<PAGE>
________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
_________
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
_________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to __________________
Commission file number 0-15167
TRANS LEASING INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2747735
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3000 Dundee Road, Northbrook, Illinois 60062
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code (847) 272-1000
Securities registered pursuant to Sections 12(b) or 12(g) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, $.01 par value per share NASDAQ National Market
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
registrant's best knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. [ ]
The number of shares of Common Stock, Par Value $.01 Per Share, of the
Registrant outstanding as of September 11, 1996 was 4,045,375. Excluding
shares beneficially owned by directors and officers of the Registrant, the
aggregate market value of such outstanding shares on September 11, 1996 was
$5,903,989 based upon the average of the closing bid and asked prices for the
Common Stock on the NASDAQ National Market on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's definitive
Proxy Statement for its 1996 Annual Meeting to be filed with the Securities and
Exchange Commission within 120 days after the close of the fiscal year.
_______________________________________________________________________________
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
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ITEM PAGE
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<S> <C>
1. Business.......................................................... 3
2. Properties........................................................ 17
3. Legal Proceedings................................................. 17
4. Submission of Matters to a Vote of Security Holders............... 17
PART II
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ITEM
- ----
5. Market for the Registrant's Common Equity and Related
Stockholder Matters............................................... 18
6. Selected Financial Data........................................... 19
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 20
8. Financial Statements and Supplementary Data....................... 28
9. Disagreements on Accounting and Financial Disclosure ............. 50
PART III
- --------
ITEM
- ----
10. Executive Officers of the Registrant.............................. 51
11. Executive Compensation............................................ 51
12. Security Ownership of Certain Beneficial Owners and Management.... 51
13. Certain Relationships and Related Transactions.................... 52
PART IV
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ITEM
- ----
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 52
Signatures ....................................................... 58
</TABLE>
<PAGE>
FORM 10-K
TRANS LEASING INTERNATIONAL, INC.
PART I
Item 1. BUSINESS
GENERAL
- -------
Trans Leasing International, Inc. (hereafter "the Company" or "Trans
Leasing") leases medical, scientific and other equipment to physicians,
osteopaths, dentists and other health care providers. The Company also leases
general office equipment and automobiles to health care providers and the
general commercial market. The Company believes that its lessees lease equipment
from Trans Leasing for a variety of reasons, including the speed and convenience
of acquiring such equipment from Trans Leasing, the reduced initial cash outlays
the Company requires, and the potential tax benefits.
At June 30, 1996, the Company's net investment in direct finance leases was
approximately $237 million, consisting of approximately 30,000 active leases.
Lease terms generally range from one to five years, with an average initial term
of approximately 38 months. The average cost of total equipment purchased per
lease originated during fiscal 1996 was approximately $12,000. The original
cost of each item of leased equipment generally does not exceed $100,000,
although the Company may in the future lease more equipment with a cost in
excess of $100,000 than it has in the past. The Company's primary market is the
continental United States. The Company also has some leases in Canada, Mexico
and Puerto Rico.
The Company also functions as an insurance agent, selling a limited amount
of property and casualty insurance to its lessees. The Company also purchases
lease receivables originated by third parties after Trans Leasing independently
verifies that such receivables meet its credit standards. At June 30, 1996, the
Company's net lease financing receivables were approximately $6.5 million. In
addition, the Company is currently evaluating opportunities with respect to
larger industrial equipment leases.
The Company believes the following factors have been critical to its
success in the past and will remain critical to its success in the future:
Business Strategy
. Trans Leasing provides fast and convenient financing to creditworthy
applicants.
. The Company leases equipment through its LeaseCard(R) program,
supported by the Company's Instant Access/(SM)/ program. Over 44,000
medical professionals and 17,000 commercial accounts nationwide have
utilized the LeaseCard program to date.
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. Through its 65 member sales, marketing and customer service staff
located at the Company's headquarters and in its five regional sales
offices, the Company has developed strong relationships with equipment
manufacturers and dealers.
. The Company distributes LeaseCards to lessees and potential lessees
because it believes that having a LeaseCard makes them more likely to
choose Trans Leasing over its competitors, even when dealing with
manufacturers and dealers that have not previously worked with Trans
Leasing.
. The lessee market targeted by the Company has historically financed
their equipment purchases through banks, leasing and finance companies
and other financial institutions. Management believes that the time
required by many such financial institutions to process applications for
credit has created a significant market for quick financing for less
expensive equipment.
Credit Risk Management
. The Company believes its credit loss experience compares favorably with
other "small-ticket" lessors primarily because of its credit evaluation
procedures, the repeat business it receives from current lessees with
known payment histories and the fact that much of the equipment the
Company leases is a source of income generation for the lessees.
. The Company believes that the diversified nature of the equipment it
leases reduces the potential impact of technological obsolescence which
could adversely affect the Company's ability to collect lease receivables
and residual values.
Full Pay-Out & Operating Leases
. Substantially all of the Company's equipment leases are full pay-out
leases, where the minimum lease payments in the aggregate cover the full
cost of the equipment plus an interest factor.
. Full pay-out leases reduce the Company's exposure to obsolescence of
leased equipment.
. Substantially all of the Company's operating leases are written for
automobiles, for which the Company has on average received approximately
the full amount of residual values anticipated at the time the leases
were initiated.
Funding Strategy
. The company has more aggressively focused on minimizing its cost of
funds by implementing a funding strategy based on securitization. This
financing method is believed to provide the company with its lowest cost
long-term financing. The company will continue to monitor the private and
public markets to ensure it maintains a cost-effective financing program.
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LEASED EQUIPMENT
- ----------------
The Company leases all types of moderately priced medical, scientific and
commercial equipment currently in demand. The Company believes that it has
benefited and will continue to benefit from technological advances which
stimulate the demand for such equipment. The Company also leases all types of
automobiles.
5
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The following table sets forth certain information about the categories of
equipment, which includes examples of the types of equipment included in each
category, leased by the Company as of June 30, 1996. Almost half of the
equipment leased by the Company is healthcare equipment, another third is
computer systems (primarily personal computers and small office systems), and
the remainder is automobiles, telecommunications, general office and other
equipment.
<TABLE>
<CAPTION>
ORIGINAL
EQUIPMENT COST % OF NUMBER % OF
CATEGORY OF EQUIPMENT ($ IN 000'S) TOTAL OF LEASES TOTAL
- --------------------- -------------- ----- --------- -----
<S> <C> <C> <C> <C>
MEDICAL EQUIPMENT, including automated
laboratory systems, endoscopy systems,
ambulatory monitors and EKGs,
diagnostic imaging systems, surgical
equipment and diagnostic equipment,
physical therapy equipment, medical
exam tables, dental chairs, microscopes
and optical equipment $176,489 47.5% 13,190 43.4%
COMPUTER EQUIPMENT, including personal
computers and laptops, network systems,
desktop publishing and document imaging
systems 115,844 31.2% 11,217 36.9%
AUTOMOBILES 16,818 4.5% 668 2.2%
TELECOMMUNICATIONS EQUIPMENT,
including telephone systems and
voice mail systems 13,779 3.7% 1,260 4.1%
OFFICE EQUIPMENT AND FURNITURE,
including photocopiers, facsimile
machines, desks and furniture and
mail equipment 10,643 2.9% 1,027 3.4%
OTHER, INCLUDING INDUSTRIAL MACHINE
tools, graphic arts equipment, printing
equipment and restaurant equipment 37,777 10.2% 3,056 10.0%
--------- ----- ------- -----
Total Equipment Cost $371,350 100.0% 30,418 100.0%
========= ===== ======= =====
</TABLE>
The percentages of each equipment category relative to the total portfolio
may vary from time to time with marketing initiatives of equipment suppliers and
introductions of new or improved products. The Company believes that no single
type of equipment currently accounts for more than 10 percent of the lease
portfolio.
6
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LESSEES
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More than two thirds of the Company's lessees are health care providers.
The remaining one third is composed of other professionals and general
commercial lessees. The following table provides the approximate lessee
composition of Trans Leasing's portfolio as of June 30, 1996.
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT COST
----------------------------------
LESSEE DESCRIPTION ($ IN 000'S) PERCENTAGE
- ------------------ ---------------- ----------------
<S> <C> <C>
Medical
General Practice.................... $ 17,921 4.8%
Family Practice..................... 18,049 4.9%
Internal Medicine................... 22,187 6.0%
OB/GYN.............................. 13,160 3.5%
Other MDs........................... 60,106 16.2%
-------- -----
Total Doctors (MDs).............. 131,423 35.4%
-------- -----
Chiropractors....................... 27,189 7.3%
Veterinarians....................... 13,014 3.5%
Dentists............................ 55,077 14.8%
Osteopaths.......................... 9,144 2.5%
Other Non-MDs....................... 9,528 2.6%
-------- -----
Total Doctors (Non-MDs).......... 113,952 30.7%
-------- -----
Total Doctors (MDs and Non-MDs).. 245,375 66.1%
-------- -----
Medical Institutions................ 19,871 5.3%
-------- -----
Total Medical.................... 265,246 71.4%
-------- -----
Total Non-Medical..................... 106,104 28.6%
-------- -----
Total for All Lessees................. $371,350 100.0%
======== =====
</TABLE>
The Company's lessees are located throughout the United States, the largest
concentrations of which are in heavily populated states such as California,
Florida, Texas, Illinois and New York. As of June 30, 1996, no single lessee
(or group of affiliated lessees) accounted for more than 2% of the Company's
lease portfolio.
7
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MARKETING
- ---------
The Company markets its leasing services through LeaseCard, which it
introduced in 1982 and which it believes was the first business-to-business
finance card widely used in the United States for purposes other than travel
or entertainment. The LeaseCard is offered to lessees and potential lessees by
salespeople representing the various equipment suppliers with which the Company
does business, as well as by the Company's own sales force.
The Company issues LeaseCards to lessees and potential lessees which meet
its credit standards. LeaseCards are issued for one-year periods and are
automatically renewed for additional one-year periods so long as holders
continue to maintain their credit standing with the Company. LeaseCard holders
who are medical professionals are entitled to lease up to $125,000 of equipment,
and commercial accounts are entitled to lease up to $75,000 of equipment, with a
minimum of paperwork and delay. Larger credit limits are available to those
meeting additional credit criteria. LeaseCard provides the holder with
convenience and pre-arranged credit, and enables equipment manufacturers and
dealers to concentrate their efforts on marketing equipment rather than
arranging financing.
To date, over 44,000 medical professionals and 17,000 commercial accounts
have used LeaseCard to lease equipment from the Company. A LeaseCard is issued
to every lessee with whom the Company has a lease. The Company also actively
solicits other potential lessees who do not currently hold LeaseCards through
various advertisements in medical and commercial trade publications, a
nationwide direct mail program, personal contacts at trade conventions and
telephone solicitation. The Company markets the LeaseCard to equipment suppliers
through direct mail solicitation, trade journal advertisements, participation in
trade shows and telephone solicitation.
Another important part of the Company's marketing program is Instant
Access. Holders of active LeaseCards can obtain approval for a new lease quickly
by calling the Company's toll free Instant Access line (800-YES-1000). Using the
Company's on-line balance and credit information, the Company's credit analysts
can typically approve a transaction within five minutes for existing customers
requesting transactions within their pre-approved credit limits. Non-holders can
call Instant Access and typically obtain preliminary approval within twenty
minutes if all credit information is readily available. Telephone inquiries to
Trans Leasing are normally initiated by potential lessees or equipment
salespeople on sales calls in customers' offices.
The Company also utilizes its own sales, marketing and customer service
staff of 65 people located at the Company's headquarters and in its five
regional sales offices to market its leasing services. The sales staff calls on
equipment manufacturers and dealers, lessees and prospective lessees, provides
information to equipment suppliers and their representatives regarding the
merits of the Company and of leasing in general and conducts seminars at the
suppliers' places of business. The Company participates in trade shows and
conventions around the country.
The Company has also developed joint advertising and marketing programs
with a number of major medical and commercial equipment manufacturers and
dealers. In a typical joint advertising program, the Company and the suppliers
prepare printed materials advertising the supplier's equipment which contain
specific references to LeaseCard and Trans Leasing.
8
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TERMS OF LEASE AGREEMENTS
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Substantially all of the Company's leases are full pay-out, non-cancelable
leases, where the minimum lease payments during the lease term cover the full
cost of the equipment plus an interest factor. However, as the Company's auto
lease portfolio continues to grow, the Company expects to enter into more
operating leases.
The Company utilizes a standard, non-cancelable lease agreement for
substantially all of its leases other than autos for which a different standard
lease form is used. Under the terms of the Company's standard leases, the
lessee is obligated to service the leased equipment and maintain it in good
working condition, to procure and maintain insurance on the leased equipment for
the benefit of the Company, and to pay all property, sales and other taxes on
the leased equipment. The Company's leases generally provide for fixed lease
payments that are due and payable monthly over the lease term. In the event of
a default by the lessee, the lease agreement typically provides that the lessor
and its assignees have all the rights afforded creditors under the law to
protect their interest in the leased equipment, including the right to repossess
the leased equipment, and, in the case of legal proceedings resulting from a
default, to recover certain additional damages.
While the lessee has the full benefit of the equipment manufacturers'
warranties with respect to the leased equipment, the Company's leases expressly
disclaim all warranties as to the leased equipment. Additionally, the leases
obligate the lessee to continue making lease payments regardless of any defects
in the equipment. Under the terms of the standard leases, the Company retains
title to the leased equipment and has the right to assign the lease without the
consent of the lessee. The lease terms do not provide the lessees with the
option to prepay, though Trans Leasing does allow prepayments on a case by case
basis. Management estimates the number of early payments of the entire lease
balances to be approximately 5% of the total number of leases. When prepayments
are permitted, the lessee is typically required to pay the sum of future minimum
lease payments minus 80% of the remaining unearned income on the lease.
At the end of each lease, in accordance with arrangements typically made at
the time the lease is originated, the lessee will have the option (i) to renew
the lease on the same or renegotiated terms, (ii) to return the equipment or
(iii) to purchase the equipment at either (a) a fixed price determined at the
time the lease is originated (which may be $1 or a fixed percentage of the
original cost of the equipment or, in the case of leased vehicles, an amount
determined to be the value of the leased vehicle at the end of the lease) or (b)
the then fair market value of the equipment. In any case, if the lessee fails
to return or purchase the equipment or renew the lease, the lessee will be
required to make payments equal to the prior rent payments until the equipment
is returned or purchased or the lease is renewed. Historically, the vast
majority of the Company's lessees have elected to exercise their option to
purchase the leased equipment. Equipment which is not acquired or re-leased by
the original lessee can be sold, re-leased or otherwise disposed of by the
Company or one of its wholly-owned subsidiaries. The Company maintains its own
warehouse and a staff to re-market previously-leased equipment.
As of September 11, 1996 approximately 90% of the lessees whose leases
expired in fiscal 1996 purchased the equipment covered by the expired leases,
approximately 8% returned such equipment to
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the Company and approximately 2% of the lessees had not yet either purchased,
re-leased or returned the equipment.
CREDIT REVIEW AND LOSS EXPERIENCE
- ---------------------------------
Although comparative information from competitors is generally not
available, the Company believes its credit loss experience compares favorably
with other "small-ticket" lessors because (a) the Company utilizes a
comprehensive proprietary on-line credit evaluation procedure to screen lease
applications, (b) approximately 40% of new leases are with existing lessees who
have a credit history with the Company, (c) a substantial portion of equipment
leased is income-producing or necessary for the operations of the lessee's
practice or business, (d) a majority of the Company's lessees are health care
providers and other professionals with high incomes and (e) a majority of the
leases are personally guaranteed by individual lessees or business owners.
The Company's credit department consists of seven credit analysts and two
credit support staff. For each application the Company receives, the credit
department performs a credit review of the applicant, or its owners if the
applicant is a commercial business, which includes obtaining retail credit
reports from the major credit bureaus servicing the area in which the applicant
is located. In addition, with respect to transactions over $10,000 ($25,000 if
the lessee is in the medical or another healthcare field), the Company may
obtain bank verification of account activity in deposit accounts and loan
activity, including the length of time accounts have been opened, the average
balance maintained, the high dollar amount of credit extended and the payment
terms. The Company may elect not to verify bank information based on its review
of other available credit information.
On medical accounts, the Company also obtains an American Medical
Association report or its equivalent if the lessee is a dentist or osteopath.
These reports indicate the year the individual was licensed, the college
attended and year of graduation, the individual's medical specialty, and whether
or not Board Certification has been obtained. For commercial accounts, the
Company may obtain a Dun & Bradstreet report. All of the information is stored
electronically on the Company's computer system and is reviewed by one or more
persons depending upon the dollar amount involved. The Company also performs a
similar credit check on each equipment supplier and obtains other information to
verify that the equipment supplier is known to be reputable.
If a LeaseCard holder who has available credit as a result of an update and
review by the Company applies for a new lease, the Company also conducts a
computer check of the cardholder's payment history and status. If the lessee
holds a LeaseCard, but desires to lease equipment with a value in excess of the
amount of the lessee's available credit, or if it is a new applicant and the
Company's credit department has determined there is not enough information
available through the credit bureau, bank reports, American Medical Association
reports and/or Dun & Bradstreet reports, the Company may conduct additional
credit checks which may include a review of the lessee's current financial
statements and most recent tax return. Management estimates that in fiscal
1996, 15% of applications were turned down for credit reasons, 40% were
terminated by the applicant, and 45% of the applications were ultimately
consummated.
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The Company generally places an order to purchase equipment only after it
has completed the credit examination and received an executed lease from a
lessee. Upon obtaining the signed lease, a deposit check (if one was required),
an acceptance notice, an invoice, and any additional documentation which may be
required, such as a personal guarantee, corporate resolution or evidence of
insurance, the Company's sales coordinators verify directly with the lessee that
all the items covered by the lease have been delivered and installed and are
working to the lessee's satisfaction. The Company then pays the vendor for the
equipment.
The Company utilizes its own 15 person in-house collections staff to
solicit late payments from lessees. The Company also employs outside counsel for
litigation related to collection matters. When an account is 7 days past due the
Company assesses a late fee equal to 10 percent of the original payment due. For
fiscal years 1996 and 1995, income from such late charges was $2,013,000 and
$1,877,000, respectively. When any payment is 20 days past due (13 days if the
lease balance is greater than $20,000), the account is automatically inserted
into a collector's follow-up system. An account is considered delinquent if a
payment has not been received for 30 days beyond its due date.
The following table illustrates Trans Leasing's historical delinquency
rates. The increase in delinquencies from 2.7 percent at June 30, 1995 to 3.6
percent at June 30, 1996 results from competitive pressure as it relates to
credit criteria in the Company's primary markets. Delinquencies remained
relatively constant from 2.6 percent at June 30, 1994 to 2.7 percent at June 30,
1995.
DELINQUENCY RATES
-----------------
($ IN 000'S)
<TABLE>
<CAPTION>
REMAINING
RECEIVABLE BALANCE ON
DELINQUENT ACCOUNTS
---------------------
RECEIVABLE % OF
BALANCE AMOUNT TOTAL
---------- ------- -----
<S> <C> <C> <C>
June 30, 1994............ $192,780 $ 5,010 2.6
June 30, 1995............ 224,846 6,115 2.7
June 30, 1996............ 277,230 10,083 3.6
</TABLE>
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Accounts are normally written off if no payment has been received within
150 to 180 days. Accounts can be written off earlier if it is evident that no
further payment will be received. The following table illustrates Trans
Leasing's historical lease charge-off experience.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
($ IN 000'S)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Allowance for Uncollectible Accounts:
Beginning balance $ 6,482 $ 4,047 $ 2,709 $ 2,181 $ 1,735
Additions 6,667 5,328 6,489 3,690 3,017
Net charge-offs (3,643) (2,893) (5,151) (3,162) (2,571)
-------- -------- -------- -------- --------
Ending Balance $ 9,506 $ 6,482 $ 4,047 $ 2,709 $ 2,181
======== ======== ======== ======== ========
Net investment in direct finance leases
(before allowance) $246,122 $199,576 $170,864 $150,590 $127,666
Net charge-offs divided
by net investment in direct finance leases 1.5% 1.4% 3.0% 2.1% 2.0%
Ending allowance divided
by net investment in direct finance leases 3.9% 3.2% 2.4% 1.8% 1.7%
</TABLE>
Net charge-offs in fiscal years 1996 and 1995 were somewhat favorable
relative to historical norms, which resulted in increased allowances as a
percentage of net investment in direct finance leases at the end of the
respective fiscal years. The increase in net charge-offs during fiscal year 1994
was primarily due to the write-off of one account at December 31, 1993 in the
amount of $1,696,000 which reduced net earnings by $.24 per share. This write-
off was expensed in 1994. The Company is continuing to work with this account to
maximize the ultimate recovery.
REALIZATION OF RESIDUAL VALUE
- -----------------------------
Historically, the vast majority of the Company's lessees have elected to
exercise their options to purchase the leased equipment. Equipment which is not
acquired or re-leased by the original lessee is sold, re-leased or otherwise
disposed of by the Company. The Company maintains its own warehouse and staff to
re-market previously-leased equipment. From time to time, the Company utilizes
various equipment dealers and vendors to re-market returned equipment, for which
it pays a commission based upon the amount received by the Company.
The growth in the Company's lease portfolio in recent years has resulted in
increases in the aggregate amount of recorded residual values. Substantially all
of the residual values on the Company's balance sheet as of June 30, 1996 are
attributable to leases which will expire before June 30, 2000. Realization of
such values depends on factors not within the Company's control, such as the
condition of the equipment, the cost of comparable new equipment and the
technological or economic obsolescence of the equipment. Although the Company
has on average received approximately the full amount of
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recorded residual values upon exercise of the purchase option by lessees for
leases which expired during the last five years, there can be no assurance this
realization rate will be maintained.
During fiscal years 1996 and 1995, the Company put increased emphasis on
its auto leasing activities. Auto leases typically have residuals that represent
a higher percentage of the original cost of the auto than the average residual
percentage of the other types of equipment leased by the Company. The Company
has on average received approximately the full amount of anticipated residual
values for automobile leases which have expired during the last five years.
However, given the volatility in the market prices for used autos and other
factors, there can be no assurance that the Company will continue to be able to
realize the amount of residuals anticipated at the time the leases are
initiated.
MANAGEMENT INFORMATION SYSTEMS
The Company has developed automated information systems and
telecommunications capabilities tailored to support all areas within the
organization. Systems support is provided for accounting, tax, credit,
collections, operations, sales, sales support and marketing. The Company has
made significant investments in computer hardware and proprietary software. The
Company's computerized system provides management with accurate up-to-date data
which strengthens its management controls and assists in forecasting.
The Company at June 30, 1996 employed ten management information system
professionals and has developed a substantial amount of proprietary software.
Terminals in the Company's Northbrook, Illinois headquarters and branch offices
are linked 24 hours a day by dedicated telephone lines to the Company's main
computer system.
The Company's centralized data processing system provides instant support
for the marketing and service efforts of salespeople from the Company and
equipment manufacturers and dealers. The system permits the Company to generate
collection histories, vendor analyses, lessee reports and credit histories and
other data useful in servicing the lessees and equipment suppliers.
Expenditures during fiscal year 1996 for computer hardware were $169,000
and for software were $103,000. The Company completed an upgrade of its data
processing system in fiscal 1995 and spent approximately $498,000 for new
computer hardware and approximately $20,000 for software in that year, and
$90,000 for new computer hardware and approximately $200,000 for software in
fiscal 1994.
COMPETITION
Leasing is only one of many financing alternatives available to the
Company's lessees and potential lessees. The leasing business is highly
competitive. Concerns engaged in the leasing business include: (a) finance
divisions, affiliates and subsidiaries of equipment manufacturers, including
some which sell products leased by the Company, (b) banks and their affiliates
or subsidiaries, some of which loan funds to the Company, (c) other leasing and
finance companies, and (d) independently formed partnerships or corporations
operated for the specific purpose of leasing equipment. Many of these
organizations have substantially greater financial and other resources than the
Company. As a consequence they may be able to obtain funds on terms more
favorable than those available to the Company and may provide financing which is
less expensive than leasing from the Company. However, the Company believes its
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financing services are more convenient than those available from many
alternative sources. The Company's ability to compete effectively for profitable
leasing business will continue to depend upon its ability to procure financing
on attractive terms, to develop and maintain good relations with new and
existing equipment suppliers, to attract additional lessees by means of its
LeaseCard and other marketing programs and to maintain a very high level of
service to its lessees and vendors. However, there can be no assurance that the
Company can continue to do so. See "Marketing".
Historically, the Company has concentrated on leasing moderately priced
medical and office equipment. The Company may in the future lease a greater
number of more expensive items of equipment than it has in the past. As it does
so, the Company's competition can be expected to increase. Rising costs, changes
in government regulations and increased competition among health care providers
have led to the development of alternative health care delivery systems,
including health maintenance and preferred provider organizations and managed
care programs. In addition, recent surveys have indicated a continuing trend
toward the formation of group medical practices, which affects the nature and
size of the Company's market. While the Company does not believe that these
developments have had a material impact on its business to date, their long-term
impact, including the possibility of increased competition in the medical
equipment leasing industry, cannot be predicted.
HEALTH CARE TRENDS
The increasing cost of medical care has brought about federal and state
regulatory changes designed to limit government reimbursement of certain health
care providers. These changes include the enactment of fixed-price reimbursement
systems which involve determining rates of payment to hospitals, out-patient
clinics, and private individual and group practices for specific illnesses in
advance of treatment. While the Company does not believe that these regulations
have had a material impact on its business to date, their long-term effect, as
well as that of future changes in legislative or administrative policies, cannot
be predicted.
One result of these regulatory changes is increased limitations on in-
patient hospital stays. The Company believes this trend has resulted in greater
outpatient services, where a large majority of the medical lessees in the
Company's market practice. The Company believes these regulatory changes, if
sustained, could result in greater need for medical equipment for outpatient
procedures and supporting office equipment. However, no assurance of actual
results from such regulatory changes can be made by the Company.
Rising health care costs may also cause non-governmental medical insurers,
such as Blue Cross and Blue Shield Plans and the growing number of self-insured
employers, to revise their reimbursement systems and regulations governing the
purchasing and leasing of equipment. Alternative health care delivery systems,
such as health maintenance organizations, preferred provider organizations and
managed care programs, have adopted similar cost containment measures. Although
these developments have not materially affected the Company's business to date,
future changes in the health care industry and the effect of such changes on the
Company's business cannot be predicted.
14
<PAGE>
EMPLOYEES
At June 30, 1996, the Company had 144 full-time employees, none of whom
were represented by a labor union. Approximately 41 of the Company's employees
are engaged in the credit, collections and lease documentation areas,
approximately 65 are in the sales, marketing and customer service areas and 38
are engaged in the general administration area. Management believes that the
Company's employee relations are good.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
LITIGATION REFORM ACT OF 1995
Except for historical matters, the matters discussed in this Form 10-K are
forward-looking statements that involve risks and uncertainties. Forward-
looking statements include, but are not limited to, statements under the
following headings: (i) under the heading "General - Business Strategy" as to
the likelihood that LeaseCard holders will choose the Company over competitors;
(ii) under the heading "General - Credit Risk Management" regarding credit loss
experience and the effects of technological obsolescence; (iii) under the
heading "Leased Equipment" regarding the benefit of technological advances; (iv)
under the heading "Credit Review and Loss Experience" regarding credit loss
experiences; (v) under the heading "Realization of Residual Value" as to
lessees' elections to excercise their purchase options; (vi) under the heading
"Competition" regarding the Company's services being more convenient than those
of others and the impact of health developments; and (vii) under the heading
"Health Care Trends" as to the benefit to the Company of limitations on in-
patient hospital stays and the effects of health care developments.
The Company wishes to caution readers that in addition to the important
factors described elsewhere in this Form 10-K, the following important factors,
among others, sometimes have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results during
fiscal 1997, and beyond, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company:
PORTFOLIO RISK
The principal assets of the Company are its portfolio of lease receivables
and the residual value of its equipment. Investment risks inherent in a leasing
company include the possiblilty that lease receivables might not be fully
collectible and that equipment might be sold at lease expiration or termination
for less than the residual value recorded on the Company's balance sheet.
Receivables Risk: Although the allowance for uncollectible accounts
carried on the Company's books has historically been adequate to provide for
losses associated with its lease receivables, changes in the reimbursement
policies of government or third-party payors, obsolescence of equipment under
lease, changes in the local, regional or national economies, changes in federal
tax laws or other factors could significantly impact the Company's future
delinquency and loss experience, which could in turn have a material adverse
effect on the Company's earnings.
15
<PAGE>
Residual Risk: When the Company enters into a lease from which it expects
to derive value through the resale of equipment at lease expiration, it records
an estimate of the expected resale value on the Company's balance sheet as a
residual interest. The growth in the Company's equipment lease portfolio in
recent years has resulted in increases in the aggregate amount of recorded
residual values. Realization of residual values depends on factors not within
the Company's control, such as equipment obsolescence, whether the lease expires
or is terminated for default, whether the equipment is in fact returned to the
Company at the end of the lease and the condition of the equipment when it is
returned. Although the Company has historically received a very high percentage
of recorded residual values for expired leases, there can be no assurance this
will continue in the future. Failure to realize residual values could have a
material adverse effect on the Company's earnings.
INTEREST RATE RISK
The Company's leases are at fixed rates but its warehouse lines, which
represent a significant portion of its borrowings, bear interest at variable
rates. Consequently, if interest rates were to increase, earnings would be
adversely affected. In addition, the Company's ability to increase its yield on
new receivables would be limited by competitive and economic factors.
FINANCING
The Company's profitability depends, among other factors, on the size of
its lease portfolio, which in turn depends on the Company's ability to obtain
external financing to supplement cash flows available from operations. The
Company's principal sources of external financing have been borrowings under its
revolving credit agreements and public offerings and private placements of debt
and lease-backed obligations. Although the Company has been successful in
arranging these types of fundings in the past, there can be no assurance that it
will be able to obtain funding in the future in amounts or on terms it deems
necessary or acceptable. The Company's inability to obtain financing would have
a material adverse effect on its operations. Covenants in certain of the
Company's debt agreements limit its ability to incur additional debt above
certain levels.
Under substantially all of the Company's debt agreements, a reduction
(including, under most of these debt agreements, reductions caused by death) in
the principal shareholder's ownership of the Common Stock below certain levels
ranging from 30% to 35% would constitute an event of default or require
prepayment. A default or required prepayment under any of these debt agreements
may also result in defaults and required prepayments under other debt
agreements.
THIRD PARTY REIMBURSEMENT
The Company believes that, due to the growing national concern with rising
health care costs, the amount the government and other third party payors
reimburse for individual health care procedures could be reduced. Changes in
third party reimbursement policies, especially if such changes limit
reimbursement for outpatient services (the type of services generally provided
by the Company's medical lessees), could adversely affect the Company.
16
<PAGE>
Competition
The Company competes with finance affiliates of equipment manufacturers
which sell products leased by the Company, banks and other leasing and finance
companies. Many of these organizations have greater financial and other
resources than the Company and as a consequence may be able to obtain funds on
terms more favorable than those available to the Company. Some of these
competitors may provide financing which is less expensive than leasing from the
Company.
Item 2. Properties
The Company leases its executive offices in Northbrook, Illinois under
leases which run through August 31, 1998 and May 31, 2002. The executive offices
are approximately 22,088 square feet in area. The Company also leases additional
office space in Orange County and Roseville, California, Boca Raton, Florida,
and Plymouth Meeting, Pennsylvania. An additional office with a warehouse in
Grayslake, Illinois is also leased for the Company's auto leasing activities,
the tele-marketing functions of its LeaseCard Direct Group and for the
remarketing of equipment returned when leases expire or terminate.
Item 3. Legal Proceedings
While the Company is from time to time subject to actions or claims for
damages in the ordinary course of its business, it is not now a party to any
material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended June 30, 1996.
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded in the over-the-counter market and
reported on the NASDAQ National Market under the ticker symbol "TLII." The
common stock has been trading on NASDAQ National Market since April, 1986, the
time when the Company's initial public offering took place.
The approximate number of beneficial holders of record of the Company's
common stock on September 11, 1996, was 72.
<TABLE>
<CAPTION>
Common Stock Information
Fiscal 1996 Fiscal 1995
----------------- ------------------
For the
quarter ended High Low High Low
------------- ------ ------- -------- --------
<S> <C> <C> <C> <C>
September 30 $3 1/2 $2 7/8 $3 1/2 $ 3 1/8
December 31 3 7/8 3 1/8 3 5/8 3
March 31 3 3/4 3 1/4 3 3/4 3 5/16
June 30 3 5/8 3 5/16 3 15/16 3 3/16
</TABLE>
The holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors. The Board of Directors approved a dividend
in the amount of $.03 per share during each quarter of fiscal year 1996 and the
fourth quarter of fiscal 1995. There were no cash dividends declared in the
first three quarters of fiscal 1995. The declaration of dividends in the future
will be reviewed by the Board of Directors in light of the Company's earnings,
financial condition, and capital requirements, and future dividends may be
declared, reduced, or eliminated at the discretion of the Board of Directors on
the basis of these or other considerations. In addition the Company's credit
facility restricts the payment of dividends on the Company's common stock unless
certain financial tests are met. Under the most restrictive limitations, the
Company shall not purchase its common stock, pay cash dividends or redeem
subordinated debt prior to maturity which, in aggregate, exceed the sum of $2
million plus 50 percent of consolidated net income computed on a cumulative
basis plus net proceeds to the Company from the issue or sale after December 31,
1992 of shares of capital stock of the Company or warrants, rights or options to
purchase or acquire any shares of its capital stock. On August 6, 1996, the
Board of Directors approved the payment of a quarterly cash dividend in the
amount of $.03 per share on August 27, 1996 to holders of record as of August
16, 1996.
18
<PAGE>
Item 6. Selected Financial Data
(In thousands, except common share and per common share amounts)
<TABLE>
<CAPTION>
Operations Statement Data
Fiscal Year Ended June 30,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues
Finance Lease Income $ 33,915 $ 28,861 $ 26,520 $ 24,239 $ 20,695
Operating Lease Income 1,469 694 404 349 313
Other 1,234 974 565 407 300
---------- ---------- ---------- ---------- ----------
Total revenues 36,618 30,529 27,489 24,995 21,308
Expenses
Interest 15,733 13,338 11,738 10,601 8,492
General & administrative 13,018 10,220 9,113 8,148 7,511
Provision for uncollectible
accounts 5,166 4,431 5,673 2,949 2,263
---------- ---------- ---------- ---------- ----------
Total expenses 33,917 27,989 26,524 21,698 18,266
Earnings before income taxes
and cumulative effect of a
change in accounting 2,701 2,540 965 3,297 3,042
Income taxes 1,034 973 369 1,263 1,165
---------- ---------- ---------- ---------- ----------
Earnings before cumulative
effect of a change in
accounting 1,667 1,567 596 2,034 1,877
Cumulative effect of a change
in accounting for income
taxes --- --- 155 --- ---
---------- ---------- ---------- ---------- ----------
Net earnings $ 1,667 $ 1,567 $ 441 $ 2,034 $ 1,877
========== ========== ========== ========== ==========
Earnings per common share:
Earnings before cumulative
effect of a change in
accounting $ .41 $ .37 $ .13 $ .52 $ .64
Cumulative effect of a
change in accounting
for income taxes --- --- (0.03) --- ---
---------- ---------- ---------- ---------- ----------
Net earnings $ .41 $ .37 $ .10 $ .52 $ .64
========== ========== ========== ========== ==========
Weighted average common shares
outstanding 4,097,827 4,291,200 4,371,900 3,888,500 2,934,400
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
June 30,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net investment in direct
finance leases $236,616 $193,094 $166,817 $147,881 $125,485
Total assets 269,427 226,383 193,735 170,075 139,466
Senior debt and
lease-backed obligations 209,817 168,963 138,841 115,897 99,726
Subordinated debt 20,730 21,840 23,000 23,000 15,556
Stockholders' equity 26,286 25,670 24,779 24,342 17,250
Book value per share 6.50 6.09 5.67 5.57 5.88
Dividends declared per share .12 .03 - - -
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's operations are comprised almost exclusively of lease
financing. The Company realizes net earnings to the extent that lease income and
related fees exceed interest expense, general and administrative expense and a
provision for uncollectible accounts. Interest expense is the single largest
expense of the Company and is a function of the amounts borrowed by the Company
to finance its lease portfolio and the interest rates associated with those
borrowings. The difference between the lease income and the cost of funds to
finance the leases is generally referred to as the "spread" in the portfolio.
Substantially all of the Company's lease receivables are written at a fixed
rate of interest for a fixed term. The Company's borrowings on the other hand
are at both fixed and variable rates of interest. The Company borrows under
revolving credit facilities at variable interest rates (see "Liquidity and
Capital Resources") and from time to time periodically refinances that debt
through either a fixed-rate loan option in the revolving credit agreements,
securitization of lease receivables or the sale of debt in the public or private
markets. To the extent the Company refinances with fixed-rate debt, the Company
locks in the spread in its portfolio.
The Company has experienced growth in the total dollar amount of new lease
receivables added to its portfolio during each of the last five fiscal years,
though there can be no assurances that the growth trend will continue. In
analyzing the Company's financial statements, it is important to understand the
impact of lease receivable growth during an accounting period on lease income
and net earnings.
For financial reporting purposes, substantially all of the Company's leases
are classified as direct finance leases and are accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for
Leases." The Company accounts for its investment in direct finance leases by
recording on the balance sheet the total future minimum lease payments
receivable plus the estimated unguaranteed residual value of leased equipment
less the unearned lease income. Unearned lease income represents the excess of
the total future minimum lease payments plus the estimated unguaranteed residual
value expected to be realized at the end of the lease term over the cost of the
related equipment. Unearned lease income is recognized as revenue over the term
of the lease by the effective interest method, i.e., application of a constant
periodic rate of return to the declining net investment in each lease. As a
result, during a period in which the Company realizes growth in new lease
receivables, lease income should also increase, but, at a lesser rate.
20
<PAGE>
Operating lease income is recognized as revenue when the rental
payments become due. Equipment under operating leases is recorded at cost and
depreciated on a straight line basis over the estimated useful life of the
equipment, generally three to five years.
Initial direct costs incurred in consummating a lease, principally
commissions and a portion of salaries for personnel directly involved in
generating new lease receivables, are capitalized as part of the net investment
in direct finance leases and amortized over the lease term as a reduction in the
yield. An allowance for uncollectible accounts is provided over the terms of the
underlying leases as the leases are determined to be uncollectible. See "Results
of Operations" below for further discussion.
The primary long-term funding method currently employed by the Company is
to securitize portions of its lease portfolio. This method of funding is
believed to afford the lowest cost long-term financing available. These
transactions are not reflected as sales of lease receivables in the financial
statements as the Company has an ongoing economic interest in the securitized
assets. As such, the leases remain on the consolidated balance sheet and the
income associated with such leases is recognized over the respective lease
terms.
RESULTS OF OPERATIONS
Finance lease income increased by $5,054,000 (17.5%) in fiscal 1996 and
$2,341,000 (8.8%) in fiscal 1995 due primarily to increases of 22.5% and 15.8%,
respectively, in the net investment in direct finance leases. The increase in
the net investment in direct finance leases is due to increases in lease
receivables originated of 25.2% and 20.2%, respectively, in fiscal 1996 and
fiscal 1995. In addition, the increase in finance lease income is attributable
to increases in lease-related fees of $117,000 (4.0%) and $459,000 (18.6%),
respectively, in fiscal 1996 and fiscal 1995.
Operating lease income increased by $775,000 (111.6%) in fiscal 1996 and
$290,000 (71.8%) in fiscal 1995 due primarily to increases of 97.8% and 351.5%,
respectively, in net equipment under operating leases. The increase in net
equipment under operating leases is due to increases in equipment purchased for
new operating leases of 43.2% and 1,071.4%, respectively, in fiscal 1996 and
fiscal 1995.
The growth in the Company's lease portfolio is the result of an increase in
the number of leases originated in each fiscal year. The Company believes that
the number of leases originated has increased primarily as a result of its
increased marketing and selling activities, greater name recognition of
LeaseCard in the marketplace and the introduction of new products by equipment
manufacturers. Lease-related fees, primarily delinquency charges, have increased
as a result of the growth in the size of the Company's lease portfolio.
Delinquency charges in fiscal 1996 increased to $2,013,000 from $1,877,000 in
fiscal 1995 and $1,488,000 in fiscal 1994. Delinquency rates increased to 3.6%
at June 30, 1996 from 2.7% at June 30, 1995 and 2.6% at June 30, 1994. The
increase in delinquencies from 2.7% at June 30, 1995 to 3.6% at June 30, 1996
results from competitive pressure as it relates to credit criteria in the
Company's primary markets. Delinquencies remained relatively constant from 2.6%
at June 30, 1994 to 2.7% at June 30, 1995. See "Business -- Credit Review and
Loss Experience."
Interest expense increased $2,395,000 (18.0%) in fiscal 1996 and $1,600,000
(13.6%) in fiscal 1995 due to increases in the amounts borrowed to finance the
growth in the Company's lease portfolio. Interest expense as a percent of lease
income decreased to 44.5% in fiscal 1996 from 45.1% in fiscal 1995 primarily as
a result of more cost effective borrowing by the Company. The increase in
interest expense as a percent of lease income from 43.6% in fiscal 1994 to 45.1%
in fiscal 1995 resulted
21
<PAGE>
primarily from an increase in the general level of market interest rates.
Interest expense is reported net of the impact of interest rate hedges used to
fix the rate on floating rate financings, the effect of which was to decrease
interest expense by $53,000 in fiscal 1996 and increase interest expense by
$30,000 in fiscal 1995 and $736,000 in fiscal 1994.
General and administrative expense increased by $2,798,000 (27.4%) in
fiscal 1996 and $1,107,000 (12.1%) in fiscal 1995 primarily as a result of
increases in salaries and benefits expense and sales-related expenses. The
average number of personnel increased to 140 for fiscal 1996 from 117 for fiscal
1995 and 112 for fiscal 1994. As such, general and administrative expense as a
percent of lease income was 36.8% in fiscal 1996, 34.6% in fiscal 1995 and 33.8%
in fiscal 1994. The growth in the average number of employees has been necessary
to accomodate the Company's growth during the period.
The provision for uncollectible accounts increased by $735,000 (16.6%) in
fiscal 1996 and decreased by $1,242,000 (21.9%) in fiscal 1995. The provision
for uncollectible accounts as a percent of lease income was 14.6% in fiscal
1996, 15.0% in fiscal 1995 and 21.1% in fiscal 1994. The increase in the
provision in fiscal year 1996 is due primarily to the increased dollar volume of
leases originated in fiscal year 1996. The decrease in the provision in fiscal
year 1995 is the result of an increase in the provision for uncollectible
accounts in fiscal 1994 of $1,696,000, primarily due to the write-off of one
large lessee account which represented approximately one percent of the
Company's portfolio. The write-off in fiscal 1994 of this one account does not
reflect a deterioration in the performance of the remainder of the portfolio
which continues to perform consistent with historical norms.
Earnings before income taxes and the cumulative effect of the change in
accounting increased by $161,000 (6.3%) in fiscal 1996 and $1,575,000 (163.2%)
in fiscal 1995. Earnings before the cumulative effect of the change in
accounting increased by $100,000 (6.4%) in fiscal 1996 and $971,000 (162.9%) in
fiscal 1995 as compared to the respective prior fiscal years.
The Company adopted Statement of Financial Accounting Standards (SFAS) 109,
"Accounting for Income Taxes", during the first quarter of fiscal 1994, the
cumulative effect of which was to reduce net earnings for fiscal 1994 by
$155,000, or $.03 per share. The Company's effective tax rate was 38.3% in
fiscal years 1994 through 1996.
Net earnings increased by $100,000 (6.4%) in fiscal 1996 and $1,126,000
(255.3%) in fiscal 1995. The increase for fiscal 1996 was due to the larger
dollar increase in total revenue relative to total expenses. The increase for
fiscal 1995 was primarily due to the decrease in the provision for uncollectible
accounts in fiscal 1995, as discussed above, and the adoption of SFAS No. 109 in
fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has principally financed its operations, including the growth
of its lease portfolio, through borrowings under its revolving credit
agreements, issuance of debt and lease-backed obligations in both the
institutional private placement and public markets, principal collections on
leases and cash provided from operations.
Net cash used in investing activities, which was $48.2 million in fiscal
1996, $37.1 million in fiscal 1995, and $27.3 million in fiscal 1994, generally
represents the excess of equipment purchased for leasing over principal
collections on leases. Net cash provided by financing activities (the excess of
22
<PAGE>
borrowings under the revolving credit agreement and issuances of debt and lease-
backed obligations over repayments of these debt instruments) was $38.7 million
in fiscal 1996, $28.3 million in fiscal 1995 and $22.9 million in fiscal 1994.
The remaining funds used in investing activities were provided by operating cash
flows. As of June 30, 1996, the Company had outstanding commitments to purchase
equipment, which it intended to lease, with an aggregate purchase price of $7.5
million.
The following paragraphs summarize certain terms of the Company's existing
debt agreements and instruments. The Company believes these terms may be
material to investors, but these summaries, which do not purport to be complete,
are subject to the detailed provisions of those documents, and are qualified in
their entirety by reference to the agreements and instruments filed as exhibits
or incorporated by reference to this Form 10-K.
Revolving Credit Agreement
The Company borrows under its unsecured revolving credit agreement to fund
its operations. As the Company has approached full utilization under this
facility, it has sold long-term debt and lease-backed obligations in both the
institutional private placement and public markets and used the proceeds to
reduce its revolving credit borrowings. These long-term debt and lease-backed
obligations are issued either with fixed interest rates or with floating
interest rates combined with an interest rate hedge to lock in a fixed rate. The
Company intends to continue to issue long-term debt and lease-backed obligations
with either fixed interest rates or floating interest rates converted to a
fixed-rate through an interest rate hedge agreement, in both the institutional
private placement and public markets to reduce its exposure to floating interest
rates associated with revolving credit borrowings.
As of January 31, 1996, the Company entered into a new unsecured revolving
credit facility that permits the Company to borrow up to $30 million on an
unsecured basis with interest paid quarterly. The Company, at its option, pays
interest equal to the prime rate or the Federal Funds rate plus .70 percent. The
Company has the option at the end of every quarter to convert its revolving
loans outstanding under this facility into a fixed-rate loan, in which case the
principal amount is payable in 18 equal quarterly installments with interest at
2 percent over a calculated rate based on LIBOR. If the revolving credit
agreement is not extended, all revolving loans will be due on January 30, 1997,
and on such date the Company may convert the outstanding balance into a two-year
term loan bearing interest at the Company's choice of either prime rate plus .25
percent or LIBOR plus 1 percent. As of September 19, 1996, the outstanding loans
under this facility were $23.2 million and the unused borrowing capacity was
$6.8 million.
The unsecured revolving credit agreement contains numerous covenants which
include: a limitation on leverage, a minimum net worth requirement, a minimum
interest coverage requirement, dividend and other stock and debt repurchase
limitations, a maximum average original equipment cost of leased assets and a
minimum equity ownership by the Company's principal shareholder. At June 30,
1996, the Company was in compliance with all covenants contained in the
revolving credit agreement.
Issuances of Senior and Subordinated Debt and Lease-Backed Obligations
The Company has outstanding debt under unsecured senior and subordinated
note placements, unsecured subordinated debentures, and senior and subordinated
lease-backed obligations, all of which are summarized in the following table:
23
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
--------------------------
BALANCE AT
ISSUANCE PURCHASER(S) OR INTEREST JUNE 30,
DATE SECURITY THEIR AGENT(S) RATE ORIGINAL 1996 (1)
- ---- --------------- -------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
June Unsecured Massachusetts 13.40% $10,000,000 $ 7,780,000
1992 subordinated Mutual Life
notes Insurance Co.
October Unsecured American Nat'l 10.50% 13,000,000 12,950,000
1992 subordinated Bank & Trust
debentures Co., Trustee
June Unsecured Principal 5.83% 38,000,000 20,000,000
1993 senior notes Mutual Life
Insurance Co.,
Massachusetts
Mutual Life
Insurance Co.,
Phoenix Home
Life Mutual
Insurance Co. and
TMG Life
Insurance Co.
June Unsecured Phoenix Home 6.82% 4,000,000 4,000,000
1993 senior notes Life Mutual
Insurance Co.
June Unsecured Core States 6.31% 10,000,000 5,600,000
1993 senior notes Bank, N.A.
August Lease-backed Public 6.65% 43,416,000 15,276,413
1994 notes
August Subordinated First Union 7.65% 6,054,168 4,758,746
1994 lease-backed Nat'l Bank of
notes North Carolina
August Secured term First Union variable 1,000,000 1,000,000
1994 notes Nat'l Bank of (2)
North Carolina
October Lease-backed Public 6.40% 89,658,869 59,280,789
1995 notes
October Subordinated Met Life Capital 7.55% $10,802,273 $ 7,255,998
1995 lease-backed Corporation
note
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
-------------------------
BALANCE
ISSUANCE PURCHASER(S) OR INTEREST JUNE 30,
DATE SECURITY THEIR AGENT(S) RATE ORIGINAL 1996 (1)
- ------------------ --------------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
November Lease-backed First Union Libor + .75% 75,000,000 71,995,081
1995 securitized Nat'l Bank of (3)
revolving North Carolina
credit facility
Total $209,897,027
============
</TABLE>
(1) The aggregate scheduled maturities of the securities are $135.2 million for
fiscal 1997, $48.2 million for fiscal 1998, $13.6 million for fiscal 1999
and $13.0 million thereafter.
(2) In addition to prepaid interest in the amount of $14,025 paid at inception,
interest payments include all investment earnings on the account.
(3) Effective March 29, 1996 the credit limit on this securitized revolver was
increased from $35 million to $75 million. Effective July 31, 1996 the
credit limit on this securitized revolver was increased from $75 million to
$100 million, with an additional $25 million available for up to a 60 day
period from the drawdown of such amount.
The unsecured senior and subordinated private placement indentures contain
numerous financial and other covenants, which include: limitations on total
leverage and on the ratio of subordinated debt to equity, a minimum net worth
requirement, a minimum fixed charge coverage requirement, dividend and other
stock and debt repurchase limitations, a minimum unencumbered asset requirement
and a minimum equity ownership by the Company's principal shareholder. At June
30, 1996, the Company was in compliance with all covenants contained in the
senior and subordinated loan agreements.
The publicly issued subordinated debentures and the related indenture
contain financial and other covenants which include limitations on: dividends
and stock redemptions, the incurrence of additional senior and/or subordinated
debt, issuance of preferred stock and on transfers of assets by the Company to
special-purpose subsidiaries formed for the purpose of financing such assets. As
of June 30, 1996 the Company was in compliance with all requirements of these
agreements.
On November 28, 1995, the Company, through a wholly owned special-purpose
financing subsidiary, TL Lease Funding Corp. IV ("TLFC IV"), established a
securitized revolving credit and term loan facility with a maximum borrowing
limit of $35 million (the "TLFC IV Revolving Credit Facility") with a national
banking institution. On March 29, 1996, the credit limit was raised to $75
million and the expiration of the facility was extended from March 31, 1996 to
March 30, 1997. On July 31, 1996, the credit limit was raised to $100 million
through December 31, 1996, at which time the credit limit will revert to $75
million. In addition, the Company has a $25 million swing line available for up
to a 60 day period from the drawdown of such amount. TLFC IV pays interest on
the revolving borrowings at a rate equal to LIBOR plus .75 percent. TLFC IV may,
at its option, convert the revolving loans to a term loan with a maturity
determined by the cash flows of the leases held at the conversion date and a
rate of interest equal to LIBOR plus 1 percent. Upon conversion to a term loan,
TLFC IV would be required to execute an interest rate hedge to fix the rate on
this borrowing.
25
<PAGE>
On November 28, 1995, the Company sold leases with a net book value of
approximately $15.9 million to TLFC IV for approximately $16 million in cash
borrowed under the TLFC IV Revolving Credit Facility. On December 28, 1995, the
Company sold leases with a net book value of approximately $17.6 million to TLFC
IV for approximately $18 million in cash borrowed under this facility. On April
1, 1996, the Company sold leases with a net book value of approximately $30.5
million to TLFC IV for approximately $30 million in cash borrowed under this
facility. On June 10, 1996, the Company sold leases with a net book value of
approximately $18.5 million to TLFC IV for approximately $18.2 million in cash
borrowed under this facility. The Company continues to service the leases sold
to TLFC IV, and used the proceeds from the sales of leases to reduce revolving
credit borrowings under its unsecured revolving credit facility. As of September
19, 1996, outstanding loans under the TLFC IV revolving credit facility were
$93.1 million and unused borrowing capacity was $6.9 million, excluding the $25
million swing line.
The Company believes that the revolving credit facilities, increasing
principal payments on leases and continued placement of debt in the public
and/or private markets will provide adequate capital resources and liquidity for
the Company to fund its operations and debt maturities, but there can be no
assurances that this will continue to be the case.
On November 16, 1994, the Board of Directors authorized the repurchase by
the Company of up to 1,000,000 shares of its common stock. The Board determined
that this stock repurchase program is in the best interests of the Company and
its shareholders given the significant discount to book value at which the
Company's common stock is currently trading. As of June 30, 1996, a total of
753,125 shares have been repurchased at a total cost of $2,287,000 under this
program. Of this total amount, 166,600 and 159,925 shares were repurchased in
fiscal 1996 and fiscal 1995, respectively, at a cost of $559,000 and $550,000,
respectively.
The holders of common stock are entitled to receive dividends when and as
declared by the Board of Directors. The Board of Directors approved a dividend
in the amount of $.03 per share during each quarter of fiscal year 1996 and the
fourth quarter of fiscal 1995. There were no cash dividends declared in the
first three quarters of fiscal 1995. The declaration of dividends in the future
will be reviewed by the Board of Directors in light of the Company's earnings,
financial condition, and capital requirements, and future dividends may be
declared, reduced, or eliminated at the discretion of the Board of Directors on
the basis of these or other considerations. The Company's credit facility
restricts the payment of dividends on the Company's common stock unless certain
financial tests are met. Under the most restrictive limitations, the Company
shall not purchase its common stock, pay cash dividends or redeem subordinated
debt prior to maturity which, in aggregate, exceed the sum of $2 million plus 50
percent of consolidated net income computed on a cumulative basis plus net
proceeds to the Company from the issue or sale after December 31, 1992 of shares
of capital stock of the Company or warrants, rights or options to purchase or
acquire any shares of its capital stock. On August 6, 1996, the Board of
Directors approved the payment of a quarterly cash dividend in the amount of
$.03 per share on August 27, 1996 to holders of record as of August 16, 1996.
PENDING ACCOUNTING STANDARDS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which encourages entities to adopt a fair value based method of
accounting for the compensation cost of employee stock compensation plans. The
statement allows an entity to continue the application of the acounting method
prescribed by APB No. 25, "Accounting for Stock Issued to Employees", however
pro forma disclosures of net income and earnings per share, as if the fair value
based method of
26
<PAGE>
accounting defined by this statement had been applied, are required. The
disclosure requirements of this statement will be adopted in fiscal 1997.
Results of operations and financial position will not be affected by the
adoption of this statement.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), effective for the Company on January 1, 1997,
provides new methods of accounting and reporting for transfers and
servicing of financial assets and extinguishments of liabilities. The
Company will apply SFAS 125 to securitization transactions occurring on or
after January 1, 1997. The effect of adopting SFAS 125 is not expected to
have a material effect on the Company's financial position or results of
operation.
27
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Consolidated Financial Statements
Independent Auditors' Report 29
Consolidated Balance Sheets as of June 30, 1996 and 1995 30
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995, and 1994 31
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1996, 1995, and 1994 32
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995, and 1994 33
Notes to Consolidated Financial Statements 34
</TABLE>
28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Trans Leasing International, Inc.
Northbrook, Illinois
We have audited the accompanying consolidated balance sheets of Trans Leasing
International, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the management of Trans Leasing
International, Inc. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Trans Leasing International, Inc.
and subsidiaries at June 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June
30, 1996, in conformity with generally accepted accounting principles.
As discussed in Note H to the financial statements, in 1994 the Company changed
its method of accounting for income taxes.
DELOITTE & TOUCHE LLP
Chicago, Illinois
September 6, 1996
29
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
June 30
-------
1996 1995
---- ----
<S> <C> <C>
ASSETS
------
CASH $ 4,528,000 $ 3,758,000
RESTRICTED CASH (Note A) 5,639,000 12,988,000
DIRECT FINANCE LEASES (Notes B and F):
Future minimum lease payments 270,458,000 219,718,000
Estimated unguaranteed residual value 22,452,000 19,823,000
Total Direct Finance Lease Receivables 292,910,000 239,541,000
Less: Unearned lease income (46,788,000) (39,965,000)
Allowance for uncollectible accounts (9,506,000) (6,482,000)
------------ ------------
Net Investment in Direct Finance Leases 236,616,000 193,094,000
------------ ------------
LEASE FINANCING RECEIVABLES, less allowance for
uncollectible accounts of $238,000 and $151,000, respectively 6,534,000 4,977,000
EQUIPMENT UNDER OPERATING LEASES, net of accumulated depreciation (Note C) 7,709,000 3,898,000
FURNITURE, FIXTURES and EQUIPMENT, net of accumulated depreciation (Note D) 1,811,000 1,525,000
INCOME TAXES RECOVERABLE 904,000 1,464,000
OTHER ASSETS (Note E) 5,686,000 4,679,000
------------ ------------
TOTAL ASSETS $269,427,000 $226,383,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 9,183,000 $ 7,067,000
NOTES PAYABLE TO FINANCIAL INSTITUTIONS (Note F) 50,250,000 49,175,000
LEASE-BACKED OBLIGATIONS (Note F) 159,567,000 119,788,000
SUBORDINATED OBLIGATIONS (Note F) 20,730,000 21,840,000
DEFERRED INCOME TAXES (Note H) 3,411,000 2,843,000
------------ ------------
TOTAL LIABILITIES 243,141,000 200,713,000
COMMITMENTS AND CONTINGENT LIABILITIES (Note G)
STOCKHOLDERS' EQUITY (Note J):
Preferred stock, par value $1.00;
authorized 2,500,000 shares; none issued
Common stock, par value $.01; authorized 10,000,000 shares;
issued 4,798,500 shares, outstanding 4,045,375 and 4,211,975
shares, respectively 48,000 48,000
Additional paid-in capital 9,879,000 9,879,000
Retained earnings 18,646,000 17,471,000
Less 753,125 and 586,525 shares respectively, held in treasury, at cost (2,287,000) (1,728,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 26,286,000 25,670,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $269,427,000 $226,383,000
============ ============
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Year ended June 30
--------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Finance Lease Income $33,915,000 $28,861,000 $26,520,000
Operating Lease Income 1,469,000 694,000 404,000
Other 1,234,000 974,000 565,000
----------- ----------- -----------
Total Revenue 36,618,000 30,529,000 27,489,000
EXPENSES:
Interest 15,733,000 13,338,000 11,738,000
General and administrative 13,018,000 10,220,000 9,113,000
Provision for uncollectible accounts 5,166,000 4,431,000 5,673,000
----------- ----------- -----------
Total Expenses 33,917,000 27,989,000 26,524,000
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING 2,701,000 2,540,000 965,000
INCOME TAXES (Note H) 1,034,000 973,000 369,000
----------- ----------- -----------
EARNINGS BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING 1,667,000 1,567,000 596,000
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING FOR INCOME TAXES (Note H) --- --- 155,000
----------- ----------- -----------
NET EARNINGS $ 1,667,000 $ 1,567,000 $ 441,000
=========== =========== ===========
EARNINGS PER COMMON SHARE (Notes A and J)
EARNINGS BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING $ .41 $ .37 $ .13
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING FOR INCOME TAXES --- --- ( .03)
----------- ----------- -----------
NET EARNINGS $ .41 $ .37 $ .10
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Note A) 4,097,827 4,291,200 4,371,900
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
--------------------- Paid-In Retained Treasury
Shares Amount Capital Earnings Stock
----------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1993 4,371,900 $48,000 $9,879,000 $15,593,000 $(1,178,000)
Other (4,000)
Net earnings 441,000
----------- ------- ---------- ----------- -----------
BALANCE, June 30, 1994 4,371,900 48,000 9,879,000 16,030,000 (1,178,000)
Treasury stock purchased (159,925) (550,000)
Dividends declared and paid (126,000)
Net earnings 1,567,000
----------- ------- ---------- ----------- -----------
BALANCE, June 30, 1995 4,211,975 48,000 9,879,000 17,471,000 (1,728,000)
Treasury stock purchased (166,600) (559,000)
Dividends declared and paid (492,000)
Net earnings 1,667,000
----------- ------- ---------- ----------- -----------
BALANCE, June 30, 1996 4,045,375 $48,000 $9,879,000 $18,646,000 $(2,287,000)
=========== ======= ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,667,000 $ 1,567,000 $ 441,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Leasing costs, primarily provision for
uncollectible accounts and amortization
of initial direct costs 7,307,000 6,521,000 7,626,000
Depreciation and amortization 1,916,000 830,000 461,000
Initial direct costs incurred (2,734,000) (2,397,000) (1,956,000)
Changes in:
Deferred income taxes 568,000 1,016,000 612,000
Accounts payable and accrued expenses 2,116,000 1,779,000 681,000
Income taxes recoverable 560,000 487,000 (1,014,000)
Other assets (1,097,000) (457,000) (1,565,000)
Other (22,000) 62,000
------------- ------------- -------------
Net cash provided by operating activities 10,303,000 9,324,000 5,348,000
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on leases 96,331,000 75,627,000 65,001,000
Equipment purchased for leasing (134,146,000) (106,826,000) (89,338,000)
Purchase of lease financing receivables (4,309,000) (1,788,000) (2,468,000)
Purchase of property and equipment (6,583,000) (4,581,000) (608,000)
Disposal of property and equipment 481,000 419,000 149,000
------------- ------------- -------------
Net cash used in investing activities (48,226,000) (37,149,000) (27,264,000)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to financial institutions 131,992,000 126,225,000 61,600,000
Repayment of notes payable to financial institutions (130,917,000) (137,707,000) (62,288,000)
Issuance of lease-backed obligations 201,879,000 126,382,000 42,966,000
Repayment of lease-backed obligations (162,100,000) (84,778,000) (19,334,000)
Repayment of subordinated obligations (1,110,000) (1,160,000) ---
Payment of dividends on common stock (492,000) (126,000) ---
Purchase of treasury stock (559,000) (550,000) ---
------------- ------------- -------------
Net cash provided by financing activities 38,693,000 28,286,000 22,944,000
------------- ------------- -------------
NET INCREASE IN CASH 770,000 461,000 1,028,000
CASH, beginning of year 3,758,000 3,297,000 2,269,000
------------- ------------- -------------
CASH, end of year $ 4,528,000 $ 3,758,000 $ 3,297,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
A. Summary of Significant Accounting Policies:
Business:
Trans Leasing International, Inc., (the "Company") leases a variety of
medical and general office equipment and automobiles to the medical and
commercial equipment markets.
Principles of Consolidation:
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Trans Leasing Insurance Services, Inc.,
LeaseCard Auto Group, Inc., Nuvotron, Inc., TL Lease Funding Corp. III, and
TL Lease Funding Corp. IV. Intercompany accounts and transactions have been
eliminated.
Lease Accounting:
Completed lease contracts, which qualify as direct finance leases as
defined by Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting for Leases," are accounted for by recording on the balance
sheet the total future minimum lease payments receivable plus the estimated
unguaranteed residual value of leased equipment less the unearned lease
income. Unearned lease income represents the excess of the total future
minimum lease payments plus the estimated unguaranteed residual value
expected to be realized at the end of the lease term over the cost of the
related equipment. Unearned lease income is recognized as revenue over the
term of the lease by the effective interest method. Initial direct costs
incurred in consummating a lease are capitalized as part of the investment
in direct finance leases and amortized over the lease term as a reduction
in the yield. An allowance for uncollectible accounts is provided over the
terms of the underlying leases as the leases are determined to be
uncollectible. Accounts are normally written off if no payment has been
received within 150 to 180 days of its due date. Accounts can be written
off earlier if it is evident that no further payment will be received.
Operating lease income is recognized as revenue when the rental
payments become due. Equipment under operating leases is recorded at cost
and depreciated on a straight line basis over the estimated useful life of
the equipment, generally three to five years.
34
<PAGE>
The primary long-term funding method currently employed by the Company
is to securitize portions of its lease portfolio. This method of funding is
believed to provide the lowest cost long-term financing available. These
transactions are not reflected as sales of lease receivables in the
financial statements as the Company has an ongoing economic interest in the
assets securitized. As such, the lease receivables remain on the
consolidated balance sheet and the income associated with such leases is
recognized over the respective lease terms.
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 125), effective for the Company on January 1, 1997,
provides new methods of accounting and reporting for transfers and
servicing of financial assets and extinguishments of liabilities. The
Company will apply SFAS 125 to securitization transactions occurring on or
after January 1, 1997. The effet of adopting SFAS 125 is not expected to
have a material effect on the Company's financial position or results of
operation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from these estimates.
Restricted Cash:
Restricted cash represents cash received related to securitized leases
which is held in segregated cash accounts pending distribution to the
lease-backed certificate holders.
Furniture, Fixtures & Equipment:
Furniture, fixtures, & equipment are recorded at cost and depreciated
using the straight-line method over their estimated useful lives, generally
three to seven years.
Income Taxes:
The provision for income taxes includes deferred taxes resulting from
temporary differences between the financial statement and tax bases of
assets and liabilities, using the liability method required by SFAS No.
109, "Accounting for Income Taxes."
Interest Rate Hedges:
Interest rate swaps and collars involve the exchange of interest
payments without the exchange of the underlying notional principal amounts.
The Company accrues a net payable or receivable for the amount of interest
to be paid or received under the swap or collar as an adjustment to
interest expense.
35
<PAGE>
Earnings Per Common Share:
Earnings per common share are computed on the basis of the weighted
average number of shares outstanding plus common stock equivalents, if
dilutive, applicable to warrants and options.
Reclassifications:
Certain reclassifications have been made to prior years to conform
with the presentation used in 1996.
36
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
B. Net Investment in Direct Finance Leases:
----------------------------------------
The Company leases equipment with lease terms generally ranging from
one to five years. Minimum payments to be received on lease contracts for
each of the succeeding five fiscal years ending June 30 are:
<TABLE>
<CAPTION>
<S> <C>
1997 $111,940,000
1998 78,637,000
1999 47,665,000
2000 24,414,000
2001 7,753,000
Thereafter 49,000
</TABLE>
Initial direct costs are capitalized as part of the investment in
direct finance leases and are amortized over the lease term as a reduction
in yield. Initial direct costs capitalized are as follows:
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Initial direct costs: $ 2,734,000 $ 2,397,000 $ 1,956,000
</TABLE>
An analysis of the changes in the allowance for uncollectible accounts
is as follows:
<TABLE>
<CAPTION>
Year ended June 30
----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 6,482,000 $ 4,047,000 $ 2,709,000
Additions 6,667,000 5,328,000 6,489,000
Uncollected lease receivables
written off, net of recoveries (3,643,000) (2,893,000) (5,151,000)
----------- ----------- -----------
Balance, end of year $ 9,506,000 $ 6,482,000 $ 4,047,000
=========== =========== ===========
</TABLE>
37
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
C. Equipment Under Operating Leases
--------------------------------
The original cost of equipment under operating leases and the
accumulated depreciation are as follows:
<TABLE>
<CAPTION>
June 30
-------
1996 1995
---- ----
<S> <C> <C>
Equipment under operating leases $ 9,197,000 $4,414,000
Less accumulated depreciation (1,488,000) (516,000)
------------ ----------
$ 7,709,000 $3,898,000
============ ==========
</TABLE>
D. Furniture, Fixtures and Equipment:
----------------------------------
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
June 30
-------
1996 1995
---- ----
<S> <C> <C>
Data processing equipment 1,474,000 1,305,000
Furniture and fixtures 737,000 549,000
Personal computer and communication equipment 772,000 331,000
Vehicles 60,000 66,000
Leasehold improvements 84,000 50,000
------------ ----------
3,127,000 2,301,000
Less accumulated depreciation (1,316,000) (776,000)
------------ ----------
$ 1,811,000 $1,525,000
============ ==========
</TABLE>
38
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
E. Other Assets:
Other assets consist of:
<TABLE>
<CAPTION>
June 30
-----------
1996 1995
----------- -----------
<S> <C> <C>
Cash surrender value of life insurance policies,
net of policy loans of $63,000 and $61,000, respectively $ 1,915,000 $ 1,796,000
Deferred debt issuance costs 1,777,000 1,705,000
Due from lessees 836,000 789,000
Supplies 151,000 95,000
Deposits 484,000 91,000
Other 523,000 203,000
----------- -----------
$ 5,686,000 $ 4,679,000
=========== ===========
F. Debt:
June 30
-----------
1996 1995
----------- -----------
Notes payable to financial institutions:
Unsecured, floating rate (6.33% at June 30, 1996),
twelve-month revolving $20,650,000 $10,175,000
Other notes payable to financial institutions:
Unsecured, interest rate of 5.83%,
due in installments through March 31, 1998 20,000,000 27,200,000
Unsecured, interest rate of 6.31%,
due in installments through September 30, 1998 5,600,000 7,800,000
Unsecured, interest rate of 6.82%,
due in installments through June 1, 1998 4,000,000 4,000,000
----------- -----------
$50,250,000 $49,175,000
=========== ============
</TABLE>
39
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
<TABLE>
<CAPTION>
June 30
-----------
1996 1995
------------ ------------
<S> <C> <C>
Lease-backed obligations:
Variable interest rate (6.246% as of June 30, 1996),
due March 30, 1997 $ 71,995,000 $ 67,348,000
Variable interest rate (5.39% as of June 30, 1996),
due March 25, 1998 1,000,000 1,000,000
Interest rate of 6.65%,
due in installments through March 25, 1998 15,276,000 30,402,000
Interest rate of 5.75%,
due in installments through May 20, 1997 --- 10,541,000
Interest rate of 7.65%,
due in installments through March 25, 1998 4,759,000 4,758,000
Interest rate of 7.10%,
due in installments through January 15, 1996 --- 2,639,000
Interest rate of 8.20%,
due in installments through May 20, 1997 --- 3,100,000
Interest rate of 6.40%,
due in installments through February 15,1999 59,281,000 ---
Interest rate of 7.55%,
due in installments through February 15,1999 7,256,000 ---
------------ ------------
$159,567,000 $119,788,000
============ ============
Subordinated obligations:
Unsecured, interest rate of 10.5%,
due October 15, 2002 $ 12,950,000 $ 12,950,000
Unsecured, interest rate of 13.4%,
due June 30, 1999 7,780,000 8,890,000
------------ ------------
$ 20,730,000 $ 21,840,000
============ ============
</TABLE>
As of January 31, 1996, the Company entered into a new unsecured revolving
credit facility that permits the Company to borrow up to $30 million on an
unsecured basis with interest paid quarterly. The Company, at its option, pays
interest equal to the prime rate or the Federal Funds rate plus .70 percent. The
Company has the option at the end of every quarter to convert its revolving
loans into a fixed-rate loan, in which case the principal amount is payable in
18 equal quarterly installments with interest at 2 percent over a calculated
rate based on LIBOR. If the revolving credit agreement is not extended, all
revolving loans will be due on January 30, 1997, and on such date the Company
may convert the outstanding balance into a two-year term loan bearing interest
at the prime rate plus .25 percent or LIBOR plus 1 percent. As of September 19,
1996, the outstanding loans under this facility were $23.2 million and the
unused borrowing capacity was $6.8 million.
40
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
The Company had an amortizing interest rate collar agreement which
effectively fixed the interest rate on its floating-rate lease-backed notes
issued October 1992 at 5.75 percent. On June 28, 1996 the collar was terminated
concurrent with the prepayment of the related notes on the same day.
Interest received from or paid to the counterparty under this agreement is
netted against or added to interest expense on the Company's income statement.
There was no market risk associated with this agreement as it was used to hedge
floating-rate debt. The Company was exposed to potential non-performance by the
counterparty to the interest rate collar agreement, though the Company did not
anticipate non-performance due to the strong financial position of the
counterparty. As of June 30, 1996 there were no outstanding derivative
instruments.
The Company's loan agreements contain certain restrictive covenants. The
more significant of these covenants require the Company to maintain a ratio of
earnings before taxes and interest expense to interest expense of 1.15 to 1.0 on
a rolling four quarter basis; require the Company to maintain a ratio of debt,
(excluding subordinated debt due in more than one year), to equity, (including
subordinated debt due in more than one year), not to exceed 4.0 to 1.0; prohibit
consolidated tangible net worth, plus aggregate net assets of securitization
subsidiaries, plus the aggregate amount paid by the Company on or after December
31, 1992 to redeem its stock from being less than $17 million plus 50 percent of
the Company's consolidated cumulative net income from January 1, 1993; provide
that the Company shall not purchase its common stock, pay cash dividends or
redeem subordinated debt prior to maturity which, in aggregate, exceed the sum
of $2 million plus 50 percent of consolidated net income computed on a
cumulative basis plus net proceeds to the Company from the issue or sale after
December 31, 1992 of shares of capital stock of the Company or warrants, rights
or options to purchase or acquire any shares of its capital stock; and prohibit
the Company's activities in mergers and acquisitions without the consent of the
lender. In addition, repayment in full would be required in the event the
principal shareholder and Chief Executive Officer ceases to own at least 35
percent of the Company's outstanding common stock.
At June 30, 1996, the Company was in compliance with all covenants.
41
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
On November 28, 1995, the Company, through a wholly owned special-purpose
financing subsidiary, TL Lease Funding Corp. IV ("TLFC IV"), established a
securitized revolving credit and term loan facility with a maximum borrowing
limit of $35 million (the "TLFC IV Revolving Credit Facility") with a national
banking institution. On March 29, 1996, the credit limit was raised to $75
million and the expiration of the facility was extended from March 31, 1996 to
March 30, 1997. On July 31, 1996, the credit limit was raised to $100 million
through December 31, 1996, at which time the credit limit will revert to $75
million. In addition, the Company has a $25 million swing line available for up
to a 60 day period from the drawdown of such amount. TLFC IV pays interest on
the revolving borrowings at a rate equal to LIBOR plus .75 percent. TLFC IV may,
at its option, convert the revolving loans to a term loan with a maturity
determined by the cash flows of the leases held at the conversion date and a
rate of interest equal to LIBOR plus 1 percent. Upon conversion to a term loan,
TLFC IV would be required to execute an interest rate hedge to fix the rate on
this borrowing.
On November 28, 1995, the Company sold leases with a net book value of
approximately $15.9 million to TLFC IV for approximately $16 million in cash
borrowed under the TLFC IV Revolving Credit Facility. On December 28, 1995, the
Company sold leases with a net book value of approximately $17.6 million to TLFC
IV for approximately $18 million in cash borrowed under this facility. On April
1, 1996, the Company sold leases with a net book value of approximately $30.5
million to TLFC IV for approximately $30 million in cash borrowed under this
facility. On June 10, 1996, the Company sold leases with a net book value of
approximately $18.5 million to TLFC IV for approximately $18.2 million in cash
borrowed under this facility. The Company continues to service the leases sold
to TLFC IV, and used the proceeds from the sales of leases to reduce revolving
credit borrowings under its unsecured revolving credit facility. As of September
19, 1996, outstanding loans under the TLFC IV revolving credit facility were
$93.1 million and unused borrowing capacity was $6.9 million, excluding the $25
million swing line.
Maturities of debt (notes payable to financial institutions, subordinated
obligations, lease-backed obligations and leases discounted with financial
institutions) during each of the succeeding five years ending June 30 and
thereafter are as follows:
<TABLE>
<S> <C>
1997 $155,855,000
1998 48,180,000
1999 13,562,000
2000 ---
2001 ---
Thereafter 12,950,000
</TABLE>
42
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
G. Commitments:
The Company leases its office facilities and certain office equipment.
Future minimum rental commitments as of June 30, 1996 and thereafter are as
follows:
<TABLE>
<S> <C>
1997 $470,000
1998 428,000
1999 339,000
Thereafter 737,000
</TABLE>
The Company leases its two executive offices in Northbrook, Illinois
under leases which run through August 31, 1998 and May 31, 2002.
Total rent expense for the years ended June 30, 1996, 1995, and 1994
was $543,000, $353,000, and $376,000, respectively.
As of June 30, 1996, the Company had outstanding commitments to
purchase equipment, which it intended to lease, with an aggregate purchase
price of $7.5 million.
H. Income Taxes:
The Company adopted SFAS No. 109, "Accounting for Income Taxes,"
effective July 1, 1993. This statement supersedes the provisions of
Accounting Principle Board Opinion No. 11, "Accounting for Income Taxes,"
under which the Company had previously been recognizing income tax expense.
The cumulative effect of adopting SFAS No. 109 on the Company's financial
statements was to decrease net earnings by $155,000 ($.03 per share) for
fiscal 1994.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of the assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes,
and (b) operating loss and tax credit carryforwards. The tax effects of
significant items comprising the Company's net deferred tax liability as of
June 30, 1996 and 1995 are as follows:
43
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred Tax Liabilities:
Differences between book and tax
investment in equipment leased $14,312,000 $12,785,000
Deferred Tax Assets:
Operating loss carryforwards 2,955,000 2,134,000
Tax credit carryforwards:
Investment tax credits 2,464,000 2,443,000
Alternative minimum tax credits 5,482,000 5,365,000
----------- -----------
10,901,000 9,942,000
----------- -----------
Net deferred tax liability $ 3,411,000 $ 2,843,000
=========== ===========
</TABLE>
No valuation allowances as of June 30, 1996 and 1995 are considered
necessary.
At June 30, 1996, the Company has $7,714,000 of net operating loss
carryforwards available for federal income tax purposes. The net operating loss
carryforwards expire as follows:
<TABLE>
<CAPTION>
Year of
Net Operating Loss Expiration
------------------ ----------
<S> <C>
$ 906,000 2004
1,461,000 2005
1,170,000 2006
1,136,000 2009
3,041,000 2012
</TABLE>
44
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
At June 30, 1996, the Company's investment tax credit carryforwards expire
as follows:
<TABLE>
<CAPTION>
Investment Year of
Tax Credit Expiration
---------- ----------
<S> <C>
$103,000 1997
631,000 1998
784,000 1999
699,000 2000
247,000 2001
</TABLE>
At June 30, 1996 the Company has $5,482,000 of alternative minimum tax
credit carryover, which is available to offset future regular federal income
taxes.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal:
Current $ --- $ --- $ 130,000
Deferred 685,000 810,000 191,000
---------- ---------- ----------
685,000 810,000 321,000
State:
Current 254,000 50,000 ---
Deferred 95,000 113,000 48,000
---------- ---------- ----------
349,000 163,000 48,000
---------- ---------- ----------
$1,034,000 $ 973,000 $ 369,000
========== ========== ==========
</TABLE>
45
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
The differences between the statutory and effective tax rates are as
follows:
<TABLE>
<CAPTION>
Year ended June 30
---------------------
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
U.S. statutory income tax rate 34.0% 34.0% 34.0%
State income taxes less
federal benefit 4.3 4.3 4.3
----- ----- -----
Effective income tax rate 38.3% 38.3% 38.3%
===== ===== =====
</TABLE>
I. Profit Sharing Plan:
The Company has established a profit sharing 401(k) plan for its
employees. The Company matches 30 percent of participants' contributions up
to a maximum contribution of 6 percent of participants' compensation.
Contributions charged to earnings for the years ended June 30, 1996, 1995
and 1994 were $70,000, $49,000 and $52,000, respectively.
J. Stockholders' Equity:
The Company has granted to its current directors, other than the
President of the Company, immediately exercisable warrants to purchase an
aggregate of 205,000 shares of common stock, of which warrants to purchase
130,000 shares are exercisable at $3.50, expiring in November, 2000, and
75,000 at $3.25, expiring in October, 1996. The warrants expiring in
November, 2000 replace warrants that had exercise prices of between $4.25
and $6.00 with expiration dates ranging from September 1996 through July
1998.
The Company has adopted an Employee Stock Option and Performance Unit
Plan (the "1986 Plan"). Under the 1986 Plan, a committee of the Board of
Directors may grant to employees of the Company stock options, appreciation
rights or performance units. The maximum number of shares of common stock
available for grants under the 1986 Plan and reserved for issuance by the
Company is 210,000. Options to purchase 91,950 shares of common stock were
granted in May, 1986, at an option price of $9.25 per share. In August,
1987, all outstanding options were forfeited by the employees and the
Company granted options for the same number of shares to the same employees
at an option price of $4.25 per share. These options were exercisable at
any time within five years from the date of grant. In August, 1993, the
expiration date on these options was extended to August, 1996. On November
21, 1995, all
46
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
outstanding options, other than those with an original grant date of
November 2, 1995, were forfeited by the employees and the Company granted
options for the same number of shares to the same employees at an option
price of $3.50 per share, exercisable at any time within five years from
the date of grant. Since the original grant in May 1986, options to
purchase 273,500 shares of common stock were granted at an average option
price of $3.95. At June 30, 1996, none of these options had been exercised
and 129,000 options remained outstanding.
On November 17, 1992, the Company's stockholders approved an Executive
Management Group Stock Option Plan (the "1992 Plan"). Under the provisions
of the 1992 Plan, certain officers of the Company were granted options to
purchase a total of 45,000 shares of common stock at $6.00 per share. On
August 11, 1994, under the 1992 Plan, the Company granted options to an
officer entitling him to purchase 499 shares of the Company's common stock
at $3.50 per share and 657 shares of the Company's common stock at $5.25
per share. On November 21, 1995, all outstanding options, other than the
499 options granted to the aforementioned officer at an exercise price of
$3.50, were forfeited by the employees and the Company granted options for
the same number of shares to the same employees at an option price of $3.50
per share. At June 30, 1996, none of these options had been exercised and
31,156 options remained outstanding.
All options granted to the Chief Executive Officer of the Company
under the 1992 Plan are exercisable for five years after the date of grant,
and options granted to all other officers under the 1992 Plan are
exercisable for three years after the date of grant.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation", which encourages entities to adopt a fair value based
method of accounting for the compensation cost of employee stock
compensation plans. The Statement allows an entity to continue the
application of the acounting method prescribed by APB No. 25, "Accounting
for Stock Issued to Employees", however, pro forma disclosures of net
income and earnings per share, as if the fair value based method of
accounting defined by this Statement had been applied, are required. The
disclosure requirements of this Statement will be adopted in fiscal 1997.
Results of operations and financial position will not be affected by the
adoption of this Statement.
47
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
K. Supplementary Statement of Earnings Information:
Advertising expenses for the years ended June 30, 1996, 1995, and 1994
were $802,000, $535,000, and $322,000, respectively.
L. Estimated Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Values of Financial Instruments". The estimated
fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies. However,
considerable judgment is necessarily required to interpret market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts. SFAS No. 107 also excludes certain items
from its disclosure requirements such as the Company's investments in
leased assets.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value.
Long-term debt: Fair value of the Company's long-term debt is
determined utilizing current market rates based upon the market rate of
debt with similar terms and conditions. The fair value of the Company's
long-term debt is approximately $231,539,000 as of June 30, 1996; the
carrying value is $230,547,000. As of June 30, 1995, the fair value and
carrying value of the Company's long-term debt were $191,180,000 and
$190,803,000, respectively.
Other Financial Investments: The carrying value in the balance sheet
as of June 30, 1996 for cash, receivables (other than lease receivables),
accrued liabilities and revolving line of credit and variable rate notes
payable approximate fair value because of the short maturity of the
investments or bear interest rates that approximate current market rates.
48
<PAGE>
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(continued)
M. Supplementary Statement of Cash Flow Information:
Cash paid (received) during the year for:
<TABLE>
<CAPTION>
Year ended June 30
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Interest $14,754,000 $12,416,000 $10,598,000
Income taxes (48,661) (529,000) 3,708,000
</TABLE>
N. Dividends Declared:
The holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors. The Board of Directors approved a dividend,
in the amount of $.03 per share during each quarter of fiscal year 1996. The
declaration of dividends in the future will be reviewed by the Board of
Directors in light of the Company's earnings, financial condition, and capital
requirements, and future dividends may be declared, reduced, or eliminated at
the discretion of the Board of Directors on the basis of these or other
considerations. The Company's credit facility restricts the payment of dividends
on the Company's common stock unless certain financial tests are met. Under the
most restrictive limitations, the Company shall not purchase its common stock,
pay cash dividends or redeem subordinated debt prior to maturity which, in
aggregate, exceed the sum of $2 million plus 50 percent of consolidated net
income computed on a cumulative basis plus net proceeds to the Company from the
issue or sale after December 31, 1992 of shares of capital stock of the Company
or warrants, rights or options to purchase or acquire any shares of its capital
stock. On August 6, 1996, the Board of Directors approved the payment of a
quarterly cash dividend in the amount of $.03 per share on August 27, 1996 to
holders of record as of August 16, 1996.
49
<PAGE>
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No Form 8-K under the Securities Exchange Act of 1934 reporting a change of
accountants has been filed within the 24 month period ended June 30, 1996.
50
<PAGE>
PART III
Item 10. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the Company's
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard Grossman 44 President, Chief Executive Officer
Norman Smagley 37 Vice President, Finance and
Chief Financial Officer
Joseph Rabito 38 Vice President, Operations
</TABLE>
Richard Grossman, a co-founder of the Company, has been a director of the
Company since 1972 and the President, Chief Executive Officer, Chairman and
principal shareholder of the Company since 1982. From 1981 to 1982, Mr. Grossman
was Executive Vice President and from 1972-1981 Vice President of the Company,
with primary responsibility for developing and maintaining the Company's sources
of financing.
Norman Smagley joined the Company in March 1994 as Vice President, Finance
and Chief Financial Officer. From 1991 to 1993, Mr. Smagley was Vice President
and Treasurer of Genderm Corporation, an international pharmaceutical company.
Mr. Smagley was Vice President, Acquisition Finance, from 1988 to 1990, Vice
President, Treasury, from 1987 to 1988, and Assistant Treasurer, from 1985 to
1987, at Heller Financial, Inc., an international commercial financial services
company. Prior to 1985, Mr. Smagley held various financial analyst positions
with Amoco Corporation, an international energy and chemical company.
Joseph Rabito has been Vice President of Operations since 1985. Since
joining the Company in 1981, Mr. Rabito has held various positions in the
Company's credit department.
Other information required herein is hereby incorporated by reference from
the definitive Proxy Statement for the 1996 Annual Meeting of the Company.
Item 11. EXECUTIVE COMPENSATION
The information required herein is hereby incorporated by reference from
the definitive Proxy Statement for the 1996 Annual Meeting of the Company.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is hereby incorporated by reference from
the definitive Proxy Statement for the 1996 Annual Meeting of the Company.
51
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is hereby incorporated by reference from
the definitive Proxy Statement for the 1996 Annual Meeting of the Company.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report. The page number,
if any, listed opposite a document indicates the page number in the sequential
numbering system in the manually signed original of this Report where such
document can be found.
(1) The consolidated financial statements filed as part of this Report are
listed in Item 8.
(2) Financial Statement Schedules
Schedules have been omitted because they are not applicable, or not
required, or because the required information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits
3.1(a) Restated Certificate of Incorporation of the Registrant in the
State of Delaware, incorporated by reference to the Registrant's
Registration Statement on Form S-1, originally filed on July 30, 1992, as
amended filed September 23, 1992 with respect to an offering of its Common
Stock (Registration No. 33-50228).
3.1(b) Certificate of Amendment to Restated Certificate of
Incorporation, dated December 12, 1986, incorporated by reference to the
Registrant's Registration Statement on Form S-1, originally filed on July
30, 1992, as amended filed September 23, 1992 with respect to an offering
of its Common Stock (Registration No. 33-50228).
3.2(a) By-laws of the Registrant, incorporated by reference to the
Registrant's Registration Statement on Form S-1, originally filed on July
30, 1992, as amended filed September 23, 1992 with respect to an offering
of its Common Stock (Registration No. 33-50228).
3.2(b) Amendment to the By-laws of Registrant, dated April 27, 1988,
incorporated by reference to the Registrant's Registration Statement on
Form S-1, originally filed on July 30, 1992, as amended filed September
23, 1992 with respect to an offering of its Common Stock (Registration No.
33-50228).
4.1 Instruments defining the rights of holders of long-term debt of
the Registrant are included in item 10 below.
52
<PAGE>
10.1 1986 Employees Stock Option and Performance Unit Plan,
incorporated by reference to the Registrant's Registration Statement on
Form S-1, originally filed on February 13, 1986, with respect to an
offering of its Common Stock (Registration No. 33-3322).
10.2 1992 Executive Management Group Stock Option Plan, incorporated
by reference to the Registrant's Registration Statement on Form S-1,
originally filed on July 30, 1992, as amended filed September 23, 1992
with respect to an offering of its Common Stock (Registration No.
33-50228).
10.3(a) Trans Leasing International, Inc. Savings Plan (As Amended
and Restated Effective as of July 1, 1994), incorporated by reference to
the Registrant's Registration Statement on Form S-8 filed on September 19,
1996 with respect to the Trans Leasing International, Inc. Savings Plan.
10.3(b) First Amendment to Trans Leasing International, Inc. Savings
Plan (As Amended and Restated Effective as of July 1, 1994), as amended
effective as of October 1, 1995, incorporated by reference to the
Registrant's Registration Statement on Form S-8, filed on September 19,
1996 with respect to the Trans Leasing International, Inc. Savings Plan.
10.4(a) Form of 1991 directors' warrants, incorporated by reference
to the Registrant's Registration Statement on Form S-1, originally filed
on July 30, 1992, as amended filed September 23, 1992 with respect to an
offering of its Common Stock (Registration No. 33-50228).
10.4(b) Amendments to form of 1991 directors' warrants incorporated
by reference to the Registrant's Registration Statement on Form S-1,
originally filed on July 30, 1992, as amended filed September 23, 1992
with respect to an offering of its Common Stock (Registration No.
33-50228).
10.4(c) Form of 1995 directors' warrants.
10.5 Indenture dated as of October 1, 1992 between Registrant and
American National Bank and Trust Company of Chicago, as Trustee,
incorporated by reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended June 30, 1993 (File No. 0-15167).
10.6 Amended and Restated Contribution and Sale Agreement, dated
August 2, 1994 between the Registrant and TL Lease Funding Corp. III,
incorporated by reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended June 30, 1994 (File No. 0-15167).
10.7 Receivables Acquisition Agreement, dated August 2, 1994, between
TL Lease Funding Corp III and Prudential Securities Secured Financing
Corporation, incorporated by reference to the Registrant's Form 10-K
Annual Report for the fiscal year ended June 30, 1994 (File No. 0-15167).
53
<PAGE>
10.8 Pooling and Servicing Agreement, dated August 2, 1994, among the
Registrant, Prudential Securities Secured Financing Corporation, and PSSFC
Equipment Lease Trust 1994-1, incorporated by reference to the Registrant's
Form 10-K Annual Report for the fiscal year ended June 30, 1994 (File
No. 0-15167).
10.9 Indenture, dated August 2, 1994, between PSSFC Equipment Lease
Trust 1994-1 and Manufacturers and Traders Trust Company, incorporated by
reference to the Registrant's Form 10-K Annual Report for the fiscal year
ended June 30, 1994 (File No. 0-15167).
10.10 Trust Agreement, dated August 2, 1994, between Prudential
Securities Secured Financing Corporation and Bankers Trust (Delaware),
incorporated by reference to the Registrant's Form 10-K Annual Report for
the fiscal year ended June 30, 1994 (File No. 0-15167).
10.11 Administration Agreement, dated August 2, 1994, between PSSFC
Equipment Lease Trust 1994-1 and the Registrant, incorporated by reference
to the Registrant's Form 10-K Annual Report for the fiscal year ended June
30, 1994 (File No. 0-15167).
10.12 Loan and Security Agreement, dated August 2, 1994, between
Prudential Securities Secured Financing Corporation and First Union
National Bank of North Carolina, incorporated by reference to the
Registrant's Form 10-K Annual Report for the fiscal year ended June 30,
1994 (File No. 0-15167).
10.13 Amended and Restated Note Agreement dated as of November 30,
1994 between Registrant and certain lenders named therein, incorporated by
reference to the Registrant's Form 10-Q Quarterly Report for the quarter
period ended December 31, 1994 (File No. 0-15167).
10.14 Amended and Restated Note Agreement dated as of November 30,
1994 between Registrant and Massachusetts Mutual Life Insurance Company,
incorporated by reference to the Registrant's Form 10-Q Quarterly Report
for the quarter period ended December 31, 1994 (File No. 0-15167).
10.15 Amended and Restated Contribution and Sale Agreement, dated as
of October 6, 1995, among Registrant and TL Lease Funding Corp. IV,
incorporated by reference to the Registrant's Form 10-Q Report for the
quarter ended September 30, 1995.
10.16 Pooling and Servicing Agreement, dated as of October 6, 1995,
among Registrant, TL Lease Funding Corp. IV and TLFC IV Equipment Lease
Trust 1995-1, incorporated by reference to the Registrant's Form 10-Q
Report for the quarter ended September 30, 1995.
10.17 Indenture, dated as of October 6, 1995, between TLFC IV
Equipment Lease Trust 1995-1 and Manufacturers and Traders Trust Company,
incorporated by reference to the Registrant's Form 10-Q Report for the
quarter ended September 30, 1995.
54
<PAGE>
10.18 Trust Agreement, dated as of October 6, 1995, between TL Lease
Funding Corp. IV and Bankers Trust (Delaware), incorporated by reference to
the Registrant's Form 10-Q Report for the quarter ended September 30, 1995.
10.19 Administration Agreement, dated as of October 6, 1995, between
Registrant and TLFC IV Equipment Lease Trust 1995-1, incorporated by
reference to the Registrant's Form 10-Q Report for the quarter ended
September 30, 1995.
10.20 Revolving Credit and Term Loan and Security Agreement, dated as
of November 28, 1995, between TL Lease Funding Corp. IV and First Union
National Bank of North Carolina, incorporated by reference to the
Registrant's Form 10-Q Report for the quarter ended December 31, 1995.
10.21 Limited Recourse Agreement, dated as of November 28, 1995,
between Registrant and First Union National Bank of North Carolina,
incorporated by reference to the Registrant's Form 10-Q Report for the
quarter ended December 31, 1995.
10.22 Servicing Agreement, dated as of November 28, 1995, between
Registrant and First Union National Bank of North Carolina, incorporated by
reference to the Registrant's Form 10-Q Report for the quarter ended
December 31, 1995.
10.23 Contribution and Sale Agreement, dated as of November 28, 1995,
between Registrant and TL Lease Funding Corp. IV, incorporated by reference
to the Registrant's Form 10-Q Report for the quarter ended December 31,
1995.
10.24 Credit Agreement, dated as of January 31, 1996, among
Registrant, the Banks (as defined therein) and The First National Bank of
Chicago, as agent, incorporated by reference to the Registrant's Form 10-Q
Report for the quarter ended December 31, 1995.
10.25 Amendment No. 1 to Revolving Credit and Term Loan and Security
Agreement, dated March 29, 1995, between TL Lease Funding Corp. IV and
First Union National Bank of North Carolina, incorporated by reference to
the Registrant's Form 10-Q Report for the quarter ended March 31, 1995.
10.26 Amendment No. 1 to Limited Recourse Agreement, dated March 29,
1996, between Registrant and First Union National Bank of North Carolina,
incorporated by reference to the Registrant's Form 10-Q Report for the
quarter ended March 31, 1995.
10.27 Amendment to Credit Agreement, dated as of June 28, 1996, among
Registrant, the Banks (as defined therein and The First National Bank of
Chicago, as agent.
10.28 Amendment No. 2 to Revolving Credit and Term Loan and Security
Agreement, dated March 29, 1996, between TL Lease Funding Corp. IV and
First Union National Bank of North Carolina.
55
<PAGE>
10.29 Amendment No. 2 to Limited Recourse Agreement, dated July 31,
1996, between Registrant and First Union National Bank of North Carolina.
11.1 Statement re computation of per share earnings.
21.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K has been filed by the Registrant during the last
quarter covered by the report. One of the Company's wholly-owned special purpose
financing subsidiaries, TL Lease Funding Corp. IV, files routine monthly
servicing reports on Form 8-K.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of this 30th day of
September, 1996.
TRANS LEASING INTERNATIONAL, INC.
By: /s/ RICHARD GROSSMAN
---------------------------
Richard Grossman
Chairman of the Board
57
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of this 30th day of September,
1996.
/s/ RICHARD GROSSMAN President, Chief Executive Officer,
- -------------------------------- Chairman of the Board of Directors
Richard Grossman
/s/ NORMAN SMAGLEY Vice President, Finance and
- -------------------------------- Chief Financial Officer
Norman Smagley (Principal Accounting and Financial Officer)
/s/ JOSEPH RABITO Vice President, Operations
- --------------------------------
Joseph Rabito
/s/ CLIFFORD V. BROKAW, III Director
- --------------------------------
Clifford V. Brokaw, III
/s/ LARRY S. GROSSMAN Director
- --------------------------------
Larry S. Grossman
/s/ MICHAEL J. HEYMAN Director
- --------------------------------
Michael J. Heyman
/s/ MARK C. MATTHEWS Director
- --------------------------------
Mark C. Matthews
/s/ JOHN W. STODDER Director
- --------------------------------
John W. Stodder
58
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of this 30th day of
September, 1996.
TRANS LEASING INTERNATIONAL, INC.
By: . .
---------------------------------
Richard Grossman
Chairman of the Board
59
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of this 30th day of September,
1996.
President, Chief Executive Officer,
- -------------------------------- Chairman of the Board of Directors
Richard Grossman
Vice President, Finance and
- -------------------------------- Chief Financial Officer
Norman Smagley (Principal Accounting and Financial Officer)
Vice President, Operations
- --------------------------------
Joseph Rabito
Director
- --------------------------------
Clifford V. Brokaw, III
Director
- --------------------------------
Larry S. Grossman
Director
- --------------------------------
Michael J. Heyman
Director
- --------------------------------
Mark C. Matthews
Director
- --------------------------------
John W. Stodder
60
<PAGE>
EXHIBIT 10.4(c)
FORM OF WARRANT
THIS WARRANT MAY NOT BE TRANSFERRED IN VIOLATION
OF THE PROVISIONS OF SECTION 8
Right to Purchase _______ Shares of
Common Stock, $.01 par value per
share (subject to adjustment), of
Trans Leasing International, Inc.
TRANS LEASING INTERNATIONAL, INC.
---------------------------------
COMMON STOCK PURCHASE WARRANT
-----------------------------
Trans Leasing International, Inc. (the "Company"), a Delaware corporation,
hereby certifies that, for value received, the person listed on Schedule 1
attached hereto (the "Purchaser") is entitled, subject to the terms and
conditions set forth below, to purchase from the Company ______ fully paid and
nonassessable shares of Common Stock, $.01 par value per share ("Common Stock"),
of the Company, at the purchase price per share of $____ (the "Warrant Price"),
at any time or from time to time after ____________,___ (the "Initial Exercise
Date") and before the earlier of (i) the time at which the Purchaser ceases to
be a director of the Company for any reason and (ii) 5:00 p.m., Chicago time, on
____________, ___ (the "Expiration Date"). The Warrant Price and the number of
shares of Common Stock subject to this Warrant are subject to adjustment as
provided herein. Capitalized terms not otherwise defined herein are defined in
section 11 hereof.
1. Exercise of Warrant.
1.1 Manner of Exercise. The Purchaser may exercise this Warrant in whole
or in part, by surrender of this Warrant to the
<PAGE>
Company on any business day between and including the Initial Exercise Date and
the Expiration Date at the Company's principal office in Northbrook, Illinois
(or at such other office or agency of the Company as it may designate by notice
in writing to the registered holder hereof at his last address appearing on the
books of the Company) accompanied by a statement setting forth the number of
shares of Common Stock being purchased accompanied by payment therefor and the
Purchaser shall thereupon be entitled to receive such number of fully paid and
nonassessable shares of Common Stock.
1.2 When Exercise Effective. Each exercise of this Warrant shall be deemed
to have been effected immediately prior to the close of business on the business
day on which this Warrant is surrendered to the Company as provided in section
1.1, and the Purchaser shall be deemed to have become the holder of record of
the shares of Common Stock (or Other Securities) issuable upon such exercise at
such time notwithstanding that certificates representing such shares shall not
then be actually delivered to the Purchaser.
1.3 Delivery of Stock Certificates, etc. As soon as practicable after the
exercise of this Warrant in whole or in part, and in any event within 10 days
thereafter, the Company at its expense (including the payment by it of any
applicable issuance taxes) will cause to be issued in the Purchaser's name,
(a) a certificate or certificates for the number of fully paid and
nonassessable shares of the Common Stock (or Other Securities) to
which the Purchaser shall be
-2-
<PAGE>
entitled upon such exercise, plus, in lieu of any fractional share to
which the Purchaser would otherwise be entitled, cash in an amount
equal to the same fraction of the Market Price (as hereinafter
defined) of one full share on the business day next preceding the date
of such exercise, and
(b) in case such exercise is in part only, a new Warrant or Warrants
of like tenor, providing in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal to the
number of such shares provided for on the face of this Warrant
minus the number of such shares designated by the Purchaser upon
such exercise as provided in section 1.1.
2. Adjustment of Warrant Price. The Warrant Price and number of shares of
Common Stock subject to this Warrant shall be subject to adjustment from time to
time as set forth hereinafter in this section 2.
2.1 If the Company shall at any time issue or sell any shares of Common
Stock, including any treasury shares, at a price less than the Warrant Price in
effect immediately prior to such issuance, then forthwith upon such issue or
sale such Warrant Price shall be reduced to a price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of (i) the number of
shares of Common Stock outstanding immediately prior to such issuance or sale
multiplied by the then existing Warrant Price, and (ii) the consideration, if
any, received by the Company
-3-
<PAGE>
upon such issuance or sale, by (B) the total number of shares of Common Stock
outstanding immediately after such issue or sale.
2.2 The following provisions, in addition to the other provisions of this
section 2, shall be applicable in determining any adjustment under section 2.1.
(a) In case of the issuance or sale of shares of Common stock part or all
of which shall be for cash, the consideration received by the Company therefor
shall be deemed to be the amount of gross proceeds of such sale of shares
without deducting therefrom any compensation paid or discount allowed in the
sale, underwriting or purchase thereof by underwriters or dealers or others
performing similar services or any expenses incurred in connection therewith,
plus the amounts, if any, determined as provided in section 2.2(b).
(b) In the case of the issuance or sale of shares of Common Stock for a
consideration other than cash, the amount of the consideration other than cash
received by the Company for such shares shall be deemed to be the value of such
consideration as determined by a resolution adopted by the Board of Directors of
the Company acting in good faith, irrespective of any accounting treatment
thereof. In case of the issuance or sale of shares of Common Stock together with
other stock or securities or other assets of the Company for a consideration
which is received for both, the Board of Directors of the Company acting in good
faith shall determine what part of the consideration so received is to be deemed
to be the consideration for the issuance of such Common Shares irrespective of
any accounting treatment thereof.
-4-
<PAGE>
(c) In case at any time the Company shall declare a dividend or make any
other distribution upon any stock of the Company payable in Common Stock, then
such Common Stock issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(d) In case the Company shall at any time after the date hereof issue
options or rights to subscribe for shares of Common Stock (including shares held
in the Company's treasury) (hereinafter referred to as "Options") or issue any
securities convertible into or exchangeable for Common Stock (hereinafter
referred to as "Convertible Securities") and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities calculated pursuant to this section
2.2(d) shall be less than the Warrant Price in effect immediately prior to the
issuance of such Options or Convertible Securities, then such Warrant Price
shall be reduced to a price determined by making a computation in accordance
with the provisions of section 2.1 and 2.2 hereof, provided that:
(i) The price per share for which Common Stock is issuable upon the
exercise of the Options or upon conversion or exchange of the Convertible
Securities shall be determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the issuance of
such Options or Convertible Securities, plus the minimum aggregate amount
of additional consideration, if any, payable
-5-
<PAGE>
to the Company upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, by (B) the aggregate maximum
number of shares of Common Stock issuable upon the exercise of such Options
or upon the conversion or exchange of such Convertible Securities.
(ii) In determining the price per share for which Common Stock is
issuable upon exercise of any Options or conversion or exchange of any
Convertible Securities as set forth in section 2.2(d)(i) and in computing
the reduced Warrant Price (A) the aggregate maximum number of shares of
Common Stock issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities shall be considered to be issued at
the time such Options or Convertible Securities were issued and to have
been issued for the price per share determined for such Options or
Convertible Securities pursuant to section 2.2(d)(i) and (B) the
consideration for the issuance of such Options or Convertible Securities
and the amount of additional consideration payable to the Company upon
exercise of such Options or upon the conversion or exchange of such
Convertible Securities shall be determined in the same manner as the
consideration received upon the issuance or sale of Common Stock as
provided in paragraphs 2.2(a) through 2.2(c).
(iii) On the expiration of any Options or the termination of such
right to convert or exchange any Convertible Securities, the Warrant Price
shall forthwith be readjusted to
-6-
<PAGE>
such Warrant Price as would have obtained had the adjustments made upon the
issuance of such Options or Convertible Securities been made upon the basis
of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such Options or upon conversion or exchange
of such Convertible Securities.
(iv) If the minimum purchase price per share of Common Stock provided
for in any Option or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock shall change or a
different purchase price or rate shall become effective at any time or from
time to time (other than pursuant to any antidilution provision of such
Options or Convertible Securities) then, upon such change becoming
effective, the Warrant Price then in effect hereunder shall forthwith be
increased or decreased to such Warrant Price as would have obtained had the
adjustments made upon the granting or issuance of such Options or
Convertible Securities been made upon the basis of (A) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and
(B) the granting or issuance at the time of such change of any such Options
or Convertible Securities then still outstanding for the consideration, if
any, received by the Company therefor and to be received by
-7-
<PAGE>
the Company on the basis of such changed price or rate of exchange or
conversion.
(e) In case at any time the Company shall establish a record date for the
purpose of determining the holders of Common Stock entitled (i) to receive a
dividend or other distribution payable in Common Stock or in Convertible
Securities, or (ii) to subscribe for or purchase Common Stock or Convertible
Securities, then such record date shall be deemed to be the date of the issuance
or sale of the shares of Common Stock deemed to have been issued or sold upon
the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of sub scription or purchase, as the case may
be.
(f) The number of shares of Common Stock outstanding at any given time
shall not include treasury shares and the disposition of any such treasury
shares shall be considered an issuance or sale of Common Stock for the purposes
of this section.
(g) Anything hereinabove to the contrary notwithstanding, no adjustment of
the Warrant Price or in the number of Common Shares subject to this Warrant
shall be made upon:
(i) the issuance or sale by the Company of any shares of Common Stock
pursuant to the exercise of any of (A) any Warrants issued hereunder, (B)
any of the warrants issued by the Company on October 21, 1992 to Ladenburg,
Thalman & Co. Inc., Interstate/Johnson Lane Corporation, Herbert L.
Hochberg and Page W.T. Stodder, or (C) any of the warrants that have been
previously issued, or on the date hereof are issued, by
-8-
<PAGE>
the Company to any Director of the Company, (ii) the issuance or sale by
the Company of up to 250,000 shares of Common Stock pursuant to its 1986
Employees Stock Option and Performance Unit Plan and (iii) the issuance or
sale by the Company of up to 214,260 shares of Common Stock pursuant to the
1992 Executive Management Group Stock Option Plan.
(h) No adjustment in the Warrant Price shall be required under section 2.1
hereof unless such adjustment would require an increase or decrease in such
price of at least $.05; provided, however, that any adjustments which by reason
of the foregoing are not required at the time to be made shall be carried
forward and taken into account and included in determining the amount of any
subsequent adjustment; and provided further, however, that in case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock or
issue any additional shares of Common Stock as a dividend, said amount of $.05
per share shall forthwith be proportionately increased in the case of a
combination or decreased in the case of a subdivision or stock dividend so as to
appropriately reflect the same.
2.3 If the Company shall at any time subdivide its outstanding shares of
Common Stock by recapitalization, reclassification or stock split thereof, the
Warrant Price immediately prior to such subdivision shall be proportionately
decreased, and, if the Company shall at any time combine the outstanding shares
of Common Stock by recapitalization, reclassification or combination thereof,
the Warrant Price immediately prior to such combination shall be
-9-
<PAGE>
proportionately increased. Any such adjustment to the Warrant Price shall
become effective at the close of business on the record date for such
subdivision or combination.
2.4 If the Company after the date hereof shall distribute to all of the
holders of its shares of Common Stock any securities or other assets (other than
a cash distribution made as a dividend payable out of earnings), the Board of
Directors shall make such equitable adjustment in the Warrant Price in effect
immediately prior to the record date for such distribution as may be necessary
to preserve to the holder of this Warrant rights substantially proportionate to
those enjoyed hereunder by such holder immediately prior to the happening of
such distribution. Any such adjustment shall become effective as of the record
date for such distribution.
2.5 Upon any adjustment of the Warrant Price as hereinabove provided, the
number of shares of Common Stock issuable upon exercise of this Warrant shall be
changed to the number of shares determined by dividing (i) the aggregate Warrant
Price payable for the purchase of all shares issuable upon exercise of this
Warrant immediately prior to such adjustment by (ii) the Warrant Price per share
in effect immediately after such adjustment.
2.6 In case of any reclassification of the outstanding shares of Common
Stock (other than a change covered by section 2.3 hereof or which solely affects
the par value of such shares of Common Stock) or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or
-10-
<PAGE>
merger in which the Company is the continuing corporation and which does not
result in any reclassification or capital reorganization of the outstanding
shares of Common Stock), or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety in connection with which the Company is dissolved, the holder of this
Warrant shall have the right thereafter (until the expiration of the right to
exercise this Warrant) to receive upon the exercise hereof, for the same
aggregate Warrant Price payable hereunder immediately prior to such event, the
kind and amount of shares of stock or other securities or property receivable
upon such reclassification, capital reorganization, merger or consolidation, or
upon the dissolution following such sale or other transfer by a holder of the
number of shares of Common Stock of the Company obtainable upon exercise of this
Warrant immediately prior to such event, and if any reclassification also
results in a change in shares of Common Stock covered by section 2.3, then such
adjustment shall be made pursuant to both this section 2.6 and section 2.3. The
provisions of this section 2.6 shall similarly apply to successive
reclassifications, or capital reorganization, mergers or consolidations, sales
or other transfers.
3. Covenants of the Company; No Dilution or Impairment. Until the earlier
of the Expiration Date or the exercise of this Warrant in full, the Company
shall not, by amendment of its certificate of incorporation or though any
reorganization, transfer
-11-
<PAGE>
of assets, consolidation, merger, dissolution, issue or sale of securities, or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of the Warrants, but shall at all times in good faith carry
out all such terms and shall take all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Warrants
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company:
(a) shall not permit the par value of any shares of stock receivable upon the
exercise of the Warrants to exceed the amount payable therefor upon such
exercise;
(b) shall take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and non-assessable
shares of stock or other property deliverable upon the exercise of all
Warrants from time to time outstanding; and
(c) shall not (i) transfer all or substantially all of its properties and
assets to any other person, or (ii) consolidate with or merge into any
other person where the Company is not the continuing or surviving person,
or (iii) permit any other person to consolidate with or merge into the
Company where the Company is the continuing or surviving person unless, in
connection with such consolidation or merger, the Common Stock (or Other
Securities) then issuable upon the exercise of this
-12-
<PAGE>
Warrant shall be changed into or exchanged for stock or other securities or
property of any other person, and, in any such case, the other person
acquiring such properties and assets, continuing or surviving after such
consolidation or merger or issuing or distributing such stock or other
securities or property, as the case may be, shall expressly assume in
writing and be bound by all the terms of this Warrant.
4. Accountants' Report as to Adjustments. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities) issuable
upon the exercise of the Warrants, the Company at its expense will promptly
compute such adjustment or readjustment in accordance with the terms of the
Warrants and cause independent public accountants of recognized national
standing selected by the Company to verify such computation and prepare a report
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (b) the Warrant Price and the number of shares subject to this
Warrant in effect immediately prior to the event requiring such adjustment or
readjustment and as adjusted and readjusted on account thereof. The Company will
forthwith mail a copy of each such report to each holder of the Warrants, and
will, upon such holder's reasonable written request at any time, furnish to such
holder a like report
-13-
<PAGE>
setting forth the Warrant Price and the number of shares subject to this Warrant
at the time in effect and showing how it was calculated.
5. Notices of Record Date, etc. If the Company proposes
(a) to establish a record of the holders of any class of securities for the
purpose of determining holders thereof who are entitled to vote at any
meeting of stockholders for any purpose, or who are entitled to receive
any dividend (other than a regular cash dividend payable out of earned
surplus at the rate most recently established by the Board of Directors
of the Company) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to any other person
or any consolidation or merger involving the Company and any other
person, or
(c) any voluntary or involuntary dissolution, liquidation or winding up of
the Company,
the Company shall give the Purchaser a notice stating the date or expected date
on which any such record is to be taken and, if it
-14-
<PAGE>
relates to a meeting, the matters expected to be considered at such meeting, or
the amount and character of such dividend, distribution or right, or the nature
of such reorganization, reclassification, transfer, or merger or consolidation.
Such notice shall be given at least 10 days prior to the record date therein
specified.
6. Registration under the Securities Act of 1933.
6.1 Piggyback Registration. The Company shall advise the Purchaser and
any other holder of Warrants or shares of Common Stock issued upon the exercise
of the Warrants not publicly held (the "Shares") by written notice, at least
fifteen days prior to the filing at any time on or after the Initial Exercise
Date and on or before six years after the Initial Exercise Date, of any
registration statement or post-effective amendment thereto under the Securities
Act of 1933 covering common stock or equivalents thereof of the Company (except
on Form S-4 or Form S-8 or any successor form) and will, upon the request of
such holders, provided that such holders shall furnish the Company with such
appropriate information (relating to the intentions of such holders) in
connection therewith as the Company shall request in writing, and without any
charge to such holders, include in any such post-effective amendment or
registration statement such information as may be required to permit a public
offering of the Shares; provided that the aggregate offering value of the Shares
to be registered is reasonably anticipated to equal at least $100,000. The
Company shall supply reasonable quantities of prospectuses,
-15-
<PAGE>
qualify the Shares for sale in such jurisdictions as such holder may reasonably
designate (subject to the same type of limitations contained in the Underwriting
Agreement dated October 21, 1992 among the Company and the several underwriters
included as an exhibit to the Registration Statement in the form filed with the
Securities Exchange Commission at the time it became effective in connection
with its 1992 public offering of Common Stock (the "Underwriting Agreement"))
and furnish indemnification in the manner set forth in section 6.2 hereof. Such
holder shall furnish information and indemnification as set forth in section 6.2
hereof. If the managing underwriters for the registration of securities advise
the Company in writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in such
registration, the Company will include in such registration (i) first, the
securities the Company proposes to sell, (ii) second, the Shares requested to be
included in such registration by Ladenburg, Thalman & Co. Inc., Interstate/
Johnson Lane Corporation, Herbert L. Hochberg and Page W.T. Stodder, (iii)
third, the Shares requested to be included in such registration, pro rata among
the remaining holders of such Shares (or Warrants) on the basis of the number of
Shares (or Warrants) to be offered by such holders, and (iv) fourth, other
securities requested to be included in such registration.
6.2 Obligations Relating to Registration. The following provisions of
this section 6 shall also be applicable:
-16-
<PAGE>
(a) The Company and all holders requesting registration of Shares pursuant
to section 6.1 shall enter into such customary agreements (including
underwriting agreements in customary form) as reasonably are necessary in order
to expedite or facilitate the disposition of Shares.
(b) The Company shall indemnify and hold harmless each holder requesting
registration and each underwriter, within the meaning of the Securities Act of
1933, who may purchase from or sell for any such holder Warrants and/or the
Shares from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under the Securities Act or any
prospectus included therein required to be filed or furnished by reasons of this
section 6 or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished in writing or
required to be furnished to the Company by such holder or underwriter expressly
for use therein, which indemnification shall include each person, if any, who
controls any such holder or such underwriter
-17-
<PAGE>
within the meaning of the Securities Act; provided, however, that the Company
shall not be obligated so to indemnify the holder or any underwriter unless such
holder or underwriter shall indemnify the Company, its directors, each officer
signing the related registration statement and each person, if any, who controls
the Company within the meaning of the Securities Act, from and against any and
all losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by reason of this
section 6 or caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission or alleged omission based upon
information furnished in writing or required to be furnished to the Company by
such holder or underwriter expressly for use therein; provided that the
aggregate liability of any holder pursuant to this section 6.2(b) shall not
exceed the total aggregate amount of the net proceeds to be received by such
holder from the sale of Shares to be registered.
-18-
<PAGE>
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, litigation or proceeding commenced against it
with respect to which indemnity may be sought hereunder, but failure so to
notify an indemnifying party shall not relieve it from any liability which it
may have on account of this indemnity agreement or otherwise unless such
indemnifying party shall sustain the burden of proving that it has been
prejudiced in a material respect by such failure. An indemnifying party may
participate at its own expense in the defense of such action, litigation or
proceeding. In addition, if it so elects within a reasonable time after receipt
of such notice, an indemnifying party (jointly with any other indemnifying
parties receiving such notice) may assume the defense of such action, litigation
or proceeding with counsel chosen by it (jointly with such other indemnifying
parties) and reasonably satisfactory to the indemnified parties defendant in
such action, litigation or proceeding. If an indemnifying party assumes the
defense of such action, litigation or proceeding, such indemnifying party shall
not be liable for any fees and expenses of counsel for the indemnified parties
defendant in such action, litigation or proceeding incurred thereafter in
connection therewith. The indemnified party shall have
-19-
<PAGE>
the right to employ its counsel in any such action, but the fees and expenses of
such counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized by the
indemnifying parties, (ii) the indemnified party shall have been advised by its
counsel that there may be a conflict of interest between the indemnifying
parties and the indemnified party in the conduct of the defense of such action
(in which case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of counsel
shall be at the expense of the indemnifying parties. In no event, however,
shall the indemnifying parties be liable for the fees and expenses of more than
one counsel for all indemnified parties in connection with any one action,
litigation or proceeding, or in connection with separate but similar or related
actions, litigations or proceedings in the same jurisdiction arising out of the
same general allegations or circumstances. The indemnifying party shall not be
liable for any settlement of any such action, litigation or proceeding effected
without its written consent, but
-20-
<PAGE>
if any such action, litigation or proceeding is settled with the
written consent of the indemnifying party or if there is a final
judgment for the plaintiff in any such action, litigation or
proceeding, the indemnifying party shall indemnify and hold any
indemnified party harmless from and against any loss or liability by
reason of such settlement or judgment.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for above is due in
accordance with its terms but is for any reason held by a court to be
unavailable, the Company, each such holder and each such underwriter
shall contribute to the aggregate losses, claims, damages and
liabilities in a manner that is fair and equitable in accordance with
the relative fault of such party. In no case, however, shall the
Company, holder or underwriter be responsible for any amount in excess
of the net proceeds to him or it from the public offering as disclosed
in the prospectus for such offering. No party shall be liable for
contribution with respect to any action or claim settled without its
consent.
(e) Neither the giving of any notice by the holder nor the making of any
request for prospectuses shall impose upon the holder making such
request any obligation to sell any Shares or exercise any Warrants.
-21-
<PAGE>
6.3 Obligations to Continue. The Company's agreements in this section 6
with respect to the Warrants and/or the Shares shall continue in effect
regardless of the exercise and surrender of this Warrant.
7. Company's Option to Purchase Shares. In lieu of including the Shares
in a registration statement or amendment as described in section 6.1., the
Company has the option, exercisable by notice within 10 days after receipt of
the request of the holder of the Warrants or the Shares for such registration of
securities, to purchase within 30 days after the receipt of such request, all
(but no fewer) of the Warrants or the Shares as are the subject of such request.
If the Company exercises the option to purchase the Warrants or the Shares, it
shall do so, in the case of any Share, at a price equal to the average of the
reported bid and asked prices for the 20 business days preceding the request for
registration and, in the case of any Warrant, at a price equal to the average of
the reported bid and asked prices for the 20 business days preceding the request
for registration less the Warrant Price then in effect multiplied by the number
of Shares issuable upon the exercise of such Warrant in full.
8. Transfer of Warrant. This Warrant and the Shares may not be
transferred, except to a person or an entity under common control with the
Purchaser (including, without limitation, any corporate successors thereto) and
may not be transferred unless, in the opinion of counsel reasonably satisfactory
to the Company, such
-22-
<PAGE>
transfer would not result in a violation of the provisions of the Securities
Act. Any transfer of this Warrant, in whole or in part, shall be effected upon
the surrender of this Warrant, duly endorsed (unless endorsement is waived by
the Company) at the Company's office referred to in section 1.1. The Purchaser
acknowledges that the Company may require that certificates for Shares which are
not freely transferable under the Securities Act of 1933 bear a customary
restrictive legend. Any person or entity to whom or to which all or part of the
Warrants are transferred in accordance with this section 8 shall be deemed to be
a Purchaser for the purposes of this Warrant and shall be entitled to all the
benefits granted in, and subject to all the obligations imposed by, this Warrant
and there may be one or more Purchaser. Any action requiring the consent of the
Purchaser hereunder may be taken if such action has been consented to by the
holders of Warrants or Shares together representing a total of more than 50% of
the Shares. Each taker and holder of the Warrants, by taking or holding the
same, consents to and agrees to be bound by the provisions of this section 8.
9. Exchange or Loss of Warrant. This Warrant is exchangeable, without
expense, at the option of the Purchaser, upon presentation and surrender hereof
to the Company or at the office of its stock transfer agent, if any, for other
Warrants of different denominations entitling the Purchaser thereof to purchase
in the aggregate the same number of shares of Common Stock
-23-
<PAGE>
purchasable hereunder. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation hereof at the office of
the Company or at the office of its stock transfer agent, if any, together with
a written notice specifying the names and denominations in which new Warrants
are to be issued and signed by the Purchaser hereof. The term "Warrant" as used
herein includes any warrants into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not the Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
10. Reservation of Stock, etc. The Company shall at all times until the
Expiration Date reserve and keep available, solely for issuance and delivery
upon the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable upon the exercise of the Warrants at the
time outstanding. All shares of Common Stock issuable upon the exercise of the
Warrants shall be duly authorized, validly issued, fully paid and nonassessable.
-24-
<PAGE>
11. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
Common Stock: the Common Stock, $.01 par value per share, of the Company
as constituted on the Warrant Date, any stock into which such Common Stock shall
have been converted or any stock resulting from any reclassification of such
Common Stock, and all other stock of any class or classes (however designated)
of the Company, the holders of which have the right, without limitation as to
amount, either to all or a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
Company: includes any corporation which shall succeed to or assume the
obligations of the Company hereunder in compliance with section 3.
Convertible Securities: the meaning specified in section 2.2(d).
Initial Exercise Date: the meaning specified in the opening paragraph of
this Warrant.
Options: the meaning specified in section 2.2(d).
Other Securities: any stock (other than Common Stock) or other securities
of the Company or any other person (corporate or otherwise) which the holders of
the Warrants at any time shall be entitled to receive, or shall have received,
upon the exercise of the Warrants, in lieu of or in addition to Common Stock,
or, which
-25-
<PAGE>
at any time shall be issuable or shall have been issued in exchange for or
replacement of Common Stock or Other Securities pursuant to section 2 or
otherwise.
Shares: the meaning specified in section 6.1.
Underwriting Agreement: the meaning specified in section 6.1.
Warrant Date: the date this Warrant is issued.
Warrant Price: the meaning specified in the opening paragraph of this
Warrant.
12. Notices. All notices, consents and other communications under this
Warrant shall be in writing and shall be deemed given when delivered personally
or when sent by telex (or its equivalent) and confirmed by registered mail,
return receipt requested, to a party at its address as follows (or such other
address as a party may designate by notice given to the other parties pursuant
to this section): (a) if to the Company, 3000 Dundee Road, Northbrook, Illinois
60062, Attention: President, with a copy to Carter W. Emerson, Esq., Kirkland &
Ellis, 200 East Randolph Drive, Chicago, Illinois 60601 and (b) if to the
Purchaser, at the address set forth in Schedule 1 hereto.
13. Termination of Outstanding Warrants.
This instrument terminates the Warrants issued by the Company to the
Purchaser on _____________ to purchase ______ shares of Common Stock
(collectively, the "Previously Issued Warrants"). The Previously Issued Warrants
are hereby cancelled and are replaced with this Warrant.
-26-
<PAGE>
14. Miscellaneous.
(a) Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated except by an instrument in writing signed by the holder
of the Warrant and by the Company.
(b) This Warrant and all amendments hereof and waivers and consents
hereunder shall be governed by the law of the State of Illinois applicable to
contracts made and to be performed therein.
(c) The headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
-27-
<PAGE>
Dated: as of ___________, ____
Trans Leasing International, Inc.
By _________________________________
Chief Financial Officer
The undersigned hereby acknowledges having read this Warrant and hereby
agrees to be bound by all provisions set forth herein as of the date of the
issuance of this Warrant.
Dated as of ___________, ____
By _________________________________
Purchaser
-28-
<PAGE>
Schedule 1
----------
Name of Purchaser:
Address for Notices:
-29-
<PAGE>
EXHIBIT 10.27
AMENDMENT
This Amendment (the "Amendment") is entered into as of June 28, 1996 by and
among Trans Leasing International, Inc. (the "Company"), the Banks and The First
National Bank of Chicago, as Agent.
W I T N E S S E T H :
WHEREAS, the Company, the Banks and the Agent are parties to that certain
Credit Agreement dated as of January 31, 1996 ( the "Agreement"); and
WHEREAS, the Company and the Banks desire to amend the Agreement in certain
respects as more fully described hereinafter;
NOW, THEREFORE, in consideration of the premises herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meanings attributed to such terms in the
Agreement.
2. Amendments to the Agreement.
2.1. Section 1 of the Agreement is hereby amended by:
(i) Amending the definition of "Borrowing Base" set forth therein by
amending the proviso thereof to read in its entirety as follows:
"provided that, to the extent that the aggregate Eligible Lease
Receivables due from any one Person exceeds "$1,000,000 (or (A) in the
case of Hanjin Shipping and all of its subsidiaries, including Korean
Airlines, $3,000,000, or (B) in the case of Aluminio Conesa/Hyundai
Precision America and all of their subsidiaries, $2,600,000, or (C) in
the case of such other Persons and Eligible Lease Receivables as shall
be described in Annex A hereto (as such Annex A may be modified or
supplemented from time to time with the consent of the Majority
Banks), such amounts and for such periods of time as shall be
specified in Annex A hereto), as of such date of determination, the
portion thereof in excess of such amount shall be excluded from the
computation of the Borrowing Base."
(ii) Amending the definition of "Eligible Lease" set forth therein by
inserting, immediately after the phrase "noncancellable during its initial
term" where it appears in clause (iii) thereof, the following
parenthetical:
<PAGE>
"(provided that such Lease may be cancellable (a "Cancellable Lease") if,
but only if, (A) in the event of a cancellation of such Lease by the lessee
thereunder, the seller of the personal property subject to such cancellable
Lease (the "vendor") shall be fully and unconditionally obligated to pay to
the Company an amount which, when added to the excess payments already paid
by such lessee, equals the present value of the remaining amounts payable
under such cancellable Lease, (B) the present value of the Eligible Lease
Receivables in respect of all such cancellable Leases shall not exceed, in
the aggregate at any one time outstanding, $3,000,000, and (C) the present
value of the Eligible Lease Receivables in respect of all such cancellable
Leases in respect of any one vendor shall not exceed, in the aggregate at
any one time outstanding, $1,000,000)"
2.2. Section 9.15 of the Agreement is hereby amended by deleting the
amount "$800,000" where it appears therein and inserting the amount "$1,250,000"
in lieu thereof.
2.3. Section 9.23 of the Agreement is hereby amended (i) by deleting the
amount "$500,000" where it appears therein and inserting the amount "$600,000"
in lieu thereof and (ii) by deleting the amount "$2,000,000" where it appears
therein and inserting the amount "$2,400,000" in lieu thereof.
2.4. The Agreement is hereby amended by inserting at the end thereof an
Annex A in the form of Annex A hereto.
3. Representations and Warranties. In order to induce the Banks and the
Agent to enter into this Amendment, the Company represents and warrants that:
3.1. The representations and warranties set forth in Section 8 of the
Agreement are true and correct on the date hereof as if made on and as of the
date hereof, except for such changes as are specifically permitted under the
Agreement, and there exists no Event of Default or Unmatured Event of Default on
the date hereof.
3.2. The execution and delivery by the Company of this Amendment have been
duly authorized by proper corporate proceedings, and this Amendment and the
Agreement, as amended by this Amendment, constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights generally.
3.3. Neither the execution and delivery by the Company of this Amendment,
nor the consummation of the transactions herein contemplated, nor compliance
with the provisions hereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Company or any of its
Subsidiaries or the Company's or any of its Subsidiaries' articles of
incorporation or by-laws or the provisions of any indenture, instrument or
agreement to which the Company or any of its Subsidiaries is a party or is
subject, or by which it or its property is bound, or conflict with or constitute
a default thereunder. No consent, approval or
-2-
<PAGE>
authorization of any Person is required to authorize, or is required in
connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, this Amendment or the Agreement,
as amended by this Amendment.
4. Effective Date. This Amendment shall become effective as of the date
first above written (the "Effective Date") upon receipt by the Agent of
counterparts of this Amendment duly executed by the Company and the Banks.
5. Ratification. The Agreement, as amended hereby, shall remain in full
force and effect and is hereby ratified, approved and confirmed in all respects.
6. Reference to Agreement. From and after the Effective Date, each
reference in the Agreement to "this Agreement", "hereof", or "hereunder" or
words of like import, and all references to the Agreement in any and all
agreements, instruments, documents, notes, certificates and other writings of
every kind and nature shall be deemed to mean the Agreement, as amended by this
Amendment.
7. Costs and Expenses. The Company agrees to pay all reasonable costs,
fees and out-of-pocket expenses (including attorneys' fees and time charges of
attorneys for the Agent, which attorneys may be employees of the Agent) incurred
by the Agent in connection with the preparation, execution and enforcement of
this Amendment.
8. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed this
Amendment as of the date first above written.
TRANS LEASING INTERNATIONAL, INC.
By:
--------------------------------------
Title:
-----------------------------------
THE FIRST NATIONAL BANK OF
CHICAGO, Individually and as Agent
By:
--------------------------------------
-3-
<PAGE>
Title:
-----------------------------------
-4-
<PAGE>
CORESTATES BANK N.A.
By:
--------------------------------
Title:
-----------------------------
THE BANK OF CALIFORNIA, N.A.
By:
--------------------------------
Title:
-----------------------------
-5-
<PAGE>
ANNEX A
-------
<TABLE>
<CAPTION>
Lessee Equipment Gross Date Funded Permanent
Lease # Name Cost Receivables under Agreement Funding Date
- ------- ------ --------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
-6-
<PAGE>
EXHIBIT 10.28
AMENDMENT NO. 2 TO
REVOLVING CREDIT AND TERM LOAN
AND SECURITY AGREEMENT
This Amendment No. 2 is entered into as of July 31, 1996, between TL LEASE
FUNDING CORP. IV, a Delaware corporation (the "Company"), and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA ("First Union").
The parties hereto are the parties to a Revolving Credit and Term Loan and
Security Agreement, dated as of November 28, 1995 (as amended through the date
hereof, the "Credit Agreement"), and desire to increase the maximum amount of
loans which may be made thereunder from $75,000,000 to $100,000,000 for the
period from the date hereof through December 31, 1996. All capitalized terms
used herein shall have the same meanings as in the Credit Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the
agreements hereinafter set forth, and for the good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Amendments. (a) (i) Recital A of the Credit Agreement is hereby amended
by substituting the figure $100,000,000 for the figure $75,000,000 therein and
(ii) Section 1.1 of the Credit Agreement is hereby amended by substituting the
figure $100,000,000 for the figure $75,000,000 in the definition of Loan
Commitment Amount and (b) on and after January 1, 1997, (i) the provisions set
forth in Section 1(a) hereof shall no longer be effective and (ii) (A) Recital A
of the Credit Agreement is amended by substituting the figure $75,000,000 for
the figure $100,000,000 therein and (B) Section 1.1 of the Credit Agreement is
amended by substituting the figure $75,000,000 for the figure $100,000,000 in
the definition of Loan Commitment Amount.
2. No Further Amendment. Except as set forth above, the Credit Agreement
shall continue in full force and effect without modification.
3. Effectiveness; Note. This Amendment shall become effective upon the
execution and delivery by the Company and by First Union of this Amendment and
by the Company of a substitute promissory note reflecting this Amendment. This
Amendment may be executed in two counterparts, each of which shall be an
original, but all of which will constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
TL LEASE FUNDING CORP. IV
By:_____________________________________
Title:__________________________________
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:_____________________________________
Title:__________________________________
-2-
<PAGE>
EXHIBIT 10.29
AMENDMENT NO. 2
TO LIMITED RECOURSE AGREEMENT
This Amendment No. 2 is entered into as of July 31, 1996, between TRANS
LEASING INTERNATIONAL, INC., a Delaware corporation (the "Company"), and FIRST
UNION NATIONAL BANK OF NORTH CAROLINA ("First Union").
The parties hereto are the parties to a Limited Recourse Agreement, dated
as of November 28, 1995 (as amended through the date hereof, the "Recourse
Agreement"), and desire to increase the maximum amount that the Company shall be
required to pay or contribute to TL Lease Funding Corp. IV, a Delaware
corporation, thereunder from $3,750,000 to $5,000,000 for the period from the
date hereof through December 31, 1996. All capitalized terms used herein shall
have the same meanings as in the Recourse Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the
agreements hereinafter set forth, and for the good and valuable consideration
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Amendment. (a) (i) As of the date hereof, Recital C of the Recourse
Agreement is hereby amended by substituting the figure $5,000,000 for the figure
$3,750,000 therein and (ii) the proviso in the first paragraph of Section 2 of
the Recourse Agreement is hereby amended by substituting the figure $5,000,000
for the figure $3,750,000 therein and (b) on and after January 1, 1997, (i) the
provisions set forth in Section 1(a) hereof shall no longer be effective and
(ii) (A) Recital C of the Recourse Agreement is hereby amended by substituting
the figure $3,750,000 for the figure $5,000,000 therein and (B) the proviso in
the first paragraph of Section 2 of the Recourse Agreement is hereby amended by
substituting the figure $3,750,000 for the figure $5,000,000 therein.
2. No Further Amendment. Except as set forth above, the Recourse Agreement
shall continue in full force and effect without modification.
3. Amendment to Credit Agreement. The Company hereby acknowledges the
execution and delivery of Amendment No. 2, dated as of July 31, 1996, to the
Revolving Credit and Term Loan and Security Agreement, dated as of November 29,
1995, each between TL Lease Funding Corp. IV and First Union, and hereby agrees
that such amendment shall not affect the obligations of the Company under the
Recourse Agreement except as provided herein.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
TRANS LEASING INTERNATIONAL, INC.
By:_____________________________________
Title:__________________________________
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:_____________________________________
Title:__________________________________
-2-
<PAGE>
EXHIBIT 11.1
TRANS LEASING INTERNATIONAL, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
A. Primary: See the Consolidated Statement of Operations contained in the
annual report to shareholders incorporated herein by reference.
B. Full Dilution: Net income per common share assuming full dilution is
computed by assuming that all options and warrants which are exercisable below
market prices are assumed to be exercised, and the proceeds applied to reduce
common stock outstanding. Income is divided by the weighted average number of
common shares outstanding, adjusted for the net effects of the exercise of
options and warrants.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
(Thousands of Dollars) 1996 1995 1994
----------------------
<S> <C> <C> <C>
Earnings before cumulative effect of change in accounting $1,667 $1,567 $ 596
Cumulative effect of change in accounting (155)
Net earnings $1,667 $1,567 $ 441
Average common and common equivalent shares (thousands):
Weighted average common shares outstanding 4,098 4,291 4,372
Average common and dilutive common equivalent shares as
adjusted 4,092 4,201 4,247
Earnings per common share assuming full dilution:
Before cumulative affect of change in accounting
policy $ .41 $ .37 $ .14
Cumulative effect of change in accounting policy (.04)
------ ------ ------
Net earnings $ .41 $ .37 $ .10
====== ====== ======
</TABLE>
This calculation is submitted in accordance with Regulation S-K item
601(b)(11) of the Securities Exchange Act, although it is contrary to paragraph
40 of APB Opinion No. 15 because it produces an anti-dilutive result.
<PAGE>
EXHIBIT 21.1
TRANS LEASING INTERNATIONAL, INC.
SUBSIDIARIES OF THE REGISTRANT
The following is a list of subsidiaries of the Registrant, all of which are
wholly-owned:
1. Trans Leasing Insurance Services, Inc.
2. LeaseCard Auto Group, Inc.
3. Nuvotron, Inc.
4. Trans Leasing Finance Corp.
5. TL Lease Funding Corp. II
6. TL Lease Funding Corp. III
7. TL Lease Funding Corp. IV
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,528
<SECURITIES> 0
<RECEIVABLES> 302,776
<ALLOWANCES> 9,506
<INVENTORY> 0
<CURRENT-ASSETS> 254,221
<PP&E> 12,324
<DEPRECIATION> 1,801
<TOTAL-ASSETS> 269,427
<CURRENT-LIABILITIES> 9,183
<BONDS> 230,547
<COMMON> 48
0
0
<OTHER-SE> 26,238
<TOTAL-LIABILITY-AND-EQUITY> 269,427
<SALES> 36,618
<TOTAL-REVENUES> 36,618
<CGS> 0
<TOTAL-COSTS> 13,018
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,166
<INTEREST-EXPENSE> 15,733
<INCOME-PRETAX> 2,701
<INCOME-TAX> 1,034
<INCOME-CONTINUING> 1,667
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,667
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
