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As filed with the Securities and Exchange Commission on August 2, 1995
Registration No. 33-65814
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT
NUMBER 3 TO FORM S-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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EQUIPMENT LEASING CORPORATION OF AMERICA
(Exact Name of registrant as specified in its charter)
DELAWARE 23-2408914
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
WILLIAM SHAPIRO, PRESIDENT
EQUIPMENT LEASING CORPORATION OF AMERICA
SUITE 76 SUITE 76
SILVERSIDE-CARR EXECUTIVE CENTER SILVERSIDE-CARR EXECUTIVE CENTER
501 SILVERSIDE ROAD 501 SILVERSIDE ROAD
WILMINGTON, DE 19809 WILMINGTON, DE 19809
(302) - 798 - 2335 (302) - 798 - 2335
(Address, including zip code, (Name, address, including zip
and telephone number, including code, and telephone number,
area code, of registration's including area code of agent for Service)
principal executive offices)
COPY OF COMMUNICATIONS TO:
William Shapiro, Esq., P.C. Kenneth S. Shapiro, President
Suite 2146 Welco Securities, Inc.
101 West City Avenue 101 West City Avenue
Bala Cynwyd, Pennsylvania 19004 Bala Cynwyd, Pennsylvania 19004
(610) - 668 - 0707 (610) - 668 - 0709
Toll Free: 1-800-695-1470
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If any other securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box / X /.
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, persuant to Item
11(a)(1) of this form, check the following box / /.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said section
8(a), may determine.
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EQUIPMENT LEASING CORPORATION OF AMERICA
Cross Reference Sheet Pursuant to Reg. Sec. 229.501 (b)
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus. . . . . . Facing Page, Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . Inside Front Cover Page, Table of
Contents
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges . . . . . . . . . . . . . . Summary of The Offering, Risk
Factors, and other Investment Considerations, Selected Financial Data
4. Use of Proceeds . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . Not applicable
6. Dilution. . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders. . . . . . Not Applicable
8. Plan of Distribution. . . . . . . . Cover Page, Risk Factors and
other Investment Considerations, Plan of Distribution
9. Description of Securities to be
Registered. . . . . . . . . . . . . Description of Securities
10. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . Legal Opinion
11. Information With Respect to the
Registrant. . . . . . . . . . . . . Business, Risk Factors and Other
Investment Considerations, Financial Statements. Selected Financial Data,
Management's Discussion and Anaylsis of Financial Condition and Results of
Operations, Plan of Distribution, Experts
12. Incorporation of Certain
Information By Reference. . . . . . Inside Front Cover Page
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities. . . . . . . . . .Not Applicable
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EQUIPMENT LEASING CORPORATION OF AMERICA
$xx,000,000 CERTIFICATES
DEMAND CERTIFICATES
(Interest Rate - at least 1% above 6-Month U.S. Treasury Bill rate)*
-------------------------------------------------------------------
FIXED RATE CERTIFICATES
FOR PERIODS OF 3 THROUGH 120 MONTHS
Terms Interest Rate*
- ----- --------------
3 to 24 Months At least 1% above 6-Month U.S. Treasury Bill rate
25 to 60 Months At least 2% above 6-Month U.S. Treasury Bill rate
61 to 120 Months At least 3% above 6-Month U.S. Treasury Bill rate
*For a description of the 6-Month U.S. Treasury Bill rate calculation,
including the minimum interest rate payable on the Certificates, see
"DESCRIPTION OF SECURITIES-DEBENTURES; General". There is no maximum interest
rate which may be payable.
This offering relates to an aggregate of $50,000,000 in principal amount of
debentures referred to as "Demand and Fixed Rate Certificates" (the
"Debentures") being offered by Equipment Leasing Corporation of America
("ELCOA"), less $xx,000,000 sold prior to the date of this Prospectus. The
minimum investment in these Debentures is $100. The Debentures will be issued
pursuant to the terms of a supplemental trust indenture dated as of August 18,
1993 to an Indenture dated as of September 19, 1986 and supplements thereto
between ELCOA and First Valley Bank, Bethlehem, Pennsylvania, as Trustee. See
"DESCRIPTION OF SECURITIES - DEBENTURES". ELCOA's primary business objective
is to specialize as a nationwide commercial lease funding source for small
equipment. Approximately $3,200,000 or 18.5% of the direct finance lease
receivables of ELCOA were 12 or more months past due on April 30, 1995. See
"SUMMARY OF THE OFFERING - "BUSINESS".
POTENTIAL INVESTORS IN THE DEBENTURES SHOULD CAREFULLY CONSIDER THE
MATERIAL RISKS IN A CONTEMPLATED INVESTMENT, INCLUDING GENERAL OPERATIONAL
RISKS, PREPAYMENT PENALTIES AND ILLIQUIDITY AS MORE FULLY DISCLOSED IN THIS
PROSPECTUS. SEE "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS".
THE DEBENTURES ARE UNSECURED OBLIGATIONS OF ELCOA WHICH DO NOT REPRESENT AN
INTEREST IN A MONEY MARKET FUND AND WHICH ARE NOT SUBJECT TO STATE OR FEDERAL
REGULATIONS, INCLUDING (BUT NOT LIMITED TO) REGULATIONS APPLICABLE TO BANKS
AND SAVINGS AND LOAN ASSOCIATIONS WITH REGARD TO THE MAINTENANCE OF RESERVES,
AND DO NOT HAVE THE SAFETY OR INSURANCE FEATURES OF CONVENTIONAL SAVINGS
ACCOUNTS AND BANK CERTIFICATES OF DEPOSIT.
Debenture holders will be unsecured creditors of ELCOA and will acquire no
proprietory interest in ELCOA. See "DESCRIPTION OF SECURITIES - DEBENTURES".
ELCOA reserves the right to reject any application to purchase the
Debentures, in whole or in part, and to modify the terms of the offering
prospectively, from time to time, provided that the terms of any Debentures
offered under the Indenture described herein can be modified only in accordance
with the provisions of such document. The decision to accept or reject any
application for purchase is made on the same business day as an application and
funds are received. Funds will not be deposited unless an application for
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<PAGE>4
purchase has been accepted. See "DESCRIPTION OF SECURITIES - DEBENTURES". A
prepayment penalty is deducted from the principal amount of any fixed rate
certificate redeemed at the request of the holder prior to maturity. See
"Right to Request Early Payment." It is the present policy of ELCOA, subject
to availability of funds, to pay the principal of any Demand Certificate within
five business days after demand for redemption is received, although this
policy may be changed at any time without notice to Debenture holders, subject
to a $300,000 monthly limitation. See "DESCRIPTION OF SECURITIES -
DEBENTURES; General" and "Redemption-Limitation on Redemptions". The
Debentures will be fully registered as to principal and interest, and will be
in negotiable form, although it is not expected that any trading market will
develop for them. ELCOA reserves the right to redeem the Debentures at any
time at its own discretion on 60 days written notice. For a description of the
right of a holder to receive early payment, see "DESCRIPTION OF SECURITIES -
DEBENTURES; Right to Request Early Payment".
THESE DEBENTURES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Underwriter Proceeds
Price to Public Discounts and to
Commissions ELCOA (2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture... 100% (1) (3)
Total........... $xx,000,000 (1) (3)
- ------------------------------------------------------------------------------
</TABLE>
(1) The offering is being made by ELCOA through Welco Securities, Inc.
("Welco" or the "Underwriter"), an affiliate of ELCOA, on a continuous,
"best-efforts" basis. It will terminate upon sale of all Debentures
registered hereunder, which is expected to be within one year from the date of
this prospectus. This Prospectus may not be used after August 31, 1996.
There is no minimum amount of Debentures which must be sold. Welco may enter
into selected dealer agreements with member firms of the National Association
of Securities Dealers, Inc. ("NASD") and pay a sales commission to such firms
of up to eight percent (8%) of the principal amount of Debentures sold. In
addition, ELCOA has agreed to reimburse Welco for any out-of-pocket expenses
incurred in connection with the offer and sale of the Securities, and to pay
Welco commissions of 1/15% multiplied by the number of months in the term of
the Debenture multiplied by the principal amount of each Debenture sold (i.e.,
commissions ranging from 0.2% to 8.0%), on an accountable basis, except that
no commissions will be paid in connection with Demand Certificates. ELCOA has
agreed to indemnify the underwriter with respect to certain matters in
connection with this offering. See "PLAN OF DISTRIBUTION." An opinion
regarding the pricing of this offering from R.F. Lafferty & Co., Inc., a
qualified independent underwriter pursuant to Schedule E of the NASD By-laws,
has been obtained by Welco. See "PLAN OF DISTRIBUTION".
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(2) Before deducting expenses estimated at approximately $220,000.
(3) The proceeds to ELCOA will be 100% of the amount of Debentures sold
through Welco, less reimbursement of expenses and commissions paid to Welco
which are not expected to exceed 8% of the amount of the offering. Debentures
sold through other member firms of the NASD are subject to payment of
commissions and reallowances paid of up to 8% of the principal amount of the
offering price. Since the Debentures are sold on a best-efforts basis with no
minimum, ELCOA is unable to calculate the amount of proceeds which it will
receive.
WELCO SECURITIES, INC.
The Date of this Prospectus is August , 1995.
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The Debentures are offered by ELCOA and the Underwriter as agent for ELCOA
subject to prior sale, withdrawal, and cancellation or modification of the
offering, without notice, at any time by ELCOA, or the Underwriter prior to
the release or delivery of any proceeds of this offering to ELCOA, whether or
not a confirmation of sale of Debentures offered by this Prospectus has been
issued by the Underwriter or any dealer. The right is reserved by ELCOA, the
Underwriter and the dealers to reject any and all offers to purchase and to
cancel any and all confirmations of sale of any Debentures offered hereby, in
whole or in part, for cause or without cause, at any time prior to delivery of
the Debentures to the subscriber.
No person is authorized by ELCOA to give any information or make any
representation other than as contained in this Prospectus in connection with
the offering made hereby, and, if given or made, such information or
representation must not be relied upon as having been authorized by ELCOA.
This Prospectus does not constitute an offer to sell to or a solicitation of
an offer to buy from any person in any state or jurisdiction in which it is
unlawful to make such offer or solicitation. Neither delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create
any implication that there has been no change in the affairs of ELCOA since
the date hereof. This Prospectus speaks as of the date hereof and the
delivery of this Prospectus at any time does not imply that information herein
is correct as to any date subsequent to that date.
AVAILABLE INFORMATION
ELCOA is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Reports and other information filed by the Company can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; 14th Floor, Seven World Trade Center, New York, New York 10048;
and 500 West Madison Street, Suite 1400, Northwestern Atrium Center, Chicago,
Illinois 60661.
ELCOA has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Debentures offered
hereby. This Prospectus does not contain all the information included in such
Registration Statement, certain items of which are omitted in accordance with
the Rules and Regulations of the Commission. For further information with
respect to ELCOA and the Debentures offered hereby, reference is made to the
Registration Statement and the Exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to Section
15(d) of the Exchange Act, as amended, are incorporated herein by reference in
this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended April 30, 1995.
(Filed July 28, 1995).
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Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus
to the extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
ELCOA will provide, without charge to each person to whom this Prospectus
is delivered, on the written or oral request of such person, a copy of any or
all of the documents incorporated herein by reference (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that the
Prospectus incorporates). Requests should be directed to Equipment Leasing
Corporation of America, Suite 76, 501 Silverside Road, Wilmington, Delaware
19809, Attention: William Shapiro; telephone number (302)-798-2335.
Notwithstanding the fact that ELCOA may not be required to deliver an
annual report to security holders, ELCOA, will, upon the written request of
any security holder, without charge, furnish an annual report on Form 10-K
containing audited financial information that will have been examined by
independent certified public accountants, and any quarterly report on Form
10-Q containing unaudited financial information. In addition, ELCOA may
furnish such other reports as may be authorized, from time to time, by its
Board of Directors.
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<TABLE>
TABLE OF CONTENTS
<CAPTION>
<S> <C> <S> <C>
Summary of the Offering.... 1 Principal Shareholder........ 27
Management................... 28
The Company............ 1 Directors and
The Offering........... 1 Executive Officers..... 28
Selected Financial Data.. 6 Executive Compensation.... 30
Risk Factors and Other Special Description of Securities.... 30
Considerations............ 7 General................... 31
General............... 7 Tax Withholding........... 32
Relative to Debentures... 11 Redemption................ 33
Use of Proceeds .......... 12 Company Election.......... 33
Business.................. 12 Holder's Election......... 33
Description of Lease Limitations on Redemptions... 33
Portfolio............. 13 Automatic Extension.......... 34
Nature of Leases and Right to Request Early Payment... 34
Marketing............. 14 Option to Receive Compound
Lease Origination and Interest.................. 34
Administration........ 15 Interest 6-Month United States
Option Agreement...... 16 Treasury Bill Rate........ 35
Servicing Agreement... 16 Restrictions on Merger....... 35
Credit Policy and Modification of the Indenture... 36
Delinquencies......... 16 Covenant as to Repair........ 36
Bookkeeping and Data Events of Default............ 36
Processing............ 20 Transactions with the
Method of Financing... 20 Trustee................... 36
Employees............. 21 Plan of Distribution............ 37
Competition........... 21 Litigation...................... 38
Federal Income Tax Legal Opinion................... 38
Considerations........ 22 Experts......................... 38
Management's Discussion and Additional Information.......... 39
Analysis of Financial Index to Financial
Condition and Results of Statements................... 40
Operations................ 23 Financial Statements............ 41
</TABLE>
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SUMMARY OF THE OFFERING
This summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus and by reference to the information contained in the materials
filed as Exhibits to a registration statement of which this Prospectus is a
part. Prospective purchasers of the securities offered herein are urged to
read the entire Prospectus, including the investment considerations detailed
in "RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS" before making any decisions
relating to the purchase of any securities.
THE COMPANY
ELCOA is a Delaware corporation, organized on May 6, 1986, primarily to
acquire, hold and retain general commercial and industrial equipment for lease
throughout the United States. The principal business objective of ELCOA in
offering the Debentures hereunder is to invest the proceeds from sale of the
Debentures in commercial and industrial equipment for lease, and to minimize
its investment risks by diversification as to geography, type of equipment,
and size of leasing transactions. ELCOA believes that major financial
institutions, because of their size, have ignored or have not fully met the
needs of manufacturers and distributors of equipment costing less than
$25,000, as most consider only transactions exceeding this size. ELCOA, by
utilizing the services of its parent, Walnut Equipment Leasing Co., Inc.
("Walnut"), and the proceeds of this offering, expects to meet the needs of
manufacturers and distributors of small equipment nationwide by satisfying the
financing requirements of businesses which utilize "small ticket" equipment.
See "BUSINESS".
It will lease such equipment principally under full payout direct
financing leases to businesses, determined to be credit-worthy. ELCOA's
principal executive office is located at Suite 76, Silverside-Carr Executive
Center, 501 Silverside Road, Wilmington, Delaware 19809. ELCOA's telephone
number is (302)-798-2335.
THE OFFERING
This offering relates to the following Debentures:
Demand Certificates......
These Debentures bear interest at a rate to
be determined monthly by ELCOA of at least
1% above the 6-month U.S. Treasury Bill rate
established by the U.S. Treasury weekly
auction on or immediately prior to the first
day of the month for which interest is to be
paid. The percentage above the 6-month
United States Treasury Bill rate is to be
determined at the beginning of the month by
ELCOA (or in the absence of any
determination, such percentage shall be
deemed to be 1% above the 6-month United
States Treasury Bill rate.) If in any month
the 6-month U.S. Treasury Bill rate as set
forth above shall fall below 6% per annum
1
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or if there shall be no such U.S. Treasury
Bill rate in effect, such 6-month U.S.
Treasury Bill rate shall be deemed to be 6%
per annum. Thus, the minimum interest on
these Debentures shall be 7% per annum. See
"DESCRIPTION OF SECURITIES-DEBENTURES;
Interest 6-month U.S. Treasury Bill Rate."
The interest rate paid will vary from month
to month depending upon the U.S. Treasury
bill auctions, prevailing market conditions
for interest rates in general, and ELCOA's
need for funds for the purchase of equipment
for new leases as these opportunities become
available. Interest is payable monthly on
the 10th day of the calendar month for the
prior month or part thereof and is due along
with principal on the 5th business day of
the month after the month during which
demand for payment is received. The minimum
investment is $100 per Debenture. Repayment
of principal is due on the fifth day of the
calendar month following the month in which
such request is made. It is the present
policy of ELCOA, which may be discontinued
at any future date without notice, subject
to the availability of funds as the Board of
Directors determines in its own discretion,
to pay the principal to the holder within 5
business days after demand for redemption is
received. Absent this policy, ELCOA is
required to redeem Demand Certificates on
the fifth day of the next calendar month
after a written request for redemption is
received, subject to a limitation of
$300,000 per month. See "DESCRIPTION of
SECURITIES - Limitations on Redemptions."
Fixed Rate Certificates. . . . These Debentures bear interest at rates
determined by ELCOA at least equal to 1%
above the 6-month U.S. Treasury Bill Rate
for Debentures with maturities of 24 months
or less, at least equal to 2% above the
6-month U.S. Treasury Bill Rate for
Debentures with maturities of 25 to 60
months, inclusive, and at least equal to 3%
above the 6-month U.S. Treasury Bill Rate
for Debentures with maturities exceeding 60
months. If in any month the 6-month U.S.
Treasury Bill Rate as set forth above
should fall below 6% per annum, or if there
is no such U.S. Treasury Bill rate in
effect, the rate of such 6-month U.S.
Treasury Bill shall be deemed to be 6% per
annum. Thus, the minimum interest on these
2
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Debentures shall be 7% per annum for
Debentures with maturities of 24 months or
less, 8% for Debentures with maturities of
25 to 60 months, inclusive, and 9% per annum
for Debentures with maturities exceeding 60
months.The percentage above the 6-month U.S.
Treasury Bill Rate is to be determined
weekly by ELCOA's order, based upon
prevailing market conditions, interest rates
in general, and ELCOA's need for funds for
the purchase of equipment for new leases as
these opportunities become available. See
"DESCRIPTION OF SECURITIES - DEBENTURES;
Interest 6-Month U.S. Treasury Bill Rate".
The 6-month U.S. Treasury Bill Rate used to
calculate the interest rate applicable to a
particular Debenture will be the rate in
effect during the week in which the purchase
price for such Debenture is received by
ELCOA. The minimum investment is $100 per
Debenture and interest is payable monthly on
the 10th day of the calendar month for the
prior month or part thereof.
These Debentures consist of Certificates
issued with maturities of any number of
whole calendar months from 3 to 120 (which
term is to be selected by the purchaser at
the time of purchase).
Provisions Relating to all Debentures
General. . . . . . . . . All Debentures will bear interest from the
date investor funds are accepted by ELCOA.
Holders of Debentures may elect to receive
interest which is paid or accumulated
monthly, or in the alternative, bi-monthly,
quarterly, semiannually, annually, or at
maturity with interest compounded monthly
and accruing to the date of payment.
Notifications reminding holders of the
maturity dates of their Fixed Rate
Debentures will be made by ELCOA by mail to
the registered holder approximately one
month in advance of the maturity date.
ELCOA may reduce the stated rate of interest
on any Debenture, change the maturity date
of the principal, or make certain other
changes in the terms of the Debentures with
the consent of all holders in aggregate
principal amount of the outstanding
Debentures, but not otherwise. See
"DESCRIPTION OF SECURITIES-DEBENTURES;
Modification of the Indenture".
3
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The Debentures will not be secured by a lien
on the assets of ELCOA and will have no
sinking fund provisions. The debt evidenced
by the Debentures will be on parity with
other issues of debentures currently or to
be outstanding under the terms of this
offering, and are not subordinate to any
other of the Company's existing
indebtedness.See "DESCRIPTION OF SECURITIES
- DEBENTURES". ELCOA is not obligated to
redeem Demand Certificates, or Fixed Rate
Certificates prior to maturity, in excess of
$300,000 in principal amount in any month.
See "DESCRIPTION OF SECURITIES-DEBENTURES;
Redemption".
ELCOA reserves the right to redeem the
Debentures, in whole or in part from time to
time, upon not less than 60 days written
notice to the holder, at the principal
amount thereof plus interest accruing to the
date of redemption. No interest shall
accrue after the redemption date. See
"DESCRIPTION OF SECURITIES DEBENTURES" for
information relating to early repayment.
Amount Offered. . . . The total principal amount of Debentures
being offered pursuant to this Prospectus is
$50,000,000, less $xx,000,000 sold prior to
the date of this prospectus. Within this
aggregate limit, there are no limitations on
the respective types or principal amounts of
Debentures which may be sold.
There is no assurance that all or any
portion of the Debentures offered will be
sold. There is no minimum amount of
Debentures that must be sold.
Modification, Termination
or Extension of Offering. . . ELCOA reserves the right to modify at any
time the terms of the offering. Any such
modification will apply only to Debentures
offered after the date of such modification
and shall comply with the terms of the trust
indenture, and any supplement thereto. See
"DESCRIPTION OF SECURITIES - DEBENTURES;
Modification of the Indenture." If
required, such modifications will be
reflected in an amendment to this
Prospectus. ELCOA reserves the right to
terminate this offering at any time.
4
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Trustee. . . . . . . . . . The Certificates are to be issued under the
terms of a fifth supplemental indenture
dated as of August 18, 1993 to a trust
indenture dated as of August 5, 1986 and
first supplemental indenture dated as of
September 19, 1986, second supplemental
indenture dated as of September 20, 1988,
third supplemental indenture dated as of
September 13, 1989, and fourth supplemental
indenture dated as of August 17, 1990
between ELCOA and First Valley Bank of
Bethlehem, Pennsylvania, as Trustee.
Use of Proceeds
By ELCOA. . . . . . . . . . ELCOA intends to apply the proceeds of this
offering principally for the purchase of
commercial equipment to be leased, in the
ordinary course of business. See "USE OF
PROCEEDS".
Risk Factors. . . . . . . . Potential investors should carefully
consider the investment risks associated
with the Debentures. See "RISK FACTORS AND
OTHER SPECIAL CONSIDERATIONS."
5
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<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
The following summarizes certain financial information with respect to
ELCOA for the five years ended April 30, 1995. This data should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and the "Financial Statements" appearing elsewhere.
For the Fiscal Year Ending April 30,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating Revenues $2,945,151 $3,009,864 $3,057,645 $2,398,169 $1,675,346
Net Income (Loss) (654,005) (292,161) 158,415 335,318 225,783
Total Assets 27,747,826 25,485,389 21,608,519 16,344,973 11,456,971
Demand, Fixed Rate and Money
Market Thrift Certificates
Outstanding 24,521,875 21,810,991 18,041,504 12,867,678 8,777,787
Shareholder's Equity 818,205 1,472,210 1,764,371 2,205,956 1,870,638
Ratio of Earnings to
Fixed Charges (1) --- --- 1.11 1.32 1.28
<FN>
(1) The Ratios of earnings to fixed charges were computed by dividing pre-tax
income plus fixed charges. For the years ended April 30, 1995 and 1994,
the ratio of earnings to fixed charges was less than "1", due to the net
loss of $654,005 and $292,161, respectively.
</TABLE>
6
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RISK FACTORS AND OTHER SPECIAL CONSIDERATIONS
Investors in the Debentures offered hereby should carefully consider the
following factors in their investment decision.
GENERAL
1. RESULTS OF OPERATIONS/RECENT LOSSES
Although revenues increased annually during the three fiscal years ended
April 30, 1993, revenues decreased during the fiscal years ended April 30, 1995
and 1994 as a result of a decline in new leases generated. Net income and the
ratio of earnings to fixed charges fluctuated slightly during the three fiscal
years ended April 30, 1993, but were less than "1" during the two fiscal years
ended April 30, 1995. The losses during the fiscal years ended April 30, 1995
and 1994 were due in part to additions to the provision for doubtful lease
receivables, lack of growth in the generation of new lease receivables, and
excess available funds awaiting investment in leases at lower interest rates
than those being paid on the Certificates outstanding. See "SELECTED FINANCIAL
DATA." General and administrative expenses have remained relatively fixed as
total assets increased during this period. During the three fiscal years ended
April 30, 1993, the Company's lease receivables increased substantially,
requiring additional debt and a resulting increase in interest expense.
However, as a result of the decline in new lease volume during the fiscal years
ended April 30, 1995 and 1994, lease receivables declined slightly from each
prior year. As ELCOA continues to grow, the use of borrowed funds will be
necessary to fund equipment purchases. To the extent that the lease portfolio
expands in size, revenues will increase. Interest expense will increase in
relation to the levels of debt outstanding and fluctuations in interest rates
in general, may impact profitability. ELCOA can give no assurance either as to
its level of future new business or profitability for 1996 or thereafter. See
also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
2. DEPENDENCE UPON PARENT CORPORATION AND MANAGEMENT
All decisions with respect to the day-to-day management of ELCOA are made
exclusively by its officers, who are also officers and directors of Walnut,
which primarily is responsible for the acquisition of equipment for lease and
the invoicing and collection of rentals due, as well as other administrative
services. See "BUSINESS". However, ELCOA is not restricted from obtaining
these services from outside sources. Management believes that should Walnut
cease operations or be unable to fulfill its obligations in the organization
and servicing of ELCOA's leases that ELCOA could purchase leases of similar
term and cost from outside sources and could service its leases by contracting
with outside entities. See "MANAGEMENT" and "BUSINESS".
There are no limitations on dividends or other cash flows which may be paid
or transferred from ELCOA to Walnut. See Note 8 to the Financial Statements.
The equipment and related leases to be purchased from Walnut are expected
to be similar in type, size and geographical location as that purchased by
Walnut for its own use, which is primarily new commercial and industrial
equipment for business use only. See "BUSINESS - Nature of Leases and
Marketing". All leases so purchased will not be delinquent in any payments at
the time of purchase. The yield to ELCOA on its investment in the leases is
expected to exceed its costs of operations, principally interest on its debt
7
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<PAGE>16
incurred in connection therewith, at the time of purchase. Prior to the sale
of equipment and assignment of related leases to ELCOA, Walnut will have
conducted credit investigations of each lessee, and will have purchased the
equipment and entered into lease agreements with each lessee. ELCOA does not
perform any independent credit review for leases purchased from Walnut. In the
event that Walnut is unable to perform its credit investigation, ELCOA would be
required to incur its own credit investigation and document processing
expenses, which may exceed the amount it pays Walnut for lease origination.
See "BUSINESS - Nature of Leases and Marketing" and "Option Agreement".
3. RISK CONCERNING PARENT CORPORATION'S ABILITY TO CONTINUE AS A GOING CONCERN
Since 1980, Walnut has suffered losses for financial statement purposes,
and as of April 30, 1995, it had a shareholders' deficit of $30,043,116 (118.1%
of assets), and reported losses of $5,064,166, $4,082,175 and $3,864,576 for
the three fiscal years ended April 30, 1995, 1994, and 1993, respectively.
Walnut attributes its history of losses to insufficient revenues from its
outstanding lease portfolio to offset its costs of operations. As a
substantial portion of its costs are fixed, the lack of growth in new leases
during this period is the primary reason that revenues have not increased to
levels sufficient to offset operating expenses. If Walnut continues to incur
losses, there can be no assurance that Walnut will be able to meet future
financial and contractual obligations as they come due. During the fiscal
years which ended April 30, 1995, 1994 and 1993, Walnut's financial statements
were prepared on a "going concern" basis, which assumes that Walnut has the
ability to become profitable and to obtain adequate financing for future growth
in its leasing business, of which assumptions there is no assurance, and
accordingly, there are substantial doubts regarding its ability to continue its
operations. Accordingly, the recoverability of Walnut's assets at their
recorded value remains in doubt.
Should Walnut cease to do business in its present form or be unable to
fulfill its responsibilities under its servicing agreement with ELCOA, there is
no assurance that ELCOA would be able to obtain in a timely manner qualified
assistance in lease administration and origination on terms as favorable as
those being provided by Walnut. The monthly servicing fee paid to Walnut
includes reimbursement for officers' compensation for services performed on
ELCOA's behalf. In the event Walnut does not generate enough leases for its
purposes, ELCOA will be required to purchase equipment and related leases from
other sources, such as other leasing companies, manufacturers and vendors of
capital equipment. There are no assurances that leases meeting ELCOA's credit
or other requirements would be available for purchase. In the event of
Walnut's bankruptcy, Walnut's creditors might assert a claim that the sale of
leases to ELCOA was an ineffectual transfer, resulting in the substantive
consolidation in bankruptcy of the two companies. Although Walnut owns 100% of
ELCOA's voting common stock, each company has a separate board of directors
(which are not interlocking), Walnut does not finance the operations of ELCOA,
ELCOA was not inadequately capitalized, each entity pays its own operating
expenses, and maintains separate books and records, and the formal requirements
of separate and independent corporate existence are observed. Each entity also
maintains separate corporate offices. Walnut operates primarily to originate,
sell and service an outstanding lease portfolio, while ELCOA's business purpose
as stated on page 12 of the Prospectus is to generate funds through the offer
and sale of its securities to maintain a portfolio of small equipment leases.
Management believes, in its own opinion without the benefit of independent
counsel, that it has taken the necessary steps to prevent such consolidations
from occuring, of which there can be no assurances given.
8
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<PAGE>17
Since 1980, Walnut has offered to the public debt securities similar to the
Debentures offered herein. On January 13, 1995, Walnut registered for sale an
additional offering of debt securities known as "Senior Thrift Certificates",
of which approximately $18,800,000 in principal amount were outstanding at
April 30, 1995. Walnut is expected to continue to sell these debt securities
on a continuous basis in the future. In the event that Walnut should enter
into bankruptcy, liquidation or reorganization, holders of Walnut's debt could
assume voting common stock ownership and force a liquidation of ELCOA. In that
event, however, the holders of the Debentures would be entitled to repayment of
interest and principal before any payment would be made to the voting common
stockholders, but such repayments might be made before the maturity dates on
which they were due.
4. RISKS OF THE EQUIPMENT LEASING BUSINESS, CONFLICTS OF INTEREST
AND COMPETITION
The success of ELCOA will in certain respects depend upon the quality of
the equipment, the viability of the equipment dealers and manufacturers, the
timing of the purchases of equipment by Walnut on ELCOA's behalf, the
creditworthiness of the lessees and their ability to meet their rental payment
obligations as they become due and ELCOA's loss experience. Equipment leasing
is subject to the risk of technological and economic equipment obsolescence and
the attendant risks upon defaults by lessees. While Walnut, as ELCOA's agent,
will investigate prospective lessees to ascertain whether they will be able to
meet their obligations under proposed leases, ELCOA has not established any
independent credit standards for its prospective lessees. As a result, the
ability of ELCOA's lessees to meet their lease obligations might be subject to
risks, such as general economic conditions nationwide, over which ELCOA has
little influence or control. Although Walnut has been an active participant in
the industry since 1969, (1960 through its predecessor), neither Walnut nor
ELCOA have any way of determining their share of the leasing market.
At April 30, 1995, and 1994, approximately 37% and 35%, respectively, of
ELCOA's then outstanding lease receivables were past due as reported on the
contractual basis. Approximately $3,200,000 or 18.5% of the direct finance
lease receivables of the registrant were 12 or more months past due on April
30, 1995. Management reviews these accounts on a periodic basis and has
provided what it believes to be an adequate reserve for potential losses
thereof by a corresponding charge against operations. During the fiscal year
ended April 30, 1995, management as a result of an intensified review of
delinquent accounts determined that the costs and legal efforts in pursuing a
number of delinquent accounts were less than the anticipated recoveries to be
achieved, resulting in an extraordinary amount of write-offs during that fiscal
year. See also "BUSINESS - Credit Policy and Delinquencies."
Since ELCOA and Walnut are affiliated and share the same officers and a
director, certain conflicts of interests may arise between the companies. The
purchasers of the Debentures must, to a great extent, rely on the integrity and
corporate responsibilities of ELCOA's officers and directors to assure
themselves that they will not abuse their discretion making business decisions.
The officers and directors will not devote their exclusive attention to the
affairs of ELCOA, and ELCOA may compete with Walnut in the equipment leasing
business. Should both companies have funds available at the same time for
acquiring equipment and related leases, conflicts of interest may arise as to
which company should hold and retain the equipment and related leases. In such
situations, the officers will analyze the equipment already purchased by Walnut
and the investment objectives of ELCOA and Walnut.
9
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<PAGE>18
The officers will make the decision as to which company will ultimately retain
the equipment and related leases, based upon such factors, among others, as
(a) the amount of cash available to ELCOA and Walnut, (b) the current and long
term liabilities of each company and (c) the effect of such acquisition on the
diversification of each company's equipment and lease portfolio. ELCOA has
the right of first refusal in any equipment that Walnut wishes to sell. See
"BUSINESS-Option Agreement." An additional conflict may exist since the
Company has been engaged in the collection of delinquent accounts on behalf of
ELCOA and will continue to receive servicing fees during its collection
efforts, although ELCOA may not recognize any income beyond the original lease
term.
The equipment leasing industry is highly competitive. In initiating its
leasing transactions, ELCOA will compete with leasing companies, manufacturers
that lease their products directly, equipment lease brokers and dealers, and
financial institutions, including commercial banks and insurance companies.
Many competitors will be larger than ELCOA and will have access to more
favorable financing. Competitive factors in the equipment leasing business
primarily involve pricing and other financial arrangements.
5. HEAVY DEPENDENCE UPON BORROWED FUNDS/LACK OF ESTABLISHED LINES OF CREDIT
ELCOA will depend heavily upon borrowed funds through the sale of the
Debentures offered hereunder in its operations and is highly leveraged (i.e.,
a substantial portion of ELCOA's operations will be financed through
borrowings arising from the sale of the Debentures). Although ELCOA's lease
income is fixed at the time a lease commences, ELCOA's income may be adversely
affected by increases in both the prime and the U.S. Treasury Bill rates. In
the event ELCOA's interest costs increase, ELCOA will not be able to increase
its rental income on existing leases to cover such additional interest
expense. In such event, existing leases may become unprofitable after
expenses and cause ELCOA to suffer increased losses. If such losses on
existing leases are substantial, the result may be a reduction in ELCOA's
overall profitability or the recognition of additional losses. The leases
purchased from Walnut have already been consummated with fixed rates of
return, which cannot be renegotiated by ELCOA. Accordingly, the level of risk
is increased in proportion to the length of the term of the Debentures.
ELCOA's financing is dependent primarily upon the sale of Debentures, the
ability to sell leases to third-parties or "securitization", and to a lesser
extent its ability to pledge leases as collateral for bank borrowing or other
lending institutions, to obtain additional funds at terms which permit it to
earn a rate of return on the leased equipment that permit the loans to be
repaid from the rental payments pursuant to the leases. ELCOA has no present
intention to seek bank lines of credit, and expects to grow primarily through
the sale of the Debentures. There can be no assurance that ELCOA will be able
to raise sufficient funds through the sale of Debentures offered hereunder, or
borrow sufficient funds from lending institutions to be able to fund an
increased level of new lease business. Should this occur, ELCOA's growth will
be limited to the funds received from rentals on existing leases, less funds
necessary to meet redemptions on Debentures at maturity, as well as to meet
normal operating expenses. All funds received from the sale of Debentures are
expected to be used for the purchase of new equipment subject to lease
agreements. See "USE OF PROCEEDS". As of the date of this Prospectus, ELCOA
has not yet established any formal lines of credit. Accordingly, this lack of
established credit could inhibit ELCOA's growth and profitability.
10
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<PAGE>19
RELATIVE TO DEBENTURES
1. PREPAYMENT PENALTY:
In the event a holder of any Fixed Rate Certificate requests payment prior
to maturity, a prepayment penalty will be charged in accordance with a
prescribed formula. See "DESCRIPTION OF SECURITIES - DEBENTURES; Right to
Request Early Payment".
2. RESTRICTION ON REDEMPTION OF DEBENTURES:
It is the present policy of ELCOA, subject to availability of funds as
determined by the Board of Directors in its sole discretion, to pay the
principal of any Demand Certificate or any Fixed Rate Certificate for which
the holder requests redemption prior to maturity, within five business days
after demand for redemption is received. This policy has been followed
consistently, without exception, since the commencement of ELCOA's public
offering of securities in 1986. ELCOA may, however, change this policy at any
future date without notice to the holders of the Debentures. See "DESCRIPTION
OF SECURITIES - DEBENTURES; General". ELCOA has no restriction on the
redemption of Fixed Rate Certificates at maturity, but it does have a $300,000
monthly limitation on redemption of Demand Certificates and on the redemption
prior to maturity of Fixed Rate Certificates once demand for redemption prior
to maturity has been made. A penalty is charged on the early redemption of
Fixed Rate Certificates prior to maturity. See "DESCRIPTION OF SECURITIES -
DEBENTURES; Right to Request Early Payment." If this limitation is invoked by
ELCOA, requests for redemption will be honored in the order in which such
demands are received, with demands received on the same day being redeemed on
a pro-rata basis. To the extent that the Debentures submitted for redemption
are not paid in any given calendar month, such Debentures will be given first
priority (in the order in which the demands were received) in the next
succeeding calendar month or months until such Debentures are fully redeemed.
If a substantial portion of the holders of the Demand Certificates demand
repayment and/or the holders of the Fixed Rate Certificates redeem prior to
maturity, there is no assurance that ELCOA will be able to satisfy such
requests at the time of such demand. In this event, requests for redemption
on Debentures will be honored in successive calendar months in the order of
which such demands are received. This may result in a delay in the remittance
of principal to some of the holders. See "DESCRIPTION OF
SECURITIES-DEBENTURES; Limitations on Redemptions".
3. ABSENCE OF INSURANCE AND GUARANTEES:
The Debentures are neither insured by any governmental agency, as are
certain investments in financial institutions such as banks, savings and loans
or credit unions, nor are they guaranteed by any public agency or private
entity. It should also be noted that ELCOA is not subject to any generally
applicable governmental limitations on its own borrowing which are designed to
protect investors. The risk of loss to investors in ELCOA's Debentures is
thus higher than the risk incurred by investors in such insured financial
institutions. In addition, there are no provisions for a sinking fund or
reserve for repayment of the Debentures. Since the Debentures represent
unsecured indebtedness of ELCOA, there are no liens created on the assets of
ELCOA by these Debentures.
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<PAGE>20
4. ABSENCE OF TRADING MARKET AND ARBITRARY OFFERING PRICE:
No trading market for the Debentures currently exists, and it is not
anticipated that a trading market for any of the Debentures being offered will
develop. There can be no assurance that all or a significant portion of the
Debentures being offered hereunder will be sold. There is no minimum principal
amount of Debentures which must be sold. The offering prices of the Debentures
have been arbitrarily determined by ELCOA with the concurrence of Welco, and
bear no direct relation of ELCOA's assets, book value, net worth or any other
established criteria of value.
5. OTHER FACTORS POTENTIALLY AFFECTING SALE OF DEBENTURES:
The ability of ELCOA to maintain its leasing operations is affected by
general economic conditions, as well as marketing success in attracting new
business. Future sales of Debentures are affected by the money markets, and
recent and potential changes in government regulations, including interest rate
limitations which have been substantially phased out. The relative
attractiveness of the Debentures is influenced by changes in the terms on which
cash can be invested by members of the public in other interest bearing
investments, such as savings accounts, interest bearing checking accounts,
individual retirement accounts, "money market funds", certificates of deposit,
commercial paper, government securities and other types of debt obligations,
which afford less risk to the investors. These factors may inhibit the ability
of the Company to sell the Certificates offered hereunder.
USE OF PROCEEDS
ELCOA intends to apply the net proceeds remaining after payment of expenses
of this offering to the purchase of general commercial and industrial equipment
for lease pursuant to the assignment of related leases to ELCOA, from Walnut.
See "BUSINESS." The maximum amount which may be realized from the offering is
$50,000,000, less $xx,000,000 sold prior to the date of this Prospectus, less
anticipated expenses of approximately $220,000 and commissions to be paid to
the Underwriter. It is the present policy of the companies that all leases
entered into by Walnut for periods of two years or more are sold to ELCOA.
This policy may be changed at any time. Under this policy, leases of shorter
duration are retained by Walnut. In addition thereto, ELCOA may purchase
equipment and related leases from outside sources, such as manufacturers,
distributors, and independent lease brokers. All purchases from Walnut will be
at prices no greater than those paid to independent sources for similar
equipment and/or leases. The proceeds of this offering will not be used to meet
redemptions of Debentures previously issued. Pending such use, the net
proceeds of this offering may be invested in U.S. Government obligations having
maturities of three months or less, bank certificates of deposit, or other high
quality, interest bearing investments in investment grade securities, and will
not be invested in securities issued by its affiliates.
BUSINESS
ELCOA is a Delaware corporation, incorporated on May 6, 1986 for the
primary purpose of acquiring general commercial and business equipment for
lease. All of the outstanding common stock of ELCOA is owned by Walnut, which
has been continually engaged in equipment leasing since 1969 (and prior thereto
commenced business in 1960 through its predecessor). ELCOA's primary purpose
is to raise funds necessary to maintain a portfolio of small equipment leases,
diversified as to type of business user, type of equipment, and
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<PAGE>21
geographical location, recognizing the income between its rate of return on the
investment in the leases, less interest and other related expenses of
operations. ELCOA's primary business purpose differs from Walnut in that ELCOA
was formed to finance a portfolio of lease contracts and equipment while Walnut
is primarily engaged in the business of originating, selling, and servicing
equipment lease contracts. The Debentures offered by this Prospectus will not
be guaranteed by Walnut, or any other affiliate of ELCOA. ELCOA's principal
executive offices are located at Suite 76, Silverside-Carr Executive Center,
501 Silverside Road, Wilmington, Delaware 19809. Its telephone number is (302)
798-2335.
DESCRIPTION OF LEASE PORTFOLIO
ELCOA's principal business is the acquisition of commercial and industrial
equipment for business use which is to be contemporaneously leased to
credit-worthy lessees. In order to determine the credit-worthiness of a
prospective lessee, factors such as time in business, financial strength,
reports from credit reporting bureaus, and trade references are considered.
ELCOA acquires the equipment only after leases on the equipment to be purchased
for lease have been consummated. Leases are written for periods of one to five
years for equipment costing $1,000 or more, but not expected to cost more than
$25,000. The lease agreements entered into between ELCOA or its agents and the
lessees contemplate the payment of funds sufficient to recover ELCOA's
investment in the equipment plus a profit over the term of the leases. The
lease specifically does not give the lessee any option to purchase the
equipment. However, ELCOA has offered the lessee at the expiration of the
lease the opportunity to purchase the leased equipment at its approximate fair
market value, which historically has approximated the estimated residual values
which have been established by ELCOA at the inception of each lease.
Substantially all leased equipment has been sold to the lessees at the
termination of the leases. The leases require that the lessee maintain and
insure the equipment and provide that ELCOA has no obligation to repair or
maintain the equipment. The lessee relies solely on warranties or services
from the vendor or the manufacturer of the equipment. In leasing equipment,
ELCOA relies principally on the credit of the lessee to recapture the cost of
equipment rather than the residual value of the equipment. Since the leases
are small, it is therefore impractical to conduct a physcial inspection of the
equipment prior to commencement or during use by the lessee. ELCOA therefore
relies upon a written certificate of acceptance and oral representations by
telephone from the lessees regarding the conditions, use, and maintenance of
the equipment prior to inception of each lease. These leases are commonly
referred to as direct finance leases.
ELCOA has adopted a standard non-cancelable lease for its direct finance
leases, the terms and conditions of which vary slightly from transaction to
transaction. These leases are commonly referred to as "hell or high water",
full-payout, or finance leases pursuant to Article 2A of the Uniform Commercial
Code. As such, the lessees are unconditionally obligated to make monthly
rental payments to the Company irrespective of the condition, use or
maintenance of the equipment under leases, in management's opinion, and have no
legal or equitable defenses that may be asserted against the Company in the
event the leased equipment does not properly function. In substantially all
cases, the lease states that lessees are obligated to (1) remit all rents due,
regardless of the performance of the equipment; (2) operate the equipment in a
careful and proper manner and in compliance with applicable governmental rules
and regulations; (3) maintain and service the equipment; (4) insure the
equipment against casualty losses and public liability, bodily injury and
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<PAGE>22
property damage; and (5) pay directly or reimburse ELCOA for any taxes
associated with the equipment, its use, possession or lease except those
relating to net income derived by ELCOA therefrom. Under terms of the lease
contract, the lessees are prohibited from assigning or subletting the equipment
or appurtenant lease to any third party without the express written consent of
the lessor. In the event of a default by a lessee, it may declare the entire
unpaid balance of rentals due and payable immediately and may seize and remove
the equipment for subsequent sale, release or other disposition. As of April
30, 1995, ELCOA had 7,964 direct finance leases which have an average initial
term of approximately 35 months, with an average remaining lease receivable
balance of $2,080. Of these leases, 404 had balances between $6,000 and
$10,000 with an aggregate balance of $2,950,921 and 88 had balances in excess
of $10,000 with an aggregate balance of $1,348,968. Total aggregate leases
outstanding at April 30, 1995 was $17,267,612. All leases cover equipment
leased for commercial use only by businesses throughout the United States.
None of the equipment leased is intended for use by consumers. This equipment
is typically characterized by the leasing industry as "small-ticket" equipment.
ELCOA, from time to time, may also lease equipment under renewable leases
which do not contemplate full recovery of ELCOA's original costs during their
initial one year term. These leases are referred to as operating leases,
intended primarily for large corporate and governmental lessees that are
restricted from entering into leases with terms longer than one year. The
leases will be automatically renewed for an additional year, and so on from
year to year, unless terminated upon ninety days prior written notice. The
lessee is granted an option to purchase the equipment for the original invoice
price less a credit for a portion of the rentals paid. ELCOA may require
equipment vendors to repurchase the equipment should the lessee cancel after
the initial one year term. The repurchase price is equal to the original cost
of the equipment, less a credit for a portion of the rentals received from the
lessee. There are no assurances that ELCOA's costs will be recovered.
Presently, ELCOA has no operating leases and therefore there are no obligations
whereby a vendor currently is required to repurchase the equipment should the
lessee cancel after the initial term.
NATURE OF LEASES AND MARKETING
ELCOA primarily purchases its equipment for lease from Walnut, which in
turn relies on a variety of equipment vendors located throughout the United
States, none of which is expected to be responsible for supplying Walnut or
ELCOA with 5% or more of their equipment purchases. Management of ELCOA
believes that the terms of purchase from Walnut are at least as favorable as
those available from unaffiliated third parties.
ELCOA believes it will be in a competitive position within its industry
because of its ability to carry a large number of small equipment leases
through extensive utilization of electronic data processing by Walnut, under
its servicing agreement described below. (See "Servicing Agreement" described
herein).
ELCOA concentrates on seeking lessees desiring to lease equipment generally
costing $25,000 or less under direct finance leases, with terms ranging from
two to five years, because it believes that there is less competition from
larger competitors for small leases, and it believes that it can spread the
risk of loss from defaulted leases over a greater number of lessees.
Accordingly, no single lessee represents over .3 percent of the outstanding
lease portfolio. All equipment purchased for lease is solely for use by
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<PAGE>23
businesses, and not for lease to consumers. It leases items such as office
equipment, business machines, graphic art equipment, scientific and medical
instrumentation, material handling equipment, microfilm equipment, automobile
test equipment, restaurant and food-service equipment, cash registers and other
business, industrial, and commercial equipment of which there is no
concentration in any one type. The equipment purchased is primarily newly
manufactured equipment, but on occassion, ELCOA will purchase used equipment at
its then fair market value. The equipment will not be obsolete or have been
repossessed from any of Walnut's delinquent lessees. The equipment is located
throughout the United States without undue concentration in any one area.
ELCOA's historical experience indicates that the equipment under lease does not
become obsolete at the conclusion of the lease term.
ELCOA's lease portofolio is diversified in location throughout the United
States. The following is a geographical breakdown of the location of ELCOA's
equipment at its original, undepreciated cost, less estimated residual value,
outstanding as of April 30, 1995.
<TABLE>
<CAPTION>
Region $ %
-------------- ------------ -----
<S> <C> <C>
New England $ 2,609,668 11.01
Mid Atlantic 7,371,544 31.10
Southeast 4,216,712 17.79
Midwest 2,391,604 10.09
South 2,005,250 8.46
Rocky Mountain 485,906 2.05
West Coast 1,860,663 7.85
Southwest 2,761,366 11.65
------------ -----
$ 23,702,713 100.0%
============ =====
</TABLE>
Walnut markets its lease origination program by providing equipment dealers
with the ability to utilize leasing as a sales tool. It approaches equipment
manufacturers, dealers and branch outlets with promotional programs with the
expectation that the ultimate customer will lease equipment through Walnut.
Walnut also receives requests from its lessees for additional leases of new
equipment. Walnut maintains a staff of 8 account executives who maintain close
relationships with approximately 140 equipment vendors, and utilizes its direct
mail and marketing facilities to increase new vendors and ultimately the
generation of new leases. Walnut does not entertain lease application from
outside lease brokers. The success of Walnut's marketing program depends to a
large extent on the lease rates offered to its customers; these rates in turn
depend on competition in the marketplace and on Walnut's ability to raise
sufficient financing at reasonable rates of interest.
LEASE ORIGINATION AND ADMINISTRATION
Pursuant to an Option Agreement with Walnut, ELCOA purchases equipment for
lease from Walnut, in exchange for a fee for such lease origination. Under
terms of this arrangement, Walnut provides marketing services, credit
investigation and processing of all necessary lease documents. ELCOA purchases
such equipment only within 90 days of the date on which it is first placed in
service by the lessee. The purchase price paid by ELCOA to Walnut is the
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<PAGE>24
out-of-pocket cost expended by Walnut, without profit, along with a lease
origination fee. See "Option Agreement." The criteria for selection of leases
to be sold are those long-term leases having a minimum term of two years in
duration. Title to the equipment is irrevocably transferred to ELCOA at the
time of settlement for each purchase. There are no backlog orders for
equipment purchase commitments.
OPTION AGREEMENT
ELCOA has the continuing right of first refusal to purchase newly acquired
equipment, as well as the related leases, from Walnut when Walnut has equipment
available to sell. In consideration of Walnut's marketing, credit, and
processing department functions (commonly referred to as lease origination
expenses), ELCOA is charged by Walnut a lease origination fee equal to 4% of
the initial equipment cost as a fee, exclusive of any additional fees paid to
independent third party lease broker firms. This agreement continues until
terminated by the mutual agreement of the parties in writing. From March 1,
1992, through May 31, 1992, this charge was 3% of the initial equipment cost.
It is intended that all equipment under lease is to be transferred to
ELCOA, shortly after being placed in service by lessees. In such case, Walnut
reduces the purchase price by the amount of any funds received through advance
rentals, prepayments or security deposits received from the lessee of the
equipment prior to the assignment of a lease and transfer of title to ELCOA.
SERVICING AGREEMENT
Walnut, as ELCOA's agent under a service contract dated May 23, 1986 (the
"Agreement"), invoices the lessee monthly for any rentals due, rentals in
arrears, and necessary state or local sales, use, or personal property taxes.
All monies received by Walnut as agent for ELCOA are segregated, processed and
deposited into an escrow account pursuant to an agreement dated May 23, 1986,
established for ELCOA's benefit. These monies may not, under any
circumstances, be commingled with any of Walnut's general funds. Walnut remits
all sales, use, and personal property taxes directly to the proper taxing
authority from this account. Monthly, Walnut renders a listing of the net
rentals collected on behalf of ELCOA, along with a remittance of the net
escrowed funds, no later than the fifth business day following the end of each
calendar month. Walnut also uses its best efforts to re-lease the equipment at
the termination of any lease or negotiate and collect the anticipated residual
value of any equipment at the termination of each initial lease; remitting said
payments in kind to ELCOA as provided above, without reduction. Walnut also
maintains insurance which management believes is adequate against liability or
damage from losses as a result of the lessee's anticipated utilization of the
equipment against loss by fire or otherwise. As consideration, for these
general and administrative services, ELCOA is charged a monthly servicing fee
of $6.50 for each account outstanding at the end of each month.
CREDIT POLICY AND DELINQUENCIES
ELCOA, through Walnut, expects, to follow a policy that it considers to be
an efficient method of determining credit risks. Walnut relies heavily on bank
references, trade references, number of years in business, various credit
bureau reports, and personal credit references of the principals involved with
the lessee. In addition to the credit investigation, the leases purchased by
ELCOA generally will include the personal guaranty of the owners and principal
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<PAGE>25
shareholders (and their spouses) of sole proprietorships, partnerships, and
closely-held corporations which have been in business less than three years, or
have fewer than 20 employees. Most credit decisions are made within a few days
of the initial credit application. ELCOA believes that credit evaluation is
essential inasmuch as the equipment has a substantially reduced value on resale
or re-leasing. Consequently, ELCOA must initially rely primarily on Walnut's
initial credit judgment. Walnut employs approximately 12 people in its credit,
processing and collection departments. It has adopted a policy of
litigating all claims against lessees for unpaid rentals and only settling any
such obligations in favor of the lessor. Historically, the amounts recovered
from collections of delinquent leases have exceeded the legal fees incurred in
connection therewith. Walnut reimburses the law firm of William Shapiro Esq.,
P.C., an affiliate, for payroll costs of its staff attorneys and any required
advances for court costs, and does not pay any other fees on either a
contingent or hourly basis. Neither William nor Kenneth Shapiro are included
in the law firm's payroll. In consideration of these services, Walnut is
entitled to retain any late charges collected to offset these costs of
collection and litigation on behalf of ELCOA.
An allowance for doubtful lease receivables is calculated at a level
considered adequate to provide for estimated losses that will be incurred in
the collection of these receivables. The allowance is increased by provisions
charged to operating expense and reduced by charge-offs based upon a periodic
evaluation (at least quarterly) of delinquent finance lease receivables.
The following table sets forth ELCOA's lease receivable delinquencies on a
strict contractual basis as of April 30, 1995, 1994, and 1993. References to
payments past due two monthly payments means payments which are at least 31,
but not more than 60 days past due. Payments past due three monthly payments
means payments which are at least 61, but not more than 90 days past due, while
payments four or more mean 91 or more days past due on the contractual basis.
17
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<PAGE>26
<TABLE>
<CAPTION>
April 30, 1995 April 30, 1994 April 30, 1993
$ % $ % $ %
----------- ------ ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Aggregate Future
Lease Receivables $17,267,612 100.00 $17,966,429 100.0 $18,662,465 100.0
----------- ------ ----------- ----- ----------- -----
Current 10,908,170 63.2 11,625,626 64.7 12,452,731 66.7
Past due - Two Monthly
Payments 1,156,730 6.7 984,582 5.5 1,058,284 5.7
Past due - Three Monthly
Payments 465,480 2.7 347,329 1.9 395,962 2.1
Past due - Four or More
Monthly Payments 4,737,232 27.4 5,008,892 27.9 4,755,488 25.5
</TABLE>
<TABLE>
ANALYSIS OF BAD DEBT WRITE-OFFS
<CAPTION>
Fiscal Years Ended April 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Aggregate Future
Lease Receivables $17,267,612 $17,966,429 $18,662,465
Provisions for
Doubtful Accounts 1,229,845 707,162 566,570
Net Charge-Offs 1,257,058 496,088 348,916
Average Gross Lease
Receivables 17,617,021 18,314,447 17,354,669
Percent of Net Charge-
Offs to Average Gross
Lease Receivables 7.1 2.7 2.0
Allowance for Doubtful
Lease Receivables 974,667 1,001,880 790,806
Percent of Allowance for
Doubtful Lease Receivables
to Aggregate Future Lease
Receivables 5.6% 5.5% 4.2%
Percent of Allowance for
Doubtful Lease Receivables
to Receivables Past Due
Four or More Monthly
Payments 20.6% 20.0% 16.6%
</TABLE>
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<PAGE>
<PAGE>27
As of April 30, 1995 and 1994, lease payments in arrears on receivables
four or more monthly payments past due (included in the contractual balances
due of $4,737,232 and $5,008,892) were $3,068,340 and $3,178,479,
respectively. Management attributes the decrease in delinquent lease
receivables reflected above to the increase in write-offs of delinquent lease
receivables during the fiscal year ended April 30, 1995. Management also
attributes the increases during fiscal 1994 in part to the nationwide economic
slowdown. As of April 30, 1995, and 1994, approximately $3,189,000 or 18.5%
and $3,560,000 or 19.8%, respectively, of direct finance lease receivables on
a strict total contractual basis were 12 or more months past due.
ELCOA believes that its loss experience and delinquency rate is reasonable
for its operations. Although ELCOA's loss experience (except for fiscal 1995
which the company believes is extraordinary in nature) is consistent with
industry averages for comparable lease portfolios, its delinquency rate is
higher than industry averages because of its market, i.e. primarily small to
medium sized businesses. Delinquent receivable balances expressed as a total
of lease receivables appears higher than industry averages because of the
decision to pursue delinquent lessees until all reasonable collection efforts
have been completely exhausted. The implication of these higher percentages
requires ELCOA to continue its collection efforts diligently to minimize its
actual losses from delinquent accounts. As of April 30, 1995 and 1994, ELCOA
maintained an allowance for doubtful lease receivables of $974,667 and
$1,001,880 respectively, which management believes is adequate for future
write-offs on the Company's aggregate gross lease receivables. These reserves
totaled 5.6% and 5.5% respectively of the total gross lease receivables
outstanding at April 30, 1995 and 1994. The allowance is based upon
management's periodic analysis performed at least quarterly of the lease
portfolio, also taking into consideration ELCOA's and Walnut's past experience
in the management of delinquent lease receivables. Total past due lease
receivables as reflected in the above chart represent the total amount of
payments due as well as all aggregate future payments to become due under
terms of the underlying lease contracts. During the three fiscal years ended
April 30, 1995, 1994 and 1993, the allowance for doubtful accounts was
increased by provisions for doubtful lease receivables annually in the amounts
of $1,229,845, $707,162, and $566,570, respectively. The amounts written off
in each of the three fiscal years ended April 30, 1995, 1994 and 1993, were
$1,257,058, $496,088, and $348,916, respectively.
Walnut also utilizes its collection department and a law firm with which
it is affiliated to collect any and all delinquent payments on behalf of
ELCOA. Walnut is entitled to be compensated for the collection of delinquent
payments, by an amount equal to the delinquency and late charges collected
under terms of each delinquent lease agreement, with the net rentals remitted
to ELCOA. Walnut, in turn, compensates the law firm for its services from
funds so received. Therefore, if no collections are made on a certain
delinquent lease, ELCOA is charged only the monthly servicing fee for that
account.
ELCOA bears the risk of all loss of any lease rentals provided for under
the leases, the loss of any equipment owned by it, any loss of value of any
equipment, and all losses incurred in the sale of such equipment, no matter
how such loss occurs. Consequently, ELCOA is required to maintain an
allowance for such losses, increases in which will result in corresponding
charges to operations. At April 30, 1995, approximately 37% of the then
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<PAGE>
<PAGE>28
outstanding lease receivables were past due as reported on a contractual
basis. Management attributes the slowdown in the economy nationwide as a
principal reason for the increase in new delinquencies during fiscal 1994, as
well as to lessee dissatisfaction with equipment ELCOA no longer considers for
lease. However, because of the diversification of ELCOA's leases in dollar
amount and geographical location, any futher weakening in the economy should
have no material impact on ELCOA's overall cash flow. This assertion is based
on ELCOA's historical experience of collections of its outstanding lease
receivables which has remained consistent during the past three fiscal years.
Management reviews these accounts at least quarterly and at year end provides
what it believes to be an adequate reserve for potential losses thereof by a
corresponding charge against operations. Leases are written-off only if there
is an adverse court decision, bankruptcy or settlement, and local counsel
engaged in the collection effort has determined that further action in
recovering the debt is unwarranted. Write-offs increased during the fiscal
year ended April 30, 1995 as a result of management's decision to discontinue
collection efforts in certain cases where the legal losts of pursuing
collection would be less than the recoveries anticipated. If the equipment is
returned to ELCOA, it will maintain an inventory of the repossessed equipment
until it can be re-let or sold. ELCOA writes down the carrying value of this
equipment to its forced sale value when it is repossessed.
BOOKKEEPING AND DATA PROCESSING
Almost all of ELCOA's bookkeeping and record-keeping functions are
performed by Walnut utilizing electronic data processing programs developed
and owned by Walnut Associates, Inc., the owner of all of the outstanding
common stock of Walnut. It is anticipated that Walnut will maintain
sufficient duplicate records to safeguard its information. ELCOA reimburses
Walnut $500 weekly for performance of these services.
ELCOA believes the fees to be charged by Walnut in connection with the
above arrangements to be no higher than those charged by outside sources for
similar services.
METHOD OF FINANCING
ELCOA, in order to conduct its business, must have the financial resources
with which to purchase the equipment it leases. The funds for such purchases
will be generated primarily from the sale of the Debentures, receipt of rental
payments, the sale of lease receivables to third-parties through
"securitization", and, to a lesser extent, funds which may be borrowed in the
normal course of business from lending institutions. ELCOA may therefore
establish credit relationships with third-party asset "securitizers" or other
lending institutions which may be necessary for the conduct of its business,
although no such relationships existed as of the date of this Prospectus. The
terms of the securitization or other borrowings would differ depending upon
prevailing interest rates and the arrangements made with each lending
institution. Such institutions may secure their interests in leases pledged
as collateral but, except in connection with the specific leases used as
collateral, this debt will rank on parity with the Debentures offered herein.
Through securitization, ELCOA could offer to sell leases to third-party
financial institutions for a fee, recognizing as current income the difference
between the net present value of the future rentals due at an agreed upon
discount rate, less ELCOA's investment in the equipment under lease.
20
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<PAGE>29
It should be noted that although ELCOA's rental income from its lessees is
fixed at the inception of each lease, ELCOA's net income from a given lease is
affected by changes in the interest rate it pays on borrowed funds. To the
extent that the interest rates charged by any bank that may hypothecate leases
or the interest rates that ELCOA pays on its Debentures increase, ELCOA must
pay any such increased cost without having the ability to increase its rental
charges on existing leases.
ELCOA has sold Demand, Fixed Rate, and Money Market Thrift Certificates
pursuant to prior offerings, of which $24,521,875 were outstanding at April
30, 1995. Of these, $2,135,337 are payable upon demand, and $22,386,538 of
fixed-term certificates were due as follows:
<TABLE>
<CAPTION>
Year Ending
April 30
-----------
<S> <C>
1996 $12,562,652
1997 3,138,288
1998 1,146,431
1999 2,156,743
2000 & thereafter 3,382,424
-----------
$22,386,538
===========
</TABLE>
Approximately .7% of these certificates were held by William Shapiro, the
Company's President, members of his immediate family, or companies in which he
maintains a majority interest. Certificates held by these affiliates were
purchased for cash under terms of the prior offerings of these securities at
the public offering price. See also Note 8 to the Financial Statements.
EMPLOYEES
It is currently anticipated that the officers of ELCOA will continue to
devote substantially all of their time to their duties related to their
respective positions with Walnut and its affiliates. ELCOA has no full-time
employees. However, the officers and directors of ELCOA will make such time
commitments as may be necessary, which are not expected to be a significant
amount of time, to ensure that ELCOA fulfills its duties under the Indenture
and such other duties as the officers and directors shall deem necessary to
protect the interest of ELCOA's creditors, principally the Debenture holders,
or which may be required by law. Mr. William Shapiro, President of ELCOA, has
over 30 years experience in "small-ticket" leasing. Mr. Kenneth S. Shapiro,
Vice-President of ELCOA, has over 15 years experience in leasing. Both
officers are also licensed certified public accountants and attorneys. See
"MANAGEMENT".
COMPETITION
Equipment leasing and related businesses are highly competitive and that
competition may increase. A number of concerns are engaged in the same type
of business as ELCOA, including: (1) finance divisions, affiliates or
subsidiaries of suppliers which sell products leased by ELCOA, (2) banks or
their affiliates, (3) other leasing and finance companies, including Walnut,
21
<PAGE>
<PAGE>30
and (4) independently formed partnerships operating for the specific purpose
of leasing equipment. Many of these organizations have greater financial or
other resources than ELCOA and, therefore, may be able to obtain funds on
terms more favorable than those available to ELCOA. This may permit such
organizations to offer lease terms which ELCOA could not match. Also, such
organizations may have competitive advantages including their affiliation with
vendors and their nationwide leasing organizations. Although ELCOA has a
right of first refusal to purchase new equipment and leases which Walnut
wishes to sell, Walnut may compete with ELCOA for future business.
Factors that effect competition include convenience, rate, terms, speed of
credit approval, nature and type of equipment to be leased, and size of lease.
ELCOA has no way of determining its share of the leasing market.
FEDERAL INCOME TAX CONSIDERATIONS
ELCOA's leasing activities are not generally oriented toward creating tax
benefits. The recently enacted Revenue Reconciliation Act of 1993 is expected
to have no material impact on ELCOA's operations.
To the extent that the current tax law reduces the benefits of equipment
ownership, equipment users might be more inclined to lease because
deductibility of rental payments by the lessee would remain unaffected, while
purchases of equipment would no longer provide certain tax advantages.
22
<PAGE>
<PAGE>31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE FISCAL YEARS ENDED APRIL 30, 1995
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with ELCOA's financial statements and
notes thereto appearing elsewhere herein. As regards transactions with
affiliates, see Note 8 to the Financial Statements.
ELCOA began operations on May 23, 1986 by the assignment of approximately
$1,000,000 in equipment and related leases from Walnut in exchange for all of
ELCOA's outstanding common stock. During the fiscal years ended April 30,
1995, 1994, and 1993, aggregate new lease receivables were $9,674,906,
$8,782,656 and $10,927,148, respectively, new equipment purchased for lease was
$7,321,620, $6,680,452 and $8,212,927, respectively, and recognized revenues
from direct finance leases totalled $2,945,151, $3,009,864 and $3,057,645,
respectively. ELCOA's new leases entered during the fiscal year ended April
30, 1994 decreased from the prior year as a result of management's decision to
discontinue accepting leases for certain types of equipment considered
"overpriced", as well as a sluggish economy which dampened capital equipment
needs for businesses nationwide. ELCOA attributes the increase in new lease
receivables entered in the fiscal year ended April 30, 1995 to additional
leases offered by sale from Walnut. The income earned under direct finance
lease contracts decreased 2.2% and 1.6% after having increased approximately
27% during the fiscal years ended April 30, 1995, 1994 and 1993, respectively.
The decrease in the growth of earned revenues during the fiscal years ended
April 30, 1995 and 1994 was the result of a decrease in the amount of lease
contracts outstanding during the years. Management attributes the loss
reported for the fiscal years ended April 30, 1995 and 1994 as a result of
increased reliance on borrowed funds, increased general and adminstrative
expenses and provisions for doubtful lease receivable associated with an aging
portfolio of leases, and excess interest paid on excess cash and investment
balances during the fiscal year. See "RISK FACTORS AND OTHER SPECIAL
CONSIDERATIONS". During the three fiscal years ended April 30, 1995, the
Company's costs of operations were funded from rentals collected. Net proceeds
from the sale of debt securities were used exclusively for the purchase of
equipment for lease during the fiscal years ended April 30, 1995, 1994 and
1993, with excess funds being retained in low-yield but highly liquid
investments, including U.S. government securities with terms not exceeding six
months in length.
ELCOA experienced growth in the volume of new leases added to its portfolio
during the two fiscal years ended April 30, 1995 and 1993, but declined
slightly during the fiscal year ended April 30, 1994. Aggregate new lease
receivables increased by $892,250 or approximately 10% during the fiscal year
ended April 30, 1995 and decreased by $2,144,492 or approximately 20% during
the fiscal year ended April 30, 1994. In analyzing ELCOA's Financial
Statements, it is therefore important to note the relationships between new
lease volume added during an accounting period and the net lease revenue and
income before income taxes reported for that period. Net lease revenue
recognized by ELCOA during an accounting period is defined to be the income
earned under direct finance lease contracts. New lease volume is the total of
all new lease contracts added to the portfolio during the period. As a
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<PAGE>
<PAGE>32
consequence, during a period in which the rate of growth of new lease volume
increases, the growth rate of net lease revenue in that period will be less
than the rate of growth in new lease volume, because the income earned from new
lease volume is recognized over the term of each lease contract and not in the
year the contract is entered. On the other hand, certain expenses recognized
by ELCOA during an accounting period, such as the provision for losses, are
more directly related to the aggregate amount of outstanding leases during that
period. Thus, current-period expenses are more dramatically impacted by volume
growth than is net lease revenue. As a result of the foregoing factors,
reported income before income taxes will in turn grow at a slower rate than the
rate of growth in net lease revenue during periods of increasing rates of
growth in new lease volume. In periods of decreased rates of lease volume
growth, the foregoing relationship would be reversed.
Lease origination expenditures which represent fees incurred in the
acquisition of new lease receivables from Walnut were 4% of the equipment
acquired by ELCOA from Walnut, plus any commissions paid to vendors and outside
leasing brokers. These costs were 3% from March 1, 1992 to June 1, 1992.
Effective May 1, 1990, Walnut included as part of the equipment cost any
commissions, paid vendors or leasing brokers in the acquisition of the
equipment. As such, these costs are no longer reimbursed separately by ELCOA,
but paid as part of the equipment cost. See Note 1 to the Financial Statements
for a discussion of the impact of SFAS 91 on accounting for lease origination
costs. Total amounts paid Walnut under the option agreement during the three
fiscal years ending April 30, 1995, 1994 and 1993 were $281,531, $256,940 and
$308,077, respectively.
For the fiscal years ended April 30, 1995, 1994 and 1993, ELCOA incurred
$1,054,460, $1,031,825, and $1,011,186 in general and administrative expenses,
respectively. Monthly servicing and bookkeeping fees paid to Walnut in the
amount of $676,228, $704,522, and $654,732 during the fiscal years ended April
30, 1995, 1994, and 1993, respectively, were a primary component of general and
administrative expenses. The increases represent costs expended to administer
the outstanding portfolio of leases. Also included in the general and
administrative expenses during the fiscal years ended April 30, 1995, 1994 and
1993 were $247,561, $188,209 and $185,138, respectively, of amortization of
the deferred debt registration and solicitation expenses, which include
amortization of commissions paid on account of sales of Demand, Fixed Rate, and
Money Market Thrift Certificates. Fees paid to Financial Data, Inc., a
registered transfer agent and affiliate of the Company, for services rendered
in connection with the Demand, Fixed Rate and Money Market Thrift Certificates,
were $99,595, $105,334 and $116,994, during the fiscal years ending April 30,
1995, 1994 and 1993, respectively. These expenses decreased during fiscal 1995
and 1994 as a result of cost savings by Financial Data, Inc. which were passed
through to ELCOA, after having increased during fiscal 1993 to offset Financial
Data's cost in providing these services, and increases in the amount of debt
securities outstanding. In the event that Walnut should cease operations or be
unable to fulfill its obligations in origination and servicing of ELCOA's
leases, ELCOA's costs to perform these services might increase, reducing
profitability. See "RISK FACTOR #2" on page 7.
An allowance for doubtful direct finance lease receivables is maintained at
a level considered adequate to provide for estimated losses that will be
incurred in the collection of these receivables. The allowance is increased by
provisions charged to operating expenses and reduced by chargeoffs. ELCOA
recorded provisions for doubtful lease receivables of $1,229,845, $707,162 and
24
<PAGE>
<PAGE>33
$566,570 for the fiscal years ended April 30, 1995, 1994 and 1993,
respectively, resulting from increases in delinquent accounts outstanding
during these periods. At April 30, 1995, approximately 37% of the then
outstanding lease receivables were past due as reported on a contractual basis.
Management has reviewed these accounts at year end and has provided what it
believes to be an adequate reserve for potential losses thereof on an
impairment basis by a corresponding charge against operations. See also
"BUSINESS - Credit Policy and Delinquencies."
During the fiscal years ended April 30, 1995, 1994, and 1993 ELCOA incurred
$1,314,491, $1,563,038 and $1,320,546, respectively, in interest expense, net
of interest income of $741,671, $374,025, and $253,967, respectively, on
average debt (including accrued interest thereon) of $25,258,751, $22,287,797
and $16,934,395, respectively, based upon the amounts of debt outstanding
computed on a quarterly basis. Average interest rates on average outstanding
debt, including accrued interest, but disregarding interest income on excess
funds, were 8.1%, 8.6%, and 9.3%, respectively. Rates in general dropped
during fiscal 1995, 1994 and 1993. The interest expense before calculation of
any offset from interest income increased each year as a result of the increase
in the amount of issued and outstanding debt securities of ELCOA.
During the fiscal years ended April 30, 1995, 1994 and 1993, ELCOA
recognized provisions for state income taxes in the amounts of $360, $0, and
$928 respectively. See Footnote 1 to the Financial Statements. No provisions
for federal income taxes were necessary, due to the benefit of Walnut's net
operating loss carryforwards.
ELCOA's revenue is set at the time a given lease contract is executed.
Consequently, inflation is not expected to impact revenue subsequent to the
inception of any given lease. In addition, inflation will not have a material
effect on ELCOA's operating expenses as they are fixed based upon the Servicing
Agreement with Walnut. However, the increased reliance on variable rate
borrowings resulting from sale of the certificates subjects ELCOA to increased
exposure to inflation because of the risk of increased interest rates. In the
event that future redemptions of Debentures exceed future sales of the
Debentures being offered, ELCOA would be required to replace the indebtedness
through other borrowings. To the extent that ELCOA is able to obtain funds at
fixed interest rates, inflation will have no impact over the term of any given
loan. However, to the extent that the loans would be at variable interest
rates, inflation might have a significant adverse impact on ELCOA's operations
through increased costs of borrowing.
CAPITAL RESOURCES AND LIQUIDITY
ELCOA has financed, and anticipates that it will continue to finance its
new business primarily from the proceeds from its sale of Certificates, as well
as from rentals received from lease contracts outstanding, and, should ELCOA
elect, from bank borrowings or sales of lease receivables to other financial
institutions. During the three fiscal years ended April 30, 1995, 1994, and
1993, approximately 37%, 56%, and 63%, respectively of the equipment purchases
were funded from sale of securities, and 63%, 44%, and 37%, respectively were
funded from rental collections. Approximately $17,025,000, including accrued
interest on the $24,521,875 in Debentures outstanding at April 30, 1995 are
subject to redemption within one year of that date. Scheduled receipts from
lease contracts of approximately $9,420,000 during this period, as well as cash
and the investment in U.S. government securities on hand at April 30, 1995 are
expected to be sufficient to cover redemptions for holders who do not elect to
25
<PAGE>
<PAGE>34
"rollover" at maturity into new Debentures. See Footnotes 2 and 6 to the
Financial Statements. During the fiscal years ended April 30, 1995, 1994, and
1993, approximately 86%, 81% and 85%, respectively, of all debt securities
issued by Walnut coming due were renewed and "rolled over" into new
indebtedness, while approximately 50%, 59% and 60%, respectively, of all
Demand, Fixed Rate, and Money Market Thrift Certificates issued by ELCOA which
came due were "rolled over" during this period. ELCOA's rollover percentage is
lower as a result of its lower rates being offered on its Certificates in
comparison to those of Walnut. Management cannot predict with any certainty
what percentage will "roll over" during the fiscal year ending April 30, 1996,
but expects the percentage to be relatively comparable to prior year
experience. In the event that holders do not elect to "roll-over" their debt
securities, the redemptions will be met from cash and investments on hand and
rentals received from outstanding leases in the ordinary course of business.
The proceeds of this offering will not be used to redeem outstanding
certificates. As of April 30, 1995, ELCOA had approximately $8,909,000 of cash
on hand or invested in liquid short-term goverment securities, and had a
receivable from Walnut of approximately $3,992,000 for funds advanced for the
purchase of equipment for leases awaiting sale to ELCOA as of April 30, 1995.
See Risk Factor #3.
Management believes that ELCOA has the capacity and ability to generate new
lease business to the extent that funds become available from these sources,
taking into effect historical cash flows from rental collections and sale of
debt securities, that exceeded the cost of operations. ELCOA could also
purchase equipment and leases from outside sources provided that the
documentation is acceptable to management. Management considered but found
unacceptable such leases in the past due to the inability to confirm the
documentation or likelihood of collection of such lease portfolios offered for
sale. The lag time between receipt of funds and the investment in equipment is
approximately two months. No assurance can be given that any future offering
of Demand and Fixed Rate Certificates can be sold or that satisfactory bank
relationships can be established, or that all funds raised from these sources
could be immediately invested in the purchase of equipment for lease.
However, ELCOA presently has no commitments outstanding for any future
equipment purchases, and its anticipated cash flow from its outstanding
portfolio of leases will be sufficient to fund operations during the next
fiscal year without any reliance on capital to be generated by the sale of
these Debentures. Management believes that it could generate additional funds
through the securitization markets, or establish bank lines of credit or their
equivalent on a secured lending basis, since it has sufficient assets under
lease to adequately collateralize any line of credit. There are no material
capital purchase committments or long term obligations which may be incurred
beyond the next twelve months. See the Statement of Cash Flows for the three
fiscal years ended April 30, 1995. See also "RISK FACTORS AND OTHER SPECIAL
CONSIDERATIONS" for a complete discussion of the relationships between ELCOA
and its parent, Walnut, and its financial condition. In this regard, if Walnut
were to liquidate or cease doing business, ELCOA's costs to continue operations
may exceed the costs paid Walnut under the origination and servicing
agreements. In addition, the holders of Walnut's debt securities acquiring an
equity interest in ELCOA could force a liquidation of ELCOA. In that event,
holders of ELCOA's debt securities would be paid their principal and accrued
interest before any payment in liquidation would be made to Walnut's creditors
as owners of the equity of ELCOA. See Risk Factor Number 3.
26
<PAGE>
<PAGE>35
As noted in the "USE OF PROCEEDS" section on page 12 of this Prospectus,
excess funds have historically been invested by the Trustee in low yielding but
highly liquid investments. These funds have been held solely for the purpose
of investment in new lease receivables. During the fiscal year ended April 30,
1995, the average interest rate earned by ELCOA on these funds was
approximately 4.9%, while the average interest rate paid on outstanding
certificates was 8.1%, resulting in a negative spread of 3.2%. Any decision by
the Federal Reserve to increase rates in general may reduce this "negative
spread". However, management has placed a high priority of increasing the
purchase of equipment for lease reducing the available amount of cash and
investments on hand.
As noted in the Statements of Cash Flows on page 47, sales of Demand and
Fixed Rate Certificates have increased over the three fiscal years ended April
30, 1995, along with a corresponding increase in the redemption of these
securities at their respective maturities. In the event that future
redemptions of Certificates exceed future sales of the Certificates to be
offered, ELCOA may utilize its excess cash to repay such borrowings. ELCOA
believes that it has sufficient cash resources to meet its normal operating
requirements during the fiscal year ending April 30, 1996.
To the extent that ELCOA is able to obtain funds either through future
sales of Certificates or from other sources at fixed interest rates, inflation
will have no impact over the term of any given borrowing. However, to the
extent that the borrowings would be at variable interest rates, inflation may
have a significant adverse impact on ELCOA's operations through increased costs
of borrowing. The increased reliance on variable rate borrowings resulting
from sales of the Certificates subjects ELCOA to increased exposure to
inflation because of the risk of increased interest rates.
To date, neither ELCOA nor Walnut has ever defaulted on any contractual
payment of interest or principal due under the terms of any loan, bank
borrowing, or debt security obligation issued to the public. All requests for
early repayment of interest or principal have never been later than five
business days after demand for redemption was received.
PRINCIPAL SHAREHOLDER
All of the common stock of ELCOA presently outstanding is owned by Walnut,
and 100% of the common stock of Walnut is owned by Walnut Associates, Inc., of
which Mr. William Shapiro is the sole shareholder. Therefore, Mr. Shapiro,
Walnut Associates, Inc., and Walnut may be deemed "parents" of ELCOA as that
term is so defined under the Securities Act of 1933, as amended. For a
discussion of the transactions between these affiliated parties, see Note 8 to
the Financial Statements. The address of Walnut and Walnut Associates, Inc. is
Suite 2128, 101 West City Avenue, Bala Cynwyd, PA 19004. All future loans to
company officers, directors, affiliates and/or controlling shareholders will be
made for bonafide business purposes, and will be approved by a majority of the
directors of ELCOA, including a majority of those disinterested directors. All
future transactions with the above reference parties will be on terms no less
favorable than could be obtained from unaffiliated parties, and shall be
approved by a majority of the directors of ELCOA, including a majority of those
disinterested directors.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table identifies the Directors and Officers of ELCOA.
NAME POSITION WITH ELCOA AGE
- ------------------ ---------------------------- ---
William Shapiro President 72
Kenneth S. Shapiro Vice-President 43
Lester D. Shapiro Secretary/Treasurer/Director 34
Nathan Tattar Director 74
John B. Orr Director 36
Adam Varrenti, Jr. Director 46
Directors' terms expire when their successors are duly elected by the sole
shareholder of ELCOA. Officers' terms shall continue until their successors
are selected by the Board of Directors.
William Shapiro, the father of Kenneth and Lester Shapiro, holds degrees
from Temple University Schools of Business and Law. He is a practicing
attorney and a Certified Public Accountant. He has been the President, Chief
Executive Officer and Director of Walnut since 1969, and devotes substantially
all of his time to those duties. For the last twenty-eight years, he has been
the President, Chief Executive Officer, Director and sole shareholder of
Walnut Associates, Inc., the sole shareholder of Walnut. He has been
President of William Shapiro, Esq., P.C., a law firm, since 1976. He was a
Director of Kulicke and Soffa Industries, Inc., a publicly held manufacturing
company until August, 1987. Mr. Shapiro is also an officer, Director and sole
shareholder of Welco Securities, Inc. since 1983, and President of ELCOA since
1986, and President and a Director of Financial Data, Inc.
Kenneth S. Shapiro, the son of William Shapiro, and brother of Lester
Shapiro, is a graduate of Boston University's School of Business and School of
Law. He is a practicing attorney and a Certified Public Accountant. Upon
graduation from law school in 1977, he was employed by Touche Ross & Co.,
Certified Public Accountants, as a Tax Consultant. In 1977 he became a
Director of Walnut and was employed as its Controller from September 1979 to
1983, when he became its Vice-President. In addition to being Vice-President
of Walnut, he is the President and a Director of Welco Securities, Inc. He had
been a member of the part-time faculty in Accounting and Taxation at Beaver
College, Glenside, Pennsylvania from September, 1978 to May, 1994.
Lester D. Shapiro, the son of William Shapiro and brother of Kenneth S.
Shapiro, is a graduate of New York University's College of Business and Public
Administration, having majored in accounting and management. He has also
received a Masters of Business Administration degree from New York University
in June 1985. Since 1981, he has also been engaged in the purchasing and
resale of used business equipment on his own behalf, and since March 1986, has
been the President and sole shareholder of Shapiro Business Machines, Inc., a
dealer in used business equipment. He has been a Director of Walnut since
September, 1983, and a Director and Secretary/Treasurer of ELCOA since
inception.
John B. Orr received his Bachelor of Science degree in Business
Administration from Drexel University in 1981. From 1983 to July, 1989 he
worked as an independent floor broker with Jordan Investments, and as a trader
with Susquehanna Investment Group, both members of the Philadelphia Stock
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Exchange. From July 1989 through July, 1992, he was employed as a Vice
President, director and shareholder of Wynncroft Options, Inc., a specialist
trading firm on the floor of the Philadelphia Stock Exchange. From July, 1992,
through April, 1994 he was employed with Group One Limited, an options trading
firm and member of various exchanges. His is now the President of Tempest
Trading Partners, Inc., an options trader on the floor of the Philadelphia
Stock Exchange. He has been a Director of ELCOA since inception.
Nathan Tattar received his Bachelor of Arts degree from Washington College,
Chestertown, Maryland; his C.L.U. (Chartered Life Underwriter) from the
American College in 1955; and the R.H.U. (Registered Health Underwriter)
designation from the Health Insurance Council in 1972. He is also a charter
recipient of the L.U.T.C.F. designation from the Life Underwriter's Training
Council. He has maintained his own life insurance agency since 1970 in
Philadelphia, Pennsylvania, and has been active for 40 years in the life,
health and pension insurance field. He is also active in the Boy Scouts of
America, presently serving on its Executive Board, and a member of the Trust
and Audit committees of the Valley Forge Council. He has been a Director of
ELCOA since inception. He is also licensed as a registered representative and
a Director with Welco Securities, Inc., a member firm of the National
Association of Securities Dealers, Inc., and Underwriter of the Debentures.
Adam Varrenti Jr., received his Bachelor of Science degree in Business
Administration from Villanova University. Since 1982, he has been the sole
proprietor of the Diversified Financial Group, West Chester, Pennsylvania. Mr.
Varrenti received his C.L.U. (Chartered Life Underwriter) and his ChFC
(Chartered Financial Consultant) designations from the American College in 1981
and 1985, respectively. He is also registered with the NASD through John
Hancock Distributors, Inc., as a mutual fund salesman. He has been a Director
of ELCOA since inception.
ELCOA's Certificate of Incorporation adopts a provision of the Delaware
General Corporation Law which provides that a director of a corporation will
not be personally liable to the corporation or it shareholders for monetary
damages for breach of fiduciary duty of care as a director, including breaches
which constitute gross negligence. However, this provision does not eliminate
or limit the liability of a director of a corporation (i) for breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law (relating to unlawful payments of dividends or unlawful stock
repurchases or redemptions), (iv) for any personal benefit derived or (v) for
breaches of a director's responsibilities under the federal securities laws.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, ELCOA has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. Reference is made to Item 17 of the Registration
Statement of which this Prospectus is a part for additional information
regarding the indemnification of officers and directors.
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EXECUTIVE COMPENSATION
All management decisions for ELCOA, including the purchase of equipment for
lease, are made by ELCOA by its officers under the direction of its Board of
Directors. It is expected that the officers of ELCOA will be required to
devote only a small portion of their time to the affairs of ELCOA and are not
expected to be compensated by ELCOA. ELCOA has no employee benefit plan.
No compensation has been paid to any director or officer of ELCOA since
incorporation, and none is likely without the approval of the Board of
Directors. The officers of ELCOA will not be compensated by ELCOA for their
services as directors, although the outside directors are paid $350 per meeting
attended and will be reimbursed for expenses reasonably incurred in connection
with their services on behalf of ELCOA. ELCOA's By-Laws provide that directors
and officers of ELCOA may be indemnified against liabilities incurred in
connection with their services on behalf of ELCOA.
DESCRIPTION OF SECURITIES
DEBENTURES
This offering relates to ELCOA's Demand and Fixed Rate Certificates. The
Debentures are to be issued under a Fifth Supplemental Indenture dated as of
August 18, 1993 to an Indenture dated as of August 5, 1986 and supplements
thereto dated September 19, 1986, September 20, 1988, September 13, 1989, and
August 17, 1990 (collectively referred to as the "Indenture") between ELCOA and
First Valley Bank of Bethlehem, Pennsylvania as Trustee ("Trustee"). Under
terms of the Indenture, both types of Debentures stand on parity as to each
other and neither shall be senior to the other in the event of dissolution or
liquidation of ELCOA. A copy of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
statements are brief summaries of all material provisions of the Indenture.
Whenever particular provisions of the Indenture or terms defined therein are
referred to herein, such provisions or definitions are incorporated by
reference as part of the statements made herein and all statements are,
therefore, qualified in their entirety by reference to such provisions or
definitions.
Certain terms of the Indenture as set forth below may be modified. See
"Modification of the Indenture", described herein. Additionally, ELCOA has
reserved the right to terminate this offering, or modify the terms of the
offering or the Debentures, at any time by an appropriate amendment to this
Prospectus. No such modification will affect the rights of the then
outstanding Debentures, except to the extent described below.
The Debentures are not secured by any collateral or lien, nor are there any
provisions for a sinking fund. Institutions lending funds to ELCOA may hold
security interests in certain leases as collateral and may have a priority
interest in those leases pledged as collateral, although none exist as of the
date hereof. Although the Indenture does not preclude future issuance of
securities senior to those registered herein, ELCOA does not anticipate or
intend in the immediate future, absent any unforeseeable circumstances, to
issue any securities senior to those registered herein.
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There are no limitations on dividends or other cash flows which may be paid
or transferred from ELCOA to Walnut, its parent. ELCOA has not set up any
reserve for repayment of the Debentures, nor has it any minimum asset ratio
maintenance requirements or other restrictions on the issuance of additional
securities. In the event of Walnut's bankruptcy, Walnut's creditors may assert
claims against ELCOA's assets by attempting to consolidate Walnut and ELCOA
into a combined corporate entity, although management believes that such a
claim would be unsuccessful as ELCOA is not operated as the alter ego of
Walnut, because both corporations have taken steps to clearly separate their
activities as two corporations to prevent any attempt to merge the transactions
or corporate transactions into one. See Risk Factor #3 on page 8 of this
Prospectus.
In general, events which constitute a default are nonpayment of interest or
principal, non-performance of certain covenants, and other events, all of which
are more fully described on page 36 under "Events of Default." Should an event
of default occur, the Trustee or holders of at least 25% in principal amount of
Debentures may declare them due and payable by appropriate written notice. See
"Events of Default."
Parenthetical references appearing below refer to the applicable sections
of the Indenture.
GENERAL
Each Fixed-Rate Certificate shall mature from three (3) through one
hundred-twenty (120) months from the date of issuance. The specific term is
selected by the purchaser. The term can be for any term of whole calendar
months within this range. Demand Certificates shall mature on the fifth day of
the month following the month during which demand is made by the holder
(Section 301). ELCOA is required to redeem Demand Certificates on the fifth
day of the month following the month in which written notice of demand is
received. For a complete discussion of the terms and conditions regarding
redemption of Debentures, See "Redemption" on page 33 herein. It is the
present policy of ELCOA, subject to availability of funds as determined by the
Board of Directors in its sole discretion to pay the principal to the holder
within 5 business days after demand for redemption is received.
ELCOA may however, change this policy at any future date without notice to
the holders of the Debentures. The Demand Certificates shall bear interest at
least 1% above the annualized 6-month U.S. Treasury Bill Rate for Treasury
Bills sold on the first day of the month or, if there is no auction on that
day, the interest rate established at the last auction prior to the first day
of the month. During the twelve month period ended April 30, 1995, the rate on
these certificates averaged approximately 1.7% above the 6-month U.S. Treasury
Bill Rate. Fixed Rate Certificates shall bear interest at a rate set by ELCOA
at the date of issuance, but shall not be less than 1% above the annualized
6-month Treasury Bill rate for Debentures with maturities of 24 months or less,
not less than 2% above the 6-month U.S. Treasury Bill Rate for Debentures with
maturities from 25 to 60 months, and not less than 3% above the 6-month U.S.
Treasury Bill Rate for Debentures with maturities exceeding 60 months (Section
301). There is no maximum interest rate which may be payable. During the
twelve month period ended April 30, 1995, rates on 6, 60 and 120 month
Debentures averaged approximately 1.9%, 3.8%, and 3.9%, respectively, over the
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6-month U.S. Treasury Bill Rate. Interest shall continue to be earned until
the principal amount of each certificate is paid or made available for payment
(Section 301). Principal and interest will be payable at the corporate trust
office of the Trustee, but unless other arrangements are made, interest will be
paid by check mailed to the registered holders of the Debentures at their
registered addresses (Sections 301, 1002). The Debentures are to be issued
only in registered form, without coupons, in denominations of at least $100 and
any additional amount approved by ELCOA (Section 302). The denominations of
the Debentures can be changed without service charge, other than any tax or
other governmental charge imposed in connection therewith, subject to the
limitations provided in the Indenture (Section 305). The principal amount of
the Debentures which may be issued under the Indenture is to be determined,
from time to time, by the Board of Directors of ELCOA. The maximum amount to
be offered hereunder is $50,000,000, less $xx,000,000 sold prior to the date of
this prospectus. The Debentures will be unsecured obligations of ELCOA.
TAX WITHHOLDING
The Internal Revenue Code of 1986, as amended (the "Code"), generally
requires reporting and inclusion of interest as income to the security holder
and will, in certain instances, require backup withholding by the payor of
interest of 31% of all interest payments (or amounts equivalent thereto) on and
after December 31, 1984.
In general, ELCOA is required to file with the Internal Revenue Service
each year over the term of the Debentures a Form 1099 information return (with
a copy to the holder) reporting the amount of interest which is paid or which
is considered earned by the holder during each calendar year period, and the
holder is required to include such amount as income in his Federal Income Tax
Return for that year.
The Interest and Dividend Tax Compliance Act of 1983 provides for backup
withholding at a rate of 31% on certain payments of interest and dividends.
Backup withholding may apply only to dividend, interest, or certain other
payments made subsequent to 1983.
Under the backup withholding provisions, withholding on interest or
dividends may be imposed either:
(1) after the Secretary of the Treasury has mailed four notices to the
taxpayer stating that the taxpayer has underreported his income, and, if
the taxpayer has filed a return for the taxable year in which he
underreported income, the Secretary has made a deficiency assessment
against the taxpayer;
(2) if the taxpayer fails to furnish a taxpayer identification number
when required to do so;
(3) If the Secretary notifies the payor that the taxpayer furnished an
incorrect taxpayer identification number; or
(4) with respect to instruments acquired after 1983, the taxpayer fails
to certify under penalty of perjury that he is not subject to backup
withholding as a consequence of having underreported his income.
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Any payor required to withhold from interest or dividend payments on the
basis of taxpayer underreporting of income is required to notify the payee at
the time the withholding begins.
REDEMPTION
COMPANY ELECTION
ELCOA may, at its own discretion, call for the redemption of the Debentures
from time to time, either in whole or in part. Notice of the redemption shall
be given by first-class mail, postage prepaid, mailed to the holder not less
than 60 days prior to the redemption date, at the principal amount thereof,
plus interest accrued to the date of redemption. Debentures may be called for
redemption at any time after purchase. Therefore, the purchaser is entitled to
at least 60 days interest in the event of ELCOA's redemption. Accrued interest
on the Debentures so redeemed shall be payable at the time of redemption. No
further interest shall accrue on redeemed Debentures after the date of
redemption (Sections 301, 1101 through 1105).
HOLDER'S ELECTION
ELCOA is required to redeem any Fixed Rate Certificate at maturity without
restriction. Subject to the $300,000 monthly limitation set forth below, ELCOA
will redeem Demand Certificates after notice of demand is received and any
Fixed Rate Certificates before maturity after notice of demand is received less
a penalty, subject to the $300,000 monthly limitation established for the
redemption of these Debentures as set forth below. See "DESCRIPTION OF
SECURITIES - DEBENTURES; Right to Request Early Payment". ELCOA intends to
satisfy requests for redemption from cash on hand. If insufficient cash is
available, ELCOA may make use of funds available from possible hypothecation of
leases. Requests for the redemption by mail should be addressed to either the
underwriter, Welco Securities, Inc., or ELCOA's offices at Suite 76,
Silverside-Carr Executive Center, 501 Silverside Road, Wilmington, Delaware
19809, or in person at the same addresses, and should include the original
certificate for redemption.
LIMITATIONS ON REDEMPTIONS
Under the Indenture, ELCOA is not obligated to redeem Demand Certificates,
or Fixed Rate Certificates prior to maturity, in excess of an aggregate of
$300,000 in principal amount in any calendar month (Section 1101 (c)).
If this limitation is invoked by ELCOA, the Trustee and the holders of such
Debentures submitted for redemption, but not redeemed, will be so notified and
the Debentures will be redeemed thereafter in the order in which demands are
received by ELCOA, with those for which demands are received on the same day
being redeemed on a pro-rata basis. To the extent that Debentures submitted
for redemption are not paid in any given calendar month, such Debentures will
be given first priority (in the order in which the demands were received) in
the next succeeding calendar month or months until such Debentures are fully
redeemed. Interest continues to accrue through date of payment. For this
purpose, a demand made orally will be treated as having been made on the date
of the oral demand, if it is confirmed by a written demand received by ELCOA
within ten days after the date of the oral demand. (Section 1101). The
limitation has not been invoked to date.
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AUTOMATIC EXTENSION
If, after its maturity date, a Fixed Rate Certificate is not presented for
payment by the holder, and ELCOA does not tender payment to the holder, such
Certificate shall be treated as a Demand Certificate, and the rights and other
terms such as the determination of interest rates and redemption provisions
applicable to Demand Certificates in general shall be applicable effective
after the maturity date of such Fixed Rate Certificate. ELCOA will give each
registered certificate holder one month's prior written notice of the time of
maturity, reminding him of the maturity date of his certificate and the fact
that the automatic extension provision will take effect unless he requests
payment (Section 301). ELCOA will advise, by monthly statement, Debenture
holders of the due date of all fixed term securities owned by them.
RIGHT TO REQUEST EARLY PAYMENT
Holders may request the redemption of any Fixed Rate Certificate offered
hereunder as of the end of the calendar month during which notice of a request
for early payment is received, subject to the $300,000 monthly limitation on
redemptions described above. Payment will be made on the fifth day of the
following calendar month, or such shorter period of time as determined by
ELCOA, on the following condition: A penalty, computed by multiplying the
number of months remaining to maturity by 1/8 of 1% and then multiplying the
product by the principal amount being redeemed prior to maturity, will be
deducted from the principal amount if redeemed; however the penalty shall not
be less than $25. For example, if 24 months prior to the due date, a holder
elected to redeem a $1,000 60-month Fixed Rate Certificate, ELCOA would deduct
a penalty of $30 from the principal repayment of $1,000 (1/8 of 1% multiplied
by 24 months multiplied by $1,000 equals $30).
OPTION TO RECEIVE COMPOUND INTEREST
Holders of Debentures have the option of electing to have interest on their
Debentures reinvested and compounded monthly (that is, interest at the original
rate shall be computed monthly on the new amount). There are no restrictions
on the use that ELCOA may make of the retained interest. Once made, such an
election may not be changed without the consent of ELCOA. In the event a
holder elects to have interest compounded, interest will be paid, at the
holder's election, bimonthly, quarterly, semi-annually, annually or at maturity
of his certificate (Section 301). Reinvested interest will be an unsecured
obligation of ELCOA and will be subject to the same risks as the Debentures.
See "RISK FACTORS". Interest compounded, but unpaid to holders, will be
reportable as income for Federal income tax purposes, when earned, including
when it is compounded but unpaid. ELCOA will advise holders by January 31 of
each year concerning the amount of interest which must be reported as income
for the preceding calendar year. ELCOA does not believe that any "original
issue discount" as defined in the Internal Revenue Code of 1986, as amended,
arises from the sale of the Certificates, as the stated principal amount
redeemable at maturity equals the original issuance price for each certificate.
Purchasers of Debentures bearing compound interest should consult their tax
advisers concerning any applicable tax consequences. See "DESCRIPTION OF
SECURITIES - DEBENTURES; Tax Withholding".
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INTEREST - 6-MONTH UNITED STATES TREASURY BILL RATE
Six-month United States Treasury Bills are auctioned weekly by the United
States Treasury Department, usually on Monday. The interest rate on the
6-month U.S. Treasury Bills, on a discount basis, based on the auction average,
is published widely in newspapers throughout the country, normally on the day
following the auction. During the five year period ended April 30, 1995, the
rates ranged from a low of 2.78% to a high of 7.84%. As of July 1, 1995, the
6-month U.S. Treasury Bill rate was 5.34%.
The interest rate to be paid on the Demand Certificates offered hereunder
shall be at least 1% above the annualized interest rate paid on 6-month United
States Treasury Bills sold on the first day of the month, or if there is no
auction on that day, the interest rate established at the last auction prior to
the first day of the month. The rate will vary from month to month depending
upon the U.S. Treasury Bill sales. In the event that the 6-month U.S. Treasury
Bill Rate as set forth above shall fall below 6% per annum, or in the event
there shall be no such U.S. Treasury Bill Rate in effect, the rate of such
6-month U.S. Treasury Bill shall be deemed to be 6% per annum. The percentage
above the 6-month U.S. Treasury Bill Rate is to be determined at the beginning
of the month by ELCOA (or in the absence of any such determination, such
percentage shall be deemed to be 1% above the 6-month U.S. Treasury Bill rate),
based upon prevailing market conditions, interest rates in general, and ELCOA's
need for funds for the purchase of new equipment for lease as opportunities
arise. Therefore, the minimum interest which can be paid on Demand
Certificates shall be 7%.
The interest rate to be paid on the Fixed Rate Certificates shall be fixed
by ELCOA weekly at a rate at least equal to 1% above the annualized interest
rate paid on 6-month U.S. Treasury Bills for Debentures with maturities of 24
months or less, at least 2% above the annualized interest rate paid on 6-month
U.S. Treasury Bills for Debentures with terms ranging from 25 to 60 months, and
at least 3% above the annualized interest rate paid on 6-month U.S. Treasury
Bills for Debentures with maturities exceeding 60 months, based upon prevailing
market conditions, interest rates in general, and ELCOA's need for funds for
the purchase of new equipment for lease as opportunities arise. For the
purpose of computing the interest to be paid on a given issuance of Fixed Rate
Certificates, the annualized interest rate paid on 6-month U.S. Treasury Bills
shall be determined by reference to such rates in effect on the date that
United States Treasury Bills are issued, or the date of the most recently
issued 6-month U.S. Treasury Bills, if investor money is not received on an
issue date of such U.S. Treasury Bill. Once established, the same rate of
interest will be paid for the term of the Debenture. In the event the 6-month
U.S. Treasury Bill Rate as set forth above shall fall below 6% per annum, or in
the event there shall be not such U.S. Treasury Bill Rate in effect, the rate
of such 6-month U.S. Treasury Bill shall be deemed to be 6% per annum.
Interest to be paid in any calendar month will be paid on the tenth day of
the succeeding calendar month.
RESTRICTIONS ON MERGER
ELCOA, subject to certain conditions intended to protect the interests of
the Debenture holders and contained in Section 801 of the Indenture, may
consolidate or merge with or into, or sell or transfer all or substantially all
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of its property and assets to any other corporation other than Walnut, and may
consolidate or merge with or into, or sell or transfer all or substantially all
of its property and assets, provided that the Corporation (if other than
Walnut) formed by or resulting from any such property and assets, assumes
payment of principal and premium if any, and interest on the Debentures and
performs all obligations in observance with the terms of the Indenture, in form
satisfactory to the Trustee. No such merger may grant any lienholders
resulting from the merger a position in liquidation senior to the interest of
the holders of the Debentures. No approval of Debenture holders is required.
ELCOA has no present plans to effect any of the foregoing transactions. (See
Article VIII).
MODIFICATION OF THE INDENTURE
ELCOA may from time to time, enter into additional supplemental indentures
amending the terms of the Indenture with the consent of at least 75% in
aggregate principal amount of the outstanding Debentures. No supplemental
indenture without the consent of each holder of outstanding Debentures may
reduce the percentage of the Debenture holders necessary to modify or alter the
Indenture, waive any default under the Indenture, reduce the stated amount of
interest on any Debenture or change the maturity date of the principal, the
interest payment dates or other terms of payment. ELCOA may, without consent
of the holders of these Debentures, enter into supplemental indentures under
certain limited circumstances where the rights of the holders are not
materially affected (Sections 901, 902).
CONVENANT AS TO REPAIR
ELCOA has covenanted that it will cause its properties used or useful in
the business to be maintained and kept in good condition, repair and working
order, provided, however, that ELCOA may provide for any disposition of such
properties consistent with reasonable business judgment and not disadvantageous
in any material respect to the holders of the Debentures (Section 1005).
EVENTS OF DEFAULT
The following will be events of default: (a) default in the payment of any
interest when due, which is not cured for 30 days; (b) default in the payment
of principal or premium, if any, when due; (c) default in the performance of
any other covenant of ELCOA, continued for 60 days after occurence of the
default; and (d) certain events of bankruptcy, insolvency or reorganization
(Section 501). In the event that a default shall occur and not be cured within
the time period required, the Trustee or the holders of not less than 25% of
the principal amount of outstanding Debentures (including holders who may be
controlling persons) may declare the Debentures due and payable by appropriate
written notice (Section 502).
ELCOA will be required to furnish to the Trustee annually, a statement as
to the fulfillment, by ELCOA, of all of its obligations under the Indenture
(Section 1006).
TRANSACTIONS WITH THE TRUSTEE
ELCOA will maintain deposit accounts and banking relations with the
Trustee, First Valley Bank of Bethlehem, Pennsylvania.
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The Trustee also serves as a custodian for IRA and KEOGH accounts which may
hold Debentures on behalf of the participant or beneficiary. An annual service
charge of $25 per account is charged by the Trustee to the holder for custodial
services in maintaining said IRA/KEOGH account.
PLAN OF DISTRIBUTION
ELCOA has entered into an Underwriting Agreement with Welco Securities,
Inc., Suite 2130, 101 West City Avenue, Bala Cynwyd, Pennsylvania 19004
(hereinafter referred to as the "Underwriter").
The Underwriter is an affilitate of ELCOA, and is wholly-owned by William
Shapiro, ELCOA's President. The principals and officers of the Underwriter,
William Shapiro and Kenneth S. Shapiro, are registered as licensed securities
principals and agents and are also officers of ELCOA. See Note 8 to the
Financial Statements. The principal business function of the Underwriter has
been to sell registered securities for Walnut and ELCOA as their agent. As a
result of the affiliations between ELCOA and the Underwriter, the Underwriting
Agreement cannot be deemed to have been negotiated at arm's length. The
offering prices of the Debentures have been arbitrarily determined by ELCOA
with the concurrence of the Underwriter and bear no direct relation to ELCOA's
assets, book value, net worth or any other established criteria of value.
Among the factors considered in such determinations were the history of and
prospects for the industry in which ELCOA competes, estimates of the business
potential of ELCOA, the present state of its development, its financial
conditions, risks associated with the leasing industry in general, interest
rates in general during the time of the offering and demand for similar
securities of comparable companies.
Under the terms of the Underwriting Agreement, ELCOA has retained the
Underwriter as its agent and the Underwriter has agreed to use its best efforts
to offer to the public on a continuous basis the Debentures described herein at
those prices specified on the cover of this Prospectus. The Underwriter has
made no commitment to purchase any of the Debentures offered herein, and will
not make any market for the Debentures. There is no minimum amount of
Debentures which must be sold in order for this offering to go forward.
No commission or other expense of the offering will be paid by any
purchaser of the Debentures offered hereunder. The Underwriter is to be paid a
commission equal to 1/15 of 1% per month for each month of the initial term of
any new fixed-term Debenture sold (ranging from 0.2% for 3-month Debentures
sold to 8.0% for 120 month Debentures), as the case may be, sold through the
Underwriter. Rollovers of Debentures at maturity are considered as new sales.
ELCOA agrees to reimburse the Underwriter for all accountable expenses and
commissions incurred in connection with the offer and sale of Debentures.
Neither William Shapiro nor Kenneth S. Shapiro receive any direct renumeration
from Welco Securities, Inc. relative to the sale of these securities, as
commissions are used by the Underwriter for expenses incurred in the
solicitation and sale of the Debentures. The Underwriter may re-allow to
certain dealers who are members of the National Association of Securities
Deales, Inc. ("NASD") and certain foreign dealers who are not eligible for
membership in the NASD, a commission of up to 0.2% to 8.0% of the principal
amount of Debentures, depending on the term of each Fixed Rate Certificate sold
by such dealers. No commissions shall be paid on account of the sale of any
Demand Certificates. After the commencement of the offering, the commissions
37
<PAGE>
<PAGE>46
and reallowances, if any, may be changed if for example, a major securities
underwriter should offer to sell a significant portion of the unsold
securities.
ELCOA will indemnify the Underwriter and all other brokers and dealers who
enter into agreements with ELCOA against certain civil liabilities, including
certain liabilities under the Securities Act of 1933, as amended.
The foregoing discussion sets forth a summary of all material provisions of
the Underwriting Agreement. For a complete description of the terms of the
Underwriting Agreement, reference is made to the Underwriting Agreement which
is filed as an exhibit to the Registration Statement, of which this Prospectus
is a part.
The Underwriter as a member of the NASD, is subject to Schedule E of the
By-laws of the NASD which deals with its participation in soliciting sales of
securities for ELCOA Schedule E requires, in part, that an outside independent
underwriter be engaged to perform due diligence and render an opinion that the
yield on the Debentures being offered through the Prospectus are no lower that
that recommended by a qualified independent underwriter. The Underwriter has
obtained an opinion dated August 24, 1993 from R.F. Lafferty & Co., Inc., an
NASD member which has participated in the preparation of the offering
documents, conducted its due diligence review of the offering, and agreed in
exchange for compensation reimbursed by ELCOA for services rendered to perform
the services described above, that the proposed offering terms of the
Debentures being offered meet this fairness objective.
LITIGATION
There are no legal proceedings or actions pending or threatened against
ELCOA or to which its property is subject.
LEGAL OPINION
The law firm of William Shapiro, Esq., P.C. of Bala Cynwyd, Pennsylvania,
has rendered an opinion that pursuant to the Indenture between ELCOA and First
Valley Bank as Trustee, and appropriate Company Orders, the Debentures, when
issued and sold pursuant to the Indenture and in the matter contemplated by the
Prospectus, will be valid and binding obligations of ELCOA.
Both William Shapiro and Kenneth S. Shapiro, officers of ELCOA and officers
and Directors of Walnut, are associated with said law firm as attorneys, of
which Mr. William Shapiro is the sole shareholder of the professional
corporation. Mr. William Shapiro is also sole shareholder, Secretary/Treasurer
and a Director of Welco Securities, Inc., the Underwriter, of which Kenneth S.
Shapiro is President and a Director.
EXPERTS
The balance sheets of Equipment Leasing Corporation of America at April 30,
1995 and 1994 and the related statements of operations, changes in
shareholder's equity and cash flows for each of the three years in the period
ended April 30, 1995 have been audited by Cogen Sklar LLP (formerly, Cogen
Sklar Levick), Independent Certified Public Accountants. The financial
38
<PAGE>
<PAGE>47
statements appearing in the Registration Statement and this Prospectus are
included in reliance on the reports of such firm and upon the authority of
such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
ELCOA has filed with Securities and Exchange Commission in Washington,
D.C. a Registration Statement under the Securities Act of 1933, as amended,
with respect to the Debentures offered by this Prospectus. This Prospectus
does not contain all of the information set forth in that Registration
Statement. For further information with respect to ELCOA and the Debentures,
reference is made to that Registration Statement and to the exhibits and
schedules filed therewith.
39
<PAGE>
<PAGE>48
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report. 41
Balance Sheets as of April 30, 1995 and 1994. 42-43
Statements of Operations for the years
ended April 30, 1995, 1994 and 1993. 44
Statement of Changes in Shareholder's Equity for the
years ended April 30, 1995, 1994 and 1993. 45
Statements of Cash Flows for the years
ended April 30, 1995 and 1994 and 1993. 46-47
Notes to Financial Statements for the fiscal years
ended April 30, 1995, 1994 and 1993 48
</TABLE>
40
<PAGE>
<PAGE>49
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholder
of Equipment Leasing Corporation of America
We have audited the accompanying balance sheets of Equipment Leasing
Corporation of America (a wholly-owned subsidiary of Walnut Equipment Leasing
Co., Inc.) as of April 30, 1995, and 1994 and the related statements of
operations, changes in shareholder's equity and cash flows for each of the
three years in the period ended April 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
The accompanying financial statements have been prepared from the separate
records maintained by Equipment Leasing Corporation of America. However,
these may not necessarily be indicative of the financial condition that would
have existed or the results of operations if the Company had been operated as
an unaffiliated entity. As discussed in Note 8 to the financial statements,
certain expenses represent allocations made from or transactions with related
parties. Further, our opinion dated July 7, 1995 on the consolidated
financial statements of Walnut Equipment Leasing Co., Inc. and subsidiaries
contained an explanatory paragraph which discussed the substantial doubt about
Walnut Equipment Leasing Co., Inc.'s ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equipment Leasing Corporation
of America as of April 30, 1995, and 1994 and the results of its operations
and its cash flows for each of the three years in the period ended April 30,
1995 in conformity with generally accepted accounting principles.
/s/ Cogen Sklar LLP
COGEN SKLAR LLP
(formerly, Cogen Sklar Levick)
Bala Cynwyd, Pennsylvania
July 7, 1995
41
<PAGE>
<PAGE>50
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
(a Wholly-Owned Subsidiary of
Walnut Equipment Leasing Co., Inc.)
BALANCE SHEETS
-----------------
<CAPTION>
As of April 30,
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Direct finance leases:
Aggregate future amounts
receivable under lease
contracts $17,267,612 $17,966,429
Estimated residual value
of equipment 1,831,613 1,905,976
Less:
Unearned income under
lease contracts ( 3,172,713) ( 3,413,082)
----------- -----------
15,926,512 16,459,323
Advance payments ( 528,314) ( 498,884)
----------- -----------
15,398,198 15,960,439
Allowance for doubtful
lease receivables ( 974,667) ( 1,001,880)
----------- -----------
14,423,531 14,958,559
Due from parent 3,991,986 2,500,816
Cash and cash equivalents 8,908,798 7,587,864
Other assets(includes $331,180 and
$341,601 paid to related parties) 423,511 438,150
----------- -----------
TOTAL ASSETS $27,747,826 $25,485,389
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
42
<PAGE>
<PAGE>51
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
(a Wholly-Owned Subsidiary of
Walnut Equipment Leasing Co., Inc.)
BALANCE SHEETS - (continued)
-----------------
<CAPTION>
As of April 30,
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES
Amounts payable to
equipment suppliers $ 8,749 $ 8,749
Accrued expenses and
security deposits 63,888 90,708
State income taxes payable 8,401 8,401
Demand, Fixed Rate, and
Money Market Thrift
Certificates(includes $181,266
and $167,617 held by
related parties) 24,521,875 21,810,991
Accrued interest payable 2,326,708 2,094,330
----------- -----------
26,929,621 24,013,179
SHAREHOLDER'S EQUITY
Common Stock $1 par value,
1,000 shares authorized,
issued and outstanding 1,000 1,000
Additional paid - in capital 999,000 999,000
Retained earnings (Deficit) ( 181,795) 472,210
----------- -----------
818,205 1,472,210
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $27,747,826 $25,485,389
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
43
<PAGE>
<PAGE>52
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
(A Wholly-Owned Subsidiary of
Walnut Equipment Leasing Co., Inc.)
STATEMENTS OF OPERATIONS
--------------------------------
<CAPTION>
For the Years Ended April 30,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Income earned under
direct finance lease
contracts $2,945,151 $3,009,864 $3,057,645
---------- ---------- ----------
Costs and expenses:
Interest expense, net of
interest income of $741,671,
$374,025 and $253,967,
respectively 1,314,491 1,563,038 1,320,546
General and administrative
expenses (includes
$946,465, $934,695 and $896,864,
respectively, paid to related
parties) 1,054,460 1,031,825 1,011,186
Provision for doubtful
lease receivables 1,229,845 707,162 566,570
---------- ---------- ----------
Total costs and expenses 3,598,796 3,302,025 2,898,302
---------- ---------- ----------
Income (loss) before provision
for state income taxes (653,645) (292,161) 159,343
Provision for state income taxes 360 --- 928
---------- ---------- ----------
Net income (Loss) ($ 654,005) ($ 292,161) $ 158,415
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
44
<PAGE>
<PAGE>53
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
(A Wholly-Owned Subsidiary of
Walnut Equipment Leasing Co., Inc.)
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<CAPTION>
Common Stock
($1.00 Par Value)
1,000 shares
Authorized Additional Total
No. of shares Paid-In Retained Shareholder's
Issued Amount Capital Earnings Equity
---------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
April 30,
1992 1,000 $1,000 $999,000 $1,205,956 $2,205,956
Net Income for
the year ended
April 30, 1993 --- --- --- 158,415 158,415
Cash Distributions
Paid on Common
Stock --- --- --- (600,000) (600,000)
----- ------ -------- ----------- ----------
Balance,
April 30,
1993 1,000 1,000 999,000 764,371 1,764,371
Loss for the
year ended
April 30, 1994 --- --- --- (292,161) (292,161)
----- ------ -------- --------- ---------
Balance,
April 30,
1994 1,000 1,000 999,000 472,210 1,472,210
Loss for
the year ended
April 30, 1995 --- --- --- (654,005) (654,005)
------ ------ -------- --------- ---------
Balance,
April 30,
1995 1,000 $1,000 $999,000 ($181,795) $818,205
===== ====== ======== ========== ========
</TABLE>
SEE ACCOMPANYING NOTES
45
<PAGE>
<PAGE>54
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
STATEMENTS OF CASH FLOWS
-------------------
<CAPTION>
For the Years Ended April 30,
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) ($654,005) ($292,161) $ 158,415
Adjustments to reconcile
net income (loss) to net cash
provided by operating activites:
Depreciation --- --- 51
Amortization of
deferred debt expenses 247,561 188,209 185,138
Provision for doubtful
lease receivables 1,229,845 707,162 566,570
Effects of Changes
in other operating items:
Accrued expenses (26,820) (22,691) 40,223
Accrued interest 232,378 422,646 494,348
Other assets (net) (232,922) (252,895) (191,175)
---------- ----------- -----------
Net cash provided by
operating activities 796,037 750,270 1,253,570
---------- ----------- -----------
INVESTING ACTIVITIES
Excess of cash received
over lease income recorded 6,447,111 6,207,106 5,083,786
Increase in
advance payments 179,692 119,765 119,872
Purchase of equipment
for direct finance leases (7,321,620) (6,680,452) (8,212,927)
---------- ----------- -----------
Net cash used in
investing activities (694,817) (353,581) (3,009,269)
---------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
46
<PAGE>
<PAGE>55
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
STATEMENTS OF CASH FLOWS - (continued)
-------------------
<CAPTION>
For the Years Ended April 30,
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance
of Demand and Fixed Rate
Certificates 10,983,417 9,267,808 9,350,863
Net Proceeds (repayments) from
borrowings from Walnut (1,491,170) (840,810) 280,367
Redemption of Demand, Fixed
Rate, and Money Market
Thrift Certificates (8,272,533) (5,498,321) (4,177,037)
Distributions Paid on
Common Stock --- --- (600,000)
Net cash provided by ---------- ---------- -----------
financing activities 1,219,714 2,928,677 4,054,193
---------- ---------- -----------
Increase (Decrease) in
Cash and Cash Equivalents 1,320,934 3,325,366 3,098,494
Cash and Cash Equivalents,
Beginning of Year 7,587,864 4,262,498 1,164,004
Cash and Cash Equivalents, ---------- ---------- -----------
End of Year $8,908,798 $7,587,864 $ 4,262,498
========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES
47
<PAGE>
<PAGE>56
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION:
Equipment Leasing Corporation of America ("ELCOA") was incorporated as a
Delaware corporation on May 6, 1986 and commenced operations on May 23, 1986.
ELCOA is a wholly-owned subsidiary of Walnut Equipment Leasing Co., Inc.
("WALNUT"), a Delaware corporation. ELCOA was formed primarily to purchase
general commercial equipment for lease, utilizing the proceeds of sale of
certain debentures referred to as "Demand, Fixed Rate, or Money Market Thrift
Certificates." See Note 6.
LEASE ACCOUNTING:
ELCOA is in the business of leasing commercial equipment which is
specifically acquired for each lease. For financial reporting purposes, ELCOA
primarily uses the direct financing method and records at the inception of the
lease (a) the estimated unguaranteed residual value of the leased equipment
and the aggregate amount of rentals due under the lease as the gross
investment in the lease and (b) the unearned income arising from the lease,
represented by the excess of (a) over the cost of the leased equipment. The
unearned income is recognized as income over the term of the lease on the
effective (or interest) method in accordance with the requirements of
Statement of Financial Accounting Standards No. 91 "Accounting for Non
Refundable Fees and Costs Associated with Originating or Acquiring Loans and
Initial Direct Costs of Leases" ("SFAS 91"). In addition, under this method
a portion of the initial direct costs as defined by SFAS 91 ($281,531,
$256,940 and $308,077 for the years ended April 30, 1995, 1994 and 1993
respectively) are accounted for as part of the Investment in Direct Financing
Leases. These expenses increased to 4% of the original equipment cost
subsequent to May 1, 1992, but were 3% prior and subsequent thereto through
May 31, 1992. The rate was adjusted to account for the calculation of initial
direct costs under SFAS 91. Unearned income is earned and initial direct
costs are amortized to reduce income using the effective method over the terms
of each respective lease.
ESTIMATED RESIDUAL VALUES OF EQUIPMENT UNDER DIRECT FINANCE LEASES:
ELCOA generally offers an option to purchase the leased equipment upon
expiration of the lease term at its then fair market value (usually not less
than 10% of the original equipment cost). Residual value of this equipment is
generally established at the purchase option price offered.
ALLOWANCE FOR DOUBTFUL LEASE RECEIVABLES:
An allowance for doubtful direct finance lease receivables is maintained
at a level considered adequate to provide for estimated losses that will be
incurred in the collection of delinquent lease receivables. The allowance is
increased by provisions charged to operating expense and reduced by
charge-offs based upon a periodic evaluation, performed at least quarterly, of
delinquent finance lease receivables. Charge-offs totaled $1,257,058,
$496,088 and $348,916 for the years ended April 30, 1995, 1994 and 1993,
respectively.
48
<PAGE>
<PAGE>57
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
INCOME TAXES:
ELCOA computes and records income taxes currently payable based upon the
determination of taxable income using the "operating method" for all leases,
which is different from the method used for financial statement purposes (as
described above). Under the "operating method", ELCOA reports as income the
amount of rentals received and deducts the appropriate amount of depreciation
of the equipment over its estimated useful life.
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS 109), which
require an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
The net deferred tax asset as of April 30, 1995 and 1994 includes deferred
tax assets (liabilities) attributable to the following temporary deductible
(taxable) differences:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Operating lease method vs.
direct financing method $1,576,000 $1,507,000
Provisions for doubtful
lease receivables 341,000 391,000
Other (34,000) (25,000)
---------- ----------
Net deferred tax asset 1,883,000 1,873,000
Valuation allowance (1,883,000) (1,873,000)
---------- ----------
Net deferred tax asset
after valuation allowance $ --- $ ---
========== ==========
</TABLE>
A valuation allowance was considered necessary since it is more likely
than not that the Company will not realize the tax benefits of the deductible
differences. There was no cumulative effect on income for prior years upon
the adoption of SFAS 109, for the year ended April 30, 1994 since there was no
existing deferred tax asset as of May 1, 1993.
49
<PAGE>
<PAGE>58
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO. INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
The Company will be included in the consolidated federal income tax return
of its parent, Walnut Equipment Leasing Co., Inc.. Based on a tax allocation
agreement, current federal taxes otherwise refundable (payable) under a
separate company computation will be received from (paid to) its parent.
For the fiscal years ended April 30, 1995 and 1994, there was no provision
for either current or deferred federal income taxes.
CASH FLOW STATEMENTS:
The Company considers cash invested in short-term, highly liquid
investments with original maturities of three months or less to be cash
equivalents. At April 30, 1995, cash equivalents consisting of U.S.
Government Securities amounted to $6,349,693. The Company had no cash
equivalents at April 30, 1994. Amounts paid for interest for the fiscal years
ended April 30, 1995, 1994 and 1993 were $1,898,734, $1,549,217, and
$1,113,348, respectively. Amounts paid for income taxes for the fiscal years
ended April 30, 1995, 1994, and 1993 were $0, $411, and $4,194, respectively.
CONCENTRATION OF CREDIT RISK:
The concentration of credit risk is limited since the Company's small
ticket lease portfolio varies widely as to the diversity of equipment types,
lessees, and geographic location.
2. AGGREGATE FUTURE AMOUNTS RECEIVABLE UNDER LEASE CONTRACTS:
Receivables under direct finance lease contracts at April 30, 1995 are due as
follows:
<TABLE>
<CAPTION>
Years ending
April 30, Amount
------------ -----------
<S> <C>
1996 $ 9,420,395
1997 5,072,886
1998 2,164,555
1999 456,460
2000 & beyond 153,316
-----------
$17,267,612
===========
</TABLE>
3. OTHER ASSETS AND LIABILITIES:
Other assets of $423,511 and $438,150 at April 30, 1995 and 1994,
respectively, include $423,223 and $437,812 in deferred expenses, net of
50
<PAGE>
<PAGE>59
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
NOTES TO FINANCIAL STATEMENTS
3. OTHER ASSETS AND LIABILITIES: (Continued)
amortization, representing costs directly related to ELCOA's registration and
sale of Demand, Fixed Rate, and Money Market Thrift Certificates. Such
expenses are being amortized on a straight-line basis over the estimated
average lives of the debt issued, and to be issued under the registration
statement. Amortization of deferred expenses charged to income during the
years ended April 30, 1995, 1994 and 1993, were $247,561, $188,209, and
$185,138, respectively, which includes commissions paid for sale of these
certificates.
4. AMOUNTS PAYABLE TO EQUIPMENT SUPPLIERS
Amounts payable to equipment suppliers in the amount of $8,749 as of April
30, 1995 and 1994 represents holdbacks from suppliers of equipment as
additional security for performance by the underlying lessee on the related
lease contract, and are payable at the termination of the contracts based upon
the lessee's compliance with terms of the lease contract.
5. INCOME TAXES
ELCOA will file a consolidated Federal income tax return with its parent,
Walnut. ELCOA has made no provision for Federal income tax expense for the
years ended April 30, 1995, 1994 and 1993 due to the benefit of Walnut's net
operating loss carryforwards.
ELCOA has provided for $360, $0 and $928 in state income tax expense for
the fiscal years ended April 30, 1995, 1994, and 1993, respectively.
6. DEMAND, FIXED RATE, AND MONEY MARKET THRIFT CERTIFICATES
The Demand, Fixed Rate, and Money Market Thrift Certificates outstanding at
April 30, 1995 bear interest at rates ranging from 7.0% to 12.75%, and are due
as follows:
<TABLE>
<CAPTION>
Years ending
April 30, Amount
------------ -----------
<S> <C>
1996 $14,697,989
1997 3,138,288
1998 1,146,431
1999 2,156,743
2000 & beyond 3,382,424
-----------
$24,521,875
===========
</TABLE>
Included in the amounts due in the year ended April 30, 1996 are $2,135,337
of certificates payable on demand. The accrued interest of $2,326,708 at April
30, 1995 is payable upon demand.
51
<PAGE>
<PAGE>60
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
NOTES TO FINANCIAL STATEMENTS
7. CAPITALIZATION
On May 23, 1986, ELCOA issued all of its authorized shares of common stock
(1,000 shares, $1.00 par value per share) in exchange for certain lease assets
from Walnut. These shares are fully paid and nonassessable. ELCOA has also
authorized the issuance of 50,000 shares of preferred stock, $1.00 par value.
At April 30, 1995, no shares of preferred stock have been issued.
8. TRANSACTIONS WITH RELATED PARTIES
Welco Securities, Inc. ("Welco"), a registered broker/dealer and affiliate
of ELCOA, has been engaged as underwriter to sell certain debt securities to
the public. Under the terms of the agreement with Welco, ELCOA pays a
commission to Welco of between 0.2% and 8.0% of the sale price of securities
sold by Welco on ELCOA's behalf, depending upon the term of each cerificate
sold. ELCOA also reimburses Welco for its out-of-pocket costs associated with
the offering of these securities. ELCOA amortizes the commissions paid to
Welco over the term of the certificates. Reimbursements for costs and
commissions paid to Welco for the years ended April 30, 1995, 1994 and 1993,
were $170,642, $165,581, and $143,611, respectively.
Outstanding Demand, Fixed Rate, and Money Market Thrift Certificates held
by the President, members of his family or companies in which he is the
majority shareholder were $181,266 and $167,617 at April 30, 1995 and 1994,
respectively.
During the fiscal year ended April 30, 1993, ELCOA's Board of Directors
authorized and paid cash distributions to Walnut aggregating $600,000 in the
form of a common stock dividend.
Walnut, ELCOA's parent, has been engaged to perform certain lease
origination functions (i.e. marketing, credit investigation, and documentation
processing) on behalf of ELCOA, for which it will be paid an amount equal to
four percent (4%) of the gross equipment purchased by ELCOA for lease. During
the period from March 1, 1992 through May 31, 1992, these costs were 3% of the
equipment cost. See Footnote 1 to the Financial Statements. During the fiscal
years ended April 30, 1995, 1994, and 1993 these origination costs totaled
$281,531, $256,940 and $308,077, respectively, which includes reimbursement for
commissions paid to outside lease brokers. During the years ended April 30,
1995, 1994, and 1993, these costs were capitalized in accordance with SFAS No.
91. In addition, Walnut receives $6.50 per month per outstanding lease for
performing certain administrative functions for ELCOA, mainly, invoicing of
monthly rentals, collection of lease receivables and residual values,
management guidance, personnel, financing, and the furnishing of office and
computer facilities. Walnut also retains any late charges assessed delinquent
lessees as reimbursement for the legal costs of collection. ELCOA also pays
Walnut $500 per week for routine bookkeeping functions performed on ELCOA's
behalf. Servicing fees and bookeeping charges paid Walnut for the years ended
April 30, 1995, 1994 and 1993, were $676,228, $704,522 and $654,732,
52
<PAGE>
<PAGE>61
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
NOTES TO FINANCIAL STATEMENTS
8. TRANSACTIONS WITH RELATED PARTIES: (Continued)
respectively. As of April 30, 1995, the amount due ELCOA by Walnut of
$3,991,986 represents funds previously advanced mainly intended for the
purchase of equipment for lease subsequent to April 30, 1995. Commencing
January 1, 1991, Walnut agreed to pay interest on these outstanding advances,
at the prime rate of interest plus 2%, which amounted to $365,438, $207,231 and
$197,807 for the fiscal years ended April 30, 1995, 1994 and 1993,
respectively.
The independent auditor's reports for Walnut for each of the three years in
the period ended April 30, 1995 contain an explanatory paragraph. Walnut has
suffered recurring losses from operations and has a shareholder's deficit that
raise substantial doubt about that entity's ability to continue as a going
concern. Walnut's financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
A law firm owned by the beneficial owner of ELCOA has been engaged to
collect overdue delinquent receivables 90 days or longer in arrears, on a
contingency basis. No expenses were incurred by ELCOA during the fiscal years
ended April 30, 1995, 1994, and 1993. Walnut retained late charges in the
approximate amounts of $390,000, $368,000 and $274,000, for the three fiscal
years ended April 30, 1995, 1994 and 1993, respectively, to offset Walnut's
collection and litigation costs paid or incurred on ELCOA's behalf.
Financial Data, Inc., a registered transfer agent and affiliate of ELCOA,
performs all transfer agent duties and disburses all interest payments on
behalf of ELCOA. Financial Data, Inc., is paid monthly, pursuant to its
agreement with ELCOA, an amount equal to $2.00 per certificate holder per
month, along with $1.00 per each certificate issued or redeemed during the
month, or a minimum monthly charge of $1,000, whichever is greater. Prior to
January 1, 1994, the charges were $2.50 monthly per account, and $2.00 per
certificate issued or redeemed. For the years ended April 30, 1995, 1994 and
1993, these expenses totaled $99,595, $105,334, and $116,994, respectively.
53
<PAGE>
<PAGE>62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
Estimated expenses of the offering are as follows:
<CAPTION>
<S> <C>
Registration fee........................................... $ 12,187.50
NASD Filing fee............................................ 4,400.00
Accounting................................................. 42,000.00
Legal...................................................... 18,000.00
Printing................................................... 42,000.00
State Blue Sky Registration Fees
and Costs (including counsel fees)....................... 52,000.00
Authentication and Delivery of Certificates and Expenses... 4,000.00
Miscellaneous Expenses*.................................... 45,412.50
-----------
Total $220,000.00
===========
<FN>
* Includes outside independent underwriter fees of $25,000.00 and
postage of $20,412.50.
</TABLE>
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation of Law of Delaware provides that a
corporation shall have the power to indemnify any director, officer, employee
or agent of the Company who acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company
("Registrant"). No idemnification shall be made, however, in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the court shall determine such
person is fairly and reasonably entitled to indemnity.
Article IX of Registrant's By-Laws provides for idemnification by the
Registrant of all persons whom it may indemnify pursuant to said Section 145 as
amended from time to time. The Company has so agreed to indemnify its officers
and directors.
Reference is made to Item 17 of this Registration Statement for additional
information regarding the indemnification of officers and directors.
ELCOA's Certificate of Incorporation adopted a provision of the Delaware
General Corporation Law which provides that a director of a corporation will
not be personally liable to the corporation or its shareholders for monetary
damages for breach of the fiduciary duty of care as a director, including
breaches which constitute gross negligence. However, this provision does not
eliminate or limit the liability of a director of a corporation (i) for breach
of the director's duty of loyalty to the corporation or its shareholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law (relating to unlawful payments of dividends or unlawful stock
repurchases or redemptions), (iv) for any personal benefit derived or (v) for
breaches of a director's responsibilities under the federal securities laws.
54
<PAGE>
<PAGE>63
ITEM 16 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
1.1 - Form of Underwriting Agreement, to be entered into between Equipment
Leasing Corporation of America and Welco Securities, Inc. (Filed
July 9, 1993).
1.2 - Form of Selected Dealer's Agreement. (Filed July 9, 1993).
1.3 - Pricing Opinion of R.F. Lafferty & Co., Inc. dated August 24, 1993
to Welco Securities, Inc. (Filed August 25, 1993).
1.4 - Agreement to Act as Qualified Independent Underwriter, Inc. with
R.F. Lafferty & Co., Inc., dated August 24, 1993.
(Filed August 25, 1993).
2.1 - Agreement regarding Purchase of Equipment and Related Leases from
Walnut Equipment Leasing Co., Inc. in exchange for common stock,
Incorporated by reference to Exhibit 2.1 to Registrant's
Registration Statement on Form S-1 (File No. 33-6259; Filed June 6,
1986.)
3.1 - Articles of Incorporation of the Registrant. Incorporated by
Reference to Exhibit 3.1 to Registrant's Registration Statement on
Form S-1 (File No. 33-6259; Filed June 6, 1988)
3.2 - By-Laws of the Registrant. Incorporated by Reference to Exhibit 3.2
to Registrant's Registration Statement on Form S-1 (File No.
33-6259; Filed June 6, 1986).
4.1 - Specimen of Variable Rate Money Market Demand Thrift Certificates.
Incorporated by Reference to Exhibit 4.1 to Registrant's
Registration Statement on Form S-1 (File No. 33-6259; Filed
September 26, 1986).
4.2 - Specimen of Fixed Term Money Market Thrift Certificates.
Incorporated by Reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-1 (File No. 33-6259; Filed
September 26, 1986).
4.3 - Trust Indenture dated as of August 5, 1986 between Registrant and
First Valley Bank, Trustee. Incorporated by Reference to Exhibit
4.3 to Registrant's Registration Statement on Form S-1 (File No.
33-6259; Filed August 8, 1986).
4.4 - First Supplemental Trust Indenture dated as of September 19, 1986
between Registrant and First Valley Bank, Trustee. Incorporated by
Reference to Exhibit 4.6 to Registrant's Registration Statment on
Form S-1 (File No. 33-6259; Filed September 26, 1986).
4.5 - Second Supplemental Trust Indenture dated as of September 20, 1988
between Registrant and First Valley Bank, Trustee, incorporated
reference to Exhibit 4.5 to Registrant's Registration Statement on
Form S-1 (File No. 33-23211; Filed July 21, 1988.)
55
<PAGE>
<PAGE>64
4.6 - Specimen of Variable Rate Money Market Demand Thrift Certificates,
incorporated by reference to Exhibit 4.6 Registrant's Registration
Statement on Form S-1 (File No. 33-23211; Filed July 21, 1988.)
4.7 - Specimen of Fixed Term Money Market Thrift Certificates,
incorporated by reference to Exhibit 4.7 to Registrant's
Registration Statement on Form S-11 (File No. 33-23211;Filed July
21, 1988.)
4.8 - Third Supplemental Trust Indenture dated as of September 13, 1989
between Registrant and First Valley Bank, Bethlehem, Pennsylvania,
as Trustee. (File No. 33-29703; Filed July 10, 1989.)
4.9 - Specimen of Variable Rate Demand Money Market Thrift
Certificate.(File No. 33-29703; Filed July 10, 1989.)
4.10 - Specimen of Fixed Term Money Market Thrift Certificate. (File No.
33-29703; Filed July 10, 1989.)
4.11 - Fourth Supplemental Trust Indenture dated as of August 17, 1990
between Registrant and First Valley Bank, Bethlehem, Pennsylvania,
as Trustee. (Filed July 3, 1990).
4.12 - Specimen of Demand Certificate (Filed July 3, 1990).
4.13 - Specimen of Fixed Rate Certificate (Filed July 3, 1990).
4.14 - Fifth Supplemental Trust Indenture dated as of August 18, 1993
between Registrant and First Valley Bank, Bethlehem, Pennsylvania as
Trustee. (Filed August 25, 1993).
4.15 - Form of Specimen of Demand Certificate. (Filed July 9, 1993).
4.16 - Form of Specimen of Fixed Rate Certificate. (Filed July 9, 1993).
5.1 - Opinion of Counsel re: legality of issuance of Certificates. (Filed
August 25, 1993).
10.1 - Specimen equipment lease agreement. Incorporated by reference to
Exhibit 10.1 to Registrant's Registration Statement on Form S-1
(File No. 33-6259; Filed June 6, 1986).
10.2 - Specimen Certificate of Acceptance from lessee to Registrant.
Incorporated by reference to Exhibit 10.2 to Registrant's
Registration Statement on Form S-1 (File No. 33-6259; Filed June 6,
1986).
10.3 - Specimen form of lessee guarantee. Incorporated by reference to
Exhibit 10.3 to Registrant's Registration Statement on Form S-1
(File No. 33-6259; Filed June 6, 1986).
10.4 - Specimen form of bill of sale, and assignment for certain equipment
and leases to be purchased by Registrant. Incorporated by reference
to Exhibit 10.4 to Registrant's Registration Statement on Form S-1
(File No. 33-6259; Filed June 6, 1986).
56
<PAGE>
<PAGE>65
10.5 - Service Contract dated May 23, 1986 between Walnut Equipment Leasing
Co., Inc. and Registrant. Incorporated by Reference to Exhibit 10.5
to Registrant's Registration Statement on Form S-1 (File No.
33-6259; Filed June 6, 1986).
10.6 - Escrow agreement between Registrant and Walnut Equipment Leasing
Co., Inc. re: right of first refusal for future purchases of
equipment and related leases. Incorporated by reference to Exhibit
10.6 to Registrant's Registration Statement on Form S-1 (File No.
33-6259; Filed June 6, 1986)
10.7 - Option agreement between Registrant and Walnut Equipment Leasing
Co., Inc. re: Right of First Refusal for future purchases of
equipment and related leases. Incorporated by reference to Exhibit
10.8 to Registrant's Registration Statement on Form S-1 (File No.
33-6259; Filed June 6, 1986)
*12.1 - Statement re: Computation of Ratios.
13.1 - Form 10-K for the Fiscal Year ended April 30, 1995. (Filed July 28,
1995)
24.1 - Consent of William Shapiro, Esq., P.C. is filed with their opinion
as Exhibit 5.1, hereof. (Filed August 25, 1993).
*24.2 - Consent of Cogen Sklar, LLP (formerly, Cogen Sklar Levick),
Independent Certified Public Accountants.
24.3 - The consent of R.F. Lafferty & Co., Inc. is filed with their opinion
as Exhibit 1.5, hereof. (Filed August 25, 1993).
26.1 - Statement of Eligibility and Qualification of First Valley Bank as
Trustee under an Indenture to be Qualified under the Trust Indenture
Act of 1939. (Filed as Form T-1, File No. 22-24750). (Filed July 9,
1993).
27.1 - Financial Data Schedule. See Exhibit 27.1 to Form 10-K filed July
28, 1995.
* Filed with this Post-Effective Amendment Number 3 to Form S-2.
57
<PAGE>
<PAGE>66
ITEM 17 - UNDERTAKING
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by Section 10 (a) (3) of the
Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in this Registration Statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona-fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered hereby which remain unsold at the
termination of the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securites offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona-fide
offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provision, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is aganist
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
58
<PAGE>
<PAGE>67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Township of Lower Merion, County
of Montgomery, Commonwealth of Pennsylvania on the 28th day of July, 1995.
EQUIPMENT LEASING CORPORATION OF AMERICA
By: /s/ William Shapiro
--------------------------
William Shapiro, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
President,
Chief Executive
/s/ William Shapiro Financial and
- -------------------------- Accounting Officer July 28, 1995
William Shapiro
/s/ Kenneth S. Shapiro
- --------------------------
Kenneth S. Shapiro Vice-President July 28, 1995
/s/ Lester D. Shapiro
- --------------------------
Lester D. Shapiro Secretary, Treasurer
and Director July 28, 1995
/s/ Nathan Tattar
- --------------------------
Nathan Tattar Director July 28, 1995
/s/ John B. Orr
- --------------------------
John B. Orr Director July 28, 1995
/s/ Adam Varrenti, Jr.
- --------------------------
Adam Varrenti, Jr. Director July 28, 1995
59
<PAGE>
<PAGE>68
As filed with the Securities and Exchange Commission on August 2, 1995
Registration No. 33-65814
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT
NUMBER 3 TO FORM S-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
---------------
EQUIPMENT LEASING CORPORATION OF AMERICA
(Exact Name of registrant as specified in its charter)
DELAWARE 23-2408914
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
WILLIAM SHAPIRO, PRESIDENT
EQUIPMENT LEASING CORPORATION OF AMERICA
SUITE 76 SUITE 76
SILVERSIDE-CARR EXECUTIVE CENTER SILVERSIDE-CARR EXECUTIVE CENTER
501 SILVERSIDE ROAD 501 SILVERSIDE ROAD
WILMINGTON, DE 19809 WILMINGTON, DE 19809
(302) - 798 - 2335 (302) - 798 - 2335
(Address, including zip code, (Name, address, including zip
and telephone number, including code, and telephone number,
area code, of registration's including area code of agent for Service)
principal executive offices)
COPY OF COMMUNICATIONS TO:
William Shapiro, Esq., P.C. Kenneth S. Shapiro, President
Suite 2146 Welco Securities, Inc.
101 West City Avenue 101 West City Avenue
Bala Cynwyd, Pennsylvania 19004 Bala Cynwyd, Pennsylvania 19004
(610) - 668 - 0707 (610) - 668 - 0709
Toll Free: 1-800-695-1470
EXHIBIT VOLUME
<PAGE>
<PAGE>69
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
Exhibit Index
Post-Effective Amendment Number 3 To
Form S-2
<CAPTION>
Exhibit Sequential Page
Number Description Number
- ------- ------------------------------------ ---------------
<S> <C> <C>
12.1 Statement re: Computation of Ratios 70
24.2 Consent of Cogen Sklar Levick, LLP
(formerly Cogen Sklar Levick),
Independent Certified Public Accountants 71
</TABLE>
<PAGE>70
<TABLE>
Exhibit 12.1
Equipment Leasing Corporation of America
Statement re: Computation of Ratios
<CAPTION>
Fiscal Years Ended April 30,
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rent Expense $ 3,899 $ 3,804 $ 3,754 $ 3,737 $ 4,289
x.30 (A) x.3 x.3 x.3 x.3 x.3
---------- ---------- ---------- ---------- ----------
Assumed Fixed Charges
Included in Rent Expense 1,170 1,141 1,126 1,121 1,287
Preferred Dividend
Requirements --- --- --- --- ---
Interest Expense (B) 1,380,989 1,626,408 1,380,546 1,060,579 824,241
---------- ---------- ---------- ---------- ----------
Total Fixed Charges 1,382,159 1,627,549 1,381,672 1,061,700 825,528
Plus: Pre-Tax Income (Loss) (654,005) (292,161) 158,415 338,355 227,286
----------- ---------- ---------- ---------- ----------
Pre-Tax Income, (Loss) Plus
Fixed Charges $ 728,154 $1,335,388 $1,540,087 $1,400,055 $1,052,814
Pre-Tax Income (Loss) Plus ----------- ---------- ---------- ---------- ----------
Fixed Charges divided
by Fixed Charges (rounded) .53 .82 1.11 1.32 1.28
<FN>
(A) Assumed percentage of interest included in rental expense.
(B) ELCOA's amortization of deferred registration costs related to its offer and sale of Demand, Fixed Rate, and Money
Market Thrift Certificates are also included in the amounts of $66,498, $63,370, $60,000, $52,411, and $44,136 for the
fiscal years ended April 30, 1995, 1994, 1993, 1992, and 1991, respectively.
</TABLE>
<PAGE>71
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "EXPERTS" and to the
use of our reports dated July 7, 1995 in Post-Effective Amendment Number 3 to
Form S-2 and related Prospectus of Equipment Leasing Corporation of America
for the registration of Certificates.
/s/ Cogen Sklar LLP
COGEN SKLAR LLP
(Formerly, Cogen Sklar Levick)
Bala Cynwyd, Pennsylvania
August 1, 1995
