prior period. The increase is primarily attributable to interest
earned in connection with the Company's investment of approximately $1,475,000
in a South Africa based manufacturer and lessor of transportation equipment.
For the three-month period ended March 31, 1999, gains from portfolio
remarketing increased by $169,000 or 206.1% as compared to the corresponding
prior period. The increase in gains from portfolio remarketing is attributable
to the increase in portfolio assets acquired in connection with the purchase of
several leases from trust portfolios administered by the Company, which were
made available for sale upon termination of certain leases. For the three-month
period ended March 31, 1999, fees from remarketing activities decreased by
$186,000 or 44.0% as compared to the corresponding prior period. This decrease
is attributable, in part, to a diminishing level of trust portfolio assets
available for remarketing from which the Company derives a significant portion
of its remarketing fees. For the three-month period ended March 31, 1999, other
income increased by $53,000 or 294.4% as compared to the corresponding prior
period. The increase is primarily attributable to the recovery of approximately
$67,000 of fees from a former lessee of the Company.
Costs and Expenses. Total costs and expenses for the three-month period
ended March 31, 1999 was $13,221,000 as compared to $655,000 for the
corresponding prior period, an increase of $12,566,000 or 1,918.5%. The
significant increase is primarily a result of the costs associated with sales of
transportation equipment. The cost of transportation equipment sales was
$9,871,000 for the three-month period ended March 31, 1999 and resulted in an
overall gross margin of 19.5%. Selling, general and administrative expenses for
the three-month period ended March 31, 1999 was $2,807,000 as compared to
$530,000 for the corresponding prior period, an increase of $2,277,000 or
429.6%. For the three-month period ended March 31, 1999, selling, general and
administrative expenses included recovered reimbursable trust administration
costs of approximately $547,000 as compared to $415,000 for the corresponding
prior period. Approximately $1,595,000 of the increase in selling, general and
administrative expenses for the three-month period ended March 31, 1999 is a
result of normal operating expenses incurred by CAM and CAM's newly acquired
retail and wholesale business unit, Tomahawk, whose operations were consolidated
with the Company's as of the August 1, 1998 acquisition date. Net of the
reimbursable trust administration costs and the effect of the CAM expenses,
selling, general and administrative expenses increased to $1,759,000 for the
three-month period ended March 31, 1999 as compared to $944,000 for the
corresponding prior period, an increase of $815,000 or 86.3%. The increase in
selling, general and administrative expenses reflects the effect of the
Company's growth strategy implementation that included, in part, significant
costs associated with the addition of senior management, sales and staff
personnel.
<PAGE>
Interest expense for the three-month period ended March 31, 1999 was $183,000 as
compared to $21,000 for the corresponding prior period, an increase of $162,000
or 771.4%. This increase is primarily a result of increased interest expense
associated with CAM's revolving credit line with a financial institution
utilized for inventory floor planning and interest accrued on the Company's
recourse debt.
Depreciation and amortization expense for the three-month period ended
March 31, 1999 was $360,000 as compared to $104,000 for the corresponding prior
period, an increase of $256,000 or 246.2%. The increase is primarily due to the
amortization of intangible assets associated with the acquisition of Tomahawk by
CAM.
Net Income. Net income for the three-month period ended March 31,
1999 was $127,000 as compared to $27,000 for the corresponding prior period, an
increase of $100,000 or 370.4%. The increase in net income is attributable to
the significant increase in revenues, primarily from the retail and wholesale of
used transportation equipment, the buy-out of leases from trust portfolios, and
continued improvements in the containment of costs. Net income per share (basic
and diluted) was $0.00 per share for the three-month periods ended March 31,
1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company recognized a net increase in cash and cash equivalents for the
three-month period ended March 31, 1999 of $1,094,000. Operating activities
provided cash of $446,000 during the three-month period ended March 31, 1999 and
is primarily a result of increased sales of used transportation equipment
inventory, normal increases in accounts payable associated with inventory and
operating purchases, and offset by increases in accounts receivables. Investing
activities used cash of $2,104,000 during the three-month period ended March 31,
1999 and is primarily a result of the acquisition of approximately $1,444,000 of
net operating leases that were bought out from a trust and a $300,000 security
deposit with a bank in connection with a loan agreement for $2,500,000 entered
into between the Company and a financing institution. Financing activities
provided cash of $2,752,000 during the three-month period ended March 31, 1999
and is primarily a result of net increases of approximately $835,000 in recourse
debt provided by Vestex Capital Corporation, the Company's majority stockholder,
and a loan from a financing institution in the amount of $2,500,000. Cash and
cash equivalents were $1,738,000 at March 31, 1999 as compared to $644,000 at
December 31, 1998, an increase of $1,094,000 or 169.9%.
The Company undertook a review of its trust portfolio, including
consultation with legal counsel and industry consultants, and determined that it
had not been recovering costs associated with administering the trusts.
Management's review determined that approximately $22,000,000 of costs for
periods prior to 1997 had not been recovered from the trusts. The Company has
recorded approximately $547,000 and $415,000 of cost recoveries in the
three-month periods ended March 31, 1999 and 1998, respectively.
In connection with the purchase of certain transportation equipment (the
"Equipment") on lease to certain lessees, the Company entered into a $2,500,000
loan agreement (the "Loan") with a financial institution (the "Lender"). The
Loan provides for the payment of twenty-four equal monthly installments,
beginning May 1, 1999, of principal in the approximate amount of $104,000 and
interest at 3.75% plus the average of the one (1) and two (2) month London
Interbank Offered Rates. In addition, proceeds from the sale of the Equipment
will be paid to the Lender as additional principal reduction up to $1,034,000.
In connection with the Loan, the lender retained $300,000 as a security deposit
to secure repayment of the Loan. The Loan is secured by all of the Equipment
and the lease contracts specifically associated with this transaction.
The Company also maintains a revolving line of credit agreement with a financial
institution whereby CAM can borrow up to $7,500,000 to floor plan used
transportation equipment inventory. The balance outstanding under this
revolving line of credit agreement is approximately $5,375,000 as of March 31,
1999. In addition, during 1998, CAM entered into a special purpose financing
agreement with the same institution to floor plan additional used transportation
equipment inventory in the approximate amount of $4,500,000. The balance
outstanding under this special purpose financing agreement is approximately
$2,780,000 as of March 31, 1999.
The Company's ability to underwrite equipment lease transactions is
largely dependent upon the availability of short-term warehouse lines of credit.
Management is engaged in continuing dialogue with several inventory lenders
which appear to be interested in providing the Company with warehouse financing.
If the Company experiences delays in putting warehouse facilities in place, the
Company transacts deals by coterminous negotiation of lease transactions with
customers and financing with institutions upon which it obtains a fee as the
intermediary of up to 3% of the amount of financing.
The remarketing, retailing and wholesaling of equipment has played and will
continue to play a vital role in the Company's operating activities. In
connection with the sale of lease transactions to investors, the Company
typically is entitled to share in a portion of the residual value realized upon
remarketing. Successful remarketing of the equipment is essential to the
realization of the Company's interest in the residual value of its managed
portfolio. It is also essential to the Company's ability to recover its
original investment in the equipment in its own portfolios and to recognize a
return on that investment. The Company has found that its ability to remarket
equipment is affected by a number of factors. The original equipment
specifications, current market conditions, technological changes, and condition
of the equipment upon its return all influence the price for which the equipment
can be sold or re-leased.
The Company plans to dedicate substantial resources toward the further
development and improvement of its remarketing, retailing and wholesaling
capabilities. The Company's strategy is to further exploit its remarketing
expertise by continuing to develop its ability to sell remarketing services to
other lessors, fleet owners, and lessees. The Company plans also to create a
dealer capability under which the Company would buy and resell fleet equipment.
The Company anticipates expanding its used transportation equipment retail and
wholesale capabilities through the addition of retail centers geographically
through internal growth and acquisitions. The Company's retail and wholesale
capabilities have been greatly improved through CAM's strategic acquisition of
Tomahawk. This improved capability will be used as a competitive advantage that
will enable the Company to provide a "total holding cost" concept when competing
for new lease origination deals. The Company's retail and wholesale business
unit will provide improved outlets for other lessors, financial institutions,
and fleet owners to dispose of used transportation equipment and sources of
quality used transportation equipment for fleet owners and owner-operators. The
Company will also aggressively promote its Internet capabilities to further
promote its business activities and as an e-commerce tool.
In August 1997, the Company committed to make a $1 million equity
investment in the New Africa Opportunity Fund, LP ("NAOF"). NAOF is a $120
million investment fund composed of $40 million from equity participants
including the Company, and $80 million in debt financing provided by the
Overseas Private Investment Corporation ("OPIC"), an independent U.S. government
agency. The purpose of the fund is to make direct investments in emerging
companies throughout Africa. As of March 31, 1999, the Company had funded
approximately $350,000 and is obligated to provide additional funding in the
approximate amount of $650,000. The Company has additionally invested
approximately $1,475,000 into one of NAOF's portfolio investee companies. The
Company continues to negotiate further strategic opportunities with this
investee company.
The Company's renewal or replacement of expired lines, its expected
access to the public and private securities markets, both debt and equity,
anticipated new lines of credit (both short-term and long-term and recourse and
non-recourse), anticipated long-term financing of individual significant lease
transactions, and its estimated cash flows from operations are anticipated to
provide adequate capital to fund the Company's operations for the next twelve
months. Although no assurances can be given, the Company expects to be able to
renew or timely replace expired lines of credit, to expand currently existing
lines for inventory floor planning, to continue to have access to the public and
private securities markets, both debt and equity, and to be able to enter into
new lines of credit and individual financing transactions.
IMPACT OF THE YEAR 2000 ISSUE
The Company has commenced efforts to assess and where required, remediate,
issues associated with Year 2000 ("Y2K") issues. Generally defined, Y2K issues
arise from computer programs which use only two digits to refer to the year and
which may experience problems when the two digits become "00" in the year 2000.
In addition, imbedded hardware microprocessors may contain time and two-digit
year fields in executing their functions. Much literature has been devoted to
the possible effects such programs may experience in the Year 2000, although
significant uncertainty exists as to the scope and effect the Y2K issues will
have on industry and the Company.
The Company has recognized the need to address the Y2K issue in a comprehensive
and systematic manner and has taken steps to assess the possible Y2K impact on
the Company. Although the Company has not completed a 100% assessment of all
its information technology ("IT") and non-IT systems for Y2K issues, the Company
has completed its assessment of all mission-critical systems. All
mission-critical systems and most of the major applications and hardware have
been assessed to determine the Y2K impact and a plan is in place for timely
resolution of potential issues.
In 1998, the Company developed a strategic plan to identify the IT systems
needed to accomplish the Company's overall growth plans. As part of this
process, Y2K issues were considered and addressed by the Company's senior
management and MIS personnel. Although this plan was intended to modernize the
IT systems, compliance with Y2K requirements were incorporated.
The cost of bringing the Company in full compliance should not result in a
material increase in the recent levels of capital spending or any material
one-time expenses. The Company has spent approximately $160,000 in modernizing
its IT system, including compliance with Y2K requirements. The Company
anticipates spending approximately $200,000 during fiscal 1999 to complete the
modernization of its IT system.
The failure of either the Company, its vendors or clients to correct the systems
affected by Y2K issues could result in a disruption or interruption of business
operations. The Company uses computer programs and systems in a vast array of
its operations to collect, assimilate and analyze data. Failure of such
programs and systems could affect the Company's ability to track assets under
lease and properly bill. Although the Company does not believe that any of the
foregoing worst-case scenarios will occur, there can be no assurance that
unexpected Y2K problems of the Company's and its vendors' and customer's
operations will not have a material adverse effect on the Company.
While it is difficult to classify our state of readiness, we believe that
our internal plans should have the Company ready by the end of 1999 to avoid any
material Y2K issues. We are in the process of completing the assessment,
testing systems and developing contingency plans. Management is in constant
communication with its IT personnel and has made and will continue to make
reports to the Company's Board of Directors.
The preceding discussion contains forward looking information within
the meaning of Section 21E of the Exchange Act. This disclosure is also subject
to protection under the Year 2000 Information and Readiness Disclosure Act of
1998, Public Law 105-271, as a "Year 2000 Statement" and "Year 2000 Readiness
Disclosure" as defined therein. Actual results may differ materially from such
projected information due to changes in the underlying assumptions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of
its stock may fluctuate. In the event the Company's revenues or earnings for
any quarter are less than the level expected by securities analysts or the
market in general, such shortfall could have an immediate and significant
adverse impact on the market price of the Company's stock. Any such adverse
impact could be greater if any such shortfall occurs near the same time of any
material decrease in any widely followed stock index or in the market price of
the stock of one or more public equipment leasing companies or major customers
or vendors of the Company.
The Company's quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, without limitation, as a result
of sales by the Company of equipment it leases to its customers. Such sales of
equipment, which are an ordinary but not predictable part of the Company's
business, will have the effect of increasing revenues, and, to the extent sales
proceeds exceeds net book value, net income, during the quarter in which the
sale occurs. Furthermore, any such sale may result in the reduction of revenue,
and net income, otherwise expected in subsequent quarters, as the Company will
not receive lease revenue from the sold equipment in those quarters.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This Quarterly Report on Form 10-QSB contains certain "Forward-Looking"
statements as such term is defined in the Private Securities Litigation Reform
Act of 1995 and information relating to the Company and its subsidiaries that
are based on the beliefs of the Company's management as well as assumptions used
in this report, the words "anticipate," "believe," "estimate," "expect," and
"intend" and words or phrases of similar import, as they relate to the Company
or its subsidiaries or the Company management, are intended to identify
forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitation, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introduction and acceptance, technology changes and changes in industry
conditions. Should any one or more of these risks or uncertainties materialize,
or should any underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected or intended. The Company does not intend to update these
forward-looking statements.
<PAGE>
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in routine legal proceedings incidental to the
conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
operations of the Company.
Item 2. Changes in Securities
None
Item 3. Defaults Under Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Loan and Security Agreement No. 7622, dated March 31, 1999, by and
between Phoenixcor, Inc., Chancellor Corporation and Chancellor Fleet
Corporation.
10.2 Pledge and Security Agreement, dated March 31, 1999, by and between
Phoenixcor, Inc., Chancellor Corporation and Chancellor Fleet Corporation.
10.3 Promissory Note to Loan and Security Agreement No. 7622, dated March
31, 1999, in the original principal amount of $2,500,000 from Chancellor
Corporation to Phoenixcor, Inc.
THE ENCLOSED FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL STATEMENTS OF CHANCELLOR CORPORATION FOR THE THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
27 Financial Data Schedule for period ended March 31, 1999.
(b) Reports on Form 8-K:
Current Report on Form 8-K, dated February 10, 1999
Current Report on Form 8-K, dated March 4, 1999
Current Report on Form 8-K/A, dated March 22, 1999
Current Report on Form 8-K/A, dated April 13, 1999
<PAGE>
CHANCELLOR CORPORATION
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, issuer
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CHANCELLOR CORPORATION
/s/ Brian M. Adley
---------------------
Brian M. Adley
Chairman of the Board and Director
(Principle Executive Officer)
/s/ Franklyn E. Churchill
----------------------------
Franklyn E. Churchill
President
/s/ Jonathan C. Ezrin
------------------------
Jonathan C. Ezrin
Corporate Controller
(Principle Accounting Officer)
DATE: May 13, 1999
LOAN AND SECURITY AGREEMENT NO. 7622
LOAN AND SECURITY AGREEMENT dated as of March 31, 1999 among
PHOENIXCOR, INC., a Delaware corporation with its principal place of business at
65 Water Street, South Norwalk, CT 06854 (referred to herein as "Lender");
CHANCELLOR CORPORATION, a Massachusetts corporation with its principal place of
business at 210 South Street, 10th Floor, Boston, MA 02111 (referred to herein
as "Borrower"); and CHANCELLOR FLEET CORPORATION, a Massachusetts corporation
with its principal place of business at 210 South Street, 10th Floor, Boston, MA
02111 (referred to herein both individually and as Trustee of the Trusts defined
below as "Debtor").
FACTUAL RECITALS
A. Borrower has requested that Lender advance to Borrower the Loan
defined below to, among other things, permit Borrower to acquire the sole
beneficial interest in the Trusts defined below.
B. Lender has agreed to extend the loan upon the terms and conditions
set forth in this Agreement. including but not limited to the grant of a first
priority perfected security interest in the Equipment and the Leases defined
below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. To the extent not otherwise specifically defined
in this Agreement, unless the context otherwise requires, all other terms
contained in this Agreement shall have the meanings assigned or referred to them
in the UCC. The following terms shall have the following meanings:
"AFFILIATE" shall mean, with respect to any person, firm or entity,
any other person, firm or entity controlling, controlled by, or under common
control with such person, firm or entity; for the purposes hereof "control"
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of any such person, firm or
entity, whether through the legal or beneficial ownership of voting securities,
by contract or otherwise.
"AGREEMENT" shall mean this Loan and Security Agreement, as amended or
modified from time to time.
"ATTORNEYS' FEES AND EXPENSES" shall mean all reasonable attorneys'
fees and legal costs and expenses (including, without limitation, those fees,
costs and expenses incurred in connection with bankruptcy proceedings, including
Relief from Stay Motions, Cash Collateral Motions and disputes concerning any
proposed disclosure statement and/or bankruptcy plan).
"COLLATERAL" shall have the meaning specified in Section 3.
"BANK" shall have the meaning defined in Section 4.
"CUSTOMER" shall mean Borrower and Debtor jointly and severally.
"DEFAULT" shall have the meaning ascribed to such term in Section 8 of
this Agreement.
"EQUIPMENT" shall mean the items or units of personal property set
forth as Exhibit A attached hereto, wherever the same may be located, including
all present and future additions, attachments, accessions and accessories
thereto and all replacements, substitutions and a right to use license for any
software related to any of the foregoing and proceeds thereof, including all
proceeds of insurance thereon.
"EVENT OF DEFAULT" shall have the meaning ascribed to such term in
Section 8 of this Agreement.
"INTEREST RATE" shall have the meaning defined in Section 2.
"LEASE" means any of the leases described in Exhibit B attached hereto
between a Lessee as lessee and Debtor as lessor (either individually or as
Trustee of the Trust which is the owner/lessor of such Lease) and all extensions
and amendments thereto, and "LEASES" means the Leases collectively.
"LEASE DOCUMENTS" shall have the meaning defined in Section 3(b).
"LESSEE" means any lessee of Equipment pursuant to a Lease and
"LESSEES" means the Lessees collectively.
"LOAN" shall have the meaning defined in Section 2.
"LOCKBOX" shall have the meaning defined in Section 4.
"NOTE" shall mean the Promissory Note of Borrower in favor of Lender
evidencing Borrower's obligations to Lender with respect to the Loan.
"OBLIGATIONS" shall mean the Loan repayment and all other liabilities,
absolute or contingent, joint, several or independent, of Customer or any
Affiliate of Customer now or hereafter existing, due or to become due to, or
held or to be held by, Lender for its own account or as agent for another or
others, whether created directly or acquired by assignment or otherwise and
howsoever evidenced, including, without limitation, this Agreement, and all
interest, taxes, fees, charges, expenses and Attorneys' Fees and Expenses
chargeable to Customer or incurred by Lender under this Agreement, or any other
document or instrument delivered in connection herewith.
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust, or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"SECURITY DEPOSIT" shall mean the sum of $300,000.00 which Lender
shall hold back from the Loan proceeds to secure repayment of the Loan and the
other Obligations.
"TRUSTS" shall mean the trusts established under the Trust Agreements
described on Exhibit C attached hereto between First Union Commercial
Corporation as grantor and Debtor in its individual capacity and as Trustee,
together with all exhibits thereto, and any other document or instrument
delivered in connection therewith.
"UCC" shall mean the Uniform Commercial Code as enacted in the State
of Connecticut. 2. THE LOAN AND LOAN REPAYMENT; LATE CHARGES;
DISBURSEMENT OF LOAN; PARTIAL PREPAYMENT. (a) As requested by Borrower, Lender
agrees to lend to Borrower the sum of $2,500,000.00 (the "Loan"). Borrower
agrees to repay the Loan in twenty-four (24) equal successive monthly
installments of principal each in the amount of $104,167.00 commencing May 1,
1999. Each principal installment shall be accompanied by the payment of accrued
interest on the unpaid principal balance calculated at the Interest Rate defined
below. As used herein, "Interest Rate" shall mean the per annum interest rate
equal to 3.75% plus the average of the one (1) and two (2) month London
InterBank Offered Rates (British Bankers Association Interest Settlement Rates)
quoted in U.S. Dollars on a daily basis (rounded upward to two decimal places)
as published by the Dow Jones Telerate Access Service, page 3750, or any
successor or similar publishing service selected by Lender. The interest due
with a principal payment shall be the interest accrued on the unpaid principal
balance of the Loan for the number of days elapsed in the month preceding the
due date of the payment at the average Interest Rate in effect during the second
full month preceding the due date of the payment.
(b) If any payment of principal or interest or other amount payable
hereunder shall not be paid within 10 days of the date when due, Borrower shall
pay as an administrative and late charge an amount equal to 5% of the amount of
any such overdue payment. In addition, Borrower shall pay overdue interest on
any delinquent payment or other amounts due under this Agreement (by reason of
acceleration or otherwise) from the due date until paid at the rate of one and
one-half percent (1.5%) per month or the maximum amount permitted by applicable
law, whichever is lower. All payments to be made to Lender shall be made to
Lender in immediately available funds at the address shown above, or at such
other place as Lender shall specify in writing.
(c) Borrower hereby authorizes Lender to disburse the proceeds of the Loan
as follows:
(I) $1,764,704.84 to: First Union Commercial Corporation
(II) 300,000.00 to: Lender to establish the Security Deposit
(III) 435,295.16 to: Borrower
-------------
$2,500,000.00 TOTAL PROCEEDS
(d) Anything in this Agreement to the contrary notwithstanding, Debtor
shall have the right to sell items of Equipment which are no longer subject to a
Lease. The sale price of any such Equipment shall be subject to Lender's prior
written approval, provided however, such approval shall be automatic if the
price is at least 85% of the estimated residual value for such item set forth on
Exhibit A attached hereto. All proceeds of sale shall be paid to Lender and
applied to the unpaid Loan as partial prepayments of principal (in inverse
order) without penalty up to $1,034,000.00 provided that in all events the Loan
may not be paid in full until Lender has received at least thirteen (13) monthly
payments. All proceeds of sales in excess of $1,034,000.00 shall be retained by
Debtor provided (i) no Event of Default exists hereunder and (ii) the ratio of
the orderly liquidation value of the remaining unsold Equipment to the remaining
unpaid Loan is equal to or greater than 1.0 to 1.0 as determined by Lender,
provided that the $300,000.00 Security Deposit shall be added to the value of
the unsold Equipment to arrive at the ratio. Upon receipt or proper application
of the proceeds of sale of an item of Equipment, Lender shall release its
security interest in such item.
3. SECURITY INTEREST. As security for the due and punctual
payment of any and all of the present and future Obligations of Customer to
Lender, Debtor hereby grants to Lender a security interest in all of Debtor's
right, title and interest in and to the following property (collectively
referred to herein as the "Collateral"):
(a) The Leases, including but not limited to all sums due or to become
due under the Leases commencing with the payments due April 1, 1999.
(b) All contracts of guaranty or surety, vendor or manufacturer
agreements and all other instruments and documents entered into in connection
with the Leases (all of the foregoing, together with the Leases being
collectively referred to herein as the "Lease Documents").
(c) All Equipment and other property leased under or securing the
Leases and all other collateral described in the Lease Documents as security for
the payment and performance of Lessees' obligations under the Leases and any
licenses, trademarks or other tangible or intangible property ancillary to the
Equipment.
(d) All products, proceeds, rents and profits of the foregoing,
including proceeds in the form of goods, accounts, chattel paper, documents,
instruments and insurance proceeds.
Debtor hereby collaterally assigns to Lender all of its rights and
remedies but none of its obligations under the Lease Documents as further
security for the payment of the Obligations.
4. SERVICING AND LOCKBOX. (a) Notwithstanding the collateral
assignment and/or grant of a security interest by Debtor in the Leases and the
Equipment, Lender hereby appoints Debtor as Lender's agent for the limited
purpose of servicing the Leases until Lender terminates the agency pursuant to
the provisions herein. Debtor shall administer the Leases in accordance with
all applicable laws and with its customary business practices in good faith and
will exercise that degree of ordinary care as to the Leases which Debtor
exercises in the conduct and management of similar transactions held for its own
account as the sole transaction between Debtor and a lessee. Debtor shall
receive no compensation for its activities as Lender's agent. Debtor shall
invoice Lessees and direct that Lessees remit payments due with respect to the
Leases to a post office box controlled by a bank acceptable to Lender (the
"Bank") and all payments shall be deposited into a bank account for the benefit
of Lender (said post office box and the bank account are collectively referred
to herein as the "Lockbox"). Debtor and the Bank shall enter into such
agreements with respect to the Lockbox as Lender requires so that Lender shall
control the distributions from the Lockbox and receive such reports as Lender
requires and satisfy all other requirements of Lender with respect thereto.
Debtor may, with Lender's prior written consent, delegate to Borrower its
responsibilities hereunder with respect to servicing and the Lockbox. To the
extent of their respective interests therein, Debtor and Borrower hereby grant
to Lender a security interest in the Lockbox as security for the payment and
performance of all Obligations.
(b) Debtor shall bill, collect and remit any sales/use and personal
property taxes owing with respect to the Lease and the Equipment and file or
cause Lessee to file all required tax returns relating thereto.
(c) Debtor agrees to give Lender prompt written notice of any event of
default under the Leases.
(d) Lender shall have the right, through employees, agents or counsel
to examine all documents and information relating to the Leases and Debtor's
servicing thereof contained in Debtor's file during normal business hours at the
office of Debtor.
(e) Customer shall have no authority to modify or negotiate with
respect to the Leases, including but not limited to any of the following: (i)
make or consent to any alteration of any of the material terms of any of the
Leases; (ii) make or consent to any release, substitution or exchange of any
Equipment or any release or substitution of Lessee's or any guarantor's
obligations under the Leases; (iii) accelerate or extend the maturity of the
Leases; or (iv) waive any material claim against any Lessee.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrower and Debtor
hereby jointly and severally represent and warrant to and covenant with Lender
that, as of the date hereof and for so long as any Obligations shall remain
outstanding:
(a) Customer is duly organized and is existing in good standing under
the laws of its jurisdiction of organization and is duly qualified and in good
standing in those jurisdictions where the conduct of its business or the
ownership of its properties requires qualification;
(b) Debtor has the power and authority to own the Collateral and each
of Borrower and Debtor has the power to enter into and perform this Agreement
and any other document or instrument delivered in connection herewith and to
incur the Obligations;
(c) Customer's chief executive office is located at the address set
forth above;
(d) Customer does not utilize, and has not in the last five years
utilized, any trade names in the conduct of its business except as set forth on
Schedule 1 hereto;
(e) Customer has not changed its name, been the surviving entity in a
merger, acquired any business or changed the location of its chief executive
office within the previous five years, except as set forth on Schedule 2 hereto;
(f) Neither the execution, delivery or performance by Customer of this
Agreement nor compliance by it with the terms and provisions hereof, nor the
consummation of the transactions contemplated herein (i) will contravene any
applicable provision of any law, statute, rule or regulation, or any order,
writ, injunction or decree of any court or governmental instrumentality, (ii)
will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in any lien upon any property, pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or any other material agreement or
instrument to which Customer is a party or by which it or any of its property or
assets are bound or to which it may be subject or (iii) will violate any
provision of its Certificate of Incorporation or By-Laws, or other governance
documents;
(g) This Agreement, the Note and any document or instrument delivered
in connection herewith and the transactions contemplated hereby or thereby are
duly authorized, executed and delivered, and this Agreement, the Note and such
other documents and instruments constitute valid and legally binding obligations
of the respective Customer and are enforceable against Customer in accordance
with their respective terms;
(h) No order, consent, approval, license, authorization, or validation
of, or filing, recording or registration with, or exemption by any governmental
or public body or authority, or any subdivision thereof, is required to
authorize or required in connection with (i) the grant by Customer of the
security interest in connection with this Agreement, (ii) the execution,
delivery and performance of this Agreement, (iii) the legality, validity,
binding effect or enforceability of this Agreement or (iv) the perfection or
maintenance of the aforementioned lien and security interest;
(i) Customer has filed all federal, state and local tax returns and
other reports it is required to file, has paid or made adequate provision for
payment of all such taxes, assessments and other governmental charges, and shall
pay or deposit promptly when due all sales, use, excise, personal property,
income, withholding, corporate, franchise and other taxes, assessments and
governmental charges upon or relating to the manufacture, purchase, ownership,
maintenance, modification, delivery, installation, possession, condition, use,
acceptance, rejection, operation or return of the Equipment and, upon request by
Lender, Customer will submit to Lender proof satisfactory to Lender that such
payments and/or deposits have been made;
(j) There are no pending or threatened actions or proceedings before
any court or administrative agency, an unfavorable resolution of which could
have a material adverse effect on Customer's financial condition or operations;
(k) No representation, warranty or statement by Customer contained in
this Agreement or in any certificate or other document furnished or to be
furnished by Customer pursuant to this Agreement contains or at the time of
delivery shall contain any untrue statement of material fact, or omits, or shall
omit at the time of delivery, to state a material fact necessary to make it not
misleading;
(l) All financial statements delivered and to be delivered by Customer
to Lender in connection with the execution and delivery of this Agreement are
true and correct in all material respects and have been prepared in accordance
with generally accepted accounting principles, and at all times since the date
of the most recent financial statements, there has been no material change in
Customer's financial affairs or business operations. Customer shall furnish
Lender: (i) within 90 days after the last day of each fiscal year of Customer,
a financial statement including a balance sheet, income statement, statement of
retained earnings and statement of cash flows, each prepared in accordance with
generally accepted accounting principles consistently applied with a report
signed by an independent certified public accountant satisfactory to Lender;
(ii) upon the request of Lender, within 45 days after the close of each quarter
of each fiscal year of Customer, financial statements similar to those described
in the immediately preceding clause, prepared by Customer and certified by the
chief financial officer of Customer; (iii) promptly upon the request of Lender,
such tax returns or financial statements regarding any guarantor of the
Obligations or any Subsidiary of Customer as Lender may reasonably request from
time to time; (iv) promptly upon request of Lender, in form satisfactory to
Lender, such other and additional information as Lender may reasonably request
from time to time, and; (v) promptly inform Lender of any Defaults (defined
below) or any events or changes in the financial condition of Customer occurring
since the date of the last financial statements of Customer delivered to Lender
which, individually or cumulatively, when viewed in light of prior financial
statements, may result in a material adverse change in the financial condition
of Customer;
(m) Customer shall permit Lender, through its authorized attorneys,
accountants and representatives, to inspect and examine the Equipment and the
books, accounts, records, ledgers and assets of every kind and description of
Customer with respect thereto at all reasonable times; provided, however, that
the failure of Lender to inspect the Equipment or to inform Customer of any
noncompliance shall not relieve Customer of any of its Obligations hereunder;
(n) Subject to Section 2, Customer may not sell, offer to sell, lease,
rent, hire or in any other manner dispose, transfer or surrender use and
possession of any Equipment without Lender's prior written consent, which
consent shall not be unreasonably withheld;
(o) Customer will not, directly or indirectly, create, incur or permit
to exist any lien, encumbrance, mortgage, pledge, attachment or security
interest on or with respect to the Equipment other than in connection with the
execution and delivery of this Agreement;
(p) Borrower is the sole beneficial interest holder of all of the
Trusts and Debtor, as Trustee, is the sole Trustee of all of the Trusts. If
notwithstanding the intention of the parties, Borrower is ever construed to have
an ownership interest in any Equipment or Lease, then Borrower hereby transfers
all such ownership interest to Debtor, as Trustee of the applicable Trust
effective as of the date hereof;
(q) Customer has all permits, licenses and other authorizations which
are required with respect to its business under Environmental Laws (as defined
below) and is in compliance with all terms and conditions of such permits,
licenses and other authorizations, including all limitations, restrictions,
standards, prohibitions, requirements, obligations, schedules and timetables.
The Customer is not presently in violation of any Environmental Laws.
"Environmental Laws" shall mean any Federal, state or local law relating to
releases or threatened releases of Hazardous Substances; the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances; or otherwise relating to pollution
of the environment or the protection of human health. "Hazardous Substances"
shall mean substances or materials which contain substances defined in or
regulated as toxic or hazardous materials, chemicals, substances, waste or
pollutants under any present or future Federal statutes and their state
counterparts, as well as any implementing regulations as amended from time to
time and as interpreted by administering agencies.
6. WARRANTIES AND REPRESENTATIONS REGARDING THE LEASES AND EQUIPMENT.
Debtor and Borrower jointly and severally warrant and represent with respect to
each Lease and the Equipment thereunder as follows:
(a) Debtor is the owner of the Lease free of any liens (other than the
lien of Lender), claims, encumbrances, defenses, offsets and counterclaims, real
or claimed, except the right of Lessee to quiet enjoyment thereunder in
accordance with the terms of the Lease.
(b) Debtor is the owner of Equipment free and clear of all rights,
title, security interests, encumbrances or liens of any other party, will defend
the Equipment against all claims and demands of all persons at any time claiming
any interest therein and shall deliver to Lender any and all evidence of
ownership of, and certificates of title to, any and all of the Equipment;
(c) The Lease Documents delivered to Lender contain or describe the
entire agreement relating to the lease of the Equipment to Lessee (including any
agreement regarding the purchase of the Equipment) and no representations,
warranties or inducements not contained in the Lease Documents have been made or
given to Lessee or other third parties.
(d) The Lease and any guaranty have been duly authorized, executed and
delivered by the respective parties, are in full force and effect and constitute
the legal, valid and binding obligations of all parties thereto enforceable in
accordance with their terms except as may be limited by bankruptcy, insolvency
and similar laws applicable to creditors generally and subject to principles of
equity.
(e) All of the originals of the Lease have been delivered to Lender
and there are no other executed counterparts thereof except for the Lessee's
copy, which is clearly marked as a copy.
(f) The Equipment was delivered to the Lessee and has been fully and
unconditionally accepted by the Lessee as evidenced by Lessee's execution of an
acceptance certificate or similar document.
(g) The Lessee has no right to prepay, cancel or terminate the Lease
except as expressly provided in the Lease Documents delivered to Lender.
(h) To the best of Debtor's knowledge, Debtor has complied with, and
the Lease is enforceable with regard to, all applicable Federal, State and
Municipal laws, rules or regulations having the force of law regarding leases.
(i) The Equipment constitutes personal property and will not be
affixed to the realty and no fixture filing is required to protect Secured
Party's rights to the Equipment except for any filing which has been assigned to
Secured Party.
(j) Exhibit A hereto correctly sets forth for each item of Equipment
the applicable Lease and Lessee (and sublessee if any), the current location and
the applicable Trust to which such Equipment is subject.
(k) Exhibit C hereto corrects sets forth for each Trust the applicable
Leases, the original Lessee and the current Lessee.
(l) Exhibit D accurately sets forth the remaining rentals due under
each Lease commencing April 1, 1999.
7. RISK OF LOSS AND DAMAGE; INSURANCE. Customer assumes all risk
of loss, damage or destruction to the Equipment from whatever cause and for
whatever reason. If all or a portion of an item of Equipment shall become lost,
stolen, destroyed, damaged beyond repair or rendered permanently unfit for use
for any reason, or in the event of any condemnation, confiscation, theft or
seizure or requisition of title to or use of such item of Equipment, Customer
shall immediately pay to Lender an amount equal to the proportional outstanding
principal balance of and accrued and unpaid interest on the Note with respect to
such Equipment, less the net amount of the recovery, if any, received by Lender
from insurance on the Equipment. For so long as any Obligations shall remain
outstanding, Customer shall maintain or cause the Lessees to procure and
maintain insurance in such amounts and with such coverages, and upon such terms
and with such companies, as Lender may approve, at the Lessee's expense;
provided, however, that in no event shall such insurance be less than the
following coverages and amounts: (a) All Risk Physical Damage Insurance,
including earthquake and flood, on each item of Equipment, in an amount not less
than the greater of (i) the proportional outstanding principal balance owing
under the Note with respect to such Equipment; or (ii) its full replacement
value. Customer shall require Lessee to cause Lender to be included as an
additional insured on each such Comprehensive General Liability Insurance
policy. On each such All Risk Physical Damage Insurance policy Lender shall be
named as loss payee. Customer agrees to waive Customer's rights and its
insurance carrier's rights of subrogation against Lender for any and all loss or
damage. In addition to the foregoing minimum insurance coverage, Customer shall
procure and maintain such other insurance coverage as Lender may require. All
policies shall be endorsed or contain a clause requiring the insurer to furnish
Lender with at least 30 days prior written notice of any material change,
cancellation or non-renewal of coverage. Upon execution of this Agreement, and
thereafter, 30 days prior to the expiration of each insurance policy required
hereunder, Customer shall furnish Lender with a certificate of insurance from
each Lessee or other evidence satisfactory to Lender that the insurance
coverages required under such policy are and will continue in effect, provided,
however, that Lender shall be under no duty either to ascertain the existence of
or to examine such insurance coverage or to advise Customer in the event such
insurance coverage should not comply with the requirements hereof.
8. EVENTS OF DEFAULT. An "Event of Default" under this Agreement
shall be deemed to have occurred upon the occurrence or existence of any one or
more of the following events or conditions (each a "Default") and after the
giving of any required notice or the passage of any required period of time (or
both) specified below with respect to such Default: (a) Borrower shall fail to
make any payment due under any Note or as required under this Agreement within
10 days of its due date; or (b) Customer shall fail to obtain or maintain any of
the insurance required under this Agreement; or (c) except as provided in
Section 2, Customer shall remove, sell, transfer, encumber, or part with
possession of any Equipment; (d) Customer shall fail to perform or observe any
other covenant, condition or agreement under this Agreement, and such failure
shall continue for 20 days after notice thereof to Customer; or (e) Customer or
any of its Affiliates shall default in the payment or performance of any
Obligation owing to Lender, and such default shall continue for 20 days after
notice thereof to Customer; or (f) any representation or warranty made by
Customer herein or in any certificate, agreement, statement or document
heretofore or hereafter furnished Lender, including without limitation any
financial information disclosed to Lender, shall prove to be false or incorrect
in any material respect; or (g) death or judicial declaration of incompetence of
Customer, if an individual; or (h) the commencement of any bankruptcy,
insolvency, arrangement, reorganization, receivership, liquidation or other
similar proceeding by or against Customer or any of its properties or
businesses, or the appointment of a trustee, receiver, liquidator or custodian
for Customer or any of its properties or businesses, or if Customer suffers the
entry of an order for relief under Title 11 of the United States Code; or (i)
the making by Customer of a general assignment or deed of trust for the benefit
of creditors; or (j) Customer shall default in any payment or other material
obligation to any other lender and such lender has accelerated the debt in
accordance with its terms; or (k) Customer shall merge with or consolidate into
any other entity or sell all or substantially all of its assets or in any manner
terminate its existence; or (l) if Customer is a privately held corporation,
more than 50% of Customer's voting capital stock, or effective control of
Customer's voting capital stock, issued and outstanding from time to time, is
not retained by the holders of such stock on the date this Agreement is
executed; or (m) if Customer is a publicly held corporation, there shall be a
change in the ownership of Customer's stock such that Customer is no longer
subject to the reporting requirements of the Securities Exchange Act of 1934 or
no longer has a class of equity securities registered under Section 12 of the
Securities Act of 1933; or (n) Lender shall determine that there has been a
material adverse change in the financial condition or business operations of
Customer since the date of the execution of this Agreement, or that Customer's
ability to perform its obligations is materially impaired; or (o) if Customer
leases the premises where any Equipment is located, a breach by Customer of any
such lease and the commencement of an action by the landlord to evict Customer
or to repossess the premises; or (p) any event or condition set forth in
subsections (e) through (o) of this Section 8 shall occur with respect to any
guarantor or other person liable or responsible, in whole or in part, for
payment or performance of any Obligations; or (q) any event or condition set
forth in subsections (e) through (o) shall occur with respect to any Affiliate
of Customer. Customer shall promptly notify Lender of the occurrence of any
Event of Default or the occurrence or existence of any event or condition which,
upon the giving of notice or lapse of time, or both, would constitute an Event
of Default.
9. RIGHTS AND REMEDIES; ACCELERATION. (a) Upon the occurrence of
an Event of Default, Lender shall have all of the rights and remedies enumerated
herein (all of which are cumulative and not exclusive of any other right or
remedy available to Lender) and Lender may, at its sole option and discretion,
exercise one or more of the following remedies with respect to any or all of the
Collateral: (i) by written notice to Borrower, subject to Lender's option under
Section 9(c), declare immediately due and payable and recover from Borrower, as
liquidated damages for loss of Lender's bargain and not as a penalty, an amount
equal to the aggregate of all unpaid periodic installment payments and other
sums due under the Note and this Agreement to the date of default plus the late
charges and interest set forth in Section 2 hereof, if any, plus an amount equal
to the outstanding principal balance of and accrued and unpaid interest on the
Note, (ii) Lender may declare, at its option, all or any part of the Obligations
immediately due and payable, without demand, notice of intention to accelerate,
notice of acceleration, notice of nonpayment, presentment, protest, notice of
dishonor, or any other notice whatsoever, all of which are hereby waived by
Customer and any endorser, guarantor, surety or other party liable in any
capacity for any of the Obligations; (iii) terminate all rights of Customer to
service the Leases, enforce the Leases directly and retain all proceeds of the
Lockbox; (iv) apply any Security Deposit or other cash collateral or sale or
remarketing proceeds of the Equipment at any time to reduce any amounts due to
Lender, or (v) exercise any other right or remedy which may be available to
Lender under applicable law, or proceed by appropriate court action to enforce
the terms hereof or to recover damages for the breach hereof, including
Attorneys' Fees and Expenses. Any notice required to be given by Lender of a
sale or other disposition or other intended action which is made in accordance
with the terms of this Agreement at least seven (7) days prior to such proposed
action, shall constitute fair and reasonable notice to Customer of any such
action. Lender shall be liable to Customer only for its gross negligence or
willful misconduct in failing to comply with any applicable law imposing duties
upon Lender; Lender's liability for any such failure shall be limited to the
actual loss suffered by Customer directly resulting from such failure; and in no
event shall Lender have any liability to Customer for incidental, consequential,
punitive or exemplary damages. No remedy referred to in this Section 9 shall be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to above or otherwise available to Lender at law or in equity.
(b) The exercise or pursuit by Lender of any one or more of such
remedies shall not preclude the simultaneous or later exercise or pursuit by
Lender of any or all such other remedies, and all remedies hereunder shall
survive termination of this Agreement. A termination shall occur only upon
written notice by Lender and only with respect to such Equipment as Lender shall
specify in such notice. Termination under this Section 9 shall not affect
Customer's duty to perform Customer's Obligations under this Agreement in full.
Customer agrees to reimburse Lender on demand for any and all costs and expenses
incurred by Lender in enforcing its rights and remedies hereunder following the
occurrence of an Event of Default, including, without limitation, Attorneys'
Fees and Expenses, the costs of repossession, storage, insuring, reletting,
selling and disposing of any and all Equipment and the costs of enforcing the
Leases.
(c) Borrower acknowledges that Lender has entered into this
Agreement and agreed to make the Loan with the expectation that the Loan will be
repaid in significant part from the proceeds of the sale of Equipment and in
reliance upon Borrower's expertise in remarketing the Equipment. Accordingly,
if an Event of Default occurs and is not cured within thirty (30) days after
notice by Lender to Borrower, and as a result Lender is required to repossess
and remarket any Equipment, then as liquidated damages, Lender may at its option
in lieu of recovering the damages under Section 9(a)(i), retain all proceeds of
sale of all Equipment then remaining as security under this Agreement at the
---
time of the Default, regardless of whether the amount recovered is in excess of
the outstanding principal balance plus accrued interest and late charges, as
sole damages for the default.
10. INDEMNITY. (a) Customer agrees to indemnify, reimburse and hold
Lender and its successors, Affiliates, assigns, officers, directors, employees,
agents and servants (hereinafter in this Section 10 referred to individually as
"Indemnitee", and collectively as "Indemnitees") harmless from any and all
liabilities, obligations, damages, injuries, penalties, claims, demands,
actions, suits, judgments and any and all costs, expenses or disbursements,
including Attorneys' Fees and Expenses of whatsoever kind and nature imposed on,
asserted against or incurred by any of the Indemnitees in any way relating to or
arising out of this Agreement or any other document executed in connection
herewith or therewith or in any other way connected with the administration of
the transactions contemplated hereby or thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, or in any way
relating to or arising out of the manufacture, ownership, ordering, purchase,
delivery, control, acceptance, lease, financing, possession, operation,
condition, sale, return or other disposition, or use of the Equipment
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim, or any claim based on patent, trademark or copyright
infringement or any obligation or liability to the manufacturer or supplier of
the Equipment; provided, however, that no Indemnitee shall be indemnified
pursuant to this Section 10 for losses, damages or liabilities to the extent
caused solely by the gross negligence or willful misconduct of such Indemnitee.
Customer agrees that upon written notice by any Indemnitee of the assertion of
such a liability, obligation, damage, injury, penalty, claim, demand, action,
suit or judgment, Customer shall assume full responsibility for the defense
thereof. Each Indemnitee agrees to use its best efforts to promptly notify
Customer of any such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 10(a) hereof,
Customer agrees to pay, or reimburse Lender for any and all reasonable fees,
costs and expenses (including Attorneys' Fees and Expenses) of whatever kind or
nature incurred in connection with the creation, preservation or protection of
Lender's liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other fees, costs and expenses in connection
with protecting, maintaining or preserving the Collateral and Lender's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.
(c) Customer shall, at its sole cost and expense, protect,
defend, indemnify, release and hold harmless the Indemnitees from and against
any and all Losses imposed upon or incurred by or asserted against any
Indemnitees, and arising out of or in any way relating to any one or more of the
following, unless caused solely by the gross negligence or willful misconduct of
any Indemnitee: (i) any presence of any Hazardous Substances in, on, above or
under Customer's leased or owned real property (the "Property"); (ii) any past,
present or threatened Release of Hazardous Substances in, on, above, under or
from the Property; or (iii) any past or present violation of any Environmental
Laws. The term "Release" of any Hazardous Substance includes, but is not
limited to, any release, deposit, discharge, emission, leaking, spilling,
seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping,
disposing or other movement of Hazardous Substances. The term "Losses" includes
any and all claims, suits, liabilities (including, without limitation, strict
liabilities), actions, proceedings, obligations, debts, damages, losses, costs,
expenses, diminutions in value, fines, penalties, charges, fees, expenses,
judgments, awards, amounts paid in settlement, costs of remediating a Hazardous
Substance (whether or not performed voluntarily), engineers' fees, environmental
consultants' fees, and costs of investigation (including, but not limited to
sampling, testing and analysis of soil, water, air, building materials and other
materials and substances whether solid, liquid or gas) or punitive damages, of
whatever kind or nature (including, but not limited to Attorneys' Fees and
Expenses).
(d) Without limiting the application of Section 10(a) or (b), or
(c) hereof, Customer agrees to pay, indemnify and hold each Indemnitee harmless
from and against any loss, costs, damages and expenses (including Attorneys'
Fees and Expenses) which such Indemnitee may suffer, expend or incur in
consequence of or growing out of any misrepresentation or omission of a material
fact by Customer in this Agreement or in any writing contemplated by or made or
delivered pursuant to or in connection with this Agreement.
(e) If and to the extent that the obligations of Customer under
this Section 10 are unenforceable for any reason, Customer hereby agrees to make
the maximum contribution to the payment and satisfaction of such obligations
which is permissible under applicable law.
11. MONTHLY REPORTS; MAINTENANCE; INSPECTION. (a) During the term
of this Agreement, Customer shall supply to Lender a monthly report in the form
of Exhibit E attached hereto (or as modified as required by Lender) stating as
of the end of such month for each item of Equipment the current location, the
Lease status (remaining months or term of renewal), whether any damage has
occurred to such item and such other information as Lender shall reasonably
require. Such monthly reports shall be delivered within fifteen (15) days after
the end of the month.
(b) During the term of this Agreement, Customer shall require all Lessees,
unless Lender shall otherwise consent in writing to : (i) furnish to Lender such
information concerning the condition, location, use and operation of the
Equipment as Lender may request; (ii) permit any person designated by Lender to
visit and inspect any Equipment and any records maintained in connection
therewith, provided, however, that the failure of Lender to inspect the
Equipment or to inform Customer of any noncompliance shall not relieve Customer
of any of its obligations hereunder; and (iii) not permit any Lessee to make
additions, alterations, modifications or improvements (collectively,
"Improvements") to any item of Equipment that are not readily removable without
causing material damage to such item of Equipment or which will cause the value,
utility or useful life of such item of Equipment to materially decline. If any
such Improvement is made and cannot be removed without causing material damage
or decline in value, utility or useful life (a "Non-Severable Improvement"),
then Debtor warrants that such Non-Severable Improvement shall immediately
become subject to Lender's security interest upon being installed and shall be
free and clear of all liens and encumbrances and shall become Equipment subject
to all of the terms and conditions of this Agreement.
12. FURTHER ASSURANCES. Customer shall promptly execute and
deliver to Lender such further documents and take such further action as Lender
may require in order to more effectively carry out the intent and purpose of
this Agreement. Customer shall execute and deliver to Lender upon Lender's
request any and all schedules, forms and other reports and information as Lender
may deem necessary or appropriate to respond to requirements or regulations
imposed by any governmental authorities or to comply with the provisions of the
law of any jurisdiction in which Customer may then be conducting business or in
which any of the Equipment may be located. Customer shall execute and deliver
to Lender upon Lender's request such further and additional documents,
instruments and assurances as Lender deems necessary to acknowledge and confirm,
for the benefit of Lender or any assignee or transferee of any of Lender's
rights, title and interests hereunder in accordance with Section 13 hereof (an
"Assignee"), all of the terms and conditions of all or any part of this
Agreement and Lender's or Assignee's rights with respect thereto, and Customer's
compliance with all of the terms and provisions thereof.
13. ASSIGNMENT. The provisions of this Agreement shall be binding
upon and shall inure to the benefit of the heirs, administrators, successors and
assigns of Lender and Customer, provided, however, Debtor may not assign any of
its rights, transfer any interest in the Equipment and Customer may not delegate
any of its obligations under this Agreement without the prior written consent of
Lender in its sole discretion. Lender may, from time to time, absolutely or as
security, without notice to Customer, sell, assign, transfer, participate,
pledge or otherwise dispose of all or any part of this Agreement, the
Obligations and/or the Collateral therefor, subject to the rights of Customer
under this Agreement for the use and possession of the Equipment. In such
event, each and every immediate and successive Assignee shall have the right to
enforce this Agreement with respect to those Obligations and/or Collateral
transferred to the Assignee, by legal action or otherwise, for its own benefit
as fully as if such Assignee were herein by name specifically given such rights.
Customer agrees that the rights of any such Assignee hereunder or with respect
to the related Obligations, shall not be subject to any defense, set off or
counterclaim that Customer may assert or claim against Lender, and that any such
Assignee shall have all of Lender's rights hereunder but none of Lender's
obligations.
14. GOVERNING LAW; MEDIATION OF THIS AGREEMENT. THIS AGREEMENT
AND THE LEGAL RELATIONS OF THE PARTIES HERETO SHALL IN ALL RESPECTS BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CONNECTICUT,
WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. CUSTOMER HEREBY
CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF CONNECTICUT AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF
CONNECTICUT FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF ITS OBLIGATIONS UNDER THIS AGREEMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS
THAT IT MAY HAVE TO THE VENUE OF SUCH COURTS. CUSTOMER HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS
AGREEMENT. Any action by Customer against Lender for any cause of action under
this Agreement shall be brought within two years after any such cause of action
first arises. If requested by Lender, Customer agrees that prior to the
commencement of any litigation regarding the terms and conditions of this
Agreement, the parties hereto shall subject themselves to non-binding mediation
with a qualified mediator mutually satisfactory to both parties.
15. NOTICES. Any demand or notice required or permitted to be
given hereunder shall be deemed effective (a) when deposited in the United
States mail, and sent by certified mail, return receipt requested, postage
prepaid, addressed to Lender or to Customer at the addresses set forth herein,
or to such other address as may be hereafter provided by the party to be
notified by written notice complying with the provisions hereof or (b) when
transmitted to Lender or Customer by facsimile at the respective numbers
provided for such purpose; provided, that such facsimile notice is promptly
followed by notice given in accordance with the immediately preceding subsection
(a).
16. SECURITY DEPOSIT. Lender may, at its option, apply the
Security Deposit, if any is indicated in an Equipment Schedule, to cure any
default of Customer, whereupon Borrower shall promptly restore such Security
Deposit to its original amount. Lender shall return to Borrower any unapplied
Security Deposit, without interest, upon full payment and performance of
Customer's Obligations under this Agreement. Notwithstanding anything to the
contrary in this Agreement, after Borrower has paid at least 13 monthly
installments hereunder, if the then principal balance of the Loan plus accrued
interest is less than $300,000.00, Borrower may apply the Security Deposit to
the subsequent monthly installments hereunder until the Loan is paid in full
and, provided no other Obligations remain outstanding, Lender shall return any
unapplied Security Deposit to Borrower.
17. TITLE TO EQUIPMENT. Debtor shall retain title to the Equipment
and is not transferring title to Lender for any purpose. Debtor shall bear all
responsibilities and liabilities of ownership and shall perform all obligations
of lessor under the Leases, if any. Upon receipt of all sums owing hereunder,
provided no Event of Default exists hereunder, Lender shall release its security
interest in the Collateral.
18. LIMITED GUARANTY. If and to the extent a guaranty of Debtor
is required in connection with its grant of a security interest and the other
provisions applicable hereto to Debtor, Debtor hereby guarantees to Lender all
obligations of Borrower set forth herein.
19. MISCELLANEOUS; GENERAL PROVISIONS. This Agreement will not be
binding on Lender until accepted and executed by Lender at its executive office
in South Norwalk, Connecticut. All options, powers and rights granted to Lender
hereunder or under any promissory note, guaranty, letter of credit agreement,
depository agreement, instrument, document or other writing delivered to Lender
shall be cumulative and shall be in addition to any other options, powers or
rights which Lender may now or hereafter have under any applicable law or
otherwise. Time is of the essence in the payment and performance of all of
Customer's obligations under this Agreement. The captions in this Agreement are
for convenience only and shall not define or limit any of the terms thereof.
Any provisions of this Agreement which are unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
unenforceability without invalidating the remaining provisions hereof, and any
such unenforceability in any jurisdiction shall not render unenforceable such
provisions in any other jurisdiction. To the extent permitted by applicable
law, Customer hereby waives any provisions of law which render any provision of
this Agreement unenforceable in any respect.
CUSTOMER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS AGREEMENT IS
A PART IS A COMMERCIAL TRANSACTION AND EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT CUSTOMER HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH LENDER'S TAKING POSSESSION OR
LENDER'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION,
ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND
ANY SUCH RIGHT WHICH CUSTOMER WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR OF ANY STATE, INCLUDING, WITHOUT LIMITATION, ITS
RIGHTS TO NOTICE AND HEARING UNDER CHAPTER 903A OF THE CONNECTICUT GENERAL
STATUTES.
THIS AGREEMENT AND ANY OTHER WRITTEN AGREEMENT(S) BETWEEN THE PARTIES
EXECUTED SIMULTANEOUSLY HEREWITH, REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES CONCERNING THE SUBJECT MATTER HEREOF, AND SUPERSEDE AND MAY NOT BE
CONTRADICTED BY ANY PRIOR WRITTEN AGREEMENTS BETWEEN THE PARTIES, INCLUDING,
WITHOUT LIMITATION, PROPOSALS, LETTERS, COMMITMENT LETTERS OR BY ANY PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. CUSTOMER
ACKNOWLEDGES AND CERTIFIES THAT NO SUCH ORAL AGREEMENTS EXIST. THIS AGREEMENT
MAY NOT BE AMENDED, NOR MAY ANY RIGHTS UNDER THIS AGREEMENT BE WAIVED, EXCEPT BY
AN INSTRUMENT IN WRITING SIGNED BY THE PARTY AGAINST WHOM SUCH AGREEMENT OR
WAIVER IS ASSERTED. The failure of Lender at any time or times hereafter to
require strict performance by Customer of any of the provisions, warranties,
terms and conditions contained in this Agreement or in any other agreement,
guaranty, note, depository agreement, letter of credit, instrument or document
now or at any time or times hereafter executed by Customer or an Affiliate of
Customer and delivered to Lender shall not waive, affect or diminish any right
of Lender at any time or times hereafter to demand strict performance thereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same instrument. Each reference herein to "Lender" shall be
deemed to include its successors and assigns, and each reference to "Customer"
and any pronouns referring thereto as used herein shall be construed in the
masculine, feminine, neuter, singular or plural, as the context may require, and
shall be deemed to include the legal representatives, successors and assigns of
Customer, all of whom shall be bound by the provisions hereof. EACH REFERENCE
HEREIN TO "CUSTOMER" SHALL MEAN AND INCLUDE BORROWER AND DEBTOR JOINTLY AND
SEVERALLY.
This Agreement and all related documents, including (a) amendments,
addenda, consents, waivers and modifications which may be executed
contemporaneously or subsequently herewith, (b) documents received by Lender
from the Customer, and (c) financial statements, certificates and other
information previously or subsequently furnished to Lender, may be reproduced by
Lender by any photographic, photostatic, microfilm, micro-card, miniature
photographic, compact disk reproduction or other similar process and Lender may
destroy any original document so reproduced. Customer agrees, herein waives all
right to object to the admissibility of such reproduction and stipulates that
any such reproduction shall, to the extent permitted by law, be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original itself is in existence and whether or not the
reproduction was made by Lender in the regular course of business) and that any
enlargement, facsimile or further reproduction of the reproduction shall
likewise be admissible in evidence.
18. SURVIVAL. Sections 6, 7, 9, 10, 11, 13, 15, 16 and 17 shall
survive and continue in full force and effect without regard to the payment in
full of all Obligations under this Agreement.
Executed and delivered by duly authorized representatives of the
parties hereto as of the date set forth above.
DEBTOR
LENDER: BORROWER : CHANCELLOR FLEET
CORPORATION
PHOENIXCOR, INC. CHANCELLOR CORPORATION INDIVIDUALLY AND AS
TRUSTEE OF EACH OF
THE TRUSTS DEFINED IN THE AGREEMENT
By: ____________________ By: ____________________ By:
____________________
Name: _________________ Name: _________________ Name:
_________________
Title: __________________ Title: __________________ Title:
___________________
REF.g/ajk/docs/Chancellor/loan.agr-4-marked
<PAGE>
SCHEDULE 1
TRADE NAMES
NONE
<PAGE>
SCHEDULE 2
{NAME CHANGES; CHANGES IN CHIEF EXECUTIVE OFFICE}
NONE
<PAGE>
EXHIBIT ADESCRIPTION OF EQUIPMENT
<PAGE>
EXHIBIT BDESCRIPTION OF LEASES
1. Schedule I to Master Lease Agreement Control No. 746F dated September 25,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Florida, Inc. as
Lessee, and all subsequent extensions and amendments.
2. Schedule L to Master Lease Agreement Control No. 746F dated September 25,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Florida, Inc. as
Lessee, and all subsequent extensions and amendments.
3. Schedule O to Master Lease Agreement Control No. 770F dated December 20,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Virginia, Inc.
as Lessee, and all subsequent extensions and amendments.
4. Schedule D to Master Lease Agreement Control No. 771F dated August 9,
1990, between Chancellor Fleet Corporation as Lessor and Tarmac Carolina, Inc.
as Lessee, and all subsequent extensions and amendments.
5. Schedule F to Master Lease Agreement Control No. 756F dated October 23,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Texas, Inc. as
Lessee, and all subsequent extensions and amendments.
6. Schedule K to Master Lease Agreement Control No. 746F dated September 25,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Florida, Inc. as
Lessee, and all extensions and amendments.
7. Schedule N to Master Lease Agreement Control No. 746F dated September 25,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Florida, Inc. as
Lessee, and all subsequent extensions and amendments.
8. Schedule D to Master Lease Agreement Control No. 746F dated September 25,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Florida, Inc. as
Lessee, and all subsequent extensions and amendments.
9. Schedule A to Master Lease Agreement Control No. 770F dated December 20,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Virginia, Inc.
as Lessee, and all subsequent extensions and amendments.
10. Schedule K to Master Lease Agreement Control No. 770F dated December 20,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Virginia, Inc.
as Lessee, and all subsequent extensions and amendments.
11. Schedule N to Master Lease Agreement Control No. 770F dated December 20,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Virginia, Inc.
as Lessee, and all subsequent extensions and amendments.
12. Schedule G to Master Lease Agreement Control No. 756F dated October 23,
1989, between Chancellor Fleet Corporation as Lessor and Tarmac Texas, Inc. as
Lessee, and all subsequent extensions and amendments.
13. Schedule G to Master Lease Agreement Control No. 599F dated August 3,
1988, between Chancellor Fleet Corporation as Lessor and Central Soya Company as
Lessee, and all extensions and amendments.
14. Schedule D-3 to Master Lease Agreement Control No. 599F, dated August 3,
1988, between Chancellor Fleet Corporation as Lessor and Central Soya Company,
Inc. (assigned to Consolidated Nutrition, L.C.) as Lessee, and all extensions
and amendments.
15. Schedules F-1, F-2 and F-3 to Master Lease Agreement Control No. 599F,
dated August 3, 1988, between Chancellor Fleet Corporation as Lessor and Central
Soya Company (assigned to Consolidated Nutrition, L.C.) as Lessee, and all
extensions and amendments.
16. Schedule C to Master Lease Agreement Control No. 604F, dated August 25,
1988, between Chancellor Fleet Corporation as Lessor and Equilon Enterprises,
LLC (formerly Texaco Trading and Transportation, Inc.) as Lessee, and all
extensions and amendments.
17. Schedule K to Master Lease Agreement Control No. 494F, dated November
26, 1986, between Chancellor Fleet Corporation as Lessor and Whirlpool
Corporation as Lessee, and all extensions and amendments.
Schedule J-2 to Master Lease Agreement Control No. 494F, dated November 26,
1986, between Chancellor Fleet Corporation as Lessor and Whirlpool Corporation
as Lessee, and all extensions and amendments.
<PAGE>
EXHIBIT C
Original Current
Master Schedule
Name Date Lessee Lessee
- ---- ---- ------ ------
Lease No. No._____
- ---------- --------
1. Chancellor/First Union Texaco Trading & Equilon
IV Trust 12/30/88 Transportation, Inc. Enterprises
604F C
2. Chancellor/First Union Central Soya Consolidated
Trust IX 9/25/89 Company, Inc. Nutrition,
LLC 599F D-3
3. Chancellor/First Union Central Soya Consolidated
Trust XV 12/25/89 Company, Inc. Nutrition, LLC
599F F1
599F F2
599F F3
4. Chancellor/First Union Central Soya Central Soya
Trust XVII 12/25/89 Company, Inc. Company, Inc.
599F G
5. Chancellor/First Union Tarmac Tarmac
Trust XVIII 12/31/89 Virginia, Inc. Virginia,
Inc. 770F A
6. Chancellor/First Union Tarmac RMC Industries and
Trust XX 9/25/89 Florida, Inc. Tarmac
Florida 746F D
7. Chancellor/First Union Tarmac Tarmac
Trust XXVII 9/25/90 Virginia, Inc.
Virginia, Inc. 770F K
Tarmac Tarmac
Florida, Inc. Florida, Inc. 746F K
Tarmac Pioneer Concrete
Texas, Inc. of Texas, Inc. 756F G
Tarmac Tarmac
Virginia, Inc. Virginia, Inc.
770F N
Tarmac Tarmac
Florida, Inc. Florida, Inc.
746F N
8. Chancellor/First Union Tarmac Tarmac
Trust XXVIII 10/25/90 Carolinas, Inc. Carolinas,
Inc. 771F E
Tarmac Tarmac
Carolinas, Inc. Carolinas, Inc.
771F D
Tarmac RMC Industries and
Florida, Inc. Tarmac Florida
746F I
Tarmac Pioneer Concrete
Texas, Inc. of Texas, Inc.
756F F
Tarmac Tarmac
Florida, Inc. Florida, Inc.
746F L
Tarmac Tarmac
Virginia, Inc. Virginia, Inc.
770F O
<PAGE>
9. Chancellor/Whirlpool Whirlpool Whirlpool
494J Trust 3/29/91 Corporation Corporation
494F J
10. Chancellor/Whirlpool Whirlpool Whirlpool
494K Trust 3/29/91 Corporation Corporation
494F K
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT E
MONTHLY EQUIPMENT REPORTS
PLEDGE AND SECURITY AGREEMENT
-----------------------------
AGREEMENT dated as of March 31, 1999 among PHOENIXCOR, INC., a Delaware
corporation with its principal place of business at 65 Water Street, South
Norwalk, CT 06854 (referred to herein as "Lender"); CHANCELLOR CORPORATION, a
Massachusetts corporation with its principal place of business at 210 South
Street, 10th Floor, Boston, MA 02111 (referred to herein as "Borrower"); and
CHANCELLOR FLEET CORPORATION, a Massachusetts corporation with its principal
place of business at 210 South Street, 10th Floor, Boston, MA 02111, as trustee
(referred to herein as "Trustee") of the trusts established under the trust
agreements listed on the attached Exhibit A (the "Trusts").
R E C I T A L S
A. Lender has agreed to extend financing to Borrower pursuant to the Loan
and Security Agreement dated as of March 31, 1999 (the "Loan Agreement") among
Lender, Borrower and Trustee to finance, among other things, the purchase by
Borrower from First Union Commercial Corporation of all of the beneficial
interests under the Trusts (the "Trust Interests") on the condition, among other
things, that Borrower pledge all of the Trust Interests to Lender as additional
security for Borrower's obligations under the Loan Agreement.
B. Upon completion of such purchase, Borrower shall be the sole beneficial
interest holder in the Trusts.
C. Borrower has agreed to pledge all of the Trust Interests to Lender as
security for the payment and performance of Borrower's obligations under the
Loan Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
FIRST: To secure the payment and performance of all obligations of
-----
Borrower and Trustee to Lender under the Loan Agreement and any other
--
obligations of Borrower or Trustee to Lender now existing or hereafter arising,
--
Borrower hereby sets over, transfers, hypothecates, grants, assigns, pledges and
conveys to Lender, its successors and assigns a pledge and continuing security
interest in and to (i) all of Borrower's right, title and interest in the Trust
Interests and (ii) all proceeds of the Trust Interests (collectively, the
"Collateral"). Upon receipt of all sums secured hereby, Lender shall release
its security interest in the Collateral.
SECOND: Trustee agrees to note and keep noted in its applicable books and
------
records that Borrower has pledged and granted to Lender a security interest in
the Trust Interests and that the same may not be transferred without the prior
written consent of Lender. Borrower hereby appoints Lender as its attorney in
fact to execute all documents necessary to perfect and keep perfected the
security interests hereby created. This power of attorney is a special power of
attorney coupled with an interest and shall be irrevocable by Borrower.
THIRD: Trustee and Borrower warrant, represent and agree that upon
-----
disbursement by Lender to First Union Commercial Corporation of the applicable
--
loan proceeds as directed by Borrower, (i) Borrower will be the sole record and
beneficial owner of and have good title to the Trust Interests, free and clear
of liens and encumbrances (other than Lender's) and (ii) there will be no
restrictions upon the transfer hereby to Lender of any of the Collateral
pursuant to the terms and conditions of this Agreement. Borrower and Trustee
agree not to amend the Trusts or execute or consent to any agreement, without
Lender's consent, which would adversely impact on Lender's security interest in
all or some of the Trust Interests.
FOURTH: Upon the occurrence of a default under the Loan Agreement, this
------
Agreement or other agreement between Borrower and/or Trustee and Lender, and the
continuation of such default for a period of thirty (30) days, Lender shall have
all of the rights and remedies with respect to the Trust Interests of a secured
party under the Uniform Commercial Code ("UCC") of the laws of the State of
Connecticut, including, without limitation, and without liability for any
diminution in price or value of the Trust Interests which may have occurred,
the right to sell all or any part of the Trust Interests at public or private
sale, by one or more contracts, at the same or at different times. Lender may
buy any part or all of the Trust Interests at any public sale and, to the extent
permitted by the UCC, at any private sale, and may make payment therefor by any
means, including, without limitation, the cancellation of interest, loan
payments or any other amounts owed to Lender under the Loan Agreement or this
Agreement. Out of the proceeds of any sale Lender may retain an amount equal to
all sums owed under the Loan Agreement, as well as any other sums owed to
Lender, plus the amount of the expenses of the sale. In the event that the
proceeds of any sale are insufficient to cover the sums owed under the Loan
Agreement, as well as any other sums owed to Lender, plus expenses of the sale,
Borrower shall remain liable to Lender for any deficiency.
FIFTH: All costs, charges and expenses paid or incurred by Lender in
-----
connection with (i) enforcing its rights or remedies under this Agreement or
interest in the Collateral, including, without limitation, attorney fees, court
and other legal costs and expenses or (ii) removing any lien or encumbrance on
the Collateral shall be paid by Borrower and shall be secured by the Collateral
pledged pursuant to this Agreement.
SIXTH: Lender may assign or otherwise transfer this Agreement and all of
-----
its rights hereunder and in and to the Collateral to any person who may succeed
to its rights under the Loan.
SEVENTH: It is agreed by all parties that any breach of this Agreement by
--------
Trustee or Borrower (individually or collectively) will constitute an additional
event of default under the Loan Agreement.
EIGHTH: All notices required or permitted to be given under the terms and
-------
provisions of this Agreement by any party to the other(s) shall be in writing
and shall be made by hand delivery, by nationally recognized overnight service
or by registered or certified mail, return receipt requested to the parties as
follows:
If to Lender: Phoenixcor, Inc.
65 Water Street
South Norwalk, CT 06854
Attn: Legal/Default Notices
If to Borrower: Chancellor Corporation
210 South Street, 10th Floor
Boston, MA 02111
Attn: Franklyn Churchill
If to Trustee: Chancellor Fleet Corporation
210 South Street, 10th Floor
Boston, MA 02111
Attn: Jon Ezrin
or to such other address as may hereafter be provided by the parties in writing.
Notices shall be effective upon receipt and if sent by registered or certified
mail shall be deemed received and delivered three (3) days after deposit with
the United States Postal Service.
TENTH: This Agreement may be executed in any number of counterparts and by
-----
the different parties hereto in separate counterparts, all of which when so
executed and delivered together will constitute one and the same document.
ELEVENTH: This Agreement shall be governed by and construed in accordance
--------
with the laws of the State of Connecticut. THE PARTIES HERETO WAIVE THE RIGHT
TO JURY TRIAL IN ANY ACTION OR PROCEEDING BASED ON THIS AGREEMENT, TO THE EXTENT
PERMITTED BY LAW.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers to be effective as of
the date first above written.
PHOENIXCOR, INC. CHANCELLOR CORPORATION
BY:_______________________________ BY:________________________________
TITLE:_____________________________ TITLE:______________________________
CHANCELLOR FLEET CORPORATION
BY:________________________________
TITLE:______________________________
REF.g/ajk/docs/3rdParty/Chancellor/Pledge-2
<PAGE>
EXHIBIT A - TRUSTS
NAME OF TRUST DATE OF TRUST
1. Chancellor/First Union IV Trust 12/30/88
2. CHANCELLOR/FIRST UNION TRUST IX 9/25/89
3. Chancellor/First Union Trust XV 12/25/89
4. Chancellor/First Union Trust XVII 2/25/89
5. Chancellor/First Union Trust XVIII 12/31/89
6. Chancellor/First Union Trust XX 9/25/89
7. Chancellor/First Union Trust XXVII 9/25/90
8. Chancellor/First Union Trust XXVIII 10/25/90
9. Chancellor/Whirlpool 494J Trust 3/29/91
10. Chancellor/Whirlpool 494K Trust 3/29/91
PROMISSORY NOTE TO: LOAN AND SECURITY AGREEMENT NO. 7622 (THE "AGREEMENT")
U.S. $ 2,500,000.00 SOUTH NORWALK,
CONNECTICUT
DATED: MARCH 31, 1999
FOR VALUE RECEIVED, CHANCELLOR CORPORATION, a Massachusetts corporation (the
"Borrower"), hereby promises to pay to the order of PHOENIXCOR, INC. or its
successors or assigns (the "Payee") at its offices located at 65 Water Street,
South Norwalk, Connecticut 06854, or at such other place as the Payee or any
holder hereof may from time to time designate, the principal amount of TWO
MILLION FIVE HUNDRED THOUSAND U.S. DOLLARS ($2,500,000.00), with interest (based
on a year of 360 days and 30 day months) on the principal amount hereof
remaining from time to time unpaid, such principal and interest to be paid in
consecutive monthly installments until fully paid, in the manner and at a rate
of interest per annum as determined and provided in the Agreement. Anything in
this Note to the contrary notwithstanding, in the event that any payment of
interest hereunder shall exceed the legal limit, such amount in excess of such
limit shall be deemed a payment of principal hereunder.
This Note evidences a loan by the Payee to the undersigned pursuant to the
Agreement indicated above between the undersigned and the Payee as from time to
time may be amended, restated, replaced, supplemented, substituted for or
renewed, and the holder of this Note is entitled to the benefits thereof,
including without limitation, the security interest in the Equipment and the
Leases granted therein. Each term defined in the Agreement and not otherwise
defined herein shall have the same definition when used herein.
The principal hereof and accrued interest hereon shall become forthwith due and
payable as provided in the Agreement. Payments hereunder not made when due shall
accrue late charges as provided in the Agreement. This Note may not be prepaid
in whole or in part except as otherwise specifically provided in the Agreement.
The Borrower hereby waives diligence, demand, presentment, protest and notice of
any kind, and assents to extensions of the time of payment, release, surrender
or substitution of security, or forbearance or other indulgence, without notice.
No act or omission of the Payee, including without limitation any failure to
exercise any right, remedy or recourse, shall be deemed to be a waiver or
release of such right, remedy or recourse. Any waiver or release may be
effected only by a written document executed by Payee and then only to the
extent specified therein. The undersigned hereby promises to pay all Attorneys
Fees and Expenses that may be incurred in connection with the enforcement and/or
collection of this Note.
The undersigned authorizes the Payee to insert above as the date of the Note,
the date on which Payee disburses funds pursuant to the Agreement.
This Note is freely assignable by the Payee, in whole or in part, and from time
to time. All of the terms and provisions of this Note inure to and are binding
upon the heirs, executors, administrators, successors, representatives,
receivers, trustees and assigns of the parties. None of the rights or
obligations of the Borrower hereunder may be assigned or otherwise transferred
without the prior written consent of the Payee.
THIS NOTE AND THE LEGAL RELATIONS OF THE PARTIES HERETO SHALL IN ALL RESPECTS BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CONNECTICUT, WITHOUT REGARD TO PRINCIPLES REGARDING THE CHOICE OF LAW. BORROWER
HEREBY CONSENTS AND SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF CONNECTICUT AND THE FEDERAL DISTRICT COURT FOR THE DISTRICT OF
CONNECTICUT FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT
OF ITS OBLIGATIONS HEREUNDER, AND EXPRESSLY WAIVES ANY OBJECTIONS THAT IT MAY
HAVE TO THE VENUE OF SUCH COURTS. BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS NOTE. Any action
by Borrower against Payee for any cause of action under this Note shall be
brought within one year after any such cause of action first arises. If
requested by Payee, Borrower agrees that prior to the commencement of any
litigation regarding the terms and conditions of this Note, the parties hereto
shall subject themselves to non-binding mediation with a qualified mediator
mutually satisfactory to both parties.
IN WITNESS WHEREOF, the Borrower by its duly authorized officer has
executed and delivered this Note as of the date first above written.
CHANCELLOR CORPORATION
By:_____________
Name:______________________________
Title:________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000724051
<NAME> Chancellor Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1738
<SECURITIES> 0
<RECEIVABLES> 4663
<ALLOWANCES> (610)
<INVENTORY> 10201
<CURRENT-ASSETS> 0
<PP&E> 2297
<DEPRECIATION> (1380)
<TOTAL-ASSETS> 32634
<CURRENT-LIABILITIES> 7619
<BONDS> 0
<COMMON> 433
0
50
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7200
<SALES> 13390
<TOTAL-REVENUES> 13390
<CGS> 9871
<TOTAL-COSTS> 13038
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 169
<INCOME-TAX> 42
<INCOME-CONTINUING> 127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
