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As filed with the Securities and Exchange Commission on April 15, 1996
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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)
SUITE 76 WILLIAM SHAPIRO, ESQ., P.C.
SILVERSIDE-CARR EXECUTIVE CENTER SUITE 202
501 SILVERSIDE ROAD ONE BELMONT AVENUE
WILMINGTON, DE 19809 BALA CYNWYD, PA 19004
(302) - 798 - 2335 (610) 668-0707
(Address, including zip code, (Name, address, including zip
and telephone number, including code, and telephone number,
area code, of registrant'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 202 Welco Securities, Inc.
One Belmont Avenue One Belmont Avenue, Suite 105
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, pursuant to Item
11(a)(1) of this form, check the following box / /.
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act check the following box and list the Securities Act
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
CALCULATION OF REGISTRATION FEE
Proposed
maximum
Title of each of Proposed maximum aggregate Amount of
securities to be Amount to be offering price offering registration
registered registered per unit (1) price (1) fee
- ---------------- ------------ ----------------- --------- ------------
Demand and Fixed
Rate Thrift
Certificates $50,000,000 $100-$25,000 $50,000,000 $17,241.38
(1) Estimated solely for the purpose of determining the registration fee.
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, 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,
Financial Statements, Selected Financial Data, Management's Discussion and
Analysis 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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SUBJECT TO COMPLETION, DATED APRIL 15, 1996
EQUIPMENT LEASING CORPORATION OF AMERICA
$50,000,000 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"). 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 April xx, 1996 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" and "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".
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
proprietary interest in ELCOA. See "DESCRIPTION OF SECURITIES - DEBENTURES".
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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
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>
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Underwriter Proceeds
Price to Public Discounts and to
Commissions ELCOA (2)
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<S> <C> <C> <C>
Per Debenture... 100% (1) (3)
Total........... $50,000,000 (1) (3)
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</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
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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 J.E. Liss & Company, Inc., a
qualified independent underwriter pursuant to Schedule E of the NASD By-laws,
has been obtained by Welco. See "PLAN OF DISTRIBUTION".
(2) Before deducting expenses estimated at approximately $95,000.
(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 April , 1996.
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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).
(b) Quarterly Report on Form 10-Q for the nine month period ended January
31, 1996 (Filed March 14, 1996). See pages 6, 27 through 28, and
pages 57 through 65 of this Prospectus.
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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 Management.........................
The Company.................. 131
The Offering................. 1 Directors and
Selected Financial Data...... 6 Executive Officers..........
Risk Factors..................... 7 31
General...................... 7 Executive Compensation.........
Relative to Debentures.......11 33
Use of Proceeds..................13 Description of Securities..........
Business.........................13 33
Description of Lease General........................
Portfolio....................14 34
Nature of Leases and Tax Withholding................
Marketing....................15 35
Lease Origination and
Administration...............17 Redemption.................36
Option Agreement.............17
Servicing Agreement..........17 Company Election...........36
Credit Policy and
Delinquencies................18 Holder's Election..........36
Bookkeeping and Data Limitations on Redemptions.....
Processing...................21 37
Method of Financing..........22 Automatic Extension............
Employees....................23 37
Competition..................23 Right to Request Early Payment.
Federal Income Tax 37
Considerations...............23 Option to Receive Compound
Management's Discussion and
Analysis of Financial Interest...................38
Condition and Results of Interest 6-Month United States
Operations...................24
Principal Shareholder............31 Treasury Bill Rate.........38
Restrictions on Merger.........
39
</TABLE> Modification of the Indenture..
39
Covenant as to Repair..........
40
Events of Default..............
40
Transactions with the
Trustee....................40
Plan of Distribution...............
40
Litigation.........................
42
Legal Opinion......................
42
Experts............................
42
Additional Information.............
42
Index to Financial
Statements.....................
43
Financial Statements...............
44
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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" 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
1
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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 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
2
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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
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
3
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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".
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. 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;
4
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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.
Trustee. . . . . . . . . . The Certificates are to be issued under the
terms of a sixth supplemental indenture
dated as of April xx, 1996 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, fourth supplemental
indenture dated as of August 17, 1990, and
fifth supplemental indenture dated as of
August 18, 1993 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."
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
(audited), and for the nine months ended January 31, 1996 and 1995 (which have not been audited). 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, Nine Months Ended January 31,
1995 1994 1993 1992 1991 1996 1995
- ------------------------------------------------------------------------ <S><C><C><C><C>
<C><C><C>
Operating Revenues $2,945,151 $3,009,864 $3,057,645 $2,398,169 $1,675,346 $ 1,977,590 $ 2,202,991
Net Income (Loss) (654,005) (292,161) 158,415 335,318 225,783 (314,087) (209,383)
Total Assets 27,747,826 25,485,389 21,608,519 16,344,973 11,456,971 29,858,114 27,278,125
Demand, Fixed Rate and Money
Market Thrift Certificates
Outstanding 24,521,875 21,810,991 18,041,504 12,867,678 8,777,787 26,494,498 23,596,406
Shareholder's Equity 818,205 1,472,210 1,764,371 2,205,956 1,870,638 504,118 1,262,827
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. For the nine months ended January 31, 1996 and 1995, the ratio of
earnings to fix charges were less than "1" due to the net loss of $314,087 and $209,383, respectively.
6
</TABLE>
<PAGE>
<PAGE>16
RISK FACTORS
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. The ability of the Company to repay
purchasers of the Debentures is dependent upon achieving a level of profitable
operations. 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.
7
<PAGE>
<PAGE>17
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
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
8
<PAGE>
<PAGE>18
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 13 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 occurring, of which there can be no
assurances given.
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 ASSOCIATED WITH ELCOA'S EQUIPMENT LEASING BUSINESS
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. Repayment of interest and
principal on the Debenture is dependent on ELCOA's ability to collect the
balances due on its outstanding lease receivables. 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.
5. RISKS ASSOCIATED WITH PAST DUE LEASE RECEIVABLES
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
9
<PAGE>
<PAGE>19
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, the percentage of net charge-offs to average gross lease
receivables was 7.1%. Management attributes this increase in relation to
prior fiscal years to an intensified review of all delinquent accounts and
increased write-offs after determining 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 unusual amount of write-offs during
that fiscal year. See also "BUSINESS - Credit Policy and Delinquencies."
While management expects future write-off percentages to decrease, any
increase in future write-offs in excess of reserves established may adversely
impact the profitability of ELCOA and the ability to repay Debenture holders.
6. RISKS ASSOCIATED WITH CONFLICTS OF INTEREST
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.
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. These conflicts may adversely impact the ability of ELCOA to increase
growth in its lease portfolio and to collect the balances due from its
outstanding leases.
7. RISKS ASSOCIATED WITH COMPETITION
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
10
<PAGE>
<PAGE>20
favorable financing. Competitive factors in the equipment leasing business
primarily involve pricing and other financial arrangements. Competition may
also adversely impact the generation of new lease receivables and the
resulting yields from investment of ELCOA's resources in new leases.
8. 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, with fixed annual rates of
return ranging from approximately 10% to 43%. 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.
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".
11
<PAGE>
<PAGE>21
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.
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
12
<PAGE>
<PAGE>22
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 anticipated expenses of approximately
$95,000 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,
although ELCOA has not done so to date. 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 three month maturities, 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
geographical location, recognizing the income between its rate of return on
the investment in the leases, less interest and other related expenses of
13
<PAGE>
<PAGE>23
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 physical 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
14
<PAGE>
<PAGE>24
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
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).
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<PAGE>
<PAGE>25
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 businesses, and not for lease to consumers. Of the equipment purchased
from Walnut comprising 5% or more of the total purchases during the past
twelve months, approximately 39% were for food/hospitality service and
related equipment, 21% for industrial equipment, 13% was for auto after-market
and test equipment, 8% was for office machines and copiers, 7% was for
computers and peripheral hardware, and 5% were for audio-visual and
communications equipment. These amounts vary from year to year, and may not be
indicative of future purchases. The equipment purchased is primarily newly
manufactured equipment, but on occasion, 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 portfolio 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.
16
<PAGE>
<PAGE>26
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 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.
17
<PAGE>
<PAGE>27
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
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. As a result, delinquent receivables
balances appear higher than industry averages because of ELCOA's decision to
pursue delinquent lessees until all collection efforts have been completely
exhausted. See also RISK FACTOR #5 on page 9 of this Prospectus.
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. Walnut
does not refund any of the fees collected from ELCOA in those instances when a
lessee defaults and collection efforts are discontinued. Once collection
efforts are discontinued, any likelihood of recovering the equipment, to the
extent not previously repossessed, is considered remote.
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.
18
<PAGE>
<PAGE>28
<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>
19
<PAGE>
<PAGE>29
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, or 7.1%, 2.7%, and 2.0% of
average gross lease receivables. ELCOA does not expect the increase in the
percentage of net charge-offs to average gross lease receivables to continue
into 1996.
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.
20
<PAGE>
<PAGE>30
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
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, including credit card processing machines, water coolers, and
surveillance equipment, which management considered to be overpriced
(considered to be a factor in less than 10% of the cases in litigation).
However, because of the diversification of ELCOA's leases in dollar amount and
geographical location, any further 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 costs of pursuing
collection would be less than the recoveries anticipated. Factors such as
evolving changes in case and statutory law in some states favoring debtor's
rights (notably Florida, Texas, Alabama, South Carolina and California),
post-judgment filing costs associated with continuing litigation and pursuit
in collections, economic conditions in certain geographical areas, and the age
of the delinquent lease receivables being collected can be attributed to the
larger percentage of write-offs. Management believes that the likelihood of
collecting the remaining delinquent lease receivables is greater than those
previously written-off, as the credit criteria for new leases, in those states
favoring debtors rights have been enhanced. 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.
21
<PAGE>
<PAGE>31
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.
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.
22
<PAGE>
<PAGE>32
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,
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.
23
<PAGE>
<PAGE>33
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 administrative
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". 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
24
<PAGE>
<PAGE>34
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
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
25
<PAGE>
<PAGE>35
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
$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. ELCOA expects that the percentage of delinquencies will decrease as
the aggregate amount of lease receivables increases in the future. 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. Management expects the percentage
of write-offs from delinquent lease receivables during fiscal 1996 to decrease
from the rate during fiscal 1995. 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.
26
<PAGE>
<PAGE>36
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JANUARY 31, 1996 AND 1995
Revenues of $1,977,590 and $2,202,991 were recognized during the nine
months ended January 31, 1996 and 1995, respectively. Revenues decreased
$225,401 or 10.2% during the nine month period ended January 31, 1996 in
comparison to the previous year as a result of the decrease in outstanding
aggregate future receivables during these periods. The Company utilizes the
"effective" method in recognizing income from deferred income on its direct
finance lease portfolio. For a more detailed discussion of the manner in
which income is computed and recognized, see Footnote 1 to the audited
Financial Statements and Footnote 2 to the financial statements for the
interim period ended January 31, 1996. During the nine month periods ended
January 31, 1996 and 1995, $6,499,838 and $6,860,033, respectively, in new
gross finance lease receivables were added to the portfolio of outstanding
leases, corresponding to equipment purchases of $4,932,211 and $5,246,929,
respectively. Unearned income under direct finance leases reflected a net
decrease of $170,473 and $334,208 during the nine months ended January 31,
1996 and 1995, respectively, which resulted from a decrease in the aggregate
amount of outstanding direct financing leases. Management attributes the
decrease in new leases generated during the nine month period ended January
31, 1996 to a reduction in equipment available for purchase from its parent,
Walnut.
Amounts paid under the service contract for lease origination in the
amounts of $191,700 and $207,219, respectively, were capitalized in accordance
with FAS No. 91 during the nine months ended January 31, 1996, and 1995. See
Footnote 2 to the Financial Statements for the nine month interim period ended
January 31, 1996.
General and administrative expenses for the nine month periods ended
January 31, 1996 and 1995 were $729,232 and $790,232, respectively. Included
in these expenses were $435,253 and $494,215, respectively, in monthly
servicing fees representing a reimbursement to Walnut for the servicing and
administration of ELCOA's outstanding leases at a cost of $6.50 per account
per month. As of January 31, 1996 and 1995, there were 6,936 and 8,158 of
direct finance leases outstanding, respectively. Also included in general and
administrative expenses for the nine months ended January 31, 1996 and 1995
are $172,026 and $182,088, respectively, which represents the amortization of
the deferred registration and solicitation expenses which are included in
"Other Assets" on the Balance Sheet at January 31, 1996 and 1995. See
Footnote 2 to the Financial Statements for a more detailed discussion of the
calculation of the amortization expense. ELCOA paid Walnut $19,500 during
each of the nine month periods ended January 31, 1996 and 1995, for
bookkeeping fees. These fees are to reimburse Walnut for the routine
bookkeeping functions performed for ELCOA and are charged at $500 per week.
Also included in general and administrative expenses were $79,479 and $73,359,
respectively, in transfer service fees paid to Financial Data, Inc., an
affiliate. These expenses approximate the actual costs incurred in the
services performed, which increased during fiscal 1996 as a result of higher
costs incurred by Financial Data, Inc. from increases in the amount of debt
securities outstanding.
For the nine months ended January 31, 1996 and 1995, ELCOA recognized
expenses of $514,769 and $620,073, respectively, for its doubtful lease
receivable provision. See Footnote 2 to the financial statements for the
interim period ended January 31, 1996. This provision was recognized in order
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to maintain an adequate allowance, based upon management's belief and
historical experience, for anticipated delinquencies and impairments from
doubtful direct finance lease receivables outstanding as of January 31, 1996
and 1995.
Past due accounts four or more monthly payments past due (on a strict
contractual basis) as of January 31, 1996 were $5,178,694 or 30.76% of the
$16,835,353 in aggregate future lease receivables outstanding at that date.
Although these delinquencies increased $441,462 or 9.3% from the amount of
$4,737,232 (27.4% of aggregate receivables) at April 30, 1995, management feels
that the likelihood of collecting the delinquent balances in the current period
is greater. During the nine months ended January 31, 1995, ELCOA had conducted
an extensive review of the collectibility of all past due accounts, and
increased the amount of write-offs in those situations where further costs in
pursuing legal remedies in collection were considered unwarranted. Write-offs
totaled $1,143,199 for the nine months ended January 31, 1995, or 6.6% of
average gross lease receivables, and resulted in lowering delinquent accounts
as an amount and percentage of aggregate future lease receivables. Write-offs
for the nine month period ended January 31, 1996 total $471,988 or 2.8% of
average gross lease receivables. As of January 31, 1996, ELCOA maintained an
allowance for doubtful lease receivables of $1,017,448, which management
believes is adequate for future write-offs of aggregate gross lease
receivables. These reserves totaled 6.0%, of the total gross lease receivables
outstanding at January 31, 1996 and 19.6% of receivables past due four or more
monthly payments. Management is continuing its efforts in the pursuit of
collections of all past due lease receivables.
During the nine months ended January 31, 1996 and 1995, ELCOA incurred
$1,047,676 and $1,002,069, respectively in interest expense (net) on the
outstanding Demand, Fixed Rate and Money Market Thrift Certificates. Accrued
interest thereon of $2,778,010 and $2,334,716, respectively, were outstanding
at January 31, 1996 and 1995. These expenses were reduced by interest income
of $764,654 and $520,412, respectively during the nine months ended January 31,
1996 and 1995. The increase in interest income during the nine months ended
January 31, 1996 is attributable in part to ELCOA's investment in short-term
U.S. Government treasury bills, having three month maturities. Although the
interest rate on U.S. Treasury Bills was relatively comparable at January 31,
1996 and 1995 (5.01% vs. 5.80%, respectively), ELCOA's investment in U.S.
Government Treasury Bills increased $1,996,966 or 30% to $8,757,553 at January
31, 1996 from $6,790,587 at January 31, 1995. The average rates of interest
paid on the Certificates (including accrued interest thereon) during these
periods were approximately 8.6% and 8.2%, respectively, during the nine month
periods ended January 31, 1996 and 1995. Effective January 1, 1991, ELCOA and
Walnut, its parent, agreed to pay each other interest on any intercompany
advances during each month. Interest is charged at a rate equal to 2% above
the prevailing "prime" rate of interest at Meridian Bank, Reading,
Pennsylvania. During the nine months ended January 31, 1996 and 1995, ELCOA
recognized $393,626 and $245,663, respectively, as interest income under this
agreement.
During the nine month periods ended January 31, 1996 and 1995, ELCOA
recognized no provisions for state income taxes, or federal income taxes. See
Footnote 2 to the Financial Statements.
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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, if necessary,
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
"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,
and the percentage may be relatively comparable to prior year experience.
Redemptions of Debentures previously issued increased to $8,272,533 from
$5,498,321 during the fiscal years ended April 30, 1995 and 1994, respectively.
Management believes that redemptions increased as a result of an increase in
the outstanding amount of Debentures during the periods, as well as the
attractiveness of alternative investments in the equity markets, including
mutual funds, which may have provided greater returns than fixed income
securities in general during fiscal 1995. Unless rates of return in the equity
markets decrease, management believes that redemptions of Debentures in the
next fiscal year may remain at the same level, although the percentage increase
may decline. See Statements of Cash Flows appearing on pages 49 and 50 of this
Prospectus. 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 government 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 #8 on page 11 of this Prospectus.
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
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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 commitments 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" 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 on page 8 of this Prospectus.
As noted in the "USE OF PROCEEDS" section on page 13 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. During the fiscal year ended April 30, 1995, the average
rate of return on ELCOA's investment in its lease receivables was 18.8%.
As noted in the Statements of Cash Flows on page 50, 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.
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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 for the three fiscal years ended April 30, 1995. The
address of Walnut and Walnut Associates, Inc. is Suite 200, One Belmont
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.
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.
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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
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.
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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.
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 $500 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 Sixth Supplemental Indenture dated as of
April xx, 1996 to an Indenture dated as of August 5, 1986 and supplements
thereto dated September 19, 1986, September 20, 1988, September 13, 1989,
August 17, 1990 and August 18, 1993 (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
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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.
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 40 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
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(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 36 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 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. 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.
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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.
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.
36
<PAGE>
<PAGE>46
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.
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).
37
<PAGE>
<PAGE>47
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".
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 March 1,
1996, the 6-month U.S. Treasury Bill rate was 5.06%.
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
38
<PAGE>
<PAGE>48
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 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).
39
<PAGE>
<PAGE>49
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
occurrence 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.
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 105, One Belmont Avenue, Bala Cynwyd, Pennsylvania 19004
(hereinafter referred to as the "Underwriter").
The Underwriter is an affiliate 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 for the fiscal year ended April 30, 1995. 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.
40
<PAGE>
<PAGE>50
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 remuneration
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 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
41
<PAGE>
<PAGE>51
that recommended by a qualified independent underwriter. The Underwriter has
obtained an opinion dated April xx, 1996 from J.E. Liss & Company, Inc.,
Milwaukee, Wisconsin, 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 material 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
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.
42
<PAGE>
<PAGE>52
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report. 44
Balance Sheets as of April 30, 1995 and 1994. 45-46
Statements of Operations for the years
ended April 30, 1995, 1994 and 1993. 47
Statement of Changes in Shareholder's Equity for the
years ended April 30, 1995, 1994 and 1993. 48
Statements of Cash Flows for the years
ended April 30, 1995 and 1994 and 1993. 49-50
Notes to Financial Statements for the fiscal years
ended April 30, 1995, 1994 and 1993 51
Balance Sheets as of January 31, 1996
(unaudited) and April 30, 1995 57-58
Statements of Operations for the nine months
ended January 31, 1996 and 1995 and three
months ended January 31, 1996 and 1995 (unaudited) 59
Statement of Changes in Shareholder's Equity
for the nine months ended January 31, 1996 (unaudited) 60
Statements of Cash Flows for the nine months ended
January 31, 1996 (unaudited) 61-62
Notes to Financial Statements for the nine months ended
January 31, 1996 (unaudited) 63
</TABLE>
43
<PAGE>
<PAGE>53
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
44
<PAGE>
<PAGE>54
<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
45
<PAGE>
<PAGE>55
<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
Variable Rate Cumulative
Preferred Stock, Series A, $1
par value, 50,000 shares
authorized, none issued --- ---
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
46
<PAGE>
<PAGE>56
<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
47
<PAGE>
<PAGE>57
<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
48
<PAGE>
<PAGE>58
<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 activities:
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
49
<PAGE>
<PAGE>59
<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
50
<PAGE>
<PAGE>60
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
51
<PAGE>
<PAGE>61
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)
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.
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>
52
<PAGE>
<PAGE>62
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)
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.
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>
53
<PAGE>
<PAGE>63
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)
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
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>
54
<PAGE>
<PAGE>64
EQUIPMENT LEASING CORPORATION OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF
WALNUT EQUIPMENT LEASING CO., INC.)
NOTES TO FINANCIAL STATEMENTS
6. DEMAND, FIXED RATE, AND MONEY MARKET THRIFT CERTIFICATES (Continued)
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.
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 certificate
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 third parties. These
origination costs are allocated on an incremental basis by Walnut to ELCOA, as
specific identification of actual costs is impracticable. During the years
55
<PAGE>
<PAGE>65
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)
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. ELCOA also pays Walnut $500 per week for
routine bookkeeping functions performed on ELCOA's behalf. Administrative
servicing fees and bookkeeping charges paid Walnut for the years ended April
30, 1995, 1994 and 1993, were $676,228, $704,522 and $654,732, respectively.
Administrative servicing functions and bookkeeping expenses are allocated
proportionately on the basis of estimated costs actually incurred. Walnut
also retains any late charges assessed delinquent lessees as reimbursement for
the legal costs of collection. These fees approximate the actual cost of
collection and litigation incurred by Walnut in association with ELCOA's
delinquent lease receivables. Management believes that the allocation methods
utilized are reasonable under the circumstances. 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.
56
<PAGE>
<PAGE>66
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS
--------------
<CAPTION>
January 31, 1996 April 30, 1995
---------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Direct finance leases:
Aggregate future amounts
receivable under lease
contracts $16,835,353 $17,267,612
Estimated residual value
of equipment 1,639,475 1,831,613
Less:
Unearned income under
lease contracts (3,002,240) (3,172,713)
Advance payments (523,376) (528,314)
---------- ----------
14,949,212 15,398,198
Allowance for doubtful
lease receivables (1,017,448) (974,667)
---------- ----------
13,931,764 14,423,531
Due from parent 5,591,893 3,991,986
Cash and cash equivalents 9,918,635 8,908,798
Other assets 415,822 423,511
---------- ----------
TOTAL ASSETS $29,858,114 $27,747,826
=========== ===========
SEE ACCOMPANYING NOTES
57
</TABLE>
<PAGE>
<PAGE>67
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
BALANCE SHEETS - (Continued)
--------------
<CAPTION>
January 31, 1996 April 30, 1995
---------------- --------------
(unaudited)
<S> <C> <C>
LIABILITIES
Amounts payable to
equipment suppliers $ 8,749 $ 8,749
Accrued expenses and other
accounts payable 64,338 63,888
State income taxes 8,401 8,401
Demand, Fixed Rate and
Money Market Thrift
Certificates 26,494,498 24,521,875
Accrued interest payable 2,778,010 2,326,708
---------- ----------
29,353,996 26,929,621
SHAREHOLDER'S EQUITY
Common stock $1 par value,
1,000 shares authorized,
issued and outstanding 1,000 1,000
Variable Rate Cumulative
Preferred Stock, Series A,
$1 par value, 50,000 shares
authorized, none issued --- ---
Additional paid - in capital 999,000 999,000
Accumulated Deficit (495,882) (181,795)
---------- ---------
504,118 818,205
---------- ---------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $29,858,114 $27,747,826
=========== ===========
SEE ACCOMPANYING NOTES
58
</TABLE>
<PAGE>
<PAGE>68
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF OPERATIONS
<CAPTION>
For the Nine Months Ended January 31, For the Three Months Ended January 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
Income earned under
direct finance lease contracts $ 1,977,590 $2,202,991 $ 614,602 $ 695,210
----------- ---------- ----------- ----------
Total revenue 1,977,590 2,202,991 614,602 695,210
----------- ---------- ----------- ----------
Costs and expenses:
Interest expense, net 1,047,676 1,002,069 344,593 328,219
General and administrative expenses 729,232 790,232 244,784 256,207
Provision for doubtful lease receivables 514,769 620,073 168,176 268,887
----------- ---------- ----------- ----------
Total costs and expenses 2,291,677 2,412,374 757,553 853,313
----------- ---------- ----------- ----------
Loss before provision
for income taxes (314,087) (209,383) (142,951) (158,103)
Provision for income taxes
- Federal (See Note 2) --- --- --- ---
- State --- --- --- ---
----------- ---------- ----------- ----------
Net Loss $ (314,087) $ (209,383) $ (142,951) $ (158,103)
=========== ========== =========== ==========
SEE ACCOMPANYING NOTES
59
</TABLE>
<PAGE>
<PAGE>69
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
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, 1995 1,000 $1,000 $999,000 $(181,795) $ 818,205
Net Loss for the
nine month period
ended January 31, 1996
(unaudited) -- -- -- (314,087) (314,087)
----- ------ -------- -------- ---------
Balance, January 31, 1996 1,000 $1,000 $999,000 $(495,882) $ 504,118
(unaudited) ===== ====== ======== ========= ==========
SEE ACCOMPANYING NOTES
60
</TABLE>
<PAGE>
<PAGE>70
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months Ended January 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Loss $ (314,087) $ (209,383)
Adjustment to Reconcile Net Loss to Net
Cash from Operating Activities:
Amortization of Deferred Debt Expenses 172,026 182,088
Provision for doubtful lease receivables 514,769 620,073
Effects of Changes
in other Operating Items:
Accrued Expenses 450 (23,682)
Accrued Interest 451,302 240,386
Other (net) (164,337) (146,342)
---------- ----------
Net Cash From Operating Activities 660,123 663,140
---------- ----------
INVESTMENT ACTIVITIES
- ---------------------
Excess of Cash Received
Over Lease Income Recorded 4,765,807 4,866,789
Receipt of Advance Payments 143,402 138,314
Purchase of Equipment
for Direct Finance Leases (4,932,211) (5,246,929)
---------- ----------
Net Cash Used in
Investing Activities $ (23,002) $ (241,826)
---------- ----------
SEE ACCOMPANYING NOTES
61
</TABLE>
<PAGE>
<PAGE>71
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS - (Continued)
<CAPTION>
For the Nine Months Ended January 31,
1996 1995
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
FINANCING ACTIVITIES
- --------------------
Proceeds from Issuance
of Demand and Fixed Rate Certificates $7,168,313 $7,826,763
Proceeds (repayments) from
borrowings from Walnut (1,599,907) (1,569,369)
Redemption of Demand, Fixed
Rate, and Money Market Thrift
Certificates (5,195,690) (6,041,348)
---------- ----------
Net Cash Provided by
Financing Activities 372,716 216,046
---------- ----------
Increase (Decrease) in Cash and
Cash Equivalents 1,009,837 637,360
Cash and Cash Equivalents,
Beginning of Year 8,908,798 7,587,864
---------- ----------
Cash and Cash Equivalents,
End of Period $9,918,635 $8,225,224
========== ==========
SEE ACCOMPANYING NOTES
62
</TABLE>
<PAGE>
<PAGE>72
EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1996 and 1995
1. FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the
audited financial statements and notes thereto as of April 30, 1995. The
accompanying financial statements have not been audited by independent
accountants, but in the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to summarize fairly the results of operations and are not
necessarily indicative of the results to be expected for the full year.
2. ACCOUNTING POLICIES
ACCOUNTING FOR LEASES
Equipment Leasing Corporation of America ("ELCOA")'s lease contracts
provide for total noncancellable rentals which exceed the cost of leased
equipment and, accordingly, are accounted for as direct finance leases. At
inception, ELCOA records the gross lease receivable, the estimated residual
value of the leased equipment, and the unearned lease income. The unearned
lease income represents the excess of the gross lease receivable at
inception of the contract plus the estimated residual value over the cost
of the equipment being leased. ELCOA utilizes the "effective" or interest
method in recognizing the remainder of unearned income. For leases
originated after April 30, 1988, the Company has changed its method of
accounting to conform with the requirements of FAS No. 91 "Accounting for
Non Refundable Fees and Costs Associated with Originating or Acquiring
Loans and Initial Direct Cost of Leases". Under this method a portion of
the initial direct costs as defined by FAS No. 91 ($191,700 and $207,219
for the nine months ended January 31, 1996 and 1995, respectively), were
accounted for as part of the Investment in Direct Financing Leases.
Unearned income is earned and initial direct costs are amortized to income
using the effective method over the term of the lease.
ELCOA provides a provision for doubtful accounts based upon a periodic
review (not less than quarterly) of its outstanding lease portfolio, and
provides a direct charge against operations to increase the amount of
stated reserves for uncollectable accounts. Any writeoffs of uncollectable
leases reduce the stated amount of ELCOA's reserves. Write-offs of
delinquent leases totaled $471,988 and $1,143,199 during the nine month
periods ended January 31, 1996 and 1995, respectively, while ELCOA
increased these reserves by charges of $514,769 and $620,073 during the
nine month periods ended January 31, 1996 and 1995, respectively.
INCOME TAXES
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS 109),
which requires an asset and liability approach to financial accounting and
reporting for income taxes. Deferred income tax assets and liabilities are
63
<PAGE>
<PAGE>73
EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1996 and 1995
INCOME TAXES - Continued
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 includes deferred tax
assets (liabilities) attributable to the following temporary deductible
(taxable) differences:
Operating lease method vs. direct financing method $1,576,000
Provision for doubtful lease receivables 341,000
Other ( 34,000)
----------
Net deferred tax asset 1,883,000
Valuation allowance (1,883,000)
----------
Net deferred tax asset after valuation allowance $ ---
==========
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.
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 nine months ended January 31, 1996 and 1995, the provision for
federal and state income taxes consists of:
Nine Months Ended January 31,
1996 1995
--------- ---------
Current $ 805,106 $ 435,697
Deferred (805,106) (435,697)
--------- ---------
$ --- $ ---
========= =========
The deferred tax benefit is the change in the net deferred tax asset
arising from the available carry-back claim from its parent.
64
<PAGE>
<PAGE>74
EQUIPMENT LEASING CORPORATION OF AMERICA
Notes to Interim Financial Statements
Nine Months Ended January 31, 1996 and 1995
OTHER ASSETS AND LIABILITIES
Amounts payable to equipment suppliers in the amount of $8,749 as of
January 31, 1996 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.
Other assets at January 31, 1996 include $415,534 in deferred expenses, net
of amortization, representing costs directly related to the Company's
registration and solicitation of Demand, Fixed Rate and Money Market Thrift
Certificates. Registration expenses of $84,170 at January 31, 1996 are
being amortized on a straight-line basis over the estimated average lives
of the debt to be issued under the registration statement. Amortization of
these deferred registration expenses and solicitation costs charged to
income during the nine month periods ended January 31, 1996 and 1995 were
$172,026 and $182,088, respectively. Also, $331,364 in commissions paid
for sale of the Demand, Fixed Rate and Money Market Thrift Certificates
included in Other Assets at January 31, 1996 are being amortized over the
life of each respective certificate sold.
65
<PAGE>
<PAGE>75
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........................................... $ 17,241.38
NASD Filing fee............................................ 5,500.00
Accounting................................................. 5,000.00
Legal...................................................... 5,000.00
Printing................................................... 12,000.00
State Blue Sky Registration Fees
and Costs (including counsel fees)....................... 16,000.00
Authentication and Delivery of Certificates and Expenses... 4,000.00
Miscellaneous Expenses*.................................... 30,258.62
-----------
Total $ 95,000.00
===========
<FN>
* Includes outside independent underwriter fees of $25,000.00 and
postage of $4,000.00.
</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 indemnification 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 indemnification 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.
66
<PAGE>
<PAGE>76
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.
* 1.2 - Form of Selected Dealer's Agreement.
* 1.3 - Form of Pricing Opinion of J.E. Liss & Company, Inc. to be delivered
to Welco Securities, Inc.
* 1.4 - Form of Agreement to Act as Qualified Independent Underwriter, Inc.
with J.E. Liss & Company, Inc., to be delivered to Welco Securities,
Inc.
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 Statement 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.)
67
<PAGE>
<PAGE>77
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. (File No. 33-35664, Filed July 3, 1990).
4.12 - Specimen of Demand Certificate (File No. 33-35664, Filed July 3,
1990).
4.13 - Specimen of Fixed Rate Certificate (File No. 33-35664, 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. (File No. 33-65814, Filed August 25, 1993).
4.15 - Form of Specimen of Demand Certificate. (File No. 33-65814, Filed
July 9, 1993).
4.16 - Form of Specimen of Fixed Rate Certificate. (File No. 33-65814,
Filed July 9, 1993).
*4.17 - Form of Sixth Supplemental Trust Indenture dated as of April xx,
1996 between Registrant and First Valley Bank, Bethlehem,
Pennsylvania, as Trustee.
*4.18 - Form of Specimen of Demand Certificate.
*4.19 - Form of Specimen of Fixed Rate Certificate.
*5.1 - Opinion of Counsel re: legality of issuance of Certificates.
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).
68
<PAGE>
<PAGE>78
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).
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)
13.2 - Form 10-Q for the nine months ended January 31, 1996 (Filed March
14, 1996).
*23.1 - Consent of William Shapiro, Esq., P.C. is filed with their opinion
as Exhibit 5.1, hereof.
*23.2 - Consent of Cogen Sklar, LLP (formerly, Cogen Sklar Levick),
Independent Certified Public Accountants.
*23.3 - The consent of J.E. Liss & Company, Inc. is filed with their opinion
as Exhibit 1.3, hereof.
*25.1 - 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-xxxxx).
27.1 - Financial Data Schedules. See Exhibit 27 to Form 10-Q filed March
14, 1996.
* Filed with this Form S-2.
69
<PAGE>
<PAGE>79
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
Securities Act of 1933;
(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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective 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 securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona-fide
offering thereof.
70
<PAGE>
<PAGE>80
(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 against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
71
<PAGE>
<PAGE>81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and 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 11th day of April, 1996.
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 April 11, 1996
William Shapiro
/s/ Kenneth S. Shapiro
- --------------------------
Kenneth S. Shapiro Vice-President April 11, 1996
/s/ Lester D. Shapiro
- --------------------------
Lester D. Shapiro Secretary, Treasurer
and Director April 11, 1996
/s/ Nathan Tattar
- --------------------------
Nathan Tattar Director April 11, 1996
/s/ John B. Orr
- --------------------------
John B. Orr Director April 11, 1996
/s/ Adam Varrenti, Jr.
- --------------------------
Adam Varrenti, Jr. Director April 11, 1996
72
<PAGE>
<PAGE>82
As filed with the Securities and Exchange Commission on April 15, 1996
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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)
SUITE 76 WILLIAM SHAPIRO, ESQ., P.C.
SILVERSIDE-CARR EXECUTIVE CENTER SUITE 202
501 SILVERSIDE ROAD ONE BELMONT AVENUE
WILMINGTON, DE 19809 BALA CYNWYD, PA 19004
(302) - 798 - 2335 (610) 668-0707
(Address, including zip code, (Name, address, including zip
and telephone number, including code, and telephone number,
area code, of registrant'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 202 Welco Securities, Inc.
One Belmont Avenue One Belmont 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>83
<TABLE>
EQUIPMENT LEASING CORPORATION OF AMERICA
Exhibit Index
Form S-2
<CAPTION>
Exhibit Sequential Page
Number Description Number
------- ------------------------------------------ ---------------
<S> <C> <C>
1.1 Form of Underwriting Agreement 84
1.2Form of Selected Dealers' Agreement 100
1.3Form of Pricing Opinion of J.E. Liss & Company,
Inc. 104
1.4Form of Agreement to Act as Qualified
Independent Underwriter 105
4.17Form of Sixth Supplemental Trust Indenture 114
4.18Form of Specimen of Demand Certificate 120
4.19Form of Specimen of Fixed Rate Certificate 124
5.1Form of Opinion of Counsel re: Legality of
Issuance of Certificates 128
12.1Statement re: Computation of Ratios 130
23.2Consent of Cogen Sklar Levick, LLP
(formerly Cogen Sklar Levick), Independent
Certified Public Accountants 131
"P"25.1Statement of Eligibility & Qualification of First 132
Valley Bank Filed as Form T-1
</TABLE>
<PAGE>84
EQUIPMENT LEASING CORPORATION OF AMERICA
$50,000,000
DEMAND AND FIXED RATE CERTIFICATES
April xx, 1996
Welco Securities, Inc.
Suite 105
One Belmont Avenue
Bala Cynwyd, PA 19004
Dear Sirs:
Equipment Leasing Corporation of America., a Delaware Corporation (the
"Company") hereby confirms its agreement with you (hereinafter called the
"Underwriter") as follows:
1. DESCRIPTION OF SECURITIES. The Company proposes to issue and sell to
the public up to $50,000,000 in principal amount of Demand and Fixed Rate
Certificates (the "Certificates"), which are referred to herein as the
"Securities." The offering which will be on a continuous basis until
termination will be on a "best efforts" basis for the Securities through the
Underwriter as agent for the Company pursuant to the Securities Act of 1933, as
amended (the "1933 Act") and in accordance with the terms and subject to the
conditions as hereinafter set forth.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement (File No. 333-xxxxx) on Form S-2,
including a preliminary form of prospectus, relating to the offering of the
Securities has been carefully and accurately prepared by the Company in
conformity with the requirements of the 1933 Act and the rules and regulations
("Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") promulgated pursuant to the 1933 Act and said registration
statement has been filed with the Commission under the 1933 Act and one or more
amendments to said registration statement, as the case may be, may be similarly
prepared and filed with the Commission. As used in this Agreement and unless
the context indicates otherwise, the term "Registration Statement" refers to
and means said registration statement, including any exhibit, financial
statement, schedule and prospectus included therein, as finally amended and
revised on or prior to the effective date (the "Effective Date") of said
registration statement. The term "Preliminary Prospectus" refers to and means
1
<PAGE>
<PAGE>85
and prospectus filed with the Commission and included in said registration
statement before it becomes effective, and the term "Prospectus" refers to and
means the prospectus included in the Registration Statement at the time it
becomes effective, except that if the prospectus first filed by the Company
pursuant to Rule 424(b) of the Rules and Regulations shall differ from the
Prospectus, the term "Prospectus" shall refer to the prospectus filed pursuant
to Rule 424(b). If the Registration Statement or the Prospectus is amended or
supplemented after the Effective Date and prior to or on the Effective Date (as
defined below), then the terms "Registration Statement" and "Prospectus" shall
refer to such documents as so amended or supplemented.
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary Prospectus and, to the knowledge of the Company, has
not instituted and does not presently plan to institute any proceedings with
respect to such an order: and on the Effective Date and at all times subsequent
thereto, (i) the Registration Statement and the Prospectus will contain all
statements and information which are required to be stated therein by the 1933
Act, the Rules and Regulations or any orders of the Commission under the 1933
Act and will conform in all material respects to the requirements of the 1933
Act, the Rules and Regulations and said orders and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make statements therein not misleading; provided,
however, that the foregoing representations and warranties in this Subsection
(b) will not apply to statements or omissions made in, or omitted form, the
Registration Statement or the Prospectus or any amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Underwriter specifically for use therein.
(c) The Company has been duly incorporated and is now, and at the
Effective Date will be validly existing and in good standing as a corporation
under the laws of the jurisdiction in which it is incorporated, and has full
power and authority to own its properties and conduct its business as presently
conducted and as described in, or contemplated by, the Registration Statement.
The Company and its subsidiaries are duly qualified and in good standing in all
jurisdictions in which the nature of the business transacted by it or the
character or location of its properties make such qualification necessary. To
the best knowledge of the Company and except as set forth in the Registration
Statement, it holds all licenses, certificates and permits from the state,
federal or other regulatory authorities necessary for the conduct of its
business and is in compliance with all laws and regulation and all orders and
decrees applicable to it or its business or assets. The Company does not own
any interest in any other corporation, partnership, joint venture or other
entity, other than is fully disclosed in the Registration Statement.
The Company has an authorized capitalization of 1,000 shares of common
stock ($1.00 par value) and 50,000 shares of preferred stock. At the time the
Registration Statement becomes effective, 1,000 shares of common stock, will be
issued and outstanding. On the effective Date of the Registration Statement
and during the offering, there will be no other outstanding options, warrants
or other rights to purchase securities of the company except as disclosed in
the Registration Statement or contemplated thereby.
2
<PAGE>
<PAGE>86
(d) The financial statements and schedules included in the
Registration Statement fairly present the financial position and operations
covered thereby at the respective dates and for the respective periods to which
they apply. Such financial statements and schedules have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved.
(e) The accountants who certified the financial statements and
schedules filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the 1933 Act and the Rules and
Regulations.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and prior to the Effective
Date, except as disclosed in or contemplated by the Registration Statement and
Prospectus (i) the Company has not incurred or shall not have incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business; (ii) there
has not been and shall not have been any change in the Common Stock, funded
debt (other than regular borrowings and repayments of principal on
indebtedness) or other securities of the Company, any materially adverse
changes in the condition (financial or other), business, operations, income,
properties or business prospects of the Company, including any loss or damage
to the properties of the company (whether or not such material loss is insured
against), or any default in the performance of any obligation as the Company in
any contract: and (iii) the Company has not and shall not have paid or declared
any dividend or other distribution on its Common Stock and has not increased
the stated rate of dividends on its outstanding Preferred Shares.
(g) This Agreement has been duly and validly authorized executed and
delivered by the Company and, when duly executed and delivered by the Company,
will constitute a valid and binding agreement, enforceable in accordance with
its terms, except as enforceability of any indemnification provision may be
limited under federal securities laws except as enforceability of such
agreements may be limited by applicable bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or affecting generally the enforcement of
creditors' rights. The Company is not presently in violation of or in default
under, and the execution, delivery and performance of this Agreement and the
consummation of the transactions herein and therein contemplated will not
result in the creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the company pursuant to, or in conflict with,
result in a breach of or constitute a default under, any of the terms,
conditions or provisions of (i) the articles of incorporation, as amended, or
the by-laws of the Company, (ii) any note, loan agreement, indenture, mortgage,
deed of trust, or other agreement or instrument of which the Company is a party
or by which the Company or any of its properties are bound or subject, or (iii)
to the best knowledge of the Company any existing law, order, rule, regulation,
writ, injunction or decree of any government, government instrumentality,
agency, body or court having jurisdiction over the Company or any of its
properties, The consent, approval, authorization, order of any government or
governmental instrumentality, agency, body or court is not required for the
consummation of the transactions herein contemplated, except such as may be
required under the 1933 Act or under the Blue Sky or securities laws of any
state.
3
<PAGE>
<PAGE>87
(h) Except as set forth in the Prospectus, there is neither pending
nor, to the knowledge of the Company, threatened, any action, suit, or
proceeding at law or in equity or any arbitration to which the Company or any
officer, director or principal stockholder thereof is party before or by any
court, arbitration tribunal or governmental instrumentality, agency, or body
which might result in any materially adverse change in the condition (financial
or other), business, operations, income, properties or business prospects of
the Company, or which might materially affect its properties or assets, or
prevent consummation of the transactions contemplated hereby.
(i) There is no contract or other document which is required to be
filed as an exhibit to the Registration Statement by the 1933 Act or by the
Rules and Regulations which has not been so filed, and subsequent to the
respective dates as of which information is given in the Registration
Statement, each contract to which the Company is party and which is filed as an
exhibit to, or incorporated by reference in the Registration Statement is and
shall be in full force and effect at the Effective Date or shall have been
terminated in accordance with its terms or as set forth in the Registration
Statement and Prospectus, and no party to any such contract shall have given
notice of the cancellation of or, to the knowledge of the Company, shall have
threatened to cancel, any such contract and the Company shall not be in
material default thereunder.
(j) Except as set forth in the Registration Statement, the Company
has good and marketable title in fee simple to all its property and assets,
including any licenses, described in the Registration Statement as owned by it
free and clear of all liens, charges, encumbrances and restrictions other than
such as are not materially significant in relation to the business of the
Company; all of the leases and subleases material to the business of the
Company under which the Company holds or uses any real or personal property,
including those described or referred to in the Prospectus, are in full force
and effect, and the Company is not in default in respect of any of the terms or
provisions of any such leases or subleases, and no claim of any sort has been
asserted by anyone adverse to the Company's rights under any such leases or
subleases or affecting or questioning the Company's rights to the continued
possession of the leased or subleased property covered by such lease or
sublease.
(k) The Company has filed all necessary federal, state, local and
foreign income and franchise tax returns and has paid or accrued all taxes and
fees shown therein as due; the Company has no knowledge of any tax deficiency
which might be asserted against the Company which could materially and
adversely affect its business or properties:
(l) The Company or its agent maintains insurance, which is in full
force and effect, of the types and in the amounts adequate for its business and
in line with insurance maintained by similar companies and businesses,
including but not limited to, insurance covering personal injury and property
damage liability, workmen's compensation, employer liability and insurance
covering all personal property owned, leased by or in the care of the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against.
4
<PAGE>
<PAGE>88
(m) The Company knows of no outstanding claims for services either in
the nature of a finder's fee, brokerage fee or otherwise with respect to this
underwriting for which the Company or the Underwriter may be responsible.
(n) The Company has not taken, and will not take, directly or
indirectly, any action designed to constitute or which has constituted or which
might reasonably be expected to cause or result in the stabilization of the
price of the Securities or a violation of Rule 10b-6 of the rules and
regulations promulgated pursuant to the Securities and Exchange Act of 1934, as
amended (the "1934 Act") or in a manipulation of the price of any security
issued by the Company.
(o) The Company will use its best efforts to appoint and continue to
retain as transfer agent Financial Data, Inc., Bala Cynwyd, Pennsylvania (the
"Transfer Agent"), as long as the services by the Transfer Agent are performed
satisfactorily and any Securities are outstanding, and will make arrangements
to have available, at the office of such Transfer Agent, certificates
representing the Securities in such quantities as may form time to time be
necessary.
(p) As of the date the Registration Statement becomes effective (i)
the Indenture and all supplements thereto will have been validly authorized,
executed and delivered by the Company and will constitute the legally binding
obligation of the Company, (ii) the Certificates will have been validly
authorized and, upon payment therefore as provided in this Agreement, will be
validly issued and outstanding, and will constitute legally binding obligations
of the Company, except in the event of bankruptcy, etc., entitled to the
benefits of the Indenture, and (iii) the Certificate and the Indenture will
conform to the descriptions thereof contained in the prospectus.
3. ISSUE, SALE AND DELIVERY OF THE SECURITIES.
(a) The Company hereby appoints the Underwriter as its agent in the
public offering of up to $50,000,000 in principal amount of Demand and Fixed
Rate Certificates to be offered on a "best-efforts" basis, subsequent to the
effective date of the Prospectus on a continuous basis until terminated in
accordance with this agreement. The Underwriter on the basis of the
representations and warranties herein contained and subject to the terms and
conditions therein set forth, accepts such appointment and agrees to use its
best efforts to find purchasers for the Securities referred to above. The
minimum denomination in which the underwriter shall sell the Certificate, or
such other minimum denomination as determined by the Company from time to time.
It is understood between the parties hereto that there is no firm commitment by
the Underwriter to purchase any or all of the Securities and the Underwriter
agrees that it will exert its best efforts to sell the Securities as covered by
the Registration Statement on Form S-2 under the Act. In addition, the
foregoing obligation of the Underwriter is subject to receipt of written advice
from the Commission that subject to qualification under applicable state laws
and the absence of any prohibitory action by any governmental body, agency or
official, and subject to the terms and conditions contained in this Agreement
and in the Prospectus covering the offering to which this Agreement relates.
(b) Delivery of and payment for the Securities.
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(1) All funds received by the Underwriter from the public for the
purchase of Certificates sold shall be made in a form payable to the Company
and shall be promptly forwarded in kind to the Company, along with an
Application for Purchase signed by the purchaser signifying that the purchaser
has received a copy of the Prospectus. The Company, promptly upon receipt of
the funds, will cause the Certificates to be issued, authenticated and mailed
to each purchaser and will maintain sufficient records of such mailing.
(2) In consideration of the services to be rendered by the
Underwriter, the Company hereby agrees to reimburse the Underwriter for all
out-of-pocket expenses incurred by the Underwriter in connection with the
offering of Securities as provided for hereunder, provided that the Underwriter
submits written evidence of any expense for which reimbursement is sought.
(3) The Underwriter shall be entitled to a commission on all
sales of Certificates sold equal to 1/15 of 1% per month for each month of all
Fixed Term Certificates issued. Therefore commissions shall range from .4% for
a 6-month certificate sold (being 1/15 of 1% multiplied by 6) to 8.0% for a
120-month certificate (being 1/15 of 1% multiplied by 120).
(4) Only sales made by properly licensed registered securities
agents employed by the Underwriter or by Selected Dealers of the Underwriter
shall be entitled to the commission and concession. It is also agreed, that
commission on certificates shall be paid for certificates issued for cash, and
for any renewal, rollover, or conversion of any outstanding Certificate. No
commissions shall be paid on account of any certificate payable on demand (i.e.
Demand Money Market Thrift Certificate) sold by the Underwriter. The
Underwriter has assumed full responsibility for thorough and prior training of
its representatives concerning the selling methods to be used in connection
with the offer and sale of the Company's Securities, giving special emphasis to
the principles of full and fair disclosure to prospective investors, the
prohibitions against "Free-Riding" and "Withholding", and suitability standards
prescribed by applicable securities law.
4. OFFERING OF THE SECURITIES ON BEHALF OF THE COMPANY.
(a) In offering the Securities for sale, the Underwriter shall offer
them solely as agent for the Company, and such offer shall be made upon the
terms and subject to the conditions set forth in the Registration Statement and
Prospectus. The Underwriter shall commence making offers and sales as agent
for the Company as soon after the Effective Date as they may deem advisable.
(b) The Underwriter shall have the right to associate with other
underwriters or dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") as it may determine. The Underwriter shall
have the right to grant to such persons a concession, to be reimbursed by the
Company, as the Underwriter with the consent of the Company may determine, but
not to exceed the amount stated on the front cover of the Prospectus, under and
pursuant to a Selected Dealer Agreement in the form filed as and exhibit to the
registration statement. No commission shall be paid on account of the sale of
any Demand and Fixed Rate Certificate.
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5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to (i) cause the
Registration Statement to become effective as promptly as possible (ii) notify
the Underwriter of the effectiveness of the Registration Statement, the receipt
of any comments of the Commission, and the time when the Registration Statement
or any post-effective amendment thereto has become effective or any supplement
to the Prospectus has been filed, (iii) notify the Underwriter promptly of the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any order preventing or suspending the use of any
proceedings for any of such purposes of which it has knowledge and (iv) use its
best efforts to prevent the issuance of any stop order and if issued, to obtain
as promptly as possible the lifting thereof. The Company will advise the
Underwriter promptly of any request of the Commission for an amendment or
supplement to the Registration Statement or the Prospectus or for any
additional information, and will not at any time, whether before or after the
Effective Date, file any amendment or supplement to the Registration Statement,
(i) which shall not have been previously submitted to the Underwriter a
reasonable time prior to the filing thereof, (ii) to which the Underwriter
shall have objected in writing, or (iii) which is not in compliance with the
1933 Act or the Rules and Regulations.
(b) Within the time during which the Prospectus is required to be
delivered under the 1933 Act, or pursuant to the undertakings of the Company in
the Registration Statement, the Company will comply, at its own expense, with
all requirements imposed upon it by the 1933 Act, the Rules and Regulations,
the 1934 Act, the rules and regulation of the Commission promulgated under the
1934 Act, each as now in effect or hereafter amended or supplemented, and by
any order of the Commission so far as necessary to permit the continuance of
sales of, or dealings in, the Securities, if then issuable. During such period
the Company, at its own expense, shall amend or supplement the Prospectus in
order to make such Prospectus not misleading in light of the circumstances
existing at the time it is delivered to a purchaser or seller.
(c) The Company will deliver to the Underwriter, without charge, (i)
prior to the Effective Date, copies of those Preliminary Prospectus which will
be distributed in accordance with Rule 460 and any which were filed with the
Commission bearing in red ink the statement required by Item 501 (c) (8) of
Regulation S-K of the Rules and Regulations, (ii) on and form time to time
after the Effective Date, copies of the Prospectus and (iii) as soon as they
are available, and from time to time thereafter, copies of each amended or
supplemented prospectus prepared for the purpose of permitting compliance with
Subsections (b) and (c) of this Section 5, and the number of copies to be
delivered in each such case will be such as the Underwriter may reasonably
request. The Company has consented and hereby consents to the use of each
Preliminary Prospectus for the purposes permitted by the 1933 Act and the Rules
and Regulation. The company authorizes the Underwriter and participating
dealers to use the Prospectus in connection with the sale of the Securities for
such period as the Prospectus is required to comply with the applicable
provisions of the 1933 Act and the Rules and Regulations.
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(d) The Company will take such action as may be necessary to qualify
the offer and sale of the Securities under the Blue Sky or securities law of
such states or other jurisdictions as is required and as the Underwriter may
reasonably designate and to continue such qualifications in effect so long as
may be required for the purposes of the distribution of the Securities;
provided, however, that the Company will not be obligated to file any general
consent to service of process or qualify as a foreign corporation under the
laws of any such state or jurisdiction in connection with its obligations under
this Subsection (d). In each state or jurisdiction where the Company shall
qualify the Securities, as above provided, the company will prepare and file
such statements or reports as may be required by the laws of such state or
jurisdiction.
(e) The Company will apply the net proceeds it realizes from the sale
of the Securities in substantially the manner set forth under the caption "Use
of Proceeds" in the Prospectus and subject to qualifications and exceptions
stated herein.
6. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER. The Underwriter
represents and warrants as follows:
(a) It is registered as a broker/dealer with the Commission, in good
standing with the appropriate governmental agency in each state in which it
offers or sells the Securities and is a member of the National Association of
Securities Dealers, Inc. ("NASD") and will use its best efforts to maintain
such registrations, qualifications and memberships throughout the term of the
offering.
(b) To the knowledge of the Underwriter, no action or proceeding is
pending against the Underwriter or any of its officers or directors concerning
the Underwriter's activities as a broker or dealer that would affect the
Company's offering of the Securities.
(c) The Underwriter will offer the Securities only in those states and
in the quantities that are identified in the Blue Sky Memorandums to be
delivered from the Company to the Underwriter that the offering of the
Securities has been qualified for sale under the applicable state statutes and
regulations. The Underwriter, however, may offer the Securities in other
states if (i) the transaction is exempt from the registration requirements in
that state, (ii) the Company has received notice ten days prior to the proposed
sale, and (iii) the Company does not object within said ten day period.
(d) The Underwriter, in connection with the offer and sale of the
Securities and in the performance of its duties and obligations under this
Agreement, agrees to use its best efforts to comply with all applicable federal
laws; the laws of the states or other jurisdictions in which the Securities are
offered and sold, and the Rule and Regulations of the NASD.
(e) The Underwriter is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada with all requisite
power and authority to enter into this Agreement and to carry out its
obligations hereunder.
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(f) This Agreement has been duly authorized, executed and delivered by
the Underwriter and is a valid agreement on the part of the Underwriter.
(g) Neither the execution of this Agreement nor the consummation of
the transaction contemplated hereby will result in any breach of any of the
terms or conditions of, or constitute a default under, the articles of
incorporation or by-laws of the Underwriter of any indenture, agreement or
other instrument to which the Underwriter is party or violate any order
directed to the underwriter of any court or any federal or state regulatory
body or administrative agency having jurisdiction over the Underwriter or its
affiliates.
(h) The Underwriter knows of no person who rendered any services in
connection with the introduction of the Company to the Underwriter. No person
acting by, through or under the Underwriter will be entitled to receive from
the Underwriter or from the Company any finder's fees or similar payments.
(i) The written information provided by the Underwriter for inclusion
in ten Registration Statement and Prospectus consists of certain information on
the front and back Prospectus cover pages, and under "Plan of Distribution" in
the Prospectus.
7. EXPENSES OF THE UNDERWRITER.
Subject to the sale of Securities, the Company shall reimburse the
Underwriter, for its out-of-pocket expenses on an accountable basis in an
amount which is not expected to exceed $25,000.00. In the event the offering
is terminated, the Underwriter will be reimbursed only for its actual
accountable out-of-pocket expenses.
8. EXPENSES OF THE COMPANY. The Company agrees that it will pay the
following fees and expenses:
(a) All fees and expenses of its legal counsel who will be engaged to
prepare certain information, documents and papers for filing with the
Commission.
(b) All fees and expenses of its accountants incurred in connection
with the offering of the Securities and the preparation of all documents and
filings made as part of the offering;
(c) All costs in issuing and delivering the Securities;
(d) All costs of printing and delivering to the Underwriter and
dealers as many copies of the Registration Statement and amendments,
preliminary Prospectuses and definitive Prospectuses as reasonably requested by
the Underwriter;
(e) All of the Company's mailing, telephone, travel, clerical and
other office costs incurred or to be incurred in connection with the offering
of the Securities;
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(f) All fees and costs which may be imposed by the Commission, the
various state or local securities authorities and the NASD for review of the
offering of the Securities;
(g) All other expenses incurred by the Company in performance of its
obligations under this Agreement, including, but not limited to, underwriting
re-allowances and concessions to Selected Dealers.
9. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 13 of the 1933 Act against any and all losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Underwriter or such controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, and Preliminary Prospectus, the
Prospectus, or in any application or other papers, hereinafter collectively
called Blue Sky applications, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damages or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or in a Blue Sky application, or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information furnished to the Company by the Underwriter specifically
for use in the preparation thereof, and provided further that the indemnity
agreement contained in this Section 9 (a) shall not inure to benefit of the
Underwriter (or to the benefit of any person controlling the Underwriter) with
respect to any person asserting any such loss, claim, damage or liability and
who purchased the Securities form the Underwriter if the Underwriter failed to
send or give in violation of the 1933 Act or the Rules and Regulations a copy
of the Prospectus to such person at or prior to the written confirmation to
such person of the sale of such Securities, provided such prospectus has been
provided to the Underwriter. This indemnity will be in addition to any
liability which the Company may otherwise have.
(b) The Underwriter agrees, that it will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) or director named in
the Prospectus, each of its officers who has signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act, against any and all losses, claims, damages or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees) to which
the Company or any such directors, nominee officer or controlling person may
become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
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fact contained in the Registration Statement, any Preliminary Prospectus, or in
any Blue Sky application or the Prospectus or any amendment or supplement
thereof, or arise out of or based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but in each case only to the extent
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary Prospectus or
the Prospectus or such amendment or Supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Underwriter may otherwise have.
(c) Within a reasonable time after receipt by an indemnified party
under this Section 9 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party of the
commencement thereof; but the omission to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than solely pursuant to this Section 9. In case
any such action is brought against any indemnified party, which notifies that
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may choose, jointly with
any other indemnifying party similarly notified, reasonably assume the defense
thereof, subject to the provisions herein stated, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof the indemnifying party will not be liable to such indemnified
party under this Section 9 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation unless the indemnifying party shall not
pursue the action to this final conclusion. The indemnified party shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof, but the fees and expenses of such counsel shall not be at
the expense of the indemnifying party if the indemnifying party has assumed the
defense of the action. The indemnifying party shall not be liable to indemnify
the indemnified party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which
consent shall not be unreasonably withheld.
10. SURVIVAL OF AGREEMENTS, ETC. Notwithstanding any investigations made
by or on behalf of the parties to this Agreement, all representations,
warranties, indemnities, and agreements made by the parties to this Agreement
or pursuant hereto shall remain in full force and effect and will survive
delivery of an payment for the Securities, except that, if a party hereto has
actual knowledge as of the Effective Date of facts which would constitute a
breach of the representations and warranties contained herein, such breaches
shall be waived by such party if such party consummates the transactions
contemplated by this Agreement.
(a) Under this Agreement that the Registration Statement or the
Prospectus, or any amendment or supplement thereto, contains and untrue
statement of fact which is material or omits to state a fact which is material
and is required to be stated therein or is necessary to make the statements
therein not misleading.
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(b) The underwriter shall have received a certificate dated and
delivered as of the Effective Date, to the President and Chief Financial
Officer of the Company stating that, to the best of their respective knowledge
and belief after diligent investigation, that:
(i) The company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied hereunder at prior to
such date.
(ii) No stop order suspending the effectiveness of the Registration
Statement had been issued, and no proceedings for that purpose have been
instituted or are pending, contemplated or threatened under the 1933 Act.
(iii) The respective signers of the certificates have carefully
examined the Registration Statement and the Prospectus and any supplement or
amendment thereto, each of which contains all statements required to be stated
therein in accordance with the 1933 Act and the Rules and Regulations and
conforms in all material respects to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto omits to state any material fact necessary to make the statements
therein not misleading and does not contain any untrue statement of material
fact, and, since the Effective Date there has occurred no event required to be
set forth in an amended or supplemented prospectus which has not been set
forth.
(iv) As of such date, the representations and warranties of the
Company contained in this Agreement are true and correct with the same effect
as if made on and as of the date hereof, and the Company has complied with all
of its obligations and agreements herein contained and to be completed as of
the date hereof, and certifying as to the matters referred to in Subsections
11(c) and (d).
(v) Subsequent to the respective dates as of which information is
given in the Registration Statements and the Prospectus and except as
contemplated in the Prospectus, the Company has not incurred, except in the
ordinary course of business, any material liabilities or obligations, direct or
contingent, or entered into any material transaction, contract, or agreement,
except in the ordinary course of business, and there has not been any
materially adverse change in the condition (financial or other), business,
operations, income, properties or business prospects, results of operations,
securities, long-term or short-term debt or general affairs of the Company.
(vi) Subsequent to the respective dates of which information is given
in the Registration Statement and the Prospectus, the Company has not sustained
any material loss or damage to its properties, whether or not insured, and
since such respective dates, no dividends or distributions whatever have been
declared or paid, or both, on or with respect to the common stock of the
Company.
(vii) Such officer has not taken and will not take, directly or
indirectly, any action designed to, or which might reasonably be expected to,
cause or result in the stabilization or manipulation of the price of the
Company's Securities to facilitate the sale or resale of the Securities.
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(viii) Except as set forth in the Prospectus, no action, suit or
proceeding, at law or in equity is pending or threatened against the Company
which might be required to be set forth in the Registration Statement, and no
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling or finding might materially and
adversely affect the condition (financial or other), business, operations,
income, properties, business prospects, results of operations or general
affairs of the Company.
(c) The Company shall not be a party to, or be involved in, any
arbitration, litigation, or governmental proceeding, which is then pending or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement, other than that which is disclosed in the
Prospectus.
(d)The Company shall not have sustained any loss on account of fire,
flood, accident or other calamity, whether or not covered by insurance, which
in the reasonable judgment of the Underwriter, materially and adversely affects
the business of the Company.
(e)All of the Securities shall be tendered for delivery in accordance
with the terms and provisions of this Agreement.
(f)As of the Effective Date, (i) the representations and warranties of
the Company contained in this Agreement shall be true and correct with the same
effect as if made on the Effective Date and the Company shall have performed
all its obligations due to be performed prior thereto; (ii) the Registration
Statement and the Prospectus and any amendment or supplement thereto shall
contain all statements which are required to be stated herein in accordance
with the 1933 Act and the Rules and Regulations and conform in all material
respects to the requirements thereof, and neither the Registration Statement
nor the Prospectus nor any amendment or supplement thereto shall contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no materially adverse change in the condition (financial
or other), business, operations, income, properties, business prospects,
results of operations, securities, long-term or short-term debt or general
affairs of the Company from that set forth in the Registration Statement or the
Prospectus, except changes which the Registrations Statement and the Prospectus
contemplate will occur after the Effective Date, and the Company shall not have
incurred any material liabilities or material obligations, direct or
contingent, or entered into any material transaction, contract or agreement not
in the ordinary course of business other than as referred to in the
Registration Statement and the Prospectus; (iv) except as set forth in the
Prospectus, no action, suit or proceeding, at law or in equity shall be pending
or threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding might materially and adversely affect the condition
(financial or other), business, operations, income, properties, business
prospects, results of operations or general affairs of the Company.
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(g) The Company shall have furnished to the Underwriter such other
certificates, documents, and opinions as the Underwriter may have reasonably
requested (including certificates of officers of the Company) as to the
accuracy, as of the Effective Date, of the representations and warranties of
the Company herein, the performance of the Company of its obligations hereunder
and other conditions concurrent and precedent to the obligations of other
Underwriter hereunder. Any certificate signed by an officer of the Company and
delivered to the Underwriter shall be a certification as to the statements made
therein.
12. EFFECTIVE DATE. This Agreement will become effective after the
execution of this agreement at such time as the registration statement is
ordered effective by the Commission.
13. TERMINATION.
(a) This Agreement may be terminated by the Company at any time by
notice to the Underwriter.
(b) This Agreement may be terminated by the Underwriter by notice to
the Company at any time before this Agreement becomes effective in accordance
with Section 12 hereof, (i) if, prior to the Effective Date, the Company should
have failed or refused to comply fully with any of the provisions of this
Agreement on its part to be performed prior thereto, or if any of the
agreements, conditions, covenants, representations or warranties of the Company
herein contained should not have been performed or fulfilled within the times
specified, (ii) if, prior to the Effective Date, the Congress of the United
States or any state legislative body passes any act or measure,or any order,
rule or regulation is adopted by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is believed
in good faith by the Underwriter to have material impact on the markets for
securities in general, or if a banking moratorium should have been declared by
the United States, New York or Delaware authorities, (iii) if, prior to the
Effective Date, there should have occurred the outbreak of any war or any other
event or calamity which, in the reasonable judgment of the Underwriter
materially disrupts the financial markets of the United States, or (iv) if,
prior to the Effective Date, any materially adverse change occurs, since, the
respective dates as of which information is given in the Registration Statement
and the Prospectus, in the condition (financial or other), business,
operations, income, properties, earnings, affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether not arising
in the ordinary course of business.
14. NOTICES. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed or delivered and confirmed in writing or by telegraph,
addressed as respectively indicated or to such other address as will be
indicated by a written notice similarly given, to the following persons:
(a) If to the Underwriter - addressed to Welco Securities, Inc.,
Suite 105, One Belmont Avenue, Bala Cynwyd, Pennsylvania 19004, Attention:
Kenneth S. Shapiro, President.
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(b) If to the Company - addressed to Equipment Leasing Corporation of
America, Suite 76, 501 Silverside Rd., Wilmington, Delaware 19809, Attention:
William Shapiro, President.
15. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the Underwriter, the Company and their respective successors,
legal representatives and assigns. Nothing expressed or mentioned in this
Agreement is intended, or will be construed, to give any person, corporation
and other entity not mentioned in the preceding sentence any legal or equitable
right, remedy, or claim under or in respect of this Agreement or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person; except that the representations, warranties
and indemnities of the Company contained in this Agreement will also be for the
benefit of the directors and officers of the Underwriter and any person or
persons who control the Underwriters within the meaning of Section 15 of the
1933 Act, and except that the indemnities of the Underwriter will also be for
the benefit of the directors and officers of the Company and any person or
persons who control the Company within the meaning of Section 15 of the 1933
Act. No purchaser of any of the Securities from the Underwriter or the Company
will be deemed a successor or assign solely because of such purchase.
16. FINDERS FEES AND HOLDERS OF FIRST REFUSAL RIGHTS. The Company hereby
represents and warrants to the Underwriter that no other person is entitled
directly or indirectly, to compensation of or services as a finder in the
connection with the proposed transactions or holds a right of first refusal or
similar right in connection with the proposed offering, and the Company hereby
agrees to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter within the meaning of Section 15 of the 1933 Act,
from and against any loss, liability, claim, damage or expense whatsoever
arising out of a claim by an alleged finder or alleged holder of a right of
first refusal or similar right in connection with the proposed offering.
17. COMPLIANCE WITH NASD BY-LAWS AND REGULATIONS. The Underwriter as well
as any participating dealer associated with the Underwriter, shall conduct
itself in a manner consistent with the provisions of Section 12 of Schedule E
to the NASD By-Laws, and no transaction in the Securities to be offered will be
executed by any member in a discretionary account without the prior specific
written approval of the customer.
Investors' checks will be transmitted directly to the Company by noon
of the next business day following receipt.
18. APPLICABLE LAW. This Agreement will be construed in accordance with
the laws of the Commonwealth of Pennsylvania.
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If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof, as of the day and year first above written, in the
space provided below for the purpose, whereupon this letter with our acceptance
shall constitute a binding agreement between us.
Very truly yours,
EQUIPMENT LEASING CORPORATION OF AMERICA
By:
---------------------------------------
William Shapiro, President
(Corporate Seal)
ATTEST:
- ---------------------------- Confirmed and accepted as of the day
Lester L. Shapiro, Secretary and year first above written.
WELCO SECURITIES, INC.
(Corporate Seal) By:
---------------------------------------
Kenneth S. Shapiro, President
ATTEST:
- ----------------------------
Irene J. Leahy
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WELCO SECURITIES, INC.
OFFERING OF
$50,000,000
DEMAND AND FIXED RATE CERTIFICATES
OF
EQUIPMENT LEASING CORPORATION OF AMERICA
SELECTED DEALERS AGREEMENT
WELCO SECURITIES, INC., Suite 105, One Belmont Avenue, Bala Cynwyd,
Pennsylvania 19004 (the "Underwriter"), invites your participation as a
Participating Dealer ("Participating Dealer") in an offering of $50,000,000 in
principal amount of Demand and Fixed Rate Certificates referred to herein as
"the Certificates" (offered in minimum denominations of $100 per Certificate)
which is also referred to herein as the "Securities", being offered by
Equipment Leasing Corporation of America (the "Company"). The Securities are
more particularly described in the enclosed Prospectus, additional copies of
which will be supplied in reasonable quantities upon request. The Company
through the Underwriter is offering the Securities subject to the terms of this
Agreement, the Underwriter's instructions which may be forwarded to the
Participating Dealers from time to time, and is made only to Selected Dealers
who are members in good standing of the National Association of Securities
Dealers, Inc. ("NASD") or foreign dealers who are not eligible for membership
in the NASD and who agree to abide by the Rules of Fair Practice of the NASD,
including Sections 8, 24, 25 and 36 thereof, and the interpretations of the
NASD's Board of Governors with respect to free-riding and withholding in making
sales to purchasers outside the United States and not to effect sales of the
Securities within the United States, its territories or its possessions, or to
persons who are citizens thereof or residents therein. This invitation is made
by the Underwriter only if the Company's Securities may be lawfully offered to
dealers in your state. The terms and conditions of this invitation are as
follows:
1. ACCEPTANCE OF ORDERS. Orders received from the Participating Dealer
will be accepted only at the price, in the amounts, and on the terms which are
set forth in the Company's Prospectus.
2. SELLING CONCESSION. As a Participating Dealer, you will be allowed a
concession of 1/15 of 1% per month for each month of the principal amount of
all Fixed Rate Certificates sold by you.
3. STATUS OF DEALER. The Participating Dealer agrees to purchase the
Company's Securities being offered for its customers only through the
Underwriter, and all such purchases shall be made only upon orders already
received by the Participating Dealer from its customers. In all sales of the
Company's Securities to the public the Participating Dealer shall confirm as
agent for another.
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4. DELIVERY OF FUNDS. The Participating Dealer will promptly transmit
directly to the Company, all funds received from the purchasers and a
confirmation of a record of each sale which will set forth the name, address,
and social security number of each individual purchaser, the maturity requested
for each Certificate purchased, and if there is more than one registered owner,
whether the certificate or certificates evidencing the ownership of the
security purchased are to be issued to the purchasers in joint tenancy or
otherwise. Also, each Participating Dealer shall report, in writing, to the
Company the principal amount of Certificates which have been sold in each state
and the number of persons in each such state who purchased the Company's
Securities from the Participating Dealer. Each sale may be rejected by the
Company, and if rejected, the Underwriter as agent for the Company will return
to you all funds paid by the purchaser which have been received by the Company.
In such event, the Participating Dealer will return to the purchaser within
five (5) business days after actual receipt from the Underwriter the full
purchase price paid by the purchaser. For purposes of this Agreement, a
purchaser is a subscriber for the principal amount of Certificates until such
time as his subscription is received and accepted by the Underwriter as agent
for the Company.
5. PAYMENT. Payment for the Company's Securities shall accompany all
confirmations and applications. All checks and other orders for payment of
money shall be made payable to "Equipment Leasing Corporation of America."
Securities sold by the Participating Dealer shall be available for delivery
from the Company.
6. DEALER'S UNDERTAKINGS. No person is authorized to make any
representations concerning the Company's Securities except those contained in
the Company's Prospectus. The Participating Dealer will not sell the Company's
Securities pursuant to this Agreement unless the Prospectus is furnished to the
purchaser at least 48 hours prior to the mailing of the confirmation of sale,
or is sent to such person under such circumstances that it would be received by
him 48 hours prior to his receipt of a confirmation of the sale. The
Participating Dealer agrees not to use any supplemental sales literature of any
kind without prior written approval of the Company unless it is furnished by
the Company for such purpose. In offering and selling the Company's
Securities, the Participating Dealer will rely solely on the representations
contained in the Company's Prospectus. Additional copies of the Prospectus
will be supplied by the Company in reasonable quantities upon request.
7. CONDITIONS OF OFFERING. All sales will be subject to delivery by the
Company to the purchaser of certificates evidencing the principal indebtedness
of Certificates.
8. FAILURE OF ORDER. If an order is rejected or if a payment is received
which proves insufficient or worthless, any compensation paid to the
Participating Dealer shall be returned either by the Participating Dealer's
remittances in cash or by a charge against the account of the Participating
Dealer, as the Underwriter may elect.
9. REPRESENTATIONS AND AGREEMENTS OF DEALERS. By accepting this
Agreement, the Participating Dealer represents that: it is registered as a
Broker/Dealer under the Securities Exchange Act of 1934, as amended; it is
qualified to act as a dealer in the states or other jurisdictions in which
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it offers the Company's Securities; it is a member in good standing of the
National Association of Securities Dealers, Inc.; and it will maintain such
registration, qualifications and memberships throughout the term of this
Agreement. Further, the Participating Dealer agrees to comply with all
applicable federal laws; the laws of the state or other jurisdictions
concerned; and the Rules and Regulations of the National Association of
Securities Dealers, Inc. Further, the Participating Dealer agrees that it will
not offer or sell the Company's Securities in any state or jurisdiction except
where the Securities are qualified for sale. The Participating Dealer shall not
be entitled to any compensation during any period in which it has been
suspended or expelled from membership in the National Association of Securities
Dealers, Inc. The Participating Dealer will be advised concerning the states
where the Certificates have been registered for sale.
10. DEALER'S EMPLOYEES. By accepting this Agreement, the Participating
Dealer has assumed full responsibility for thorough and prior training of its
representatives concerning the selling methods to be used in connection with
the offer and sale of the Company's Securities, giving special emphasis to the
principles of full and fair disclosure to prospective investors and the
prohibition against "Free-Riding and Withholding."
11. PARTICIPATING DEALER'S INDEMNIFICATION. The Participating Dealer
hereby agrees to indemnify and to hold harmless the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15
of the Securities Act of 1933, as amended, from and against any and all losses,
claims, damages, or liabilities to which the Underwriter may become subject
under the Securities Act of 1933, as amended, or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon information contained in the Registration Statement,
or other documents filed with the Securities and Exchange Commission to the
extent such information is supplied by the Participating Dealer to the
Underwriter for inclusion therein, or are based upon alleged misrepresentations
or omissions to state material facts in connection with statements made by the
Participating Dealer or the Participating Dealer's salesmen orally or by other
means; and the Participating Dealer will reimburse the Underwriter for any
legal or other expenses reasonably incurred in connection with the
investigation of or the defending of any such action or claim. The Underwriter
shall, after receiving the first Summons or other legal process disclosing the
nature of the action being served upon it, in any proceeding in respect of
which indemnity may be sought by the Underwriter hereunder, promptly notify the
Participating Dealer in writing of the commencement thereof and the
Participating Dealer shall be entitled to participate in (and, to the extent
the Participating dealer shall wish, to direct) the defense, which shall be
conducted by counsel of good standing satisfactory to the Underwriter. If the
Participating Dealer shall fail to provide such defense, the Underwriter may
defend such action at the Participating Dealer's cost and expense. The
Participating Dealer's obligation under this paragraph shall survive the
termination of this Agreement.
12. COMPLIANCE WITH NASD BY-LAWS AND REGULATIONS. Each participating
dealer shall conduct itself in a manner consistent with the provisions of
Section 12 of Schedule E to the NASD By-Laws, and no transaction in the
Securities to be offered will be executed by any member in a discretionary
account without the prior specific written approval of the customer.
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Investor's checks will be transmitted directly to the Company by noon of
the next business day following receipt.
13. EXPENSES. No expenses will be charged to Participating Dealers. A
single transfer tax, if any, on the sale of the Securities by the Participating
Dealer to its customer will be paid when such Securities are delivered to the
Participating Dealer for delivery to its customers. However, the Participating
Dealer will pay its proportionate share of any transfer tax or any other tax
(other than the single transfer tax described above) if any such tax shall be
from time to time assessed against the Underwriter and other Participating
Dealers.
14. COMMUNICATIONS. All communications to the Underwriter should be sent
to the address shown in the opening paragraph of this Agreement. Any notice to
the Participating Dealer shall be properly given if mailed or telephone to the
Participating Dealer below. This Agreement shall be construed according to the
laws of the Commonwealth of Pennsylvania.
15. ASSIGNMENT AND TERMINATION. This Agreement may not be assigned by the
Participating Dealer without the Underwriter's consent. This Agreement will
terminate upon the termination of the Offering except that either party may
terminate this Agreement at any time by giving written notice to the other.
Accepted on:---------------------------- WELCO SECURITIES, INC.
Firm Name:------------------------------ -------------------------------
Kenneth S. Shapiro, President
By:-------------------------------------
(Signature)
Address:--------------------------------
Telephone:------------------------------
I.R.S. Employer Identification No.--------------------------
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April xx, 1996
Kenneth S. Shapiro, President
Welco Securities, Inc.
One Belmont Avenue, Suite 105
Bala Cynwyd, PA 19004
Re: Equipment Leasing Corporation of America Offering of $50,000,000 in
Demand and Fixed Rate Certificates
Dear Mr. Shapiro:
This letter will serve to confirm our engagement as a "qualified
independent underwriter" as that term is defined in Sections 2(o) (1) - (7) of
Schedule E to the NASD by-laws, as amended ("Schedule E").
Based upon our review of the registration statement, and the performance of
"due diligence" as required in Section 3 (c) (1) to Schedule E, it appears that
the yields on the Certificates (which are based upon the computation set forth
in exhibit A to the Agreement to Act as "Qualified Independent Underwriter"
dated April xx, 1996, which is filed as Exhibit to the registration statement
referred to hereafter,) being offered as of the date hereof as set forth on
Exhibit B, also attached thereto, are no lower than those which we would
recommend.
We hereby consent to the use of our name as a "qualified independent
underwriter," in the Registration Statement (SEC File No. 333-xxxxx).
Very truly yours,
J.E. Liss & Company, Inc.
By:-------------------------
Jerome E. Liss, President
cc: National Association of Securities Dealers, Inc.
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This agreement made as of the day of April xx, 1996, by and between
Equipment Leasing Corporation of America, a Delaware corporation ("ELCOA"),
Welco Securities, Inc., a Nevada corporation ("Welco"), and J.E. Liss & Company,
Inc., a Wisconsin Corporation ("Liss").
WITNESSETH:
WHEREAS, ELCOA intends to offer up to $50,000,000 in Certificates
(hereinafter referred to as "Debentures"), which will be offered in reliance on
a registration statement filed as Form S-2, bearing file number 333-xxxxx; and,
WHEREAS, Welco, a member of the National Association of Securities Dealers
("NASD"), will be engaged as the managing selling agent for its affiliate,
ELCOA; and,
WHEREAS, pursuant to Section 3 of Schedule E of the By-Laws of the NASD,
Welco, as a NASD member, may participate in such underwriting only if the yield
at which the Debentures offered to the public is not lower than the yield
recommended by a "Qualified Independent Underwriter" as that term is defined in
Section 2(1) (1) through 2(1) (7) of Schedule E to the By-Laws of the NASD, and
who participates in the preparation of the registration statement and
prospectus relating to the offering and exercises customary standards of due
diligence, with respect thereto; and,
WHEREAS, this agreement ("Agreement") describes the terms on which ELCOA is
retaining Liss to serve as such a "Qualified Independent Underwriter" in
connection with this offering of Debentures;
NOW, THEREFORE, in consideration of the recitations set forth above, and
the terms, promises, conditions, and covenants herein contained, the parties
hereby contract and agree as follows:
DEFINITIONS
-----------
As hereinafter used, except as the context may otherwise require, the term
"Registration Statement" means the registration statement on Form S-2
(including the related preliminary prospectus, financial statements, exhibits
and all other documents to be filed as a part thereof or incorporated therein)
for the registration of the offer and sale of the debentures under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Act") filed with the Securities and Exchange Commission (the
"Commission"), and any amendment thereto, and the term "Prospectus" means the
prospectus including any preliminary or final prospectus (including the form of
prospectus to be filed with the Commission pursuant to Rule 424(b) under the
Act) and any amendment or supplement thereto, to be used in connection with the
offering.
1. SCHEDULE E REQUIREMENT. Liss hereby confirms its agreement as set
forth in clause (6) of paragraph (1) of Section 2 of Schedule E of the By-Laws
of the NASD and represents that, as appropriate, Liss satisfies or at the times
designated in such paragraph (1) the other requirements set forth therein or
will receive an exemption from such requirements from the NASD.
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2. CONSENT. Liss hereby consents to be named in the Registration Statement
and Prospectus as having acted as a "Qualified Independent Underwriter" solely
for the purposes of Schedule E referenced herein. Except as permitted by the
immediately preceding sentence or to the extent required by law, all references
to Liss in the Registration Statement or Prospectus or in any other filing,
report, document, release or other communication prepared, issued or
transmitted in connection with the offering by ELCOA or any corporation
controlling, controlled by or under common control with ELCOA, or by any
director, officer, employee, representative or agent of any thereof, shall be
subject to Liss' prior written consent with respect to form and substance.
3. PRICING FORMULA AND OPINION. Liss agrees to render a written opinion as
to the yields below which ELCOA's Debentures may not be offered based on the
pricing formula that is set forth in Schedule "A", copies of which are attached
hereto, and incorporated herein by reference. Attached hereto as Exhibit B are
the rates offered on these securities as of the date first written above. It
is understood and agreed by Liss that the securities to which this Agreement
relates will be offered on a continuous, best efforts basis by Welco, as the
managing selling agent of ELCOA pursuant to the selling agreement in effect
between Welco and ELCOA which are filed as exhibits to the Registration
Statement referred to above. ELCOA, through Welco, will continue to offer the
debt securities according to the terms and conditions of said agreement,
including, without limitation, Schedule "A" in accordance with this Agreement.
Liss reserves the right to review and amend its opinion upon the filing of any
post-effective amendment to this Registration Statement or upon occurrence of
any material event which may or may not require such an amendment to be filed,
including without limitation an event which in the opinion of Liss results in
the pricing formula in Schedule A being rendered a less than accurate
prediction of reasonable market rates for the Certificates or at such time as
the offering under this registration shall terminate or otherwise lapse under
operation of law.
4. FEES AND EXPENSE. It is agreed that Liss shall be paid an amount of
Twenty-Five Thousand Dollars ($25,000.00) at the time the pricing opinion and
pricing formula are rendered, concurrent with the closing. Liss agrees to pay
all fees and expenses to any legal counsel whom it may employ to represent it
separately in connection with or on account of its actions contemplated herein.
All mailing, telephone, travel, hotel, meals, clerical, or other office costs
incurred or to be incurred by Liss in conjunction with ELCOA's proposed
offering which is the subject of this Agreement shall be reimbursed to Liss by
ELCOA at closing on an accountable basis upon receipt of an itemization of said
expenses. Any fees to be paid as a result of an amendment or restatement of
the pricing formula shall be separately negotiated.
5. MATERIAL FACTS. ELCOA represents and warrants to Liss that at the time
the Registration Statement or any amendment thereto becomes effective, the
Registration Statement and, at the time the Prospectus is filed with the
Commission including any preliminary prospectus and the form of prospectus
filed with the Commission pursuant to Rule 424(b) and at all times subsequent
thereto, to and including the date on which payment for, and delivery of, the
Debentures to be sold in the Offering is made by the underwriter or
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underwriters, as the case may be, participating in the Offering and by ELCOA
(such date being referred to herein as the "Closing Date"), the Prospectus (as
amended or supplemented if it shall have been so amended or supplemented) will
contain all material statements which are required to be stated therein in
accordance with the Act and will conform to all other requirements of the
federal securities laws, and will not, on such date include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
that all contracts and documents required by the Act to be filed or required as
exhibits to said registration statement have been filed. ELCOA further
represents and warrants that any future filing, report, document, release or
communication which in any way refers to Liss or to the services to be
performed by Liss pursuant to this Agreement will not contain any untrue or
misleading statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
ELCOA further warrants and represents that:
(a) All leases, contracts and agreements referred to in or filed as
exhibits to the Registration Statement to which ELCOA or its subsidiaries is a
party or by which any of them is bound are in full force and effect.
(b) ELCOA has good and marketable title, except as otherwise indicated
in the Registration Statement and Prospectus, to all of their assets and
properties described therein as being owned by them, free and clear of all
liens, encumbrances and defects except such encumbrances and defects which do
not, in the aggregate, materially affect or interfere with the use made and
proposed to be made of such properties as described in the Registration
Statement and Prospectus; and the Company and its subsidiaries have no material
leased properties except as disclosed in the Prospectus.
(c) ELCOA is duly organized under the laws of the State of Delaware
and, as of the effective date of the Registration Statement and at Closing
ELCOA will be validly existing and in good standing under the laws of the State
of Delaware with full corporate power and authority to own its properties and
conduct its business to the extent described in the Registration Statement and
Prospectus; ELCOA and its subsidiaries are duly qualified to do business as
foreign corporations and in good standing in all jurisdictions in which the
nature of the business transacted by them or their ownership of properties or
assets makes their qualification necessary; the authorized and outstanding
capitalization of ELCOA is as set forth in the Prospectus and the description
in the Prospectus of the capital stock of ELCOA conforms with and accurately
describes the rights set forth in the instruments defining the same;
(d) ELCOA is not in violation of its respective certificates of
incorporation or By-Laws or in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any bond,
debenture, note, or other evidence of indebtedness, contract or lease or in any
indenture or loan agreement to which any of them is party or by which any of
them is bound.
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(e) The execution, delivery and performance of this Agreement has
been duly authorized by all necessary corporate action on the part of ELCOA and
Welco and performance of the foregoing agreement and the consummation of the
transactions contemplated thereby, will not conflict with or result in a breach
of any of the terms or constitute a violation of the respective certificates of
incorporation or By-Laws of ELCOA or Welco, or any deed or trust, lease,
sublease, indenture, mortgage, or other agreement or instrument to which ELCOA
or Welco is a party or by which any of them or their property is bound, or any
applicable law, rule, regulation, judgment, order or decree of any government,
governmental instrumentality or court, domestic or foreign, having jurisdiction
over ELCOA or Welco or their properties or obligations; and no consent,
approval, authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated herein and in
the other agreements previously referred to in this paragraph except as may be
required under the Act or under any state securities or Blue Sky Laws.
(f) Any certificate signed by an officer of ELCOA and delivered to
Liss pursuant to this Agreement shall be deemed a representation and warranty
by ELCOA to Liss, to have the same force and effect as stated herein, as to the
matters covered thereby.
(g) If any event relating to or affecting ELCOA or any of its
subsidiaries shall occur as a result of which it is necessary, in Liss's
opinion, to amend or supplement the Prospectus in order to make the Prospectus
not misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, ELCOA undertakes to inform Liss of such events within
a reasonable time thereafter, and will forthwith prepare and furnish to Liss,
without expense to them, a reasonable number of copies of an amendment or
amendments or a supplement or supplements to the Prospectus (in form and
substance satisfactory to Liss) which will amend or supplement the Prospectus
so that as amended or supplemented it will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements therein not misleading in light of the circumstances existing at the
time the Prospectus is delivered to a purchaser.
(h) ELCOA hereby warrants and represents that it will offer the debt
securities described herein in accordance with the pricing formula set forth in
Schedule "A" which is incorporated by reference herein.
(i) All representations, warrantees and agreements contained in this
Agreement, or contained in certificates of officers of ELCOA submitted pursuant
hereto, shall remain operative and in full force and effect, surviving the date
of this Agreement.
6. AVAILABILITY OF INFORMATION. ELCOA hereby agrees to provide Liss, at
its expense with all information and documentation with respect to its
business, financial condition and other matters as Welco may deem relevant
based on the standards of reasonableness and good faith and shall request in
connection with Liss's performance under this Agreement, including, without
limitation, copies of all correspondence with the Commission, certificates of
its officers, opinions of its counsel and comfort letters from its auditors.
The above-mentioned certificates, opinions of counsel and comfort letters shall
be provided to Liss as Liss may request on the effective date of the
Registration Statement and on the Closing Date. ELCOA will make reasonably
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available to Liss, its auditors, counsel, and officers and directors to discuss
with Liss any aspect of ELCOA which Liss may deem relevant. In addition, ELCOA,
at Liss' request, will cause to be delivered to Liss copies of all
certificates, opinions, letters and reports to be delivered to the underwriter
or underwriters, as the case may be, pursuant to any underwriting agreement
executed in connection with the Offering or otherwise, and shall cause the
person issuing such certificate, opinion, letter or report to authorize Liss to
rely thereon to the same extent as if addressed directly to Liss. ELCOA
represents and warrants to Liss that all such information and documentation
provided pursuant to this paragraph 6 will not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statement therein misleading. In addition, ELCOA will promptly advise Liss of
all telephone conversations with the Commission which relate to or may affect
the Offering.
7. INDEMNIFICATION.
(a) Subject to the conditions set forth below, and in addition to any
rights of indemnification and contribution to which Liss may be entitled
pursuant to any agreement among underwriters, underwriting agreement or
otherwise, and to the extent allowed by law, ELCOA hereby agrees that it will
indemnify and hold Liss and each person controlling, controlled by or under
common control with Liss within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations thereunder (individually, an "Indemnified Person")
harmless from and against any and all loss, claim, damage, liability, cost or
expense whatsoever to which such Indemnified Person may become subject under
the Act, the Exchange act, or other federal or state statutory law or
regulation, at common law or otherwise, arising out of, based upon, or in any
way related or attributed to (i) this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or Prospectus or any other filing, report, document, release or
communication, whether oral or written, referred to in paragraph 5 hereof or
the omission or alleged omission to state therein material fact required to be
stated therein or necessary to make the statements therein not misleading,
(iii) any application or other document executed by ELCOA or based upon written
information furnished by ELCOA filed in any jurisdiction in order to qualify
the Debentures under the securities or Blue Sky Laws thereof, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iv) the
breach of any representation or warranty made by ELCOA in this Agreement.
ELCOA further agrees that upon demand by an Indemnified Person at any time or
from time to time, it will promptly reimburse such Indemnified Person for, or
pay, any loss, claim, damage, liability, cost or expense as to which ELCOA has
indemnified such person pursuant hereto. Notwithstanding the foregoing
provisions of this paragraph 7, any such payment or reimbursement by ELCOA of
fees, expenses or disbursement incurred by an Indemnified Person in any
proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against such
Indemnified Person as a direct result of such person's negligence, bad faith or
willful misfeasance will be promptly repaid to ELCOA. In addition, anything in
this paragraph 7 to the contrary notwithstanding, ELCOA shall not be liable for
any settlement of any action or proceeding effected without its written
consent.
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(b) Promptly after receipt by an Indemnified Person under paragraph (a)
above of notice of the commencement of any action, such Indemnified Person
will, if a claim in respect thereof is to be made against ELCOA under paragraph
(a), notify ELCOA in writing of the commencement thereof; but the omission to
so notify ELCOA will not relieve ELCOA from any liability which it may have to
any Indemnified Person otherwise than under this paragraph 7 if such omission
shall not have materially prejudiced ELCOA's ability to investigate or to
defend against such claim. In case any such action is brought against any
Indemnified Person, and such Indemnified Person notifies ELCOA of the
commencement thereof, ELCOA will be entitled to participate therein and, to the
extent that it may elect by written notice delivered to the Indemnified Person
promptly after receiving the aforesaid notice from such Indemnified Person, to
assume the defense thereof with counsel reasonable satisfactory to such
Indemnified Person; provided,_however, that if the defendants in any such
action include both the Indemnified Person and ELCOA or any corporation
controlling, controlled by or under common control with ELCOA, or any director,
officer, employee, representative or agent of any thereof, or any other
"Qualified Independent Underwriter" retained by ELCOA in connection with the
Offering and the Indemnified Person shall have reasonably concluded that there
may be legal defenses available to it which are different from or additional
to those available to such other defendant, the Indemnified Person shall have
the right to select separate counsel to represent it. Upon receipt of notice
from ELCOA to such Indemnified Person of its election so to assume the defense
of such action and approval by the Indemnified Person of counsel, ELCOA will
not be liable to such Indemnified Person under this paragraph 7 for any fees of
counsel subsequently incurred by such Indemnified Person in connection with the
defense thereof (other than the reasonable costs of investigation subsequently
incurred by such Indemnified Person) unless (i) the Indemnified Person shall
have employed separate counsel in accordance with the provision of the next
preceding sentence (it being understood, however, that ELCOA shall not be
liable for the expenses of more than one separate counsel in any one
jurisdiction representing the Indemnified Person, which counsel shall be
approved by Liss), (ii) ELCOA, within a reasonable time after notice of
commencement of the action, shall not have employed counsel reasonably
satisfactory to the Indemnified Person to represent the Indemnified Person, or
(iii) ELCOA shall have authorized in writing the employment of counsel for the
Indemnified Person at the expense of ELCOA, and except that, if clause (i) or
(iii) is applicable, such liability shall be only in respect of the counsel
referred to in such clause (i) or (iii).
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in paragraph 7 is due
in accordance with its terms but is for any reason held by a court to be
unavailable from ELCOA to Liss on grounds of policy or otherwise, ELCOA and
Liss shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) to which ELCOA and Liss may be subject in such
proportion so that Liss is responsible for that portion represented by the
percentage that its fee under this Agreement bears to the public offering price
appearing on the cover page of the Prospectus and ELCOA is responsible for the
balance, except as ELCOA may otherwise agree to reallocate a portion of such
liability with respect to such balance with any other person, including,
without limitation, any other "Qualified Independent Underwriter"; provided,_
however, that (i) in no case shall Liss be responsible for any amount in
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excess of the fee set forth in paragraph 4 above and (ii) no person guilty of
fraudulent misrepresentation within the meaning of Section 11(f) of the Act
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (c), any person
controlling, controlled by or under common control with Liss, or any partner,
director, officer, employee, representative or agent thereof, shall have the
same rights to contribution as Liss and each person who controls ELCOA within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, each
officer of ELCOA who shall have signed the Registration Statement and each
director of ELCOA shall have the same rights to contribution as ELCOA, subject
in each case to clause (i) of this paragraph (c). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against the other party under this paragraph (c),
notify such party from whom contribution may be sought, but the omission to so
notify such party shall not relieve the party from whom contribution may be
sought from any other obligation it or they may have hereunder or otherwise
than under this paragraph (c). The indemnity and contribution agreements
contained in this paragraph 7 shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Indemnified
Person or termination of this Agreement.
8. AUTHORIZATION BY ELCOA. ELCOA represents and warrants to Liss that
this Agreement has been duly authorized, executed and delivered by ELCOA and
constitutes a valid and binding obligation of ELCOA.
9. AUTHORIZATION BY WELCO. Welco represents and warrants to Liss that
this Agreement has been duly authorized, executed and delivered by Welco and
constitutes a valid and binding obligation of Welco.
10. AUTHORIZATION BY LISS. Liss represents and warrants to ELCOA that this
Agreement has been duly authorized, executed and delivered by Liss and
constitutes a valid and binding obligation of Liss.
11. NOTICE. Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall be mailed by first class
mail, postage prepaid, addressed (a) if to Welco, at One Belmont Avenue, Suite
105, Bala Cynwyd, PA 19004-9967, Attention: Kenneth S. Shapiro, and (b) if to
Liss, at Pfister Hotel, 424 E. Wisconsin Avenue, Milwaukee, WI 53202,
Attention: Jerome E. Liss.
12. GOVERNING LAW. This Agreement shall be construed (both as to validity
and performance) and enforced in accordance with and governed by the laws of
the Commonwealth of Pennsylvania applicable to agreements made and to be
performed wholly within such jurisdiction.
<PAGE>
<PAGE>112
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above mentioned.
EQUIPMENT LEASING CORPORATION OF AMERICA
By:
----------------------------------------
William Shapiro, President
By:
----------------------------------------
Lester Shapiro, Secretary
WELCO SECURITIES, INC.
By:
----------------------------------------
Kenneth S. Shapiro, President
By:
----------------------------------------
William Shapiro, Secretary
J.E. LISS & COMPANY, INC.
By:
----------------------------------------
Jerome E. Liss, President
<PAGE>
<PAGE>113
EXHIBIT_A
The opinion of Liss is conditioned upon ELCOA's undertaking to maintain
the rates on its Certificates at least equal to an "assumed floor", based upon
the pricing formula described below:
1. The interest rate to be paid on the Certificates shall be fixed by ELCOA
from time to time in accordance with the Prospectus.
2. The "assumed floor" for 3 to 24 month Certificates shall be at least 1%
above the interest rate on the 6 month U.S. Treasury Bills, on a discount
basis, based upon the auction average (which is published widely in
newspapers throughout the country, normally on the day following the
auction.)
3. The "assumed floor" for 25 to 60 month Certificates shall be at least 2%
above the 6-month U.S. Treasury Bill rate.
4. The "assumed floor" for Certificates over 60 months shall be at least 3%
above the U.S. Treasury Bill rates.
5. The "assumed floor" for Demand Certificates shall be at least 1% above the
interest rate on 6 month U.S. Treasury Bills.
6. The manner in which the 6-month U.S. Treasury Bill rate is to be
determined is to be disclosed in the "DESCRIPTION OF SECURITIES" section
of the Prospectus.
<PAGE>114
EQUIPMENT LEASING CORPORATION OF AMERICA
Obligor
AND
FIRST VALLEY BANK
Indenture Trustee
SIXTH SUPPLEMENTAL INDENTURE
Dated as of
April xx, 1996
SUPPLEMENTAL TO INDENTURE
Dated as of August 5, 1986
and supplements thereto dated
September 19, 1986,
September 20, 1988,
September 13, 1989,
August 17, 1990,
and
August 18, 1993
---------------
DEMAND CERTIFICATES
-------------------
FIXED RATE CERTIFICATES
-----------------------
THIS INDENTURE COVERS THE ISSUANCE
OF $50,000,000 IN DEMAND AND FIXED RATE CERTIFICATES
<PAGE>
<PAGE>115
SIXTH SUPPLEMENTAL INDENTURE dated as of April xx, 1996, between EQUIPMENT
LEASING CORPORATION OF AMERICA, a Delaware Corporation (hereinafter called the
"Company"), having its principal executive office at Suite 76, 501 Silverside
Road, Wilmington, Delaware 19809, and First Valley Bank, a Pennsylvania
Corporation, as Trustee (hereinafter called the "Trustee").
WHEREAS, the Company has heretofore executed and delivered its Indenture,
dated as of August 5, 1986 and supplements thereto dated September 19, 1986,
September 20, 1988, September 13, 1989, August 17, 1990, and August 18, 1993
(hereinafter called the "Original Indenture"), to the Trustee in connection
with an issue of certain debt obligations pursuant to the requirement of the
Trust Indenture Act of 1939, as amended; and
WHEREAS, the Company, pursuant to appropriate resolutions of its Board of
Directors desires to create under the Original Indenture an additional series
of debt obligations to be known as Demand and Fixed Rate Certificates, ranking
on party in all respects with previously authorized Variable Rate Money Market
Demand Thrift Certificates, Fixed Term Money Market Thrift Certificates, Demand
and Fixed Rate Certificates (hereinafter collectively called the "Certificates"
or the "Debentures" as those terms may be used interchangeably) ranking pari
passu to all previously authorized and outstanding Certificates; and
WHEREAS, the Company in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture and
pursuant to appropriate resolutions of its Board of Directors has duly resolved
and determined to make, execute and deliver to the Trustee, this Indenture to
register for sale an offering of debt securities known as Demand and Fixed Rate
Certificates collectively called the "Certificates" or the "Debentures" as
those terms may be used interchangeably) ranking pari passu to all previously
authorized and outstanding Certificates; and
WHEREAS, the Company in the exercise of the powers and authority conferred
upon and reserved to it under the provisions of the Original Indenture and
pursuant to appropriate resolutions of its Board of Directors has duly resolved
and determined to make, execute and deliver to the Trustee, this supplemental
indenture thereof, or otherwise, except as otherwise provided in the Original
Indenture or this Supplemental Indenture, as follows:
ARTICLE ONE
ss101 through 113
Sections ss101 through 113 of the Original Indenture are specifically
incorporated as ss101 through 113 hereof, respectively.
ARTICLE TWO
s201 FORMS GENERALLY
The Certificates and the Trustee's Certificates of Authentication shall be
in substantially the forms set forth in Exhibit A, attached hereto, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this and the Original Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon, as may be required to comply with the rules of any
securities exchange, or as may, consistently herewith, be determined by the
officers executing such Certificate as evidenced by their execution of the
Certificate.
<PAGE>
<PAGE>116
The definitive Certificate shall be printed, lithographed or engraved or
produced by any combination of these methods on a steel engraved border or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Certificate may be listed, all as determined by the
officers executing such Certificate, as evidenced by their execution of such
Certificate.
ARTICLE THREE
ss301 through 312
Sections ss301 through 312 of the Original Indenture are herein
incorporated as ss301 through ss312 hereof, respectively.
ARTICLE FOUR
ss401 through 402
Sections ss401 through 402 of the Original Indenture are herein
incorporated as ss401 through ss402 hereof, respectively.
ARTICLE FIVE
ss501 through 514
Sections s501 through 514 of the Original Indenture are herein incorporated
as ss501 through 514 hereof, respectively.
ARTICLE SIX
ss601 through 614
Sections ss601 through 614 of the Original Indenture are herein
incorporated as ss601 through 614 hereof, respectively.
ARTICLE SEVEN
ss701 through 704
Sections ss701 through 704 of the Original Indenture are herein
incorporated as ss701 through 704 hereof, respectively.
ARTICLE EIGHT
ss801 through 802
Sections ss801 through 802 of the Original Indenture are herein
incorporated as ss801 through 802 hereof, respectively.
<PAGE>
<PAGE>117
ARTICLE NINE
ss901 through 906
Sections ss901 through 906 of the Original Indenture are herein
incorporated as ss901 through 906 hereof, respectively.
ARTICLE TEN
ss1001 through 1008
Sections ss1001 through 1008 of the Original Indenture are herein
incorporated as ss1001 through 1008 hereof, respectively.
ARTICLE ELEVEN
ss1101 through 1108
Sections ss1101 through 1108 of the Original Indenture are herein
incorporated as ss1101 through 1108 hereof respectively.
ARTICLE TWELVE
ss1201
Section s1201 of the Original Indenture is herein incorporated as s1201
hereof.
1202. ADDITIONAL SECURITIES AUTHORIZED HEREUNDER
The aggregate principal amount of Demand and Fixed Rate Certificates which
may be authenticated and delivered under this Sixth Supplemental Indenture is
limited to an additional $50,000,000 in principal amount of Certificates which
may be offered in conjunction with those previously authorized under terms of
the Original Indenture (as supplemented.)
All of the Certificates to be issued under this sixth Supplemental
Indenture shall be as further described herein, and shall rank on parity with
each other and with the Certificates (represented by Variable Rate Money Market
Demand Thrift Certificates, Fixed Rate Money Market Thrift Certificates, Demand
and Fixed Rate Certificates) issued under the Original Indenture, as
supplemented.
ARTICLE THIRTEEN
S1301
Sections 1301 of the Original Indenture is herein incorporated as s1301
hereof.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE>
<PAGE>118
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
EQUIPMENT LEASING CORPORATION OF AMERICA
(Corporate Seal)
BY:-------------------------------------
PRESIDENT
ATTEST:
- -----------------------------------
SECRETARY
FIRST VALLEY BANK
(Corporate Seal)
BY:-------------------------------------
SENIOR VICE-PRESIDENT
ATTEST:
- -----------------------------------
TRUST OFFICER
<PAGE>
<PAGE>119
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF MONTGOMERY :
On the xxth day of April, 1996 before me personally came WILLIAM SHAPIRO,
to me known, who, being by me duly sworn, did depose and say that he is
President of EQUIPMENT LEASING CORPORATION OF AMERICA one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation, and that he signed his name thereto by like authority.
(Notorial Seal) -------------------------------
Notary Public
COMMONWEALTH OF PENNSYLVANIA :
: ss.
COUNTY OF NORTHAMPTON :
On the xxth day of April, 1996 before me personally came , Richard D. Rein
to me known, who, being by me duly sworn, did depose and say that he is a
Senior Vice President of FIRST VALLEY BANK, one of the corporations described
in and which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
Corporation, and that he signed his name thereto by like authority.
(Notorial Seal) -------------------------------
Notary Public
<PAGE>120
(Form of Face of Certificate)
EQUIPMENT LEASING CORPORATION OF AMERICA
DEMAND CERTIFICATE
CERTIFICATE NO. ISSUE DATE
Equipment Leasing Corporation of America, a Delaware corporation
(hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to
, or its registered assigns, the principal sum of
Dollars on the fifth business day of the month after the month during which
demand by Holder is received by the Company to pay or, at the election of the
Holder named above, accrue interest thereon at the rate of at least 1% above
the annualized interest rate paid on six-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. Interest is to be paid or accrued monthly on the 10th calendar day of
the month for the prior month or part thereof. The percentage above the six
month United States Treasury Bill is to be determined at the beginning of the
month by Company Order (or in the absence of any such order, such percentage
shall be deemed to be 1%), until the principal hereof and accumulated interest
thereon is paid or made available for payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to Registered Holder of this Certificate
(or one or more Predecessor Certificates, as defined in such Indenture) at the
close of business on the Regular Record Date for such interest payment which
shall be the fifteenth of the preceding month (whether or not a Business Day),
as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to
be payable to the registered holder on such Regular Record Date of and may be
paid to the Registered Holder of this Certificate (or one or more Predecessor
Certificates) at the close of business on a Special Record Date for the payment
of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of certificates not less than 10 days prior to such special
record date, or may be paid any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Certificates may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture. Payment of the
principal of (and premium, if any) and interest on this Certificate will be
made at the office or agency of the Company maintained for that purpose in the
City of Bethlehem, Commonwealth of Pennsylvania, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; PROVIDED, HOWEVER, that payment of
interest may be made at the option of the Company by check mailed to the
address of the Registered Holder as such address shall appear in the
Certificate Register.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
<PAGE>121
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee referred to on the reverse hereof by manual signature,
this Certificate shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed under its corporate seal.
This is one of the Certificates EQUIPMENT LEASING CORPORATION OF AMERICA
referred to in within-mentioned
indenture. Date:
FIRST VALLEY BANK as Trustee
By:-------------------------------------
By:------------------------------- President
Authorized Officer
Attest:---------------------------------
SEAL Secretary
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(NAME AND ADDRESS OF TRANSFEREE MUST BE PRINTED OR TYPEWRITTEN)
the within Certificate of EQUIPMENT LEASING CORPORATION OF AMERICA, and hereby
constitutes and
appoints --------------------------------------------------- Attorney
to transfer the same on the books of said Company.
Dated:------------------------------ -------------------------------
WITNESS:----------------------------
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
<PAGE>
<PAGE>122
(Form of Reverse of Certificate)
EQUIPMENT LEASING CORPORATION OF AMERICA
DEMAND CERTIFICATE
This Certificate is one of a duly authorized issue of Certificates of the
Company (herein called the "Certificates") issued and to be issued under an
Indenture dated April xx, 1996 (herein called the "Indenture") supplemental to
indentures dated as of August 18, 1993, August 17, 1990, September 13, 1989,
September 20, 1988, September 19, 1987, and August 5, 1986 between the Company
and First Valley Bank as Trustee (herein called the "Trustee") which term
includes any successor trustee under the Indenture. Reference is hereby made
to the Indenture for a statement of the respective rights thereunder of the
Company, the Trustee and the holders of the Certificates, and for the terms
upon which the Certificates are, and are to be, authenticated and delivered.
The Certificates are subject to redemption at any time by the Company, upon
not less than 60 days' notice by mail (or such shorter period as directed by
Company Order), at a Redemption Price equal to their principal amount, together
with accrued interest to the Redemption Date (but interest installments whose
Stated Maturity is on the Redemption Date will be payable to the Holders of
such Certificate, or one or more Predecessor Certificates, of record at the
close of business on the relevant Record Date referred to on the face hereof),
all as provided in the Indenture.
In the event of redemption of this Certificate in part only, this
Certificate shall be reissued for the unredeemed portion hereof in the name of
the Holder hereof under the same terms and conditions contained herein, and the
Company shall make such necessary entry or entries on its books of record to
record any partial redemption hereof.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Registered Holders of the Certificates under the
Indenture at any time by the Company and the Trustee. No such amendment,
without the consent of each of the holders of the aggregate principal amount of
the Certificates at the time Outstanding, as defined in the Indenture, shall
reduce the principal amount of or interest on any Certificate, change the
maturity date of the principal, the interest payment dates or other terms of
payment, reduce the percentage of holders necessary to modify or alter the
Indenture, or waive any default under the Indenture. The Indenture also
contains provisions permitting the holders of specified percentages in
aggregate principal amount of the Certificates at the time outstanding, as
defined in the Indenture, on behalf of the holders of all the Certificates, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the holder of this Certificate shall be conclusive and
binding upon such holder and upon all future holders of this Certificate and of
any Certificate issued upon the transfer hereof or in exchange herefor or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Certificate.
No reference herein to the Indenture and no provision of this Certificate
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any)
and interest on this Certificate at the times, places and rate, and in the coin
or currency, herein prescribed.
<PAGE>
<PAGE>123
As provided in the Indenture and subject to certain limitations therein set
forth, this Certificate is transferrable on the Certificate Register of the
Company, upon Surrender of this Certificate for registration of transfer at the
office or agency of the Company in the City of Bethlehem, Commonwealth of
Pennsylvania, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Certificate Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Certificates of authorized denominations and for the
same aggregate principal amount will be issued to the designated transferee or
transferees.
The Certificates are issuable only in registered form without coupons in a
minimum denomination of $100 and any additional amount as approved by the
Company. As provided in the Indenture and subject to certain limitations
therein set forth Certificates are exchangeable for a like aggregate principal
amount of Certificates of a different authorized denomination, as requested by
the Holder surrendering the same.
No service charge shall be made for any such transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, whether or not this Certificate is overdue, and
neither the Company, the Trustee nor any such agent shall be affected by notice
to the contrary.
<PAGE>124
(Form of Face of Certificate)
EQUIPMENT LEASING CORPORATION OF AMERICA
FIXED RATE CERTIFICATE
CERTIFICATE NO. ISSUE DATE
MATURITY DATE
RATE OF INTEREST
Equipment Leasing Corporation of America, a Delaware corporation
(hereinafter called the "Company", which term includes any successor
corporation under the Indenture hereinafter referred to), for value received,
hereby promises to pay to
, or its registered assigns, the principal sum of
after the date hereof and to pay or, at the election of the
Holder named above, accrue interest thereon at the rate of % per
annum, with interest to be paid or accrued monthly on the 10th calendar day of
the month for the prior month or part thereof, until the principal hereof and
any accumulated interest, if any, is paid or made available for payment. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date will, as provided in such Indenture, be paid to the registered
Holder of this Certificate (or one or more Predecessor Certificates, as defined
in such Indenture) at the close of business on the Regular Record Date for such
interest payment, which shall be the fifteenth of the preceding month (whether
or not a Business day), as the case may be, next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the registered holder on such Regular
Record Date, and may be paid to the registered Holder of this Certificate (or
one or more predecessor Certificates) at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to holders of Certificates not less than
10 days prior to such Special Record Dated, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Certificates may be listed, and upon such notice as may
be required by such exchange, all as more fully provided in such Indenture.
Payment of the principal of (and premium, if any) and interest on this
Certificate will be made at the office or agency of the Company maintained for
that purpose in the City of Bethlehem, Commonwealth of Pennsylvania, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; PROVIDED, HOWEVER, that
payment of interest may be made at the option of the Company by check mailed to
the address of the registered Holder entitled thereto as such address shall
appear in the Certificate Register.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
<PAGE>125
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee referred to on the reverse hereof by manual signature,
this Certificate shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this Certificate to be duly
executed under its corporate seal.
This is one of the Certificates EQUIPMENT LEASING CORPORATION OF AMERICA
referred to in the within-mentioned
indenture. Date:
FIRST VALLEY BANK as Trustee
By:-------------------------------------
By:-------------------------------- President
Authorized Officer
Attest:---------------------------------
SEAL Secretary
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(NAME AND ADDRESS OF TRANSFEREE MUST BE PRINTED OR TYPEWRITTEN)
the within Certificate of EQUIPMENT LEASING CORPORATION OF AMERICA, and
hereby constitutes and
appoints --------------------------------------------------------- Attorney
to transfer the same on the books of said Company.
Dated:------------------------------- -------------------------------
WITNESS:-----------------------------
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
<PAGE>
<PAGE>126
(Form of Reverse of Certificate)
EQUIPMENT LEASING CORPORATION OF AMERICA
FIXED RATE CERTIFICATE
This Certificate is one of a duly authorized issue of Certificates of the
Company (herein called the "Certificates") issued and to be issued under an
Indenture dated April xx, 1996 (herein called the "Indenture") Supplemental to
indentures dated as of August 18, 1993, August 17, 1990, September 13, 1989,
September 20, 1988, September 19, 1987 and August 5, 1986 between the Company
and First Valley Bank as Trustee (herein called the "Trustee") which term
includes any successor trustee under the Indenture. Reference is hereby made
to the Indenture for a statement of the respective rights thereunder of the
Company, the Trustee and the holders of the Certificates, and for the terms
upon which the Certificates are, and are to be, authenticated and delivered.
The Certificates are subject to redemption by the Company at any time upon
not less than 60 days' notice by mail or such period as directed by Company
Order, at a Redemption Price equal to their principal amount, together with
accrued interest to the Redemption Date (but interest installments whose Stated
Maturity is on the Redemption Date will be payable to the holders of such
Certificate, or one or more Predecessor Certificates, of record at the close of
business on the relevant Record Date referred to on the face hereof), all as
provided in the Indenture.
In the event of redemption of this Certificate in part only, this
Certificate shall be reissued for the unredeemed portion hereof in the name of
the holder hereof under the same terms and conditions contained herein, and the
Company shall make such necessary entry or entries on its books of record to
record any partial redemption hereof.
If an Event of Default, as defined in the Indenture, shall occur and be
continuing, the principal of all the Certificates may be declared due and
payable in the manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holder of the Certificates under the Indenture at
any time by the Company and the Trustee. No such amendment, without the
consent of each of the holders of the aggregate principal amount of the
Certificates at the time Outstanding, as defined in the Indenture, shall reduce
the principal amount of or interest on any Certificate, change the maturity
date of the principal, the interest payment dates or other terms of payment,
reduce the percentage of holders necessary to modify or alter the Indenture, or
waive any default under the Indenture. The Indenture also contains provisions
permitting the Holders of specified percentages in aggregate principal amount
of the Certificates at the time Outstanding, as defined in the Indenture, on
behalf of the holders of all the Certificates, to waive compliance by the
Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Certificate shall be conclusive and binding upon such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waivers is made upon this Certificate.
No reference herein to the Indenture and no provision of this Certificate
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any)
and interest on this Certificate at the times, places and rate, and in the coin
or currency, herein prescribed.
<PAGE>
<PAGE>127
As provided in the Indenture and subject to certain limitations therein set
forth, this Certificate is transferrable on the Certificate Register of the
Company, upon surrender of this Certificate for registration of transfer at the
office or agency of the Company in the City of Bethlehem, Commonwealth of
Pennsylvania, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Certificate Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing and
thereupon one or more new Certificates of authorized denominations and for the
same aggregate principal amount will be issued to the designated transferee or
transferees.
The Certificates are issuable only in registered form without coupons in a
minimum denomination of $100 and any additional amount as approved by the
Company. As provided in the Indenture and subject to certain limitations
therein set forth, Certificates are exchangeable for a like aggregate principal
amount of Certificates of a different authorized denomination, as requested by
the Holder surrendering the same.
The Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, whether or not this Certificate is overdue, and
neither the Company, the Trustee nor any such agent shall be affected by notice
to the contrary.
The Holder, at his option, shall have the right to earlier or partial
payment of the principal and accrued interest herein by the Company. A service
charge or penalty may be made for any such election, as set forth in the
Indenture.
If, after its Maturity Date, this Certificate is not presented for payment
by the Holder, and if the Company does not tender payment to the holder, this
Certificate shall be automatically converted into a Demand Certificate and the
rate and other terms shall be as set forth in the Indenture with respect to
such Certificate. Prior to the maturity dates, the Holder may, at his
election, request an extension of the terms and conditions herein for a like
period, and interest shall continue to accrue and be payable from the first day
of such extended period. This Certificate, as extended, will continue in all
of its provisions except that the interest rate payable during any extended
terms shall be the interest rate being offered by the Company as of this
Certificate's maturity on newly issued Certificates of like term.
<PAGE>128
April xx, 1996
Equipment Leasing Corporation of America
Suite 76
501 Silverside Rd.
Wilmington, DE 19809
Re: Equipment Leasing Corporation of America
Registration Statement on Form S-2
(Registration No. 333-xxxxx)
Gentlemen:
We have acted as counsel to Equipment Leasing Corporation of America (the
"Company") in connection with the preparation and filing with the Securities
and Exchange Commission of a registration statement on Form S-2 and amendment
thereto under the Securities Act of 1933 (No. 333-xxxxx) (the "Registration
Statement"), relating to the issuance and sale of an aggregate of $50,000,000
in principal amount of Demand and Fixed Rate Certificates (the "Certificates")
pursuant to the form of a sixth supplemental indenture to a trust indenture
entered into as of April xx, 1996, to an Indenture dated and supplements
thereto dated September 19, 1986, September 20, 1988, September 13, 1989,
August 17, 1990 and August 18, 1993 between the Company and First Valley Bank
of Bethlehem, Pennsylvania, as trustee (the "Indenture"), filed as Exhibit 4.17
to the Registration Statement, to be issued and sold by the Company on the
continuous, best-efforts basis.
In this connection, we have reviewed originals or copies, certified or
otherwise identified to our satisfaction, of the Company's Certificate of
Incorporation, the Company's By-laws, the Indenture, resolutions of its Board
of Directors and such other documents and corporate records as we deem
appropriate for the purpose of rendering this opinion.
Based on the foregoing, it is our opinion that the Certificates, when
issued and sold pursuant to the Indenture and in the manner contemplated by the
Registration Statement, will be valid and binding obligations of the Company.
The opinion expressed herein is subject in all respects to the following
qualifications: (a) no opinion is rendered as to the availability of equitable
remedies including, but not limited to specific performance and injunctive
relief, (b) the effect of bankruptcy, reorganization, insolvency, fraudulent
conveyance, moratorium and other similar laws or equitable principles affecting
creditors' rights or remedies; and (c) the effect of applicable laws and court
decisions which may now or hereafter limit or render unenforceable certain
rights and remedies.
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<PAGE>129
We do hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to reference to our firm under the caption "Legal
Opinion" in the Prospectus, which is part of the Registration Statement.
Very truly yours,
WILLIAM SHAPIRO, ESQ., P.C.
By:
---------------------------
<PAGE>130
<TABLE>
Exhibit 12.1
Equipment Leasing Corporation of America
Statement re: Computation of Ratios
<CAPTION> Nine Months Ended
Fiscal Years Ended April 30, January 31,
1995 1994 1993 1992 1991 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rent Expense $ 3,899 $ 3,804 $ 3,754 $ 3,737 $ 4,289 $ 2,996 $ 2,919
x.30 (A) x.3 x.3 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 1,287 899 876
Preferred Dividend
Requirements --- --- --- --- --- --- ---
Interest Expense (B) 1,380,989 1,626,408 1,380,546 1,060,579 824,241 1,095,555 1,048,583
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Fixed Charges 1,382,159 1,627,549 1,381,672 1,061,700 825,528 1,096,454 1,049,459
Plus: Pre-Tax Income (Loss) (654,005) (292,161) 158,415 338,355 227,286 (314,087) (209,383)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Pre-Tax Income, (Loss) Plus
Fixed Charges $ 728,154 $1,335,388 $1,540,087 $1,400,055 $1,052,814 $ 782,367 $ 840,076
Pre-Tax Income (Loss) Plus ----------- ---------- ---------- ---------- ---------- ---------- ----------
Fixed Charges divided
by Fixed Charges (rounded) .53 .82 1.11 1.32 1.28 .71 .80
<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, and $47,879 and $46,514 for the nine month
periods ended January 31, 1996, and 1995, respectively.
</TABLE>
<PAGE>131
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 incorporated by reference or included in
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
April 11, 1996
<PAGE>132
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SEC File # 22-
--------------------
- -------------------------------------------------------------------------------
Statement of Eligibility and Qualification Under the
Trust Indenture Act of 1939, as Amended, of a Corporation
Designated to Act as Trustee
-------------------
FIRST VALLEY BANK
(An Affiliate of Summit Bancorp)
(Exact Name of Trustee as Specified in Its Charter)
Pennsylvania 24-0525884
(State of Incorporation (I.R.S. Employer
if not a National Bank) Identification No.)
100 Brodhead Rd.
Newpointe Office Center
Bethlehem, Pennsylvania 18017
(610)-865-8459
(Address of Principal Executive Offices) (Zip Code)
------------------
EQUIPMENT LEASING CORPORATION OF AMERICA
(Exact Name of Obligor as Specified in Its Charter)
Delaware 23-2408914
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Suite 76, 501 Silverside Road
Wilmington, Delaware 19809
(Address of Principal Executive Officer) (Zip Code)
-------------------
DEMAND AND FIXED RATE CERTIFICATES
(Title of the Indenture Securities)
-------------------
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<PAGE>133
1. GENERAL INFORMATION. Furnish the following information as to the trustee---
(a) Name and address of each examining or supervising authority to which
it is subject.
FEDERAL DEPOSIT INSURANCE CORPORATION
452 Fifth Avenue
New York, NY 10018
PENNSYLVANIA DEPARTMENT OF BANKING
333 Market Street
16th Floor
Harrisburg, PA 17101-2290
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the
trustee, describe each such affiliation.
No such affiliation exists.
3. VOTING SECURITIES OF THE TRUSTEE. Furnish the following information as to
each class of voting securities of the trustee:
---------------------
As of March 15, 1996
Col. A Col. B
Title of Class Amount Outstanding
-------------- ------------------
Common Stock All Held by Summit Bancorp
---------------------
4. TRUSTEESHIPS UNDER OTHER INDENTURES. If the trustee is a trustee under
another indenture under which any other securities, or certificates of
interest or participation in any other securities, of the obligor are
outstanding, furnish the following information:
(a) Title of the securities outstanding under each such other indenture.
None
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1)
of the Act arises as a result of the trusteeship under any such other
indenture, including a statement as to how the indenture securities
will rank as compared with the securities used under such other
indenture.
Not Applicable
5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS. If the trustee or any of the directors or executive officers
of the trustee is a director, officer, partner, employee, appointee, or
representative of the obligor, identify each such person having any such
connection and state the nature of each such connection.
None.
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<PAGE>134
6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner and
executive officer of the obligor.
As of March 15, 1996
Col. A Col. B Col. C Col. D
Name of Title Amount Owned Percentage of Voting
Owner of Class Beneficially Securities Represented
by Amount Given in Col. C
------- -------- ------------ -------------------------
None
7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR OFFICIALS.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner and executive officer of each such underwriter.
As of March 15, 1996
Col. A Col. B Col. C Col. D
Name of Title Amount Owned Percentage of Voting
Owner of Class Beneficially Securities Represented
by Amount Given in Col. C
------- -------- ------------ -------------------------
None
8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE. Furnish the
following information as to securities of the obligor owned beneficially or
held as collateral security for obligations in default by the trustee:
As of March 15, 1996
Col. A Col. B Col. C Col. D
Title of Whether the Amount Owned Percent of
Class Securities Beneficially or Held Class Represented
are Voting as Collateral Security by Amount Given
or Nonvoting for Obligations in Col. C
Securities in Default
-------- ------------ ---------------------- -----------------
None
9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE. If the trustee
owns beneficially, or holds as collateral security for obligations in
default any securities of an underwriter for the obligor, furnish the
following information as to each class of securities of such underwriter
any of which as so owned or held by the trustee.
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<PAGE>135
As of March 15, 1996
Col. A Col. B Col. C Col. D
Title of Amount Amount Owned Beneficially Percent of
Issuer and Outstanding or Held as Collateral Class Represented
Title of Security for Obligations by Amount Given
Class in Default by Trustee in Col. C
---------- ----------- ------------------------- -----------------
None
10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR. If the trustee owns
beneficially or holds as collateral security for obligations in default
voting securities of a person who, to the knowledge of the trustee (1) owns
10% or more of the voting securities of the obligor or (2) is an affiliate,
other than a subsidiary, of the obligor, furnish the following information
as to the voting securities of such person.
As of March 15, 1996
Col. A Col. B Col. C Col. D
Title of Amount Amount Owned Beneficially Percent of
Issuer and Outstanding or Held as Collateral Class Represented
Title of Security for Obligations by Amount Given
Class in Default by Trustee in Col. C
---------- ----------- ------------------------- -----------------
None
11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON OWNING
50% OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR. If the trustee owns
beneficially or holds as collateral security for obligations in default any
securities of a person who, to the knowledge of the trustee, owns, 50% or
more of the voting securities of the obligor, furnish the following
information as to each class of securities of such person any of which are
so owned or held by the trustee.
As of March 15, 1996
Col. A Col. B Col. C Col. D
Title of Amount Amount Owned Beneficially Percent of
Issuer and Outstanding or Held as Collateral Class Represented
Title of Security for Obligations by Amount Given
Class in Default by Trustee in Col. C
---------- ----------- ------------------------- -----------------
None
12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE. If the obligor is indebted to
the trustee, furnish the following information.
Col. A. Col. B Col. C.
Nature of Amount Date
Indebtedness Outstanding Due
------------ ----------- -------
None
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<PAGE>136
13. DEFAULTS BY THE OBLIGOR
a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any
other securities, of the obligor are outstanding, or is trustee for more
than one outstanding series of securities under the indenture, state
whether there has been a default under any such indenture or series,
identity the indenture or series affected, and explain the nature of any
such default.
None.
14. AFFILIATIONS WITH THE UNDERWRITERS. If any underwriter is an affiliate of
the trustee, describe each such affiliation.
None
15. FOREIGN TRUSTEE. Identify the order or rule pursuant to which the foreign
trustee is authorized to act as sole trustee under indentures qualified or
to be qualified under the Act.
Inapplicable
16. LIST OF EXHIBITS. List below all exhibits filed as a part of this
statement of eligibility and qualification. Exhibits identified in
parenthesis, on file with the Commission, are incorporated herein by
reference as exhibits hereto.
1. Articles of Association and By-laws of First Valley Bank. Filed as
Exhibit 12(1) to Form T-1, Registration #22-19569, Filed July 10, 1989.
2. Certificate of Incorporation of First Valley Bank. (Filed as Exhibit
12(2) to Form T-1, Registration #22-19569, Filed July 10, 1989).
3. Authorization of the trustee to exercise corporate trust powers. (Filed
as Exhibit 12(3) to Form T-1, Registration #22-19569, Filed July 10,
1989).
4. By-Laws of Trustee. Filed as Exhibit 12(4) to Form T-1, Registration
#22-19569, Filed July 10, 1989.
5. There are no indentures referred to in Item 4.
6. Consents of the Trustee under Section 321(b) of the Trust Indenture Act.
"P" 7. A copy of the latest report of condition of First Valley Bank as of
December 31, 1995, published pursuant to law or the requirements of its
supervising or examining authority. (Attached hereto).
8. Inapplicable
9. Inapplicable
<PAGE>
<PAGE>137
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as Amended,
the trustee, First Valley Bank, a state banking association organized under the
Laws of the Commonwealth of Pennsylvania, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Bethlehem, State of Pennsylvania,
on the 12th day of April, 1996.
FIRST VALLEY BANK
/s/ Richard D. Rein
By:------------------------
Richard D. Rein
Senior Vice President
<PAGE>
<PAGE>138
Securities and Exchange Commission
Washington, D.C. 20549
RE: First Valley Bank, Trustee (An Affiliate of Summit Bancorp)
Equipment Leasing Corporation of America
Trust Indenture under SEC File No. 333-
________________________________________________________________
Gentlemen:
Pursuant to Section 321 (b) of the Trust Indenture Act of 1939, as Amended,
we consent that reports of examinations by Federal, State, Territorial of
District authorities may be furnished by such authorities to the Commission
upon request therefor.
FIRST VALLEY BANK
Dated: April 12, 1996 /s/ Richard D. Rein
By:---------------------------
Richard D. Rein
Title: Senior Vice President
