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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from _________________ to
_________________.
Commission file number 0-21370
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LEASING SOLUTIONS, INC
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0116801
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TEN ALMADEN BOULEVARD, SUITE 1500, SAN JOSE, CALIFORNIA 95113
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (408) 995-6565
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the average bid and asked prices of
such stock as of March 5, 1997, was $143,466,000. As of such date, 8,220,210
shares of the registrant's Common Stock were outstanding.
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 29, 1997, to be filed pursuant to Section 14 of
the Securities Exchange Act of 1934, are incorporated by reference in Part III
of this Form 10-K to the extent stated herein.
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
Leasing Solutions, Inc. (the ''Company'') is in the business of leasing
information processing and communications equipment to large, creditworthy
customers, primarily through vendor programs with equipment manufacturers. The
Company's focus is on operating leases because such leases provide the
opportunity for the Company to realize a substantial return through residuals
received upon remarketing the equipment to the original customer at the end of
the initial lease term. To date, the Company has purchased over $900 million of
equipment, representing over 300,000 assets. The Company has recently expanded
its operations to Western Europe.
The Company's vendor programs generally involve equipment purchase and
remarketing relationships with manufacturers. The Company has existing vendor
programs for the United States with Apple Computer, Dell Computer and NCR. The
Company also has a vendor program with Dell Computer for Western Europe. The
Company has reached an agreement in principle with Cisco Systems with respect to
a vendor program for Cisco's U.S. enterprise-level internetworking customers.
In addition, the Company has a lease financing relationship with a major systems
integrator.
The Company has over 400 master lease agreements in place with corporate
customers. Although the Company has leased and will continue to lease a variety
of information processing and communications equipment, it estimates that,
during 1996, desktop and laptop computers represented approximately 80% of its
Dollar Volume (Dollar Volume represents the total purchase price of equipment
placed under lease with customers).
The Company works directly with a vendor's sales force in the remarketing
process for equipment distributed by that vendor. The Company's vendor programs
generally involve residual sharing arrangements which provide financial
incentives for vendors to assist in the remarketing process. The Company
believes that the value of its equipment, and particularly equipment used in
client/server network environments, is greatest to the original customer due to
its "embedded" nature in the customer's operations. Therefore, the Company
seeks to maximize the amount of equipment that is remarketed in place to the
original customer in order to realize the considerably higher residual values
that may result from such remarketing, as compared to equipment sold or leased
to a third party.
CUSTOMERS
Through its vendor programs, the Company currently services over 400
customers in connection with its direct leasing activities. In addition, the
Company estimates that over an additional 1000 customers are serviced in
connection with its private-label leasing activities. Private-label leasing
involves a vendor leasing equipment to end-users on its own form of lease,
selling the lease and related equipment to the Company, and billing and
collecting the monthly rental payments under the lease on behalf of the Company.
The services and support provided by the Company include custom lease payment
streams and structures, short-term leasing, technology refresh leases, trial
leases, asset swaps and trade-ins, upgrade and add-on financing, renewal and
remarketing, personalized invoicing and asset management and reporting.
The Company's typical customers are large, creditworthy corporations that
require several million dollars of equipment per year and are repeat customers
for one or more of the Company's vendor relationships. Repeat business generated
through existing relationships is an important source of revenue for the
Company. As of December 31, 1996, over 90% of the lessees with whom the Company
has a master lease agreement have more than one lease supplement in place with
the Company. Additionally, once the Company has a master lease agreement with a
customer, its ability to lease other manufacturers' products to that customer is
enhanced.
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The ten largest customers of the Company, measured by Dollar Volume, during
1996 are listed alphabetically below. The total Dollar Volume associated with
these customers represented approximately 70% of the Company's total new lease
originations for 1996.
<TABLE>
<S> <C>
America Online Honeywell
Continental Information Technology Systems State of California
Dell Warner Lambert
Entergy Operations Western Digital
Ernst & Young LLP Xerox
</TABLE>
From 1994 through 1996 (and in 1996), approximately 75% of the Company's
total lease transactions (based on Dollar Volume) were with customers whose
credit ratings, or the credit ratings of their parent companies, were Baa or
better, as rated by Moody's Investor Services, or with customers who were not
rated but possess a credit profile equivalent to a Moody's Baa rating. While the
Company believes that its business is not dependent on any single customer,
during 1996, Ernst & Young, Xerox and the State of California accounted for
18.3%, 17.2% and 9.8%, respectively, of its revenues. In the event any of those
customers, and particularly Ernst & Young LLP (which represented approximately
40% of the Company's lease volume, by Dollar Volume, in 1996), or any of its
future significant customers ceases to lease additional equipment, or materially
reduces the amount of equipment it leases, from the Company in the future, and
such reduction in lease volume is not replaced by other existing or new
customers, the Company's operating results could be materially adversely
affected. The Company does not anticipate that Ernst & Young LLP will need to
lease equipment in 1997 at the same volumes as it has in 1996. See "Factors That
May Affect Future Operating Results" below.
LEASING AND SALES ACTIVITIES
Vendor Programs
A majority of the Company's business by Dollar Volume for 1996 was
generated through vendor programs. The Company currently has vendor programs
with Apple Computer, Dell Computer and NCR. The programs with equipment vendors
generally involve purchasing agreements and remarketing agreements. These
purchasing and remarketing agreements generally have terms of one year. Certain
of such agreements are extended automatically for one year terms, unless they
are terminated by either party upon the expiration of the then existing term
with prior written notice ranging from 90 to 180 days. Customers introduced to
the Company through its vendor programs typically acquire equipment from several
manufacturers, which results in additional lease volume to the Company from
"non-vendor" manufacturers. This non-vendor equipment is typically part of a
client/server network environment and remains in place along with the vendor's
equipment.
A description of each of the Company's vendors and the products that the
Company purchases or finances are as follows:
Apple Computer, Inc. Apple designs, manufactures and sells personal
computers and peripheral products. Its principal product line is the Macintosh
series of desktop and portable computers.
Dell Computer Corporation. Dell is a leading direct manufacturer of
computer systems and one of the largest personal computer manufacturers in the
world. Dell designs and customizes products and services to end-user
requirements, and offers an extensive selection of peripherals and software.
NCR Corporation. NCR's Enterprise Computing Division designs,
manufactures and sells mid-range and high-end commercial parallel processing
systems. Its products feature the Teradata parallel relational database system
that is capable of processing large volumes of transactions, as well as storing,
correlating and analyzing massive amounts of information.
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In August 1996, the Company reached an agreement in principle with Cisco
Systems with respect to a vendor program to provide lease financing for Cisco's
U.S. enterprise-level internetworking customers. The Company is currently
negotiating a formal agreement with Cisco with respect to such lease financing
services, and, although no assurances can be given, anticipates entering into
that formal agreement in the relatively near future. In the meantime, the
Company and Cisco have acted as though the formal agreement is in place and the
Company has made available its lease financing services to Cisco's customers.
A substantial majority of transactions entered into under a typical vendor
program are direct leases. Under these direct leases, lessees enter into master
lease agreements directly with the Company, rather than with the vendor. The
master lease agreement sets forth the basic terms and conditions under which the
Company will lease equipment to the lessee. The lease of specific equipment is
documented with a simple supplement to the master lease agreement, thereby
avoiding the necessity of negotiating a new master lease agreement each time the
lessee desires to acquire additional equipment. Such a lease structure also
makes it convenient for the lessee to acquire add-ons and/or upgrades to
equipment it has leased from the Company and for the Company to finance such
add-ons and upgrades. In 1996 these direct lease agreements accounted for
approximately 85% of the Company's lease volume, as measured by Dollar Volume.
Under a typical vendor program, the Company works with the lessee and the
vendor's sales personnel to help structure the initial lease. The Company
finances the lease, purchases the related equipment and administers the lease
(including billing and collecting). At the end of the initial lease term, the
Company and the vendor typically work together to remarket the equipment. See
"Remarketing" below.
Additionally, the Company has established a relationship with a systems
integrator who assists large users of information processing and communications
equipment with their network systems procurement and related financing
requirements. The Company has generated significant lease volume, and
anticipates generating significant lease volume in the future, with this systems
integrator. The equipment acquired by the Company from this systems integrator
is similar to those products provided through its vendor programs. When
estimating residual values and providing lease pricing for the products leased
through system integrators, the fact that the Company has no formal remarketing
agreement with these sources is taken into account.
Development Activities
The Company's objective is to leverage its existing customer relationships,
funding sources, regional leasing and support staff and back office operations
support organization by systematically adding new vendor programs and system
integrator relationships and expanding the scope of its existing programs and
relationships, including by increasing the geographic coverage of its vendor
programs outside the United States. See "International Expansion." This
objective is addressed by a dedicated group responsible for vendor and systems
integrator development activity. The Company believes that one of its major
strengths is its ability and willingness to customize its programs and
relationships to meet the other party's specific marketing and financial
objectives. The Company believes that this ability to customize its programs and
its willingness to make a capital investment in the equipment it acquires makes
it an attractive lease financing source for vendors and systems integrators
considering a lease financing program or relationship.
Once a vendor program agreement is signed or a systems integrator
relationship is established, the Company's implementation process with the
vendor's or systems integrator's organization commences. This extensive process
involves presentations and training sessions at various levels and in various
locations throughout the country in which the program is to be implemented.
These training programs familiarize the Company's sales employees with the other
party's products, customer base and methods of doing business, and the other
party's sales employees with the lease financing opportunities offered by the
Company which they may make available to their existing and prospective
customers. Recognizing that, with the addition of each new vendor program and
systems integrator relationship, the Company incurs significant incremental
costs in the implementation process, the Company intends to continue to be
selective in establishing additional programs and relationships in the future.
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Products Leased
The information processing and communications equipment that the Company
presently purchases for lease includes communication controllers, database
machines, desktop computers (which include laptop computers), display stations,
file servers, printers, tape and disk products, and network routers and
automatic switches. The majority of the equipment acquired by the Company since
1994 is utilized in client/server network environments.
Desktop and laptop computers represented approximately 80% of the equipment
purchased by the Company, as measured by Dollar Volume, in 1996. Approximately
60% of its Dollar Volume for 1996 was composed of equipment, principally
desktop and laptop computers, purchased under the Company's vendor programs with
Dell.
Lease Terms and Conditions
Substantially all of the Company's lease transactions are net leases with a
specified non-cancelable lease term. These non-cancelable leases have a "hell-
or-high-water" provision which requires the lessee to make all lease payments
under all circumstances. A net lease requires the lessee to make the full lease
payment and pay any other expenses associated with the use of equipment, such as
maintenance, casualty and liability insurance, sales or use taxes and personal
property taxes. The lessee also has the responsibility of obtaining the
additional items required under a net lease, such as maintenance and insurance.
However, many of the Company's more creditworthy customers are permitted to self
insure against equipment losses.
The vast majority of the leases the Company enters into have a lease term
of from two to four years. These leases are either operating leases or direct
finance leases. Generally leases having a term of three years or less are
classified as operating leases and leases having a term greater than three years
are classified as direct finance leases. Although the Company is principally
engaged in the business of writing operating leases, it has in the past entered
into direct finance leases for material amounts of equipment and expects to do
so again in the future, particularly in its European operations. See "MD&A --
Lease Accounting" for a further discussion of such leases.
Under certain of the Company's vendor programs, the Company offers the
vendor's customers "technology refresh" leases. These leases typically have a
24 or 36 month original term with an option permitting the lessee to exchange
the equipment subject to the lease for new equipment on or after a designated
date. Upon exercising the option, the term of the lease is extended so that its
balance is equal to the 24 to 36 month original term of the lease. The
"technology refresh" option permits the lessee to upgrade its equipment on
specified terms and provides an opportunity for the lease to be extended.
Remarketing
The results of the remarketing process ultimately determine the degree of
profitability of a lease transaction. The Company's remarketing strategy is to
keep its equipment installed in place at the end of the initial lease term.
Typically, remarketing equipment in place produces better residual returns than
equipment sold or leased to a third party. Prior to the expiration of the
original lease term, the Company initiates the remarketing process for the
related equipment. The Company is able to maximize its revenues and residual
return by focusing its efforts on keeping the equipment in place at the end of
the initial lease term by (1) re-leasing it to the initial lessee for a
specified term, (2) renting the equipment to the initial lessee on a month-to-
month basis, or (3) selling the equipment to the initial lessee. If the Company
is unsuccessful in keeping the equipment in place, it will attempt to sell or
lease the equipment to a different customer, or sell the equipment to equipment
brokers or dealers. Although the Company has been successful in remarketing in
place over a majority (as measured by Dollar Volume) of its equipment coming off
lease, no assurances can be given that the Company's past successes in
remarketing its equipment in place will be repeated in the future, primarily
because the Company has little history with respect to remarketing desktop
computers, which make up a substantial and growing percentage of the Company's
equipment portfolio. However, the Company believes that the residual value of
the equipment it leases to its customers that is used in client/server
networks, including desktop computers, is enhanced due to the "embedded"
nature of products in such networks and the resulting tendency for such
equipment to remain in place after the end of the original lease term. See
"Factors That May Affect Future Operating Results" below.
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Procedures and obligations of the Company and its vendors with respect to
remarketing are defined through the Company's equipment purchase and remarketing
agreements with vendors. The Company has dedicated significant resources,
through both its headquarters and field offices, to support the remarketing
effort. The Company's sales force usually works directly with the vendor's sales
force to remarket Company-owned equipment. The Company's sales personnel are
provided incentives to remarket such equipment. In addition, through payment of
a remarketing fee and a sharing of residual profits, the Company provides
incentives to vendors and their sales personnel, to assist in the remarketing
efforts.
The Company's historical experience in estimating residual values may not
be applicable to certain of the information processing and communications
equipment that the Company has recently purchased for lease. Approximately 55%
and 85% (by Dollar Volume) of such equipment purchased in 1995 and 1996,
respectively, was purchased pursuant to a vendor program entered into since
January 1993 or a lease financing relationship with a major systems integrator.
The initial lease terms of the leases to which any material amount of such
equipment is subject have not yet expired and, as a result, the Company does not
yet have meaningful remarketing experience with respect to such equipment.
Therefore, the Company's historical experience in estimating residual values may
not be applicable to such equipment. Accordingly, for that reason and others,
the Company's historical remarketing experience is not necessarily indicative of
future performance and no assurances can be given that the Company will be able
to achieve remarketing results in the future that are comparable to its
historical remarketing results.
Default and Loss Experience
The cumulative default and loss experience of the Company with respect to
lease payments under the leases in its portfolio as of December 31, 1994, 1995
and 1996 is set forth below.
<TABLE>
<CAPTION>
CUMULATIVE DEFAULT AND LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
FROM INCEPTION THROUGH
-----------------------------------------------------------------------------
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------- ----------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
TOTAL TOTAL TOTAL
AMOUNT ACQUISITIONS AMOUNT ACQUISITIONS AMOUNT ACQUISITIONS
------ ------------ ------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total Acquisitions (1)........... $486,176 $635,558 $917,900
Cumulative Gross Defaults (2)(4). $ 1,430 0.3% $ 1,526 0.2% $ 1,846 0.2%
Cumulative Recoveries (3)........ 883 0.2 904 0.1 989 0.1
-------- --- -------- --- -------- ---
Net Losses........................ $ 547 0.1% $ 622 0.1% $ 857 0.1%
======== === ======== === ======== ===
</TABLE>
_____________________________
(1) Total Acquisitions represents the total cost (aggregate purchase price of
the equipment) to the Company since inception in 1986 through and including
the date set forth above.
(2) Cumulative Gross Defaults represents the total defaults of all lessees
experienced by the Company since inception in 1986 through and including the
date set forth above measured as the aggregate of the Company's net book
value in such lease and any recorded receivable on such lease at the date of
default.
(3) Cumulative Recoveries represents the total recoveries with respect to
defaults of all lessees since inception of the Company in 1986 through and
including the date set forth above.
(4) A lessee is deemed to be in default when it fails to meet its obligations to
make monthly rental payments under its lease, and fails to cure such breach,
pursuant to the terms of the lease, and the Company declares the lessee in
"default" by written notice to the lessee.
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Process Control and Administrative Systems
The Company has developed an administration system and controls which
feature a series of checks and balances. The Company's system and controls are
designed to protect against entering into lease transactions that may have
undesirable economics or unacceptable levels of risk, without impeding the flow
of business activity or preventing its sales organization from being creative
and responsive to the needs of vendors and customers.
The Company's regional offices are each staffed with a Director of Leasing
("DOL") and at least one Contract Administrator who work with the vendors' sales
personnel to offer lease financing solutions to the vendors' end-user customers.
The Company is in the process of hiring assistant DOLs for several of its
regional offices. Once the Company commits to a lease transaction, its contract
administrators initiate a process of systematically preparing and gathering
relevant lease information and lease documentation. The contract administrators
are also responsible for monitoring the documentation through the Company's home
office documentation and review process. Prior to the Company entering into any
lease agreement, each transaction is evaluated based on the Company's pre-
determined standards regarding residual values, lease structure, lease
documentation and customer credit. The Company approves, and delivers
documentation to its customers, in most instances, in less than two business
days after a request for approval of the transaction has been submitted to the
Company's headquarters by one of its DOLs.
The Company utilizes an Investment Committee to review the residual values
it will use to price standard transactions. The Investment Committee also must
approve the pricing, including residual values, for all transactions involving
$1 million or more in aggregate purchase price of equipment if the pricing
parameters are outside previously approved guidelines. The Investment Committee
is composed of the Chief Executive Officer, Chief Financial Officer, Vice
President, Leasing, Vice President, Contract Administration, Controller, Vice
President-Corporate Finance and Treasurer of the Company. In addition, there is
a separate credit approval process whereby aggregate customer exposures up to
$2.5 million in aggregate purchase price require the approval of the Chief
Financial Officer. All transactions over $2.5 million in aggregate purchase
price require the additional approval of the President.
International Expansion
Commencing in early 1996, the Company embarked on a plan to increase its
geographic coverage for vendor programs by expanding its lease financing
activities outside the United States. The first step in this international
expansion was into Western Europe, and was accomplished in April 1996 with the
acquisition of a small independent leasing company in the United Kingdom. This
company focused on leasing information processing equipment. Since that time,
the Company has also opened leasing offices in Germany, France, Belgium and The
Netherlands. The Company has entered into a letter of intent to acquire an
equipment leasing portfolio in Canada. Although no assurances can be given, the
Company expects to complete that acquisition and be operational in Canada, with
several leasing offices, in the relatively near future.
The Company currently has a vendor program agreement in place with Dell
Computer, covering Western Europe. Although no assurances can be given, the
Company anticipates entering into other new vendor relationships covering
Western Europe in 1997. The Company may participate in additional international
markets in the future as may be necessary to meet the demands of existing and
prospective vendors.
Financing
The Company's financing strategy has been to obtain substantially all of
its required long-term borrowings from the proceeds of sales of nonrecourse,
secured debt securities in the public and private debt securities markets
through "securitizations" or by other similar secured financings. From time to
time, the Company will obtain long-term financing for one or more leases with a
single customer. Prior to securitizing its leases, the Company finances its
acquisition of equipment on a short-term basis through secured "warehouse"
lines of credit until such time as its portfolio of equipment is of sufficient
size to permit it to efficiently finance the portfolio on a long-term basis.
Payments under the Company's borrowings and the maturities of its long-term
borrowings are typically structured to match the payments due under the leases
securing the borrowings. Although the Company has not done so to date, it
6
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may engage in hedging transactions, pursuant to the hedging strategy approved by
its Board of Directors, in order to protect itself, when necessary, against
increases in interest rates prior to obtaining fixed rate, long-term financing
for its equipment. The Company recently expanded its operations to Western
Europe, and does not, as yet, have in place lines of credit to finance its
leasing activities in those countries. See "MD&A -- Liquidity and Capital
Resources" and "Factors That May Affect Future Operating Results" below.
Nonrecourse Debt. The credit standing of the Company's customers allows
the Company to obtain long-term financing for most of its leases on a
nonrecourse basis. Under such a nonrecourse loan, the Company typically borrows
an amount equal to the committed lease payments under the financed lease,
discounted at a fixed interest rate. The lender is entitled to receive the
monthly lease payments under the financed lease in repayment of the loan, and
takes a security interest in the related equipment and those lease payments. The
Company retains ownership of such equipment. Interest rates under this type of
financing reflect the financial condition of the lessees, the term of the
leases, the amount of the loan and the nature and manufacturer of the equipment.
Historically, such nonrecourse loans have provided between 80% and 90% of
the funds necessary to acquire equipment. The Company normally obtains the
balance of the acquisition cost, commonly known in the leasing industry as the
"equity investment" in the equipment, from the proceeds of recourse, and
occasionally nonrecourse, borrowings by the Company, from its internally
generated funds or from the proceeds of sales of convertible debt or its Common
Stock.
The Company is not liable for the repayment of nonrecourse loans unless the
Company breaches certain limited representations and warranties in the loan
agreements. The lender assumes the credit risk of each lease financed with
recourse debt, and its only recourse, upon a default under a lease, is against
the lessee and such equipment. Because the Company's ability to obtain
nonrecourse lease financing from lenders depends on the credit standing of its
lessees, the Company targets large, creditworthy customers. See "Customers"
above.
The Company utilizes the public and private debt securities markets,
through securitizations, to provide a substantial portion of the nonrecourse
debt it requires. The utilization of securitizations has reduced the Company's
effective interest cost for its nonrecourse debt. The Company expects to obtain
most of its long-term debt requirements in the future from the proceeds of sales
of such debt or similar securities in the public and private debt markets. See
"Factors That May Affect Future Operating Results" and "MD&A -- Liquidity and
Capital Resources."
In order to manage certain expected tax liabilities in Europe, the Company
may, from time to time, finance leases generated in Europe by selling the
related lease receivable. Under such arrangements, the Company would grant a
security interest in the underlying equipment, rather than sell it, and thus
retain its interest in the anticipated remarketing proceeds from the equipment.
Recourse Financing. The other significant source of financing for
equipment acquisitions by the Company is recourse borrowings, both long-term and
short-term. This type of financing has been used principally to ''warehouse''
portfolios of leases and the related equipment on a short-term basis, until the
Company is in a position to efficiently finance the portfolio on a long-term,
nonrecourse basis. In addition, when the Company finances its equity investment
in leased equipment with lenders, it often does so on a recourse basis. See
"Factors That May Affect Future Operating Results" and "MD&A -- Liquidity and
Capital Resources."
The loans available to the Company under recourse arrangements are
typically secured by the financed equipment and the monthly lease payments due
under the related lease. Upon default by a lessee under a lease covering
equipment financed through recourse borrowings, the financial institution
providing the financing can seek recourse from the Company for the balance due
on such financing.
7
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COMPETITION
The Company competes in the information processing and communications
equipment leasing marketplaces with other independent leasing companies, captive
lessors and bank affiliated lessors. The Company's business is highly
competitive, both with respect to obtaining and maintaining vendor program
arrangements and providing lease financing to end-user customers. The Company
competes directly with various independent leasing companies, such as El Camino
Resources, Comdisco, Leasetec and G.E. Capital, and certain captive or "semi-
captive" leasing companies such as IBM Credit Corporation. Many of the
Company's competitors have substantially greater resources and capital and
longer operating histories.
A substantial number of the Company's competitors are significantly larger,
and have substantially greater resources, than the Company. The Company's
relatively limited amount of capital places it at a disadvantage in relation to
its larger competitors, particularly in connection with financing lease
transactions involving large dollar volumes of equipment where the cost of the
equipment substantially exceeds the amount of debt available for such financing.
See "Factors That May Affect Future Operating Results."
The Company believes it competes on the basis of price, responsiveness to
customer needs, flexibility in structuring lease transactions, relationships
with its vendors and knowledge of its vendors' products. The Company has found
it most effective to compete on the basis of providing a high level of customer
service and by structuring custom vendor programs and lease transactions that
meet the needs of its vendors and customers. The Company also believes that its
cost of capital is comparable to that of its larger competitors, primarily due
to its financing strategy of utilizing the public and private debt securities
markets to finance its lease receivables. Other important elements that affect
the Company's competitiveness are the high degree of knowledge and competence of
its key employees, specifically relating to information processing and
communications equipment and operating lease financing.
EMPLOYEES
As of December 31, 1996, the Company had 117 employees; 24 of whom were
located in its regional or field offices in the United States, 16 of whom are
located in its European offices, and 77 of whom were located in its San Jose,
California home office. The Company intends to hire additional personnel over
the next twelve months. However, there can be no assurance that the Company will
be able to attract and retain personnel with the experience and expertise
necessary to meet its anticipated operating requirements. See "Factors That May
Affect Future Operating Results" below.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
In October 1996, the Company closed a public debt offering for $71,875,000
of Convertible Subordinated Notes subject to its Registration Statement, dated
September 20, 1996, as amended. That Registration Statement and the Prospectus,
dated October 3, 1996, which is a part of it (the "October Prospectus"), include
a section entitled "Risk Factors," which describes certain factors that may
affect future operating results of the Company. That section is hereby
incorporated by reference in this Report. Those factors should be considered
carefully in evaluating an investment in the Company's Common Stock. If you do
not have a copy of the Prospectus, you may obtain one by requesting it from the
Company's Investor Relations Department by phone, at (408) 995-6565, or by mail
at Leasing Solutions, Inc., 10 Almaden Boulevard, Suite 1500, San Jose,
California 95113.
8
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ITEM 2. PROPERTIES
The Company's home office is located in leased space at 10 Almaden
Boulevard, Suite 1500, San Jose, California 95113. The Company also leases
office space for its regional offices in the Atlanta, Boston, Chicago, Dallas,
New York and Los Angeles metropolitan areas. The aggregate monthly rent under
the Company's U.S. office leases, with respect to an aggregate of approximately
28,500 square feet, was approximately $50,000 as of December 31, 1996. The
Company also leases office space in the United Kingdom, France and Germany. The
aggregate monthly rent under the Company's European office leases, with respect
to an aggregate of approximately 7,100 square feet, was approximately $18,000 as
of December 31, 1996.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings, and is not
aware of any pending or threatened legal proceedings that would have a material
adverse effect upon its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS
TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security-holders of the Company
during the fourth quarter of 1996.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDERS MATTERS
DIVIDEND POLICY
The Company has never paid a dividend to shareholders and does not
anticipate paying a dividend in the foreseeable future, as the Company's Board
of Directors intends to retain earnings for use in the business. One of the
agreements with respect to the Company's secured bank lines of credit includes a
covenant which prohibits the Company from paying dividends in any year in excess
of 25% of its net income for that year. Any future determination concerning the
payment of dividends will depend upon any such dividend restrictions, the
Company's financial condition, the Company's results of operations, and such
other factors as the Board of Directors deems relevant.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol LSSI. The following table sets forth, for the periods indicated, the
high and low sales prices of the Common Stock as reported on the Nasdaq National
Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
First Quarter......................................... $10.375 $ 6.375
Second Quarter........................................ 12.000 9.125
Third Quarter......................................... 15.250 11.000
Fourth Quarter........................................ 16.250 12.500
1996
First Quarter......................................... $15.620 $12.500
Second Quarter........................................ 17.250 12.375
Third Quarter......................................... 30.250 13.000
Fourth Quarter........................................ 35.500 23.750
</TABLE>
As of December 31, 1996, there were approximately 150 shareholders of
record of the Company's Common Stock.
10
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Operating lease revenue...................... $23,730 $ 43,871 $ 55,319 $ 77,317 $141,838
Earned lease income.......................... 5,341 6,603 4,256 2,885 2,091
Other........................................ 1,032 344 512 474 667
------- -------- -------- -------- --------
Total revenues............................... 30,103 50,818 60,087 80,676 144,596
------- -------- -------- -------- --------
Costs and expenses:
Depreciation - operating leases.............. 14,209 29,830 37,781 51,164 96,256
Selling, general and administrative expenses. 6,197 7,435 7,294 8,584 12,300
Interest expense............................. 6,459 7,701 6,523 10,428 19,018
Other........................................ 250 391 837 641 1,100
------- -------- -------- -------- --------
Total costs and expenses..................... 27,115 45,357 52,435 70,817 128,674
------- -------- -------- -------- --------
Income before income taxes........................ 2,988 5,461 7,652 9,859 15,922
Provision for income taxes........................ 1,180 2,242 3,060 3,931 6,549
------- -------- -------- -------- --------
Net income........................................ $ 1,808 $ 3,219 $ 4,592 $ 5,928 $ 9,373
======= ======== ======== ======== ========
Net income per share.............................. $.43 $.66 $.75 $.93 $1.16
======= ======== ======== ======== ========
Shares used in computing per share amounts....... 4,247 4,884 6,096 6,373 8,077
======= ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in leases.......................... $68,577 $ 93,891 $124,621 $208,483 $376,960
Total assets.................................. 74,096 100,715 141,364 224,102 407,291
Recourse debt................................. 8,077 7,503 9,897 71,681 182,739
Nonrecourse debt.............................. 58,078 68,878 89,594 93,354 138,919
Shareholders' equity.......................... 3,744 11,099 24,438 30,912 63,556
</TABLE>
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LEASE ACCOUNTING
Since 1990, the Company has principally engaged in two types of lease
transactions which, in accordance with Statement of Financial Accounting
Standards No. 13 ("SFAS 13"), "Accounting for Leases", are classified as
operating leases or direct finance leases. The allocation of income among
accounting periods within a lease term will vary depending upon the lease
classification, as described below.
Direct Finance Leases. Direct finance leases transfer substantially all
benefits and risks of equipment ownership to the lessee. A lease is a direct
finance lease if the collectibility of lease payments is reasonably certain and
it meets one of the following criteria: (1) the lease transfers ownership of the
equipment to the lessee by the end of the lease term; (2) the lease contains a
bargain purchase option; (3) the lease term at inception is at least 75% of the
estimated economic life of the leased equipment; or (4) the present value of the
minimum lease payments is at least 90% of the fair value of the leased equipment
at inception of the lease.
Direct finance leases are recorded as "Investment in direct finance leases"
upon acceptance of the equipment by the customer. At the inception of the lease,
unearned lease income represents the amount by which the gross lease payments
receivable plus estimated residual value exceeds the equipment cost. Unearned
lease income is recognized, using the interest method, as earned lease income
over the lease term.
Operating Leases. All lease contracts which do not meet the criteria of
direct finance leases are accounted for as operating leases. Monthly lease
payments are recorded as operating lease revenues. Leased equipment is recorded,
at the Company's cost, as "Investment in operating leases" and depreciated on a
straight-line basis over the lease term to the estimated residual value at the
expiration of the lease term. The residual value of an item of leased equipment
is its fair market value at the expiration of the lease. Residual values are
estimated at the inception of the lease and reviewed quarterly over the term of
the lease. Estimated residual values of leased equipment may be adjusted
downward, if necessary. Decreases in estimated residual values are made as the
change in residual value becomes apparent, and are reflected over the remaining
term of the lease by increased depreciation expense for operating leases or by
decreased earned lease income for direct finance leases.
When equipment is sold, the net proceeds realized in excess of the
estimated residual value are generally recorded as a "Operating Lease Revenue",
or the amount by which the estimated residual value exceeds the net proceeds is
recorded as a loss. See "Business-Leasing and Sales Activities-Remarketing."
When equipment is re-leased, the Company continues to depreciate the equipment
in accordance with the Company's then current estimate of its residual value,
and the monthly lease payments are recorded as revenue when billed.
Substantially all of the leases which the Company enters into are
noncancelable transactions under which the obligor must make all scheduled
payments, maintain the equipment, accept the risk of loss of such equipment and
pay all equipment related taxes. See "Business - Leasing and Sales Activities -
Lease Terms and Conditions."
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1996
Revenues. Revenues increased $20,589,000, or 34%, from $60,087,000 in 1994
to $80,676,000 in 1995, and $63,920,000, or 79%, to $144,596,000 in 1996.
Operating lease revenue increased $21,998,000, or 40%, from $55,319,000 in 1994
to $77,317,000 in 1995, and $64,521,000, or 83%, to $141,838,000 in 1996. The
increase in operating lease revenue for both periods reflects a higher average
investment in operating leases, resulting from increases in operating leases
originated or acquired by the Company over the three year period. Earned lease
income decreased $1,371,000, or 32%, from $4,256,000 in 1994 to $2,885,000 in
1995, and $794,000, or 27%, to $2,091,000 in 1996, as a result of outstanding
direct finance leases being paid down and fewer new direct finance leases being
originated, due principally to the Company's focus on operating leases.
12
<PAGE>
Depreciation - Operating Leases. Depreciation increased $13,383,000, or
35%, from $37,781,000 in 1994 to $51,164,000 in 1995, and $45,092,000, or 88%,
to $96,256,000 in 1996. The increase in depreciation for both years is
principally the result of an increase in the operating lease base, resulting
from increases in operating leases originated or acquired by the Company over
the three year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $1,290,000, or 18%, from $7,294,000 in 1994 to
$8,584,000 in 1995, and $3,716,000, or 43%, to $12,300,000 in 1996. The
increase, for both years, is due to increased personnel costs and compensation
associated with the overall growth in leasing activities, particularly increases
in personnel in the Company's lease contract administration and information
systems to support such growth, and an increase in discretionary year end
bonuses from the prior year. In addition, a substantial increase in personnel
in 1996, resulting from the Company's expansion to Europe, was a significant
contributor to the increase in SG&A expenses in 1996. The 1996 SG&A expenses
were also significantly affected by increases in travel costs associated with
increased leasing activity and the commencement of the Company's operations in
Europe, and increased occupancy costs resulting from an expansion of the
Company's headquarters and the commencement of the Company's operations in the
United Kingdom.
Interest Expense. Interest expense increased $3,905,000, or 60%, from
$6,523,000 in 1994 to $10,428,000 in 1995, and $8,590,000, or 82%, to
$19,018,000 in 1996. The increase in interest expense in 1995 was due to higher
average recourse and nonrecourse debt outstanding, related to the higher average
investment in leases, and an increase in the Company's weighted average interest
rate. The increased rates in 1995 resulted principally from the issuance of
$17.5 million of nonrecourse subordinated debt to finance a portion of the
Company's then existing equity investments in leases, thus providing cash for
future equity investments in leases. The increase in 1996 was due to higher
recourse and nonrecourse debt outstanding, related to the higher average
investment in leases.
Income Taxes. Provisions for income taxes were 40.0%, 39.9% and 41.1% of
income before income taxes for the years 1994, 1995 and 1996, respectively. The
increase in the effective tax rates from 1995 to 1996 relates primarily to
changes in the geographic distribution of the Company's income to states with
higher tax rates.
Net Income. As a result of the foregoing factors, net income and net
income per share increased in each of the years ended December 31, 1994, 1995
and 1996. Net income increased $1,336,000, or 29%, from $4,592,000 in 1994 to
$5,928,000 in 1995, and $3,445,000, or 58%, to $9,373,000 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash flow from operations of $83,593,000 during 1996,
compared to net income of $9,373,000 for the same period. Cash flow from
operations was higher than net income primarily as a result of non-cash
expenses, such as depreciation and amortization, of $96,972,000, offset by uses
of cash in operations, including resulting changes in accounts receivable,
accounts payable, deferred income taxes, and other assets and liabilities,
totaling $22,752,000. Investing activities, which are primarily related to
investments in equipment for lease, used $262,388,000 during the period.
Financing activities generated $177,126,000 from $564,795,000 in new borrowings
of recourse and nonrecourse debt and $22,997,000 from the Company's issuance of
common stock in its public offering in February, 1996 and upon exercise of
options, aggregating $587,792,000, offset by repayment of capital lease
obligations and recourse and nonrecourse borrowings, aggregating $410,666,000.
Additionally, the impact of exchange rate changes on cash was $134,000. The net
result of the above activity for 1996 was a decrease in cash and cash
equivalents of $1,535,000.
The financing necessary to support the Company's leasing activities has
principally been provided from nonrecourse and recourse borrowings.
Historically, the Company has obtained recourse and nonrecourse borrowings from
money center banks, regional banks, insurance companies, finance companies and
financial intermediaries. In 1994, the Company, through its wholly-owned
subsidiary, Leasing Solutions Receivables, Inc., obtained long-term financing
for its leasing activity through the issuance of secured, nonrecourse debt
securities. Additionally, in January 1997, the Company, through its wholly-
owned subsidiary, Leasing Solutions Receivables II, Inc., obtained long-term
financing for its leasing activities through a commercial paper-backed conduit,
revolving $100,000,000, nonrecourse line of credit provided by an affiliate of
a money center bank. Borrowings under this facility of approximately
$51,000,000, as of January 31, 1997, bear interest at a rate of 7.4%. These
borrowings
13
<PAGE>
("Securitizations") are secured by lease receivables and the underlying
equipment financed under such arrangements.
In February, 1996, the Company closed a public stock offering in which it
sold 1,800,000 shares of the Company's Common Stock. The Company received net
proceeds of approximately $22,540,000 from the offering.
In October 1996, the Company closed a public debt offering for $71,875,000
of convertible subordinated notes. The notes constitute general unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future debt of the Company. The Company received net proceeds of
approximately $69,400,000 from the offering. The seven year notes bear interest
at a rate of 6.875% per annum and are convertible into the Company's Common
Stock at a conversion price of $34.90. Interest is payable in April and October
of each year. Principal is payable upon maturity in October 2003. The Company
may call, or prepay, all or a portion of the notes beginning in October 1999.
These equity and debt public offerings were made principally to raise "equity"
for the Company's purchase of equipment for lease to its customers.
Prior to the permanent financing of its leases, interim financing has been
obtained through short-term, secured, recourse facilities. The Company's
available credit under these short-term, recourse facilities totalled
$170,000,000 at December 31, 1996. A brief description of each of those
facilities follows.
(1) $155,000,000 revolving facility syndicated with ten banks, expiring
September 11, 1997. At December 31, 1996, $99,469,000, with a weighted
average interest rate of 7.3% per annum, was outstanding under this facility.
Borrowings under the facility bear an interest rate, at the Company's option,
of the agent bank's prime rate or LIBOR plus 135 basis points.
(2) $15,000,000 revolving facility with one bank, with borrowings
available through April 30, 1997, and repayments due 240 days after borrowing.
Borrowings under the facility bear interest at LIBOR plus 250 basis points.
The Company also has a $15,000,000 revolving facility, expiring October 15,
1997, with one bank. Borrowings under the facility bear interest at the bank's
prime rate. The proceeds of borrowings under this line are used exclusively to
fund certain accounts payable to one of the Company's vendors resulting from the
purchase of equipment for lease to one significant customer of the Company.
The Company presently expects to enter into a $15,000,000 revolving
facility with another bank in the reasonably near future. Borrowings under this
facility are expected to bear interest at the bank's prime rate plus 75 basis
points and the facility is expected to have a one year term. In addition to
interim financing of lease transactions, proceeds borrowed under this facility
are expected to be available for general corporate purposes.
The Company allowed the two facilities described above to expire. It did so
because it did not, at the time, need the availability provided by the
facilities, given the increase in availability under its syndicated line
described above in September 1996 and the almost $70,000,000 in net proceeds
received from its convertible debt offering described above.
In March 1996, the Company entered into a $100,000,000, nonrecourse
revolving facility with an affiliate of a money center bank. Although this
facility expired in March 1997, the Company expects to renew it in the
reasonably near future for an additional one year period. Borrowings under the
facility bear interest at a rate of 125 basis points over average life
treasuries at the time of borrowing. To date, the Company has refinanced
approximately $59,177,000 of borrowings under its other short-term facilities
through this facility. At December 31, 1996, $41,427,000 was outstanding under
this facility and the weighted average interest rate on that amount was 7.0%.
The Company expects to refinance, from time to time, under this facility,
additional borrowings under its other short-term facilities in order to fix the
interest rate for these borrowings.
Borrowings under the above-described facilities are generally secured by
lease receivables and the underlying equipment financed under the facility.
Payments under the Company's borrowings and the maturities of its long-term
borrowings are typically structured to match the payments due under the leases
securing the borrowings. The agreements for the facilities contain covenants
regarding leverage (a recourse liabilities-to-equity ratio of not more than 4.5
to 1), interest coverage, minimum net worth and profitability and a limitation
on the payment of dividends. At December 31, 1996, the Company had a recourse
liabilities-to-equity ratio of 3.2 to 1. If the Company finances, on a long-
term, nonrecourse basis, the equipment and related leases presently financed
under short-term, recourse facilities, its recourse liabilities to equity
ratio will decrease to below 1 to 1.
14
<PAGE>
Occasionally, the Company will obtain long-term, nonrecourse financing for
individual significant lease transactions at the time or shortly after it
purchases the related equipment. The Company borrowed an aggregate of
$52,257,000 under such arrangements in 1996. An aggregate of $80,797,000,
($11,395,000 of which is recourse), with a weighted average interest rate of
7.8% per annum, remained outstanding under all such arrangements as of December
31, 1996.
The Company's debt financing activities typically provide approximately 80%
to 90% of the purchase price of the equipment purchased by the Company for lease
to its customers. The 10% to 20% balance of the purchase price (the Company's
equity investment in equipment) must generally be financed by cash flow from its
operations, the proceeds of subordinated debt, or its equivalent, or recourse
debt, or common stock or convertible debt sold by the Company. Debt financing
for the Company's equity investment is not readily available in the marketplace
and may require an interest rate materially higher than is required by the
Company's conventional debt financing. Although the Company expects that the
credit quality of its lessees and its residual return history will continue to
allow it to obtain such financing, no assurances can be given that such
financing will be available, at acceptable terms or at all.
The arrangements under which the Company expects to finance its leasing
activities in Europe are likely to be substantially similar to the lease
financing arrangements utilized by the Company in the United States. The
Company's European subsidiaries will engage in nonrecourse and recourse
borrowings, with terms comparable to its domestic borrowings, to provide most of
the purchase price of equipment and finance its equity investment in equipment
from one or more of the equity sources described above. The Company has not yet
secured lines of credit to support its European leasing activities. However,
although no assurances can be given, it expects that one or more of such lines,
to be provided by both United States financial institutions currently lending to
the Company and by European financial institutions, will be put in place prior
to the end of the second quarter of 1997.
The Company's current lines of credit, if renewed or replaced, the
renewal of recently expired lines, its expected access to the public and
private securities markets, both debt and equity, anticipated new lines of
credit (both short-term and long-term and recourse and nonrecourse),
anticipated long-term financing of individual significant lease transactions,
and its estimated cash flow from operations are anticipated to provide
adequate capital to fund the Company's operations, including acquisitions and
financings under its vendor programs, for the next twelve months. Although no
assurances can be given, the Company expects to be able to renew or timely
replace its existing and recently expired lines of credit, to continue to have
access to the public and private securities markets, both debt and equity, and
to be able to enter into new lines of credit and individual financing
transactions.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's future quarterly operating results and the market price of
its stock may fluctuate. In the event the Company's revenues or earnings for any
quarter are less than the level expected by securities analysts or the market in
general, such shortfall could have an immediate and significant adverse impact
on the market price of the Company's stock. Any such adverse impact could be
greater if any such shortfall occurs near the time of any material decrease in
any widely followed stock index or in the market price of the stock of one or
more public equipment leasing companies or major customers or vendors of the
Company.
The Company's quarterly results of operations are susceptible to
fluctuations for a number of reasons, including, without limitation, as a result
of sales by the Company of equipment it has leased to its customers or of sales
of the lease receivables under the leases with its customers. Such sales of
equipment or lease receivables, which are an ordinary but not predictable part
of the Company's business, will have the effect of increasing revenues, and, to
the extent sales proceeds exceed net book value, net income, during the quarter
in which the sale occurs. Furthermore, any such sale may result in the reduction
of revenue, and net income, otherwise expected in subsequent quarters, as the
Company will not receive lease revenue from the sold equipment in those
quarters.
Given the possibility of such fluctuations, the Company believes that
comparisons of the results of its operations to immediately succeeding quarters
are not necessarily meaningful and that such results for one quarter should not
be relied upon as an indication of future performance.
15
<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
This report includes certain statements that may be deemed to be "forward-
looking statements." All statements, other than statements of historical facts,
included in this report that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future,
including, without limitation, with respect to demand and competition for the
Company's lease financing services and the products leased by the Company, the
continued availability to the Company of adequate financing, risks and
uncertainties of doing business in Europe and in other foreign countries, the
ability of the Company to recover its investment in equipment through
remarketing and the ability of the Company to manage its growth, are forward-
looking statements. These statements are based on certain assumptions and, in
certain cases, analyses made by the Company in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the circumstances.
Such statements are subject to a number of assumptions, risks or uncertainties,
including the risk factors described in the October Prospectus (See "Business-
Factors That May Affect Future Operating Results"), general economic and
business conditions, the business opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in laws or regulations and
other factors, many of which are beyond the control of the Company. Prospective
investors and existing shareholders are cautioned that any such statements are
not guarantees of future performance and that actual results or developments may
differ materially from those projected in forward-looking statements.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
The Company's consolidated financial statements at December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996 and
the Independent Auditors' Report thereon are contained on pages F-1 through F-16
of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT
Incorporated by reference from the section entitled "Election of Directors"
in the Registrant's Notice and Proxy Statement to be filed, pursuant to Section
14 of the Securities Exchange Act of 1934, with the Securities and Exchange
Commission in connection with the Registrant's Annual Meeting of Shareholders to
be held on May 29, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the section entitled "Executive Compensation
and Other Information" in the Registrant's Notice and Proxy Statement to be
filed, pursuant to Section 14 of the Securities Exchange Act of 1934, with the
Securities and Exchange Commission in connection with the Registrant's Annual
Meeting of Shareholders to be held on May 29, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the section entitled "Security Ownership of
Management and Principal Shareholders" in the Registrant's Notice and Proxy
Statement to be filed, pursuant to Section 14 of the Securities Exchange Act of
1934, with the Securities and Exchange Commission in connection with the
Registrant's Annual Meeting of Shareholders to be held on May 29, 1997.
ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
Not Applicable
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE,
AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
---------------------
<TABLE>
<CAPTION>
DESCRIPTION Page
- ------------------------------------------------------------------------------------- ----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - December 31, 1996 and 1995 F-2
Consolidated Income Statements - Years ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity - Years Ended December
31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULE:
----------------------------
<TABLE>
<CAPTION>
DESCRIPTION Page
- ------------------------------------------------------------------------------------- ----
<S> <C>
Schedule II Valuation and Qualifying Accounts S-1
</TABLE>
(3) EXHIBITS: The following exhibits are filed herewith:
--------
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<S> <C>
3.1(1) Articles of Incorporation of the Company, as amended to date.
3.2(1) By-Laws of the Company.
10.30(1) Form of Master Lease Agreement of the Company and form of supplement thereto.
10.31(8)(9) Employee Bonus Program.
10.32(8)(9) Deferred Income Plan.
10.33(1)(9) 1986 Stock Option Plan and form of Incentive Stock Option Agreement.
10.35(1) Stock Purchase Agreement, dated June 19, 1986, between Hal J Krauter and the Company.
10.36(1) Stock Purchase Agreement, dated July 17, 1986, between Louis R. Adimare and the Company.
10.37(1) Stock Purchase Agreement, dated August 11, 1987, between Louis R. Adimare and the Company.
10.38(1) Stock Purchase Agreement, dated July 13, 1990, between George L. Bragg and the Company.
10.39(1) Lease Agreement, dated June 18, 1988, between Almaden Tower Partners and the Company for
offices at 10 Almaden Blvd., San Jose, California, as amended.
10.39.1(2) Lease Amendment, dated June 28, 1993, between Almaden Tower Partners and the Company.
10.45(i)(2) Purchase Agreement Number 1, dated March 25, 1993, between Storage Technology Corporation
("STC") and the Company, as amended, without exhibits, including Bill of Sale and Assignment.
10.48(i)(2) Marketing Agreement, dated July 1, 1993, between Apple Computer, Inc. and the Company, as
amended.
10.49(13) Purchase Agreement Number 8, dated December 20, 1995, between STC and the Company,
without exhibits, including Bill of Sale and Assignment.
10.54(3)(9) 1994 Employee Stock Purchase Plan.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
10.55(4) Indenture, dated as of March 1, 1994, between Leasing Solutions Receivables, Inc. ("LSRI") and Bankers Trust
Company ("BTC"), and the Contribution and Servicing Agreement, Indemnification Agreement, and Insurance and
Indemnity Agreement related thereto.
10.56(6) Warehousing Loan and Security Agreement, dated as of May 31, 1994, between NationsBanc Leasing Corporation and
the Company ("NationsBanc Agreement").
10.56.1(6) Amendment to NationsBanc Agreement, dated October 3, 1994.
10.56.2(7) Amendment to NationsBanc Agreement, dated April 30, 1995.
10.56.3(7) Amendment to NationsBanc Agreement, dated August 6, 1995.
10.56.4(12) Amendment to NationsBanc Agreement, dated February 29, 1996.
10.59(4) Indenture, dated as of December 1, 1994, between LSRI and BTC, and the Contribution and Servicing Agreement,
Indemnification Agreement, and Insurance and Indemnity Agreement related thereto.
10.60(6) Indenture, dated as of March 1, 1995, between BTC and LSRI.
10.61(5) (9) 1995 Stock Option and Incentive Plan.
10.62(7) Marketing Agreement, dated June 1, 1995, between Dell Products, L.P. and the Company.
10.68(11) Lease Receivables Purchase Agreement, dated as of March 27, 1996, among CXC Incorporated, as Purchaser,
Citicorp North America, Inc., as Agent, and Leasing Solutions, Inc., as Seller and the Collection Agent.
10.69(12) Credit Agreement and Security Agreement between Leasing Solutions, Inc. and Wells Fargo Bank, National
Association, dated May 30, 1996.
10.71(8) Warehousing Credit Agreement and Security Agreement, dated September 13, 1996, among The First National Bank of
Boston, as agent, a syndicate of banks and the Company, as amended.
10.72(8) Marketing Agreement, dated July 24, 1996, between NCR Corporation and the Company.
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent and Report on Schedule, Deloitte & Touche LLP
24.1 Power of Attorney
27 Financial Data Schedule.
</TABLE>
(1) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-57944), as amended, originally filed with the
Securities and Exchange Commission on February 5, 1993, which Exhibit is
incorporated herein by this reference.
(2) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-74540), as amended, originally filed with the
Securities and Exchange Commission on January 28, 1994, which Exhibit is
incorporated herein by this reference.
(3) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-8 (Registration No. 33-85746), filed with the Securities and
Exchange Commission on October 28, 1994, which Exhibit is incorporated by
this reference.
(4) Previously filed as an Exhibit to LRSI's Registration Statement on Form S-3
(Registration No. 33-74394), as amended, filed with the Securities and
Exchange Commission on April 4, 1994, or LRSI's Form 8-K Current Report,
dated April 7, 1994, or LRSI's Form 8-K Current Report, dated December 15,
1994, filed with the Securities and Exchange Commission, which Exhibit is
incorporated herein by this reference.
(5) Previously filed as an Exhibit to the Company's Proxy Statement in
connection with its 1995 Annual Meeting of Shareholders.
(6) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1994, which Exhibit is incorporated
herein by this reference.
19
<PAGE>
(7) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-00740), as amended, originally filed with
the Securities and Exchange Commission on January 29, 1996, which Exhibit
is incorporated herein by this reference.
(8) Filed as an Exhibit to this Annual Report on Form 10-K Annual Report.
(9) Executive compensation plan or arrangement.
(10) Previously filed as an Exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 333-12355), as amended, originally filed with
the Securities and Exchange Commission on September 20, 1996, which Exhibit
is incorporated herein by this reference.
(11) Previously filed as an Exhibit to the Company's Quarterly Report for the
quarterly period ending March 31, 1996.
(12) Previously filed as an Exhibit to the Company's Quarterly Report for the
quarterly period ending June 30, 1996.
(13) Previously filed as an Exhibit to the Company's Annual Report on Form 10-K
for its fiscal year ended December 31, 1995.
(i) Confidential treatment has been accorded certain information contained in
this exhibit.
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended December 31, 1996.
20
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Hal J Krauter and Robert J. Kearns III, and each
of them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for him in any and all capacities, to sign any
and all amendments to this Report on Form 10-K and to file the same, with all
exhibits thereto and all documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intent and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute of substitutes, may
lawfully do or cause to be done or by virtue hereof.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant caused this report to be signed on its
behalf by the undersigned, there unto duly authorized.
LEASING SOLUTIONS, INC.
By: /s/ Hal J Krauter Dated: March 31, 1997
------------------------ -----------------
Hal J Krauter
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of Registrant in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- -------------------------- ------------------------ --------------
<S> <C> <C>
/s/ Hal J Krauter President, Chief Executive Officer, Chairman, March 31, 1997
- --------------------------
Hal J Krauter and Director (Principal Executive Officer)
/s/ Robert J. Kearns III Executive Vice President, Finance and Chief March 31, 1997
- --------------------------
Robert J. Kearns III Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
/s/ Louis R. Adimare Director March 31, 1997
- --------------------------
Louis R. Adimare
/s/ George L. Bragg Director March 31, 1997
- --------------------------
George L. Bragg
/s/ James C. Castle Director March 31, 1997
- --------------------------
James C. Castle
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Leasing Solutions, Inc.:
We have audited the accompanying consolidated balance sheets of Leasing
Solutions, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Leasing Solutions, Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 22, 1997
F-1
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents................. $ 6,888,000 $ 8,423,000
Accounts receivable....................... 11,534,000 4,068,000
Investment in direct finance leases-net... 15,088,000 18,461,000
Investment in operating leases-net........ 361,872,000 190,022,000
Property and equipment-net................ 2,338,000 1,527,000
Other assets.............................. 9,571,000 1,601,000
------------ ------------
TOTAL ASSETS......................... $407,291,000 $224,102,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable-equipment purchases...... $ 4,252,000 $ 19,376,000
Accrued and other liabilities............. 9,497,000 6,262,000
Recourse debt............................. 182,739,000 71,681,000
Nonrecourse debt.......................... 138,919,000 93,354,000
Capital lease obligations................. -- 143,000
Deferred income taxes..................... 8,328,000 2,374,000
------------ ------------
TOTAL LIABILITIES.................... 343,735,000 193,190,000
------------ ------------
COMMITMENTS (Note 8)...................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, authorized 5,000,000
shares; none outstanding
Common stock, authorized 20,000,000
shares;shares outstanding:
1996 - 8,170,836; 1995 - 6,263,930....... 37,658,000 14,661,000
Retained earnings......................... 25,624,000 16,251,000
Accumulated translation adjustment........ 274,000 --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY................ 63,556,000 30,912,000
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY................. $407,291,000 $224,102,000
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES
Operating lease revenue............... $141,838,000 $77,317,000 $55,319,000
Earned lease income................... 2,091,000 2,885,000 4,256,000
Interest income....................... 393,000 462,000 327,000
Other................................. 274,000 12,000 185,000
------------ ----------- -----------
TOTAL REVENUES................... 144,596,000 80,676,000 60,087,000
------------ ----------- -----------
COSTS AND EXPENSES
Depreciation - operating leases....... 96,256,000 51,164,000 37,781,000
Selling, general and administrative... 12,300,000 8,584,000 7,294,000
Interest.............................. 19,018,000 10,428,000 6,523,000
Other................................. 1,100,000 641,000 837,000
------------ ----------- -----------
TOTAL COSTS AND EXPENSES......... 128,674,000 70,817,000 52,435,000
------------ ----------- -----------
INCOME BEFORE INCOME TAXES................. 15,922,000 9,859,000 7,652,000
PROVISION FOR INCOME TAXES................. 6,549,000 3,931,000 3,060,000
------------ ----------- -----------
NET INCOME................................. $ 9,373,000 $ 5,928,000 $ 4,592,000
============ =========== ===========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE............... $ 1.16 $ .93 $ .75
============ =========== ===========
COMMON AND COMMON EQUIVALENT SHARES........ 8,077,000 6,373,000 6,096,000
============ =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
ACCUMULATED
RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1994........................... 5,042,434 $ 5,368,000 $ 5,731,000 -- $11,099,000
Issuance of common stock............................ 1,009,190 8,564,000 -- -- 8,564,000
Exercise of stock options........................... 85,305 78,000 -- -- 78,000
Tax benefit of stock option transactions............ -- 105,000 -- -- 105,000
Net income.......................................... -- -- 4,592,000 -- 4,592,000
--------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1994......................... 6,136,929 14,115,000 10,323,000 -- 24,438,000
Issuance of common stock............................ 10,122 87,000 -- -- 87,000
Exercise of stock options........................... 116,879 190,000 -- -- 190,000
Tax benefit of stock option transactions............ -- 269,000 -- -- 269,000
Net income.......................................... -- -- 5,928,000 -- 5,928,000
--------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1995......................... 6,263,930 14,661,000 16,251,000 -- 30,912,000
Issuance of common stock............................ 1,854,705 22,616,000 -- -- 22,616,000
Exercise of stock options........................... 52,201 221,000 -- -- 221,000
Tax benefit of stock option transactions............ -- 160,000 -- -- 160,000
Accumulated translation adjustment.................. -- -- -- $274,000 274,000
Net income.......................................... -- -- 9,373,000 -- 9,373,000
--------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1996......................... 8,170,836 $37,658,000 $25,624,000 $274,000 $63,556,000
========= =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................................... $ 9,373,000 $ 5,928,000 $ 4,592,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization...................................... 96,972,000 51,655,000 38,136,000
Provision for uncollectible amounts................................ 55,000 -- 5,000
Deferred income taxes.............................................. 5,954,000 1,415,000 820,000
Changes in assets and liabilities:
Accounts receivable............................................... (7,196,000) (1,655,000) (157,000)
Other assets...................................................... (8,914,000) 88,000 (1,018,000)
Accounts payable - equipment purchases............................ (15,381,000) 7,499,000 5,334,000
Accrued and other liabilities..................................... 2,730,000 1,982,000 (1,904,000)
------------- ------------- ------------
Net cash provided by operating activities............................ 83,593,000 66,912,000 45,808,000
------------- ------------- ------------
INVESTING ACTIVITIES
Property and equipment purchases..................................... (1,527,000) (921,000) (636,000)
Cash received over revenue recognized................................ 19,701,000 14,356,000 17,052,000
Cash paid for acquisitions, net of cash received..................... (1,100,000) -- --
Cost of equipment acquired for lease................................. (279,462,000) (149,382,000) (82,980,000)
Cost of equipment acquired for lease-related party................... -- -- (2,588,000)
------------- ------------- ------------
Net cash used for investing activities............................... (262,388,000) (135,947,000) (69,152,000)
------------- ------------- ------------
FINANCING ACTIVITIES
Borrowings:
Nonrecourse........................................................ 119,035,000 61,307,000 114,600,000
Recourse........................................................... 445,760,000 105,597,000 76,428,000
Repayments:
Nonrecourse........................................................ (75,821,000) (57,547,000) (93,884,000)
Recourse........................................................... (334,702,000) (43,813,000) (74,034,000)
Issuance of common stock............................................. 22,997,000 277,000 8,747,000
Repayment of capital lease obligations............................... (143,000) (69,000) (50,000)
------------- ------------- ------------
Net cash provided by financing activities............................ 177,126,000 65,752,000 31,807,000
------------- ------------- ------------
IMPACT OF EXCHANGE RATE CHANGES
ON CASH............................................................. 134,000 -- --
------------- ------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... (1,535,000) (3,283,000) 8,463,000
CASH AND CASH EQUIVALENTS
Beginning of year.................................................. 8,423,000 11,706,000 3,243,000
------------- ------------- ------------
End of year........................................................ $ 6,888,000 $ 8,423,000 $ 11,706,000
============= ============= ============
</TABLE>
F-5
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. THE BUSINESS
Leasing Solutions, Inc. (the "Company") was incorporated in California and
commenced operations in June 1986. The Company is principally a vendor leasing
company engaged in the business of leasing information processing and
communications equipment, primarily to large, domestic, creditworthy customers
in a variety of industries. In February 1994, the Company formed a wholly-owned
subsidiary, Leasing Solutions Receivables, Inc., as a special purpose
corporation to issue debt securities collateralized by lease receivables and the
underlying leased equipment.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries, Leasing Solutions
Receivables, Inc. and Leasing Solutions International, LTD., after elimination
of intercompany accounts and transactions.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets, liabilities, revenues
and expenses as of the dates and for the periods presented. Such management
estimates include the allowance for doubtful accounts receivable, residual
values on leased equipment, certain accruals and the valuation allowance for
deferred tax assets. Actual results could differ from those estimates.
Cash and cash equivalents - Cash equivalents are highly liquid debt
instruments with a remaining maturity of three months or less from date of
purchase by the Company. At December 31, 1996 and 1995, $3,429,000 and
$3,983,000, respectively, of such amount was restricted in connection with
certain debt securities issued by the Company and was not available for other
uses (see Note 7).
Investment in direct finance leases - Lease contracts (whether financed
with recourse or nonrecourse debt) which meet the appropriate criteria specified
in Statement of Financial Accounting Standards (SFAS) No. 13, "Accounting For
Leases" are classified as direct finance leases. Direct finance leases are
recorded upon acceptance of the equipment by the customer. Original unearned
lease income represents the excess of the gross lease receivable and estimated
residual value over the equipment cost. Unearned lease income is recognized as
revenue (earned lease income) over the lease term at a constant rate of return
on the net investment in the lease.
Investment in operating leases - Leases which do not meet the criteria of
direct finance leases are accounted for as operating leases. Leased equipment is
recorded at cost and depreciated over the lease term, to the estimated residual
value at the expiration of the lease term, generally on a straight-line basis.
Purchased portfolios of certain leases are depreciated on an accelerated method.
The Company reviews estimated net realizable values on a regular basis and
adjustments are made as necessary.
Initial direct costs are capitalized and amortized over the original lease
term.
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over estimated useful lives, which range from three to
five years.
F-6
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of" effective
January 1, 1995. The adoption of this statement had no effect on the Company's
financial condition or results of operations.
Income taxes - Income taxes are reported using the asset and liability
approach, in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes".
Net income per share - Net income per common and common equivalent share is
computed by dividing net income by the weighted average number of common shares
and dilutive common share equivalents (stock options and warrants) outstanding
during the year. The difference between primary and fully diluted net income per
share is not significant in any year.
Stock-based compensation - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Foreign currency translation. - The assets and liabilities of foreign
subsidiaries are translated at year end rates of exchange and revenues and
expenses are translated at the average rates of exchange for the year. Gains
and losses from translation are recorded directly into a separate component of
stockholders' equity.
Concentrations of credit risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
equivalents, short-term investments and accounts receivable. The Company's
leases are generally with large creditworthy lessees. Management believes that
its credit evaluation, approval and monitoring processes substantially mitigate
potential credit risks.
Recent Accounting Pronouncement - In June 1996, Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (SFAS 125), was issued.
SFAS 125 establishes accounting and reporting standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
Certain significant risks and uncertainties - During fiscal 1996, three
customers accounted for a total of 45% of the Company's revenues. There can be
no assurance that loss of any of these customers would not have a material
adverse impact on the Company's results of operations.
Reclassifications - Certain items have been reclassified in the prior
period financial statements to conform to the 1996 presentation and had no
effect on net income or shareholders' equity.
3. INVESTMENT IN DIRECT FINANCE LEASES
Investment in direct finance leases represents equipment leased for up to
five years. The components of the net investment in direct finance leases, as of
December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Minimum lease payments receivable..................................... $15,397,000 $19,832,000
Estimated unguaranteed residual value................................. 1,609,000 1,372,000
Initial direct costs - net............................................ 12,000 73,000
Unearned lease income................................................. (1,930,000) (2,816,000)
----------- -----------
Investment in direct finance leases-net............................... $15,088,000 $18,461,000
=========== ===========
</TABLE>
Interest rates implicit in the leases generally range from 5% to 22%.
F-7
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT IN OPERATING LEASES
Investment in operating leases primarily represents equipment leased for
two to three years. The components of the net investment in operating
leases, as of December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Equipment under operating leases................... $ 560,128,000 $ 301,255,000
Initial direct costs - net......................... 4,316,000 1,664,000
Accumulated depreciation........................... (202,404,000) (112,784,000)
Allowance for doubtful accounts.................... (168,000) (113,000)
------------- -------------
Investment in operating leases - net............. $ 361,872,000 $ 190,022,000
============= =============
</TABLE>
5. FUTURE MINIMUM LEASE PAYMENTS
Future minimum lease payments to be received by the Company on direct
finance leases and noncancelable operating leases, as of December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31 DIRECT
------------------------
FINANCE OPERATING
LEASES LEASES
------ ------
<S> <C> <C>
1997............................................... $ 6,025,000 $ 140,783,000
1998............................................... 4,703,000 97,178,000
1999............................................... 3,191,000 37,839,000
2000............................................... 1,375,000 616,000
2001............................................... 103,000 83,000
------------ -------------
TOTAL.............................................. $ 15,397,000 $ 276,499,000
============ =============
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment, as of December 31, consist of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Equipment and software............................ $ 3,691,000 $ 2,399,000
Furniture......................................... 613,000 245,000
------------- -------------
Total............................................. 4,304,000 2,644,000
Accumulated depreciation.......................... (1,966,000) (1,117,000)
------------- -------------
Property and equipment - net...................... $ 2,338,000 $ 1,527,000
============= =============
</TABLE>
7. DEBT AND CREDIT FACILITIES
The Company and its wholly-owned subsidiary, Leasing Solutions Receivables,
Inc. (the "Subsidiary"), utilize their lease receivables and the underlying
leased equipment as collateral to obtain debt financing, on either a recourse or
nonrecourse basis for the acquisition of equipment for lease. Principal and
interest payments on the debt are generally due monthly in amounts that are
approximately equal to the total payments due from the lessee under the leases
that collateralize the debt. Under recourse financing, in the event of a default
by a lessee, the lender has recourse against the lessee, the equipment serving
as collateral, and the Company. Under nonrecourse financing, in the event of a
default by a lessee, the lender generally only has recourse against the lessee
and the equipment serving as collateral, but not against the Company's other
assets.
F-8
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Prior to 1994, the Company obtained debt financing for its leasing
activity primarily from banks, insurance and finance companies, and financial
intermediaries. In 1994, the Company, through the Subsidiary, initiated a
program to provide long-term, permanent financing for a substantial portion of
its leasing activity through the issuance of nonrecourse debt securities. Such
financing is generally known as a securitization.
On an interim basis, prior to a portfolio of leases being permanently
financed under a securitization, or other long-term loan agreement, the Company
finances its lease transactions under short-term, recourse credit facilities
currently totalling $170,000,000. The Company has the following such short-term
recourse facilities in place:
. a $155,000,000 revolving facility ($99,469,000 outstanding at December
31, 1996) syndicated with ten banks, expiring September 11, 1997.
Borrowings under the facility bear an interest rate, at the Company's
option, of the agent bank's prime rate (8.25% at December 31, 1996) or
LIBOR (5.64% at December 31, 1996) plus 135 basis points.
. a $15,000,000 revolving facility (no amounts are outstanding at December
31, 1996) with one bank, with borrowing available through April 30,
1997, and repayments due 240 days after each borrowing. Borrowings under
the facility bear interest at LIBOR (5.64% at December 31, 1996) plus
250 basis points.
The Company also has a $15,000,000 revolving facility (no amounts are
outstanding at December 31, 1996), expiring October 15, 1997, with one bank.
Borrowings under the facility bear interest at the bank's prime rate (8.25% at
December 31, 1996). The proceeds of borrowings under this line are used
exclusively to fund certain accounts payable to one of the Company's vendors
resulting from the purchase of equipment for lease to one significant customer
of the Company.
The Company also has a $100,000,000 nonrecourse lease receivables financing
facility with an affiliate of Citicorp. This is a revolving facility, expiring
in March 1997, and borrowings under the facility bear interest at a rate of 125
basis points over average life treasuries at the time of borrowing. To date, the
Company has refinanced approximately $59,177,000 of borrowings under its other
short-term facilities through this facility. At December 31, 1996, the Company
had $41,427,000 outstanding under this facility at an average interest rate of
7.0%.
Borrowings under the above facilities are generally secured by lease
receivables and the underlying equipment financed under the respective facility.
The agreements for the facilities contain covenants regarding leverage, interest
coverage, minimum net worth and profitability and a limitation on the payment of
dividends.
The Company maintains relationships with several other banks for additional
recourse financing. At December 31, 1996 and 1995, the Company had $11,395,000
and $4,535,000 (bearing interest at rates ranging from 7.0% to 10.3%)
outstanding under facilities from such sources.
Operating and direct finance leases and the related underlying leased
equipment serving as collateral for the above secured borrowings described above
had an aggregate net book value of $ 70,807,000 at December 31, 1996.
F-9
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In order to issue nonrecourse, lease-backed debt securities to permanently
finance its lease transactions, the Subsidiary filed a $150,000,000 shelf
registration statement with the Securities and Exchange Commission in January
1994. Securities issued under this registration are collateralized by the lease
receivables financed by such securities and residual proceeds of the underlying
equipment and are backed by credit enhancement provided by a national bond
guarantor. The Subsidiary had two issuances under the shelf registration in
1994. The first was for $36,685,000, issued in April 1994 at a coupon rate of
5.575%, and due through March 1998, with $1,257,000 and $6,892,000 (including
accrued interest) outstanding at December 31, 1996 and 1995, respectively. The
second was for $37,499,000, issued in December 1994 at a coupon rate of 8.075%,
and due through October 1999, with $8,041,000 and $20,360,000 (including accrued
interest) outstanding at December 31, 1996 and 1995, respectively. Of the April
1994 issuance, $30,046,000 was used to refinance existing recourse and
nonrecourse debt with various financial institutions. Covenants for the
securities include certain restrictions on the use of cash and restrictions on
the sale or transfer of assets. Cash restrictions include requirements that (a)
all rent received by the Subsidiary from leases collateralizing the securities
be held in trust and used for repayment of the securities, and (b) a reserve
account be established, in a maximum amount of $2,046,000, to be used to repay,
in the event of a default by a lessee, any outstanding balance under the
securities relating to such defaulted lease if proceeds from the sale of the
related underlying equipment was not sufficient to repay such balance. At
December 31, 1996, and 1995, $1,383,000 and $1,501,000 of lease receipts were
held in trust and an additional $2,046,000 and $2,482,000, respectively, were
held in the reserve account. These amounts were unavailable for other uses.
In 1995 the Company issued $17,500,000 of nonrecourse subordinated debt at
a coupon rate of 9.71% due through May 1998. Borrowings under this arrangement
are to be repaid from expected residuals from portfolios of equipment subject to
the two public securitizations and are secured by the residual cash flows from
such portfolios. At December 31, 1996 and 1995, the Company had $10,073,000 and
$16,541,000, respectively outstanding under this arrangement. The residual
interests securing this borrowing had a net book value of $13,662,000 at
December 31, 1996.
In October 1996, the Company closed a public debt offering for $71,875,000
of convertible subordinated notes. The notes constitute general unsecured
obligations of the Company and are subordinated in right of payment to all
existing and future debt of the Company. The Company received net proceeds of
approximately $69,400,000 from the offering. The seven year notes bear interest
at a rate of 6.875% per annum and are convertible into the Company's common
stock at a conversion price of $34.90. Interest is payable in April and October
of each year. Principal is payable upon maturity in October 2003. The Company
may call, or prepay, all or a portion of the notes beginning in October 1999. At
December 31, 1996 the Company has $71,875,000 outstanding under this convertible
subordinated debt.
The Company continues to maintain relationships with banks, insurance and
finance companies, and financial intermediaries as additional nonrecourse,
permanent financing sources. At December 31, 1996 and 1995, the Company had
$78,121,000 and $49,561,000, respectively, outstanding under facilities from
such sources at debt rates ranging from 7.0% to 9.8%.
Collateral for nonrecourse debt includes $171,769,000 of net investment in
direct finance and operating leases and related underlying leased equipment at
December 31, 1996.
F-10
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future maturities of nonrecourse and recourse debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31 NONRECOURSE RECOURSE
------------------------
DEBT DEBT
------------ --------
<S> <C> <C>
1997.............................. $ 80,265,000 $104,385,000
1998.............................. 50,836,000 5,469,000
1999.............................. 7,099,000 946,000
2000.............................. 571,000 --
2001.............................. 148,000 64,000
Thereafter........................ -- 71,875,000
------------ ------------
Total........................ $138,919,000 $182,739,000
============ ============
</TABLE>
Cash paid for interest in 1996, 1995 and 1994 was $17,639,000, $10,294,000
and $7,233,000, respectively.
8. UNITED KINGDOM ACQUISITION
In April 1996, the Company acquired all of the stock of a company located
in the United Kingdom and engaged in the equipment leasing business in a
transaction accounted for as a purchase. The purchase price in the acquisition
was U.S. $1,100,000 in cash. In connection with the transaction, the Company
acquired tangible assets (primarily leases) of $3,951,000 and assumed
liabilities of $2,851,000. The impact of proforma adjustments on the combined
results of operations is not material.
9. COMMITMENTS
The Company leases its facilities under noncancelable operating leases
expiring through 2000. Rent expense for 1996, 1995 and 1994 was $606,000,
$377,000 and $351,000, respectively.
Future minimum annual rental payments for all leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31 OPERATING LEASES
------------------------ ----------------
<S> <C>
1997......................................... $ 516,000
1998......................................... 510,000
1999......................................... 505,000
2000......................................... 506,000
----------
Total.............................. $2,037,000
==========
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan which covers substantially all full-time
employees. The plan operates on a calendar year. All eligible employees are
permitted to make tax deferred contributions of up to 15% of their annual
compensation, subject to certain Internal Revenue Service limitations. The
Company provides matching contributions of employees' contributions up to
$1,000. Employee contributions, earnings thereon, and Company contributions are
vested immediately. In fiscal 1996, 1995 and 1994, the Company contributed
$62,000, $48,000 and $42,000 to the plan.
F-11
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
The provision for income taxes at December 31 consists of:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ----------- ----------
<S> <C> <C> <C>
Current:
Federal............................................................................... $ 681,000 $1,984,000 $1,749,000
State................................................................................. (86,000) 532,000 491,000
------------ ---------- ----------
Total current.............................................................................. 595,000 2,516,000 2,240,000
------------ ---------- ----------
Deferred:
Federal............................................................................... 5,641,000 1,236,000 385,000
State................................................................................. 313,000 179,000 435,000
------------ ---------- ----------
Total deferred............................................................................. 5,954,000 1,415,000 820,000
------------ ---------- ----------
Total provision............................................................................ $ 6,549,000 $3,931,000 $3,060,000
============ ========== ==========
</TABLE>
The cumulative items giving rise to deferred taxes at December 31 were as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax liability:
Lease transactions treated differently for tax and financial reporting................ $(20,923,000) $ (8,896,000)
------------ ------------
Deferred tax assets:
Alternative minimum tax credits....................................................... 6,151,000 5,890,000
Net operating loss carryforwards...................................................... 5,745,000 --
State income tax...................................................................... 435,000 471,000
Other................................................................................. 264,000 161,000
------------ ------------
Total deferred tax asset................................................................... 12,595,000 6,522,000
------------ ------------
Net deferred tax liability................................................................. $ (8,328,000) $ (2,374,000)
============ ============
</TABLE>
The effective tax rate differs from the federal statutory income tax rate
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate..................................................................................... 35.0% 35.0% 35.0%
State taxes, net of federal effect................................................................. 6.0 4.8 4.9
Other.............................................................................................. 0.1 0.1 0.1
---- ---- ----
Total.............................................................................................. 41.1% 39.9% 40.0%
==== ==== ====
</TABLE>
Cash paid for income taxes in 1996, 1995, and 1994 was $1,947,000, $2,687,000,
and $3,666,000, respectively.
Refundable income taxes of $883,000 at December 31, 1996 are included in other
assets and income taxes payable of $553,000 at December 31, 1995 are included in
accrued and other liabilities in the consolidated balance sheets.
F-12
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDERS' EQUITY
Stock Option Plans -The Company's stock option plans provide that incentive
and nonqualified stock options to purchase up to an aggregate of 2,240,000
shares of the common stock of the Company may be granted to key contributors to
the Company, including officers, directors and employees. Options are granted at
the fair market value of the common stock as of the date of grant, as determined
by the Board of Directors. Options generally become exercisable ratably over
three or four years and expire five or ten years from the grant date.
At December 31, 1996, the Company had reserved 1,253,676 shares for
issuance under these plans.
Activity under the stock option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding, January 1, 1994...................................... 289,517 $ 1.73
Granted...................................................... 164,450 8.08
Exercised.................................................... (85,305) .91
Canceled..................................................... (15,960) 4.14
----------- -----------
Outstanding, December 31, 1994.................................... 352,702 4.78
Granted (weighted average fair value of $3.07)............... 259,725 8.34
Exercised.................................................... (116,879) 1.63
Canceled..................................................... (19,174) 6.68
----------- -----------
Outstanding, December 31, 1995.................................... 476,374 7.42
Granted (weighted average fair value of $7.57)............... 251,850 14.52
Exercised.................................................... (52,201) 4.23
Canceled..................................................... (29,913) 12.84
----------- -----------
Outstanding, December 31, 1996.................................... 646,110 $ 10.19
=========== ===========
</TABLE>
Additional information regarding options outstanding
as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
Weighted Avg. Remaining Options Exercisable
---------------------------- ------------------------------
Range of Number Contractual Weighted Average Number Weighted Avg.
Exercise Prices Outstanding Life (years) Exercise Price Exercisable Exercise Price
--------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.5000 - $ 5.0000 36,021 1.28 $ 4.27 22,698 $ 4.00
6.5000 - 10.0000 334,964 5.89 7.81 236,703 7.74
10.3750 - 14.5000 227,100 5.62 14.12 4,137 11.60
15.1250 - 30.0000 48,025 8.21 21.71 1,462 15.18
----------- ----------- ---------- ----------- -----------
0.50000 - 30.0000 646,110 8.21 $ 10.77 265,000 $ 7.52
=========== =========== ========== =========== ===========
</TABLE>
F-13
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1996 and 1995, options to purchase 265,000 and 147,241
shares were exercisable with a weighted average exercise price of $6.62 and
$7.87, respectively. At December 31, 1996, options for 607,566 shares were
available for future grant under the stock option plans.
Stock Purchase Plan - In 1994, the shareholders of the Company approved the
1994 Employee Stock Purchase Plan (the "ESPP") under which 200,000 shares of the
Company's common stock were reserved for issuance. The ESPP permits virtually
all employees to purchase common stock, through payroll deductions, at the lower
of (a) 85% of the fair market value of the common stock on the first day of each
twelve-month offering period, or (b) 85% of the fair market value of the common
stock on the applicable exercise date. Each offering period has two six-month
exercise periods with the last day of each exercise period being an exercise
date. During 1996 and 1995, employees purchased 11,481 and 10,122 shares,
respectively, under the ESPP for a total purchase price of $87,000 and $123,000,
respectively. At December 31, 1996, the Company had reserved 169,207 shares for
issuance under the ESPP.
Additional Stock Plan Information - As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value method
in accordance with Accounting Principles Board No. 25, Accounting for Stock
Issued to Employees, and its related interpretations. Accordingly, no
compensation expense has been recognized in the financial statements for
employee stock arrangements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, (SFAS 123) requires the disclosure of pro forma net income
and earnings per share as if the Company had adopted the fair value method as of
the beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The Company's
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life, 12 months following
vesting; stock volatility, 62% in 1996 and 51% in 1995; risk free interest
rates, 5.9% in 1996 and 6.5% in 1995; and no dividends during the expected term.
The Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1995 and 1996 awards had been amortized to expense over the vesting period of
the awards, pro forma net income would have been $5,647,000 ($.89 per share) in
1995 and $8,836,000 ($1.10 per share) in 1996. However, the impact of
outstanding non-vested stock options granted prior to 1995 has been excluded
from the pro forma calculation; accordingly, the 1995 and 1996 pro forma
adjustments are not indicative of future period pro forma adjustments, when the
calculation will apply to all applicable stock options.
F-14
<PAGE>
LEASING SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SIGNIFICANT CUSTOMERS
No customer accounted for more than 10% of the Company's revenues in 1994.
Two customers accounted for 11% and 10% of the Company's revenues in 1995.
Three customers accounted for 18%, 17% and 10% of the Company's revenues in
1996.
14. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure is the estimated fair value of the Company's
financial instruments. The valuation methods used by the Company are set forth
below.
The accuracy and usefulness of the fair value information disclosed herein
is limited by the following factors:
. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
. These estimates do not reflect any premium or discount that could result
from offering for sale at one time the Company's entire holding of a
particular financial asset.
. There are no disclosure requirements for lease contracts and various
significant assets and liabilities that are not considered to be
financial instruments.
Because of these and other limitations, the aggregate fair value amounts
presented in the following table do not represent the underlying value of the
Company.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, are as follows:
<TABLE>
<CAPTION>
1995 1996
-----------------------------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Assets:
Cash............. $ 8,423,000 $ 8,423,000 $ 6,888,000 $ 6,888,000
Liabilities:
Recourse debt.... $71,681,000 $71,734,000 $182,739,000 $183,905,000
Nonrecourse debt. 93,354,000 94,127,000 138,919,000 139,290,000
</TABLE>
The following methods and assumptions were used by the Company in computing
the estimated fair value in the above table:
Cash - The carrying amounts of these financial instruments were the same as
their fair value.
Recourse and Nonrecourse Debt - The fair value of recourse and nonrecourse
debt is based on the borrowing rates currently available to the Company for debt
with similar terms and average maturities.
F-15
<PAGE>
SCHEDULE II
LEASING SOLUTIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT CHARGED TO
-----------
BEGINNING OF COSTS AND RECOVERIES END OF
PERIOD EXPENSES (DEDUCTIONS)(1) PERIOD
------ -------- -------------- ------
<S> <C> <C> <C> <C>
Allowance for uncollectible amounts:
Year ended December 31, 1994........ $ 193,000 $ 5,000 $ (11,000) $187,000
========== ========== ========== ========
Year ended December 31, 1995........ $ 187,000 $ -- $ (74,000) $113,000
========== ========== ========== ========
Year ended December 31, 1996........ $ 113,000 $ 55,000 -- $168,000
========== ========== ========== ========
</TABLE>
___________
(1) To write off uncollectible amounts or reflect recovery of previously
written-off accounts.
F-16
<PAGE>
EXHIBIT 10.31
POLICY FOR
BONUS PROGRAM
PURPOSE
LSI's Employee Bonus Program is intended to incent non-commissioned, full-time
LSI employees to attain the highest possible level of performance during the
year consistent with sound and ethical business practices and to reward
employees to perform in such a manner with additional cash compensation.
The Employee Bonus Program is not intended to alter LSI's "At Will" Policy and
is not a guarantee of continued employment.
POLICY
All non-commissioned, full-time employees are eligible to participate in the
LSI Bonus Program. Only those employees actually employed by LSI ON THE DATE
THAT BONUS PAYMENTS ARE DISTRIBUTED will be eligible to receive bonus payments.
Bonus payments are expected to be distributed within 60 days following year-
end.
PROCEDURE
. Each year LSI management determines a budget for Net Income.
. When the Company's actual results are at or above Budgeted Net Income,
full-time, non-commissioned employees qualify for 100% of their target
bonus.
. The Employee Bonus Program provides for a partial payout if the Company
fails to meet 100% of Net Income or "bonus objective."
. There will be no bonus awards if Net Income results are below 75% of the
objective. Bonus awards for performance between 75% and 100% of the
objective will be determined on a prorata basis.
<PAGE>
. Individual bonuses (target bonus) will be calculated on the basis of actual
salary earned the previous year. An employee's participation percentage is
determined by salary level.
. Individuals are assigned a bonus participation percentage at the time they
are employed and will be formally advised of any subsequent change to their
participation percentage.
. FOR MANAGERS:
. Effective January 1996, 25% of each manager's eligible bonus will be
determined by the manager's performance against his or her "budgeted
objectives."
. FOR EMPLOYEES:
. Effective January 1997, it is anticipated that 25% of each employee's
eligible bonus will be determined by the employee's performance
against his or her "budgeted objectives."
AN EMPLOYEE MUST BE EMPLOYED BY LSI ON THE DATE BONUS PAYMENTS ARE DISTRIBUTED
TO BE ELIGIBLE TO RECEIVE A BONUS PAYMENT.
<PAGE>
EXHIBIT 10.32
DEFERRED INCOME PLAN
PURPOSE
LSI's Deferred Income Plan ("DIP") is intended to provide an additional long-
term incentive to regular, full-time employees.
The Deferred Income Plan is not intended to alter LSI's "At Will" Policy and is
not a guarantee of continued employment.
POLICY
Effective January 1, 1991, and each year thereafter until changed or terminated
by the Company's Board of Directors, in addition to the annual discretionary
bonus an employee receives, the Company will be deemed to have contributed an
amount equal to 100% of the employee's bonus to a phantom account for the
employee (the "Account") under the Deferred Income Plan. Each Deferred Income
amount will be deemed to have been contributed on the same day that the
employee's discretionary bonus for the prior year is distributed (the "Bonus
Payment Date"). No amount in an Account will be deemed to earn interest or its
equivalent.
PROCEDURE
Each deemed contribution to an employee's Account will be available for
distribution, at the discretion of the Company, at the rate of up to 25% per
annum, beginning one year after the deemed contribution is made. If less than
25% of a deemed contribution is distributed in any year, the portion not
distributed will be available for distribution at the discretion of the Company
in any subsequent period. Any distribution made is subject to the discretion
of the Company and is based upon the Company's performance during the fiscal
year related to which a distribution is made, as measured against its annual
budget for such year, and the Company's existing and projected cash
requirements. Any distributions will typically be made on the applicable Bonus
Payment Date.
The Deferred Income Plan is available to all regular, full-time employees,
including Directors of Leasing. Contributions to the Deferred Income Plan on
behalf of Directors of Leasing will be on a special formula basis approved by
the President of the Company.
No distribution will be payable to any person unless such person is a regular,
full-time employee on the date such distribution is to be made.
<PAGE>
EXHIBIT 10.71
AMENDED AND RESTATED WAREHOUSING
CREDIT AGREEMENT
By and Among
LEASING SOLUTIONS, INC.
The LENDERS herein named as the LENDERS
AND
THE FIRST NATIONAL BANK OF BOSTON, as Agent
SEPTEMBER 13, 1996
<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
-------------------------------
Exhibit A-1 Form of Note
Exhibit A-2 Form of Swingline Note
Exhibit B Form of Security Agreement
Exhibit C Form of Opinion of Borrower's Counsel
Exhibit D Form of Compliance Certificate
Exhibit E Form of Lease
Exhibit F Form of Borrowing Base Certificate
Exhibit G Form of Sybase, Inc. lease
Exhibit H Form of Permitted Amendment
Schedule 1 Commitments
Schedule 6.7 ERISA Plans
<PAGE>
TABLE OF CONTENTS
PAGE
Section 1. Definitions. ...................................... 2
Section 2. AMOUNT AND TERMS OF CREDIT......................... 16
2.1 Commitment to Lend................................. 16
(a) Commitment to Make Revolving Loans....... 16
(b) Commitment to Make Swingline Loans....... 18
(c) Increased Costs.......................... 20
(d) Illegality or Impossibility.............. 21
(e) Capital Requirements..................... 22
(f) Special Notice Requirements.............. 23
(g) Notice of Swingline Loans................ 24
(h) Notice of Mandatory Borrowings........... 24
(i) Conversion and Continuation of Loans..... 24
(j) Limitation on Types of Loans............. 25
2.2 Prepayment......................................... 26
(a) Voluntary Prepayment..................... 26
(b) Payments Not at End of Interest Period... 26
2.3 Fees and Commissions............................... 27
(a) Commitment Fee........................... 27
(b) Agent's Fee.............................. 27
2.4 Calculation of Interest; Post-Default Interest..... 27
2.5 Payments........................................... 27
2.6 Payment on Non-Business Days....................... 28
2.7 Application of Payments............................ 28
2.8 Distribution of Payments........................... 29
2.9 Agent's Right to Assume Funds Available for
Advances........................................... 29
2.10 Agent's Right to Assume Payments Will be Made by
Borrower........................................... 30
2.11 Conditions Precedent to Loans...................... 30
(a) First Loan............................... 30
(b) All Loans................................ 31
2.12 Funding Sources.................................... 32
2.13 Sharing of Payments, Etc. ......................... 33
Section 3. Collateral Security................................ 33
Section 4. Borrower's Representations And Warranties.......... 33
4.1 Organization and Qualification..................... 33
4.2 Corporate Authority................................ 33
4.3 Valid Obligations.................................. 34
4.4 Consents or Approvals.............................. 34
i
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
4.5 Title to Collateral; Absence of Encumbrances....... 34
4.6 Financial Statements............................... 34
4.7 Changes............................................ 35
4.8 Defaults........................................... 35
4.9 Taxes.............................................. 35
4.10 Litigation......................................... 35
4.11 Use of Proceeds.................................... 35
4.12 Investment Company Act............................. 35
4.13 Compliance with ERISA.............................. 35
4.14 Environmental Matters.............................. 36
Section 5. Borrower's Affirmative Covenants................... 37
5.1 Records and Reports................................ 37
(a) Audited Financial Statements............. 37
(b) Unaudited Financial Statements........... 37
(c) Compliance Certificates.................. 37
(d) Borrowing Base Certificates.............. 38
(e) Collateral Report........................ 38
(f) Other Financial Reports.................. 38
(g) Other Data............................... 38
(h) Credit Policy Manual..................... 39
5.2 Corporate Rights; Facilities; Conduct of Business. 39
5.3 Insurance.......................................... 39
5.4 Taxes and Other Liabilities........................ 39
5.5 Certain Notices.................................... 39
5.6 Inspection Rights.................................. 40
5.7 Conversations With Management...................... 40
5.8 Periodic Audits.................................... 40
5.9 Use of Proceeds.................................... 40
5.10 Compliance With Laws............................... 40
5.11 Punctual Payment................................... 41
5.12 Designated Deposit Account......................... 41
5.13 Imposition of More Restrictive Covenants. ......... 41
5.14 Agreements......................................... 41
5.15 Location of Collateral............................. 41
5.16 Notices to and Consents from Lessees............... 41
5.17 Copies of Leases................................... 42
5.18 Post-Closing Documents............................. 42
ii
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
Section 6. Borrower's Negative Covenants...................... 42
6.1 Liens and Encumbrances............................. 42
6.2 Employee Loans..................................... 42
6.3 Dividends.......................................... 43
6.4 Restriction on Fundamental Changes................. 43
6.5 Transactions with Affiliates....................... 43
6.6 Maintenance of Business............................ 44
6.7 ERISA.............................................. 44
6.8 No Use of Lenders' Name............................ 44
6.9 Fiscal Year........................................ 44
Section 7. Financial Covenants Of Borrower.................... 44
7.1 Minimum Interest Coverage Ratio.................... 45
7.2 Minimum Tangible Net Worth......................... 45
7.3 Maximum Recourse Debt Ratio........................ 45
7.4 Profitability...................................... 45
Section 8. Events Of Default And Remedies..................... 45
8.1 Events of Default.................................. 45
8.2 Remedies........................................... 47
(a) Exercise of Remedies..................... 47
(b) Deficiency............................... 47
(c) Set-Off.................................. 48
(d) Rights and Remedies Cumulative........... 48
Section 9. Agent.............................................. 48
9.1 Appointment........................................ 48
9.2 Powers; General Immunity, etc. .................... 48
9.3 Representations and Warranties; No Responsibility
for inspection..................................... 49
9.4 Reliance by Agent.................................. 50
9.5 Delegation of Duties............................... 50
9.6 Right to Indemnity................................. 50
9.7 Moneys to be Held.................................. 51
9.8 Agent's Reimbursement.............................. 51
9.9 Resignation or Removal of Agent and Appointment of
Successor Agent.................................... 51
iii
<PAGE>
TABLE OF CONTENTS
(continued)
PAGE
9.10 Conflicts.......................................... 51
9.11 Communications..................................... 52
9.12 No Obligations of Borrower......................... 52
Section 10. Expenses And Indemnities........................... 52
10.1 Expenses........................................... 52
10.2 Taxes, etc. ....................................... 53
10.3 Indemnification.................................... 53
Section 11. Miscellaneous...................................... 53
11.1 Survival........................................... 53
11.2 No Waiver by Agent or Lenders...................... 53
11.3 Notices............................................ 53
11.4 Severability....................................... 54
11.5 Construction....................................... 54
11.6 Entire Agreement; Amendments and Waivers........... 54
11.7 No Set-Offs by Borrower............................ 55
11.8 Headings........................................... 56
11.9 Governing Law...................................... 56
11.10 Waiver of Jury Trial............................... 56
11.11 Subsequent Holders................................. 56
11.12 Assignability...................................... 56
11.13 Confidentiality.................................... 57
11.14 Counterparts....................................... 57
iv
<PAGE>
AMENDED AND RESTATED WAREHOUSING CREDIT
AGREEMENT
THIS AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT is entered into as of
September 13, 1996, by and among LEASING SOLUTIONS, INC., a California
corporation ("Borrower"), THE FIRST NATIONAL BANK OF BOSTON, in its individual
capacity ("FNBB"), each other lender whose name is set forth on the signature
pages hereof or which may hereafter execute and deliver an instrument of
assignment with respect to this Agreement pursuant to Section 11.12 or otherwise
become a party to this Agreement (any one of FNBB or such other lenders being
referred to individually as, a "Lender," and collectively, "Lenders"), FNBB in
its capacity as the Swingline Lender (defined below), and FNBB, as agent on
behalf of the Lenders and the Swingline Lender (not in its individual capacity,
but solely as agent, "Agent").
RECITALS
A. Borrower, FNBB, the Lenders whose names are set forth on the signature
pages thereof, and Agent are parties to that certain Amended and Restated
Warehousing Credit Agreement, dated as of September 15, 1995, as amended by that
certain First Amendment to Credit Agreement, dated as of December 15, 1995, that
certain Second Amendment to Credit Agreement, dated as of May 31, 1996, that
certain Third Amendment to Credit Agreement, dated as of June 28, 1996, that
certain Fourth Amendment to Credit Agreement, dated as of July 3, 1996, and that
certain Fifth Amendment to Credit Agreement, dated as of August 1, 1996
(collectively, the "Existing Agreement"), pursuant to which the Lenders agreed
to make secured revolving credit advances to Borrower of up to One Hundred
Thirty-Two Million Five Hundred Thousand Dollars ($132,500,000.00) in the
aggregate principal amount outstanding at any one time.
B. Borrower has requested Lenders to make secured revolving credit
advances to Borrower of up to One Hundred Fifty-Five Million Dollars
($155,000,000.00) (or, subject to the terms and conditions of this Agreement, at
Borrower's option, One Hundred Seventy-Five Million Dollars ($175,000,000)) in
the aggregate principal amount outstanding at any one time, which Borrower will
use to refinance existing warehousing credit facilities with certain of the
Lenders, including under the Existing Agreement, and to warehouse equipment
leases prior to permanent financing thereof.
C. Borrower and Lenders wish to amend and restate the Existing Agreement
to increase the Commitments and to add additional Lenders, all upon the terms
and subject to the conditions hereinafter set forth and in reliance on the
representations and warranties set forth herein.
AGREEMENT
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NOW, THEREFORE , in consideration of the foregoing recitals and the mutual
covenants hereinafter set forth, and intending to be legally bound, the parties
hereto agree as follows:
1. DEFINITIONS.
As used herein, the following terms have the following meanings:
"Adjusted LIBOR" means, for each Interest Period in respect of LIBOR Loans,
an interest rate per annum (rounded upward to the nearest 1/16th of one percent
(0.0625%)) determined pursuant to the following formula:
Adjusted LIBOR = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
The Adjusted LIBOR shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"Advance" has the meaning given to such term in Section 2.1(a)(i)(A).
"Affiliate" means with respect to any Person (a) each Person that, directly
or indirectly, owns or controls, whether beneficially or as a trustee, guardian
or other fiduciary, twenty percent (20%) or more of the Stock having ordinary
voting power in the election of directors of such Person, (b) each Person that
controls, is controlled by or is under common control with such Person or any
Affiliate of such Person or (c) each of such Person's officers, directors, joint
venturers and partners; provided, however, that in no case shall any Lender or
Agent be deemed to be an Affiliate of Borrower for purposes of this Agreement.
For the purpose of this definition, "control" of a Person shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" means FNBB solely when acting in its capacity as the Agent under any
of the Loan Documents, and any successor Agent.
"Agent's Fee Letter" means that letter of even date herewith between
Borrower and Agent.
"Agent's Payment Office" means the address for payments set forth on the
signature page hereto in relation to the Agent or such other address as the
Agent may from time to time specify in accordance with Section 11.3.
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"Agent's Reimbursement" means all reasonable out-of-pocket amounts paid or
expenses incurred by Agent in connection with the enforcement of the rights and
remedies granted to Agent and Lenders under this Agreement and the other Loan
Documents, including, without limitation, all attorneys' fees, reasonable
allocated costs of inhouse counsel, court costs and other allocated expenses and
disbursements of any outside counsel and fees and expenses of other advisors
retained by Agent.
"Agreement" means this Warehousing Credit Agreement, including all
amendments, modifications and supplements hereto and any appendices, exhibits or
schedules to any of the foregoing, and shall refer to the Agreement as the same
may be in effect at the time such reference becomes operative.
"Applicable Percentage" means one hundred percent (100%); provided, that the
Applicable Percentage shall be reduced to ninety-five percent (95%) if either
(i) the aggregate Net Present Value of Leases in the Borrowing Base with lessees
who have an internal credit rating of B+ or better (based upon the monthly
Collateral Report delivered pursuant to Section 5.1(e)) is less than fifty
percent (50%) of the aggregate Net Present Value of all Leases in the Borrowing
Base or (ii) the Default Ratio is greater than Two Tenths of One percent
(0.20%); provided further, that in the case of a reduction of the Applicable
Percentage under paragraph (i) above, such reduction shall not be effective if
(a) such reduction was a direct result of a closing of a refinancing, sale, or
securitization of Leases, and (b) within three (3) weeks after delivery of the
original Collateral Report Borrower shall have provided Agent with a new
Collateral Report demonstrating that the aggregate Net Present Value of Leases
in the Borrowing Base with lessees who have an internal credit rating of B+ or
better is greater than or equal to fifty percent (50%) of the aggregate Net
Present Value of all Leases in the Borrowing Base.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now or hereafter in effect, or any successor thereto.
"Base Rate" means at any time FNBB's floating commercial loan rate publicly
announced from time to time by FNBB at its head office as its base rate, which
rate may not be FNBB's lowest domestic rate.
"Base Rate Loan" in the singular and "Base Rate Loans" in the plural means
any and all Loans with respect to which Borrower elects an interest rate based
upon the Base Rate.
"Board of Directors" means the Board of Directors of Borrower or any
committee of the Board of Directors of Borrower authorized with respect to any
particular matter to exercise the power of the Board of Directors of Borrower.
"Borrowing Base" means, at the relevant time of reference thereto, an amount
determined by Agent by reference to the most current Borrowing Base Certificate
delivered to Lenders and Agent pursuant to Section 5.1(d), which is equal to the
sum of the Loan Amounts with respect to each Eligible Lease which is Collateral
for the Loans.
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"Borrowing Base Certificate" means a certificate with appropriate insertions
setting forth the components of the Borrowing Base, which certificate shall be
substantially in the form set forth in EXHIBIT F and certified by a Responsible
Officer.
"Business Day" means any day which is not a Saturday, Sunday or a legal
holiday under the laws of the States of Massachusetts, New York or California or
is not a day on which banking institutions located in the States of
Massachusetts, New York or California are authorized or permitted by law or
other governmental action to close; except that if any determination of a
"Business Day" shall relate to a LIBOR Loan, the term "Business Day" shall in
addition exclude any day which is not a Eurodollar Banking Day.
"Capital Requirement Change" has the meaning given to such term in SECTION
2.1(e).
"Capital Requirement Change Effective Date" has the meaning given to such
term in SECTION 2.1(e).
"Closing Date" means the date on which all of the conditions precedent set
forth in Section 2.11 to making the first Loan hereunder shall have been duly
satisfied by Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations proposed or adopted thereunder, as the same may be in effect from
time to time.
"Collateral" means the "Collateral", as defined in the Security Agreement
and any other property, real or personal, tangible or intangible, now existing
or hereafter acquired, that may at any time be or become subject to a security
interest or Lien in favor of Agent, Swingline Lender or Lenders to secure the
full and complete payment and performance of Borrower's Obligations hereunder
and under the other Loan Documents.
"Commitment" means, with respect to each Lender, the amount set forth on
Schedule 1 for such Lender and "Commitments" means, with respect to each Lender,
all such amounts collectively, as amended from time to time upon the execution
and delivery of an instrument of assignment pursuant to SECTION 11.12 or as
otherwise amended pursuant to the terms hereof.
"Commitment Fee" means the fee referred to in Section 2.3(a).
"Commitment Percentage" means, for any Lender, the proportion such Lender's
Commitment bears to the aggregate of all Commitments.
"Commitment Termination Date" means September 11, 1997.
"Compliance Certificate" means a certificate signed by a Responsible Officer
of Borrower, substantially in the form set forth in EXHIBIT D, with such changes
therein as
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Requisite Lenders or Agent may from time to time reasonably request for the
purpose of having such certificate disclose the matters certified therein and
the method of computation thereof.
"Consolidated Net Worth" means, on a consolidated basis, the common
stockholders' equity capital plus surplus plus retained earnings, as determined
and computed according to GAAP.
"Default" means a Potential Event of Default or an Event of Default.
"Default Ratio" means, as of the end of each fiscal quarter of Borrower, the
quotient of (A) the aggregate net charge-offs over the immediately preceding
four (4) consecutive fiscal quarters of Borrower, divided by (B) the sum of the
"Net Investment in Operating Leases" plus the "Net Investment in Direct Finance
Leases," taken from the balance sheet of Borrower as of the end of such fiscal
quarter.
"Defaulting Lender" has the meaning given to such term in SECTION 2.9.
"Default Rate" means the default rate of interest set forth in SECTION 2.4.
"Designated Deposit Account" means the demand deposit account maintained by
Borrower with FNBB pursuant to SECTION 5.12.
"Effective Date" has the meaning given to such term in SECTION 2.1(c).
"Eligible Lease" means any Lease, excluding, however, each of the following:
(a) all Leases in respect of which payments are more than sixty (60)
but less than ninety (90) days past due, to the extent that the aggregate
present value of the balance of the monthly rental payments under such Leases
exceeds $1,500,000, using a discount rate equal to the lower of the then current
(i) Base Rate plus the Rate Spread or (ii) Adjusted LIBOR (assuming a two month
Interest Period) plus the Rate Spread;
(b) in the case of Leases under which the lessee has an internal
credit rating of B or better as determined by Borrower in accordance with the
"Leasing Solutions, Inc. Credit Policy," dated August 12, 1996, all such Leases
with any such lessee (including any affiliate of such lessee) as to which any
payments are more than ninety (90) days past due (i) with respect to ten percent
(10%) of the aggregate Net Present Value of all Leases with such lessee
(including any affiliate of such lessee), whether or not such Leases are
otherwise Eligible Leases, or (ii) under any such Leases with such lessee
(including any affiliate of such lessee) with an aggregate Net Present Value
equal to or greater than One Million Dollars ($1,000,000);
(c) in the case of Leases under which the lessee has an internal
credit rating of less than B as determined by Borrower in accordance with the
"Leasing Solutions, Inc. Credit Policy," dated August 12, 1996, all such Leases
with any such lessee (including any affiliate of
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such lessee) as to which any payments are more than ninety (90) days past due
with respect to any such Lease;
(d) all Leases which have been previously financed under any
warehouse facility other than this facility (each a "Previously Financed
Lease"); provided, that a Previously Financed Lease which is being held for
consolidation with other leases in connection with a securitization shall not be
excluded under this PARAGRAPH (D) for up to ninety (90) days after otherwise
becoming an Eligible Lease, or such longer period as may be approved by Agent,
in its sole discretion;
(e) all Leases as to which the lessee is subject to insolvency,
bankruptcy or receivership proceedings or has made an assignment for the benefit
of creditors;
(f) each Lease which Requisite Lenders in their reasonable
discretion shall deem not to qualify as an Eligible Lease for reasons unrelated
to the lessee's credit standing and for which Requisite Lenders have provided an
explanation, in reasonable detail, for such failure to qualify;
(g) each Lease with respect to which (i) a Lease Default shall have
occurred and be continuing at the time a Schedule is executed by Borrower to
pledge such Lease as Collateral or (ii) a Lease Default shall have occurred and
be continuing for more than ninety (90) days after such Lease has been included
in the Borrowing Base;
(h) all Eligible Software Leases to the extent that the aggregate
Loan Amount with respect to such Eligible Software Leases exceeds ten percent
(10%) of the aggregate Commitments;
(i) each Lease (other than a Lease under which the lessee is the
State of California) which requires that (i) consent to assignment of such Lease
be obtained from the lessee or (ii) the lessee acknowledge notice of any
assignment, if such consent or acknowledgement is not obtained from such lessee
in writing by Borrower within one hundred and twenty (120) days after the date
on which such Lease was first included in the Borrowing Base;
(j) each Lease (other than a Lease under which the lessee is the
State of California) which requires that (i) consent to assignment of such Lease
be obtained from the lessee or (ii) the lessee acknowledge notice of any
assignment, to the extent that such consent or acknowledgement is not obtained
in writing by Borrower and the aggregate Loan Amount for all such Leases (where
such consent or acknowledgement was not obtained) with such lessee (including
any affiliate of such lessee) exceeds Five Million Dollars ($5,000,000);
(k) each Lease (other than a Lease under which the lessee is the
State of California) which requires that (i) consent to assignment of such Lease
be obtained from the lessee or (ii) the lessee acknowledge notice of any
assignment, to the extent that such consent or
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acknowledgement is not obtained in writing by Borrower and the aggregate Loan
Amount for all such Leases (where such consent or acknowledgement was not
obtained) with all lessees exceeds Fifteen Million Dollars ($15,000,000);
(l) each Lease with the State of California or any agency or
subdivision thereof which requires that (i) consent to assignment of such Lease
be obtained from the lessee or (ii) the lessee acknowledge notice of any
assignment, to the extent that such consent or acknowledgement is not obtained
in writing by Borrower and the aggregate Loan Amount for all such Leases (where
such consent or acknowledgement was not obtained) with such lessee (including
the State of California and any agency or subdivision thereof) exceeds Ten
Million Dollars ($10,000,000); and
(m) Each Lease with respect to which any of Borrower's
representations or warranties made in any Loan Document or any statement or
certificate at any time given in writing pursuant hereto or in connection
herewith shall be false or misleading in any material respect when made.
"Eligible Software Lease" means any Lease (i) generated under Borrower's
vendor program with Sybase, Inc., (ii) under which the property financed is
software owned by Sybase, Inc., (iii) in substantially the form of Exhibit G and
(iv) the lessee or obligor under which has an internal credit rating of B or
better as determined by Borrower.
"Employee Plan" means all employee pension benefit plans within the meaning
of Section 3(2) of ERISA.
"Environmental Laws" means any and all applicable foreign, federal, state
and local environmental, health or safety statutes, laws, regulations, rules,
ordinances, policies and rules or common law (whether now existing or hereafter
enacted or promulgated) of all governmental agencies, bureaus or departments
which may now or hereafter have jurisdiction over Borrower or any of its
Subsidiaries and all applicable judicial and administrative and regulatory
decrees, judgments and orders, including common law rulings and determinations,
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, remediation and
removal of emissions, discharges, releases or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants, whether solid,
liquid or gaseous in nature, into the environment, or relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of such Hazardous Materials, chemical substances,
pollutants or contaminants.
"Equipment" means the equipment, software and other property covered by a
particular Lease.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, as the same may be in effect from time to time.
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"Eurodollar Banking Day" means any day on which dealings in dollar deposits
are conducted by and among banks in the London-Interbank Market.
"Eurodollar Reserve Percentage" means the reserve percentage, if any,
(expressed as a decimal, rounded upward to the nearest 1/100th of one percent
(0.01%)) in effect on the date LIBOR for such Interest Period is determined
(whether or not applicable to any Lender) under regulations issued from time to
time by the Federal Reserve Board for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities") having a term comparable to such Interest Period.
"Event of Default" means any of the events set forth in SECTION 8.1.
"Facility" means the revolving credit facility described in this Agreement
up to an aggregate principal amount outstanding at any one time of $155,000,000.
"Federal Funds Rate" means, for any period, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Board (including any such successor,
"H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If
on any relevant day such rate is not yet published in H.15(519), the rate for
such day will be the rate set forth in the daily statistical release designated
as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any
successor publication, published by the Federal Reserve Bank of New York
(including any such successor, the "Composite 3:30 p.m. Quotation") for such day
under the caption "Federal Funds Effective Rate". If on any relevant day the
appropriate rate for such previous day is not yet published in either H.15(519)
or the Composite 3:30 p.m. Quotations, the rate for such day will be the
arithmetic mean of the rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m., New York Time, on that day by each of three leading
brokers of Federal funds transactions in New York City selected by Agent.
"FDIC" means the Federal Deposit Insurance Corporation or any successor
thereto.
"Financing Statements" means the UCC-1 financing statements to be executed
and delivered by Borrower pursuant to Section 2.11(b)(vi).
"First Funding Date" means the date funds are first advanced to Borrower for
the first Revolving Credit Loan hereunder.
"Funded Debt" of any Person means without duplication (i) all Indebtedness
for borrowed money, including, without limitation, all Indebtedness for borrowed
money outstanding under this Agreement, (ii) all guaranties of such Indebtedness
of others, and (iii) the present value of all Long-Term Lease obligations (such
present value to be calculated using a discount rate equal to
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the lower of (A) the then current Base Rate plus the Rate Spread, if any, and
(B) the then current Adjusted LIBOR (assuming an Interest Period of two months)
plus the Rate Spread.
"Funding Date" means with respect to any proposed borrowing the date funds
are advanced to Borrower for any Loan.
"GAAP" means generally accepted accounting principles as set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board, or in such
statements by such other entity as may be in general use by significant segments
of the U.S. accounting profession, as consistently applied. In the event that
GAAP changes during the term of this Agreement such that the covenants contained
in Section 7 would then be calculated in a different manner or with different
components, (a) the parties hereto agree to amend this Agreement in such
respects as are necessary to conform those covenants as criteria for evaluating
Borrower's financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (b) Borrower shall be deemed to be in
compliance with the covenants contained in the aforesaid Section during the
ninety (90) day period following any such change in GAAP if and to the extent
that Borrower would have been in compliance therewith under GAAP as in effect
immediately prior to such change.
"Governmental Agency" means (a) any federal, state, county, municipal or
foreign government, or political subdivision thereof, (b) any governmental or
quasi-governmental agency, authority, board, bureau, commission, department,
instrumentality or public body, (c) any court or administrative tribunal or (d)
with respect to any Person, any arbitration tribunal or other non-governmental
authority to whose jurisdiction that Person has consented.
"Hazardous Material" means any substance, (i) the presence of which requires
or may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any Environmental Law or any amendments
thereto, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.); (iii)
which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and is or becomes regulated by
any governmental authority, agency, department, commission, board, agency or
instrumentality of any foreign country, the United States, any state of the
United States, or any political subdivision thereof to the extent any of the
foregoing has or had jurisdiction over Borrower or any of its Subsidiaries; or
(iv) without limitation, which contains gasoline, diesel fuel or other petroleum
products, asbestos or polychlorinated biphenyls ("PCBs").
"Indebtedness" means, with respect to any Person, all liabilities,
obligations and indebtedness of any and every kind and nature, including all
liabilities and all obligations to trade creditors, whether now or hereafter
owing, arising, due or payable, from such Person to any other Person and
howsoever evidenced, created, incurred, acquired or owing, whether primary,
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secondary, direct, contingent, fixed or otherwise. Without in any way limiting
the generality of the foregoing, Indebtedness of Borrower shall specifically
include the following without duplication:
(i) all amounts outstanding under this Agreement, including amounts
outstanding under any and all Revolving Credit Loans or Swingline Loans;
(ii) all obligations or liabilities of any Person that are secured
by any Lien upon property owned by Borrower, even though Borrower shall not have
assumed or otherwise be liable for the payment thereof; and
(iii) all guaranty obligations, obligations under letters of credit,
then financially measurable recourse obligations in connection with a
securitization transaction, and other similar contingent obligations of
Borrower.
"Indemnitees" has the meaning set forth in SECTION 10.3.
"Intangible Assets" means the value, as stated on the consolidated balance
sheets of Borrower, of all intangible assets of Borrower as determined and
computed in accordance with GAAP, including, without limitation, goodwill.
"Interest Coverage Ratio" means, on a consolidated basis, as measured
quarterly as of the last day of each fiscal quarter of Borrower and its
Subsidiaries for the preceding four (4) fiscal quarters, including the quarter
in which such measurement date occurs, the quotient obtained by dividing (a) the
sum of Borrower's and Borrower's Subsidiaries Net Income plus tax expense plus
----
interest expense ("EBIT") by (b) interest expense, as determined and computed in
accordance with GAAP.
"Interest Period" means, as to any LIBOR Loan, the period commencing on the
date of such LIBOR Loan and ending on the numerically corresponding day (or, if
there is no numerically corresponding day, on the last day) in the calendar
month that is one (1), two (2) or three (3) months thereafter, in each case as
Borrower may elect; provided, however, that (a) no Interest Period with respect
to any LIBOR Loan shall end later than the date which is thirty (30) days after
the Commitment Termination Date, (b) if an Interest Period would end on a day
that is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day and (c) interest shall accrue from and including the
first Business Day of an Interest Period to but excluding the last Business Day
of such Interest Period.
"Interest Rate Determination Date" The Interest Rate Determination Date
shall be the second Business Day prior to the first day of the related Interest
Period for a LIBOR Loan.
"Lease" means a lease agreement (including any and all schedules,
supplements and amendments thereto and modifications thereof) between Borrower
as lessor and a third party as lessee, substantially in the form of EXHIBIT E;
provided, that any material changes in the form
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attached hereto as EXHIBIT E must be approved by Requisite Lenders and Agent; or
such other form as Requisite Lenders and Agent may approve in their sole
discretion; provided further, that if a lease agreement is a "master lease
agreement," the term "Lease" shall mean a particular equipment schedule or
supplement under such "master lease agreement" together with such "master lease
agreement" to the extent that it relates to such equipment schedule or
supplement. In the case of an Eligible Software Lease, the term "Lease" includes
all of the documentation set forth in EXHIBIT G together with all related
documentation, including, without limitation, a term note or lease agreement and
lease schedule, any guarantees, and all assignment documentation assigning the
Lease to Borrower.
"Lease Default" means an "Event of Default" as defined in each Lease against
which a Loan is made hereunder.
"Lender Default" shall mean (i) the refusal (which has not been retracted)
of a Lender to make available its portion of any incurrence of Loans or any
Mandatory Borrowing or (ii) a Lender having notified Agent and/or Borrower that
it does not intend to comply with the obligations under SECTION 2.1(a) or
2.1(b)(ii), in either case as a result of the appointment of a receiver or
conservator with respect to such Lender at the direction or request of any
regulatory agency or authority.
"LIBOR" means, with respect to any LIBOR Loan, the London Inter-Bank Offered
Rate (determined solely by Agent) at which United States Dollar deposits are
offered to FNBB by prime banks in London, England at or about 11:00 a.m., London
Time, on the Interest Rate Determination Date with respect to such LIBOR Loan in
an aggregate amount approximately equal to the amount of such LIBOR Loan and for
a period of time comparable to the number of days in the applicable Interest
Period. The determination of LIBOR by Agent shall be conclusive in the absence
of manifest error.
"LIBOR Loan" in the singular and "LIBOR Loans" in the plural means any and
all Loans with respect to which Borrower elects an interest rate based upon
Adjusted LIBOR.
"Lien" means any mortgage, pledge, security interest, encumbrance, deed of
trust, lien, levy or charge of any kind, whether voluntary or involuntary.
"Loan" or "Loans" means the Revolving Credit Loans and the Swingline Loans.
"Loan Amount" means:
(a) with respect to a particular Eligible Lease (other than an
Eligible Software Lease), an amount equal to the lesser of:
(i) the Applicable Percentage of Net Present Value of such
Eligible Lease and
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(ii) ninety percent (90%) of the original cost of the equipment
subject to such Eligible Lease; and
(b) with respect to a particular Eligible Lease which is an Eligible
Software Lease, an amount equal to the lesser of:
(i) ninety percent (90%) of the present value of (1) in the
case of a lease, the remaining firm term periodic rental (excluding
residuals) for such Eligible Lease or (2) in the case of a note, the
remaining firm combined payments of principal and interest for such
Eligible Lease, in each case discounted at a rate equal to the lower
of (A) the then current Base Rate plus the Rate Spread, if any, and
(B) the then current Adjusted LIBOR (assuming an Interest Period of
two months) plus the Rate Spread and
(ii) ninety percent (90%) of the original cost of the
equipment and software subject to such Eligible Lease.
"Loan Documents" mean this Agreement, the Security Agreement, the Schedules
executed under the Security Agreement, the Note, the Swingline Note, the
Financing Statements, the Agent's Fee Letter and any other agreements, documents
or instruments executed by Borrower to Lenders or Agent or its authorized
designee evidencing or otherwise relating to the Loans and/or the Liens granted
to Lenders or Agent with respect to the Loans, as the same may from time to time
be amended, modified, supplemented or renewed.
"Long-Term Lease" means any lease of real or personal property having an
original term, including any period for which the lease may be renewed or
extended at the option of the lessor, of more than one year.
"Mandatory Borrowing" shall have the meaning provided in SECTION
2.1(b)(ii).
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of
Borrower and its Subsidiaries taken as a whole, (b) Borrower's ability to pay
the Obligations in accordance with the terms of this Agreement and the other
Loan Documents or (c) the Collateral or Lenders' Liens on the Collateral or the
priority of any such Lien.
"Minimum Borrowing Amount" shall mean (i) for Base Rate Loans (other than
Mandatory Borrowings), $1,000,000, (ii) for LIBOR Loans, $1,000,000, (iii) for
Swingline Loans, $50,000, (iv) for Mandatory Borrowings if no Default has
occurred and is continuing, $1,000,000, and (v) for Mandatory Borrowings if a
Default has occurred and is continuing, $0.
"Net Income" means, on a consolidated basis, as at any date of
determination, for any period, net income (or loss) as determined and computed
in accordance with GAAP; provided, however, that there shall be excluded from
the determination of Net Income the income (or loss)
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of any Person accrued prior to the date it becomes a Subsidiary of Borrower or
is merged into or consolidated with Borrower or any of its Subsidiaries or that
Person's assets are acquired by Borrower or any of its Subsidiaries.
"Net Present Value" means
(a) with respect to a particular Eligible Lease which is not an
Eligible Software Lease, the present value of the remaining firm
term periodic rental (excluding residuals) for such Eligible Lease
discounted at a rate equal to the lower of (A) the then current Base
Rate plus the Rate Spread, if any, and (B) the then current Adjusted
LIBOR (assuming an Interest Period of two months) plus the Rate
Spread.
(b) with respect to a particular Eligible Lease which is an Eligible
Software Lease, the present value of (1) in the case of a lease, the
remaining firm term periodic rental (excluding residuals) for such
Eligible Lease or (2) in the case of a note, the remaining firm
combined payments of principal and interest for such Eligible Lease,
in each case discounted at a rate equal to the lower of (A) the then
current Base Rate plus the Rate Spread, if any, and (B) the then
current Adjusted LIBOR (assuming an Interest Period of two months)
plus the Rate Spread.
For purposes of this Agreement, the Net Present Value of an Eligible Lease shall
be the amount set forth in the most recent Borrowing Base Certificate,
calculated in accordance with paragraphs (a) and (b) above.
"New Equity" means the sum of (i) the net cash proceeds of any sale of
Stock of Borrower by Borrower, less (ii) the net cash proceeds received by
Borrower in connection with the sale of Stock under Borrower's employee stock
option plans or Borrower's employee stock purchase plan, approved by Borrower's
shareholders.
"Note" means the promissory note executed pursuant to Section 2.1(a)(i)(A),
and any and all replacements, extensions, substitutions and renewals thereof.
"Obligations" means all loans, advances, debts, liabilities and
obligations, for monetary amounts (whether or not such amounts are liquidated or
determinable) owing by Borrower to any Lender, Swingline Lender or Agent,
arising under any of the Loan Documents, including, without limitation, all
covenants and duties regarding such amounts, of any kind or nature, present or
future, whether or not evidenced by any note(s), agreement or other instrument.
This term includes, without limitation, all principal, interest, closing fees,
prepayment fees, charges, expenses, attorneys' fees and any other sum chargeable
to Borrower under any of the Loan Documents.
"Permitted Liens" has the meaning set forth in SECTION 6.1.
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"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, limited liability partnership, institution, public benefit
corporation, entity or government (whether Federal, state, county, city,
municipal or otherwise, including any instrumentality, division, agency, body or
department thereof).
"Potential Event of Default" means a condition or event which, after notice
or lapse of time or both, would constitute an Event of Default.
"Rate Spread" means:
(a) in the case of a Revolving Credit Loan which is a Base Rate Loan,
zero percent (0%);
(b) in the case of a Revolving Credit Loan which is a LIBOR Loan, one
and thirty-five hundredths percent (1.35%); and
(c) in the case of a Swingline Loan which is a Base Rate Loan, zero
percent (0%).
"Recourse Debt Ratio" means the quotient obtained by dividing (a) on a
consolidated basis, the total of Borrower's and Borrower's Subsidiaries'
Indebtedness on a recourse basis by (b) Tangible Net Worth.
"Regulatory Change" has the meaning given to such term in SECTION 2.1(c).
"Requisite Lenders" means at any time Lenders then holding at least sixty-
six and two-thirds percent (66 2/3%) of all amounts then outstanding under this
Agreement, or, in the event there are no amounts then outstanding, Lenders then
having at least sixty-six and two-thirds percent (66 2/3%) of the Commitments.
"Responsible Officer" means any of the President, Chief Financial Officer,
Treasurer or other employee of Borrower having authority to request Loans or
execute certificates on behalf of Borrower hereunder.
"Revolving Credit Loan" in the singular and "Revolving Credit Loans" when
used in the plural means any and all of the Revolving Credit Loans made pursuant
to Section 2.1(a).
"Schedule" means each Lease and Equipment Schedule executed by Borrower and
Agent under the Security Agreement.
"Security Agreement" means the Security Agreement to be entered into as of
the date hereof by and among Borrower and Agent on behalf of Lenders,
substantially in the form of EXHIBIT B, including all amendments, modifications
and supplements thereto, and shall refer to
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the Security Agreement as the same may be in effect at the time such reference
becomes operative.
"Stock" means all shares, options, warrants, interests, participations or
other equivalents (regardless of how designated) of or in a corporation or
equivalent entity, whether voting or nonvoting, including, without limitation,
common stock, preferred stock, or any other "equity security" (as such term is
defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended).
"Subsidiary" means, with respect to any Person, any corporation of which an
aggregate of more than fifty percent (50%) of the outstanding Stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether, at the time, Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person.
"Swingline Commitment" means Five Million Dollars ($5,000,000.00).
"Swingline Lender" means The First National Bank of Boston.
"Swingline Loans" shall have the meaning provided in SECTION 2.1(b)(i).
"Swingline Maturity Date" means the date which is five Business Days prior
to the Commitment Termination Date.
"Swingline Note" means the promissory note executed pursuant to Section
2.1(b)(iii), and any and all replacements, extensions, substitutions and
renewals thereof.
"Tangible Net Worth" means, on a consolidated basis, Borrower's Consolidated
Net Worth, less all (a) Intangible Assets and (b) amounts receivable from
shareholders of Borrower.
"UCC" means the Uniform Commercial Code as the same may, from time to time,
be in effect in the State of California; provided, however, in the event that,
by reason of mandatory provisions of law, any and all of the attachment,
perfection or priority of Lenders' security interest in the Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term "UCC" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
Any accounting term used in this Agreement shall have, unless otherwise
specifically provided herein, the meaning customarily given such term in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided
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herein, in accordance with GAAP consistently applied. That certain terms or
computations are explicitly modified by the phrase "in accordance with GAAP"
shall in no way be construed to limit the foregoing.
All other undefined terms contained in this Agreement shall, unless the
context indicates otherwise, have the meanings provided for by the UCC to the
extent the same are used or defined therein. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole, including the Exhibits and Schedules hereto, all of which are by this
reference incorporated into this Agreement, as the same may from time to time be
amended, modified or supplemented, and not to any particular section, subsection
or clause contained in this Agreement. Any reference to a "Section,"
"Subsection," "Exhibit" or "Schedule" shall refer to the relevant Section or
Subsection of or Exhibit or Schedule to this Agreement, unless specifically
indicated to the contrary.
Wherever from the context it appears appropriate, each term stated in either
the singular or plural shall include the singular and plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
feminine and the neuter. The term "including" shall not be limiting or
exclusive, unless specifically indicated to the contrary.
2. AMOUNT AND TERMS OF CREDIT.
2.1 COMMITMENT TO LEND
(a) COMMITMENT TO MAKE REVOLVING LOANS. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties of Borrower set forth herein, Lenders hereby severally agree to make
advances of immediately available funds to Borrower, on a revolving basis, from
the Closing Date until the Business Day immediately preceding the Commitment
Termination Date, in the aggregate principal amount outstanding at any time
which, when added to the outstanding principal amount of the Swingline Loans,
does not exceed the lesser of (i) the Commitments or (ii) the Borrowing Base
(the "Maximum Availability"), as more fully set forth in this Section 2.1(a).
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(i) Advances by Lenders.
(A) From time to time, but not more frequently
than three times in any calendar week, on the Funding Date requested by Borrower
in a Borrowing Notice delivered to Agent in accordance with SECTION 2.1(f),
after Borrower shall have satisfied all applicable conditions precedent set
forth in SECTION 2.11, each Lender severally shall make immediately available
funds available to Agent (each such advance being an "Advance") at the account
designated by Agent in writing in the amount of such Lender's Commitment
Percentage of one or more Base Rate Loans or LIBOR Loans specified in such
Borrowing Notice, each of which shall constitute a Revolving Credit Loan
hereunder and shall be in an amount equal to or greater than the Minimum
Borrowing Amount. Agent shall immediately advance such funds to Borrower at the
Designated Deposit Account on the Funding Date with respect to such Revolving
Credit Loan. The Revolving Credit Loans shall be evidenced by a promissory note
of Borrower in substantially the form of Exhibit A-1 (the "Note"), dated as of
the Closing Date and completed with appropriate insertions.
(B) The obligation of Lenders to make the
Revolving Credit Loans hereunder shall be limited at any time to the Maximum
Availability. For the purpose of determining the amount of the Borrowing Base
available at any one time, the amount available shall be the total amount of the
Borrowing Base as of the date set forth in the most recent Borrowing Base
Certificate required to have been delivered pursuant to SECTION 5.1(d). Nothing
contained in this Agreement shall under any circumstance be deemed to require
any Lender to make any Advance in the aggregate principal amount, taking into
account the making of such Advance, which when added to such Lender's Commitment
Percentage of the outstanding principal amount of Revolving Credit Loans and
Swingline Loans, exceeds the lesser of (A) such Lender's Commitment and (B) such
Lender's Commitment Percentage of the Borrowing Base.
(C) If at any time and for any reason the sum
of (x) the aggregate principal outstanding under Revolving Credit Loans and (y)
the aggregate principal outstanding under Swingline Loans, shall exceed the
Maximum Availability (the amount of such excess, if any, being an
"Overadvance"), Borrower shall within two (2) Business Days (or five (5)
Business Days in the case of an Overadvance resulting from the removal of a
Lease from the Borrowing Base calculation upon the exercise by Requisite Lenders
of their rights under paragraph (e) of the definition of Eligible Lease) (i)
repay the full amount of such Overadvance, together with all interest accrued
thereon (with the amount of such repayment being applied first to Swingline
Loans and then to Revolving Credit Loans) or (ii) pledge additional Eligible
Leases to Agent, Swingline Lender and Lenders as Collateral for the Loans so as
to increase the Borrowing Base and eliminate the Overadvance, provided, that in
no event shall the sum of (x) the aggregate principal outstanding under
Revolving Credit Loans and (y) the aggregate principal outstanding under
Swingline Loans, exceed the aggregate Commitments and any remaining Overadvance
shall be immediately due and payable under clause (i) above. All Overadvances
shall be deemed to constitute Base Rate Loans.
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(D) Amounts borrowed by Borrower hereunder may
be repaid and, prior to the Commitment Termination Date and subject to the
applicable terms and conditions precedent to borrowings set forth in SECTION
2.11, reborrowed; provided, however, that Borrower may not repay or reborrow
more than three times in any calendar week.
(E) Each request for a Revolving Credit Loan
hereunder shall constitute a reaffirmation by Borrower and the Responsible
Officer requesting the same in his or her capacity as such Responsible Officer
that the representations and warranties contained in this Agreement are true and
correct in all material respects to the same extent as though made on and as of
the date of the request, except to the extent such representations and
warranties specifically relate to an earlier date, in which event they shall be
true and correct in all material respects as of such earlier date.
(F) The obligation of each Lender to make
Advances hereunder shall be several in proportion to such Lender's respective
Commitment Percentage, it being understood that no Lender shall be responsible
for any default by any other Lender in failing to advance funds hereunder, and
that no Lender's Commitment shall be affected by any such default by any other
Lender.
(ii) THE REVOLVING CREDIT LOANS. Subject to the terms and
conditions of this Agreement, Borrower may utilize the Commitments to request
one or more of the following types of Revolving Credit Loans (except that no
more than eight (8) LIBOR Loans shall be outstanding at any one time):
(A) BASE RATE LOANS. Each Base Rate Loan shall
be in an amount equal to or greater than the Minimum Borrowing Amount and shall
bear interest on the sum of the unpaid principal balance thereof outstanding on
each day until such Base Rate Loan shall have been fully repaid at a rate per
annum equal to the sum of (1) the Base Rate plus (2) the Rate Spread, as each
may fluctuate from time to time.
(B) LIBOR LOANS. Each LIBOR Loan shall be in
an amount equal to or greater than the Minimum Borrowing Amount and shall bear
interest on the sum of the unpaid principal balance thereof outstanding on each
day until such LIBOR Loan shall have been fully repaid at a rate per annum equal
to the sum of (1) Adjusted LIBOR applicable as at the Interest Rate
Determination Date with respect to such LIBOR Loan plus (2) the Rate Spread.
(C) INTEREST PAYMENT. Interest on each Base
Rate Loan outstanding hereunder shall be due and payable monthly in arrears on
the last day of each calendar month with all accrued and unpaid interest being
due and payable on the Commitment Termination Date. Interest on each LIBOR Loan
shall be due and payable on the last day of the applicable Interest Period.
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All Revolving Credit Loans, all conversions and continuations of Loans
permitted under SECTION 2.1(i) and all repayments of principal with respect to
the Revolving Credit Loans shall be evidenced by notations made by Agent in its
books and records regarding the date, amount and maturity of each Revolving
Credit Loan made by Lenders and the amount of each payment of principal made by
Borrower with respect thereto; provided, however, that the failure by Agent to
make such notations shall not limit or otherwise affect the obligations of
Borrower with respect to the repayments of principal or payments of interest on
the Revolving Credit Loans. The aggregate unpaid amount of the Revolving Credit
Loans set forth on the books and records of Agent shall be presumptive evidence
of the principal amount owing and unpaid hereunder and under the Note.
(iii) PRINCIPAL REPAYMENT. The aggregate principal amount
outstanding as of the Commitment Termination Date under Revolving Credit Loans
shall be due and payable in full on such Commitment Termination Date, including,
without limitation, the aggregate principal amount outstanding under any LIBOR
Loans with respect to which the Interest Period extends beyond the Commitment
Termination Date.
(b) COMMITMENT TO MAKE SWINGLINE LOANS.
(i) Subject to and upon the terms and conditions herein set
forth, the Swingline Lender severally agrees, at any time and from time to time
on and after the Closing Date and prior to the Swingline Maturity Date, to make
a loan or loans (each a "Swingline Loan" and, collectively, the "Swingline
Loans") to the Borrower, which Swingline Loans:
(A) shall be Base Rate Loans;
(B) shall have the benefit of the provisions of
SECTION 2.1(b)(ii);
(C) shall not exceed in the aggregate at any one
time outstanding the Swingline Commitment at
such time;
(D) shall not exceed in the aggregate for all
Swingline Loans at any one time outstanding,
when combined with the aggregate principal
amount of all Revolving Credit Loans then
outstanding, the Maximum Availability then in
effect; and
(E) may be repaid and reborrowed in accordance with
the provisions hereof.
On the Swingline Maturity Date, all Swingline Loans shall be repaid in full. The
Swingline Lender will not make a Swingline Loan after it has received written
notice from the Requisite Lenders that one or more of the applicable conditions
precedent set forth in SECTION 2.11 are not then satisfied. In addition, at any
time when a Lender Default exists, the Swingline Lender shall
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not be required to make a Swingline Loan exceeding the aggregate unused
Commitments of the non-defaulting Lenders, unless the Swingline Lender has
entered into arrangements satisfactory to it and Borrower to eliminate the
Swingline Lender's risk with respect to the participation in Mandatory
Borrowings by the Defaulting Lender or Lenders, including by cash
collateralizing same.
(ii) On any Business Day, either the Borrower or the
Swingline Lender may, in its sole discretion, give notice to Agent pursuant to
Section 2.1(f) that all then outstanding Swingline Loans shall be funded with a
borrowing of Revolving Credit Loans (provided that such notice shall be deemed
to have been automatically given by the Swingline Lender upon the occurrence of
a Default), in which case a borrowing of Revolving Credit Loans constituting
Base Rate Loans (each such borrowing, a "Mandatory Borrowing") shall be made on
the Funding Date set forth in the Borrowing Notice, by all Lenders with
Commitments pro rata based on each Lender's Commitment Percentage, and the
proceeds thereof shall be applied directly to repay the Swingline Lender for all
outstanding Swingline Loans. Without limitation of the foregoing, each request
by Borrower for a Revolving Credit Loan pursuant to a Borrowing Notice shall be
deemed to include a request by Borrower pursuant to the preceding sentence to
fund all then outstanding Swingline Loans with a borrowing of Revolving Credit
Loans of the same type requested in such Borrowing Notice, in addition to any
Revolving Credit Loans requested in such Borrowing Notice. Each Lender hereby
irrevocably agrees to make Revolving Credit Rate Loans pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline Lender
notwithstanding:
(A) whether any conditions specified in Section 2.11
are then satisfied;
(B) whether a Default has occurred and is
continuing;
(C) the date of such Mandatory Borrowing; and
(D) any reduction in the Commitments after any such
Swingline Loans were made.
In the event that any Mandatory Borrowing cannot for any reason be made on the
date otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code in respect of Borrower),
each Lender with a Commitment (other than the Swingline Lender) hereby agrees
that it shall forthwith purchase from the Swingline Lender (without recourse or
warranty) such assignment of its outstanding Swingline Loans as shall be
necessary to cause the Lenders with Commitments to share in such Swingline Loans
ratably based upon their respective Commitment Percentages, provided that all
interest payable on such Swingline Loans shall be for the account of the
Swingline Lender until the date the respective assignment is purchased and, to
the extent attributable to the purchased assignment, shall be payable to the
Lender purchasing same from and after such date of purchase. Each Lender's
obligations under this SECTION 2.1(b)(ii) shall be absolute and unconditional.
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(iii) The Swingline Loans shall be evidenced by a
promissory note of Borrower in substantially the form of EXHIBIT A-2 (the
"Swingline Note"), dated as of the Closing Date and completed with appropriate
insertions. The aggregate unpaid amount of the Swingline Loans set forth on the
books and records of Swingline Lender shall be presumptive evidence of the
principal amount owing and unpaid under the Swingline Note.
(iv) The Swingline Note issued to the Swingline Lender
shall: (i) be executed by Borrower; (ii) be payable to the order of the
Swingline Lender and be dated the Closing Date; (iii) be in a stated principal
amount equal to the Swingline Commitment and be payable in the principal amount
of Swingline Loans evidenced thereby; (iv) mature on the Swingline Maturity
Date; (v) bear interest on the sum of the unpaid principal balance thereof
outstanding on each day until the Swingline Loans shall have been fully repaid
at a rate per annum equal to the sum of (1) the Base Rate plus (2) the Rate
Spread, as each may fluctuate from time to time; (vi) be subject to mandatory
prepayment as provided in Section 2.1(a)(i)(C); and (vii) be entitled to the
benefits of this Agreement and the other Loan Documents.
(c) INCREASED COSTS. From time to time within thirty
(30) days of written notice, in reasonable detail, thereof from any Lender to
Borrower (with a copy to Agent), Borrower shall pay to Agent, on behalf of such
Lender, such amounts as such Lender may determine to be necessary to compensate
such Lender for any costs incurred by such Lender which such Lender determines
are attributable to its making or maintaining its Commitment Percentage of any
LIBOR Loan, or any reduction in any amount receivable by such Lender under this
Agreement or the Note in respect of such Loans or such obligation (such
increases in costs and reduction in amounts receivable being the "Additional
Costs"), resulting from any change after the date of this Agreement in any
federal, state, local or foreign law or regulation (including, without
limitation, Regulation D), the adoption or making after such date of any
interpretation, directive or requirement applying to a class of banks or
financial institutions, including such Lender, of or under any federal, state,
local or foreign law or regulation (whether or not having the force of law) by
any monetary authority or Governmental Agency charged with the interpretation or
administration thereof or from any other such regulatory development
(collectively, a "Regulatory Change"), which (a) adversely changes the basis of
taxation of any amounts payable to such Lender under this Agreement or the Note
in respect of such LIBOR Loans (other than taxes imposed on the overall net
income of such Lender), (b) imposes or modifies any reserve, special deposit or
similar requirement relating to any extension of credit or other assets of, or
any deposits with or other liabilities of, such Lender or (c) imposes any other
condition affecting this Agreement or the Note (or any of such extensions of
credit or liabilities). Such Additional Costs shall accrue commencing on the
"Effective Date" which shall be the earlier of (i) the date which is ten (10)
Business Days prior to the date of the written notice with respect to such
Additional Costs delivered from Lender to Borrower under this section or (ii)
the effective date of any such Regulatory Change that is applied retroactively;
provided, that in no event shall Borrower be obligated for any Additional Costs
under this SECTION 2.1(c) (x) relating to a period prior to the Effective Date,
or (y) if such Additional Costs, or substantially the same type of costs, are
not also imposed on other borrowers of such Lender who entered into similar
credit facilities with a similar pricing, taken as a whole, who have agreed to
pay such costs, at
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the same time. Determinations by any Lender for purposes of this Section 2.1(c)
of the amount of such Additional Costs shall be presumptive evidence of the
same, provided that such determinations are made in good faith and on a
reasonable basis. Without affecting its rights under this Section 2.1(c) or any
other provision of this Agreement, each Lender agrees that if there is any
increase in any cost to or reduction in any amount receivable by such Lender
with respect to which Borrower would be obligated to compensate Lender pursuant
to this Section 2.1(c), such Lender shall use reasonable efforts to select an
alternative lending office which would not result in any such increase in any
cost to or reduction in any amount receivable by such Lender; provided, however,
that such Lender shall not be obligated to select an alternative lending office
if such Lender determines that (A) as a result of such selection such Lender
would be in violation of any applicable law, regulation, treaty, or guideline,
or would incur additional costs or expenses or (B) such selection would be
inadvisable for regulatory reasons or inconsistent with the interests of such
Lender. In the event any Lender is unable to select an alternative lending
office which would not result in any such increase in any cost to or a reduction
in any amount receivable by such Lender, and in the event such Lender demands
additional compensation pursuant to this Section 2.1(c), Borrower may (upon 30
days' prior written notice to Agent and such Lender) elect (1) to terminate the
Commitments of such Lender and prepay on the date of such termination any
outstanding Loans made by such Lender, together with accrued interest on any
such Loans, subject to payment of any amounts required pursuant to Section
2.2(b), or (2) to cause such Lender to assign its Loans and Commitments in full
to an assignee (so long as such Lender receives payment in full of the principal
amount of all Loans outstanding, together with all interest on such Loans and
other amounts payable to such Lender hereunder to the date of such assignment,
and such assignee agrees (pursuant to documentation in form and substance
reasonably acceptable to Agent and such Lender) to assume all of the obligations
of such Lender and, if requested by Agent, all of the obligations of Agent,
hereunder and release such Lender and Agent, if applicable, from all such
obligations); provided that the assignee shall be either (i) a Lender or (ii)
such other assignee as shall be consented to in writing by Agent and Requisite
Lenders, which consent shall not be unreasonably withheld. After such
assignment, such assignee bank shall be a "Lender" for all purposes hereunder
and under the other Loan Documents.
(d) ILLEGALITY OR IMPOSSIBILITY. Notwithstanding any
other provision of this Agreement, in the event Agent determines in good faith
that (a) the introduction of, any change in, or any change in the interpretation
or administration of any law or regulation after the date hereof by any
Governmental Agency charged with the interpretation or administration thereof
shall make it unlawful for any Lender to fund or maintain or charge interest
with respect to any LIBOR Loan, (b) by reason of circumstances affecting the
interbank markets, adequate and reasonable methods do not exist for determining
the LIBOR or (c) deposits of United States Dollars in the relevant amount for
the applicable term of a given LIBOR Loan are not available in the relevant
interbank markets (collectively, the "Affected Loans"), then Agent shall
promptly give notice of such determination to Borrower (which notice shall be
and binding). Upon such notification by Agent, Lenders shall have no obligation
to make any further Affected Loans unless the circumstances giving rise to such
determination no longer exist.
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(e) CAPITAL REQUIREMENTS. Notwithstanding any other
provision of this Agreement, in the event that any Lender or Swingline Lender
determines in good faith that either (a) the introduction of, any change in, or
any change in the interpretation or administration of, any law or regulation by
any governmental authority charged with the interpretation or administration
thereof or (b) compliance with any guideline or request from any such
governmental authority (whether or not having the force of law) has or would
have the effect of reducing the rate of return on the capital of such Lender,
Swingline Lender or any corporation controlling such Lender or Swingline Lender
as a consequence of or with reference to such Lender's or Swingline Lender's
making or maintaining any commitment, credit, advance or other transaction
hereunder below the rate which such Lender, Swingline Lender or such other
corporation could have achieved but for such introduction, change or compliance
(taking into account the policies of such Lender, Swingline Lender or
corporation with regard to capital) (collectively, a "Capital Requirement
Change"), then Borrower shall from time to time, within thirty (30) days written
notice from such Lender or Swingline Lender, in reasonable detail describing
such Capital Requirement Change, pay to Agent, for the benefit of such Lender or
Swingline Lender, additional amounts sufficient to compensate such Lender,
Swingline Lender or such other corporation for such reduction ("Capital
Charges"). Each Lender and Swingline Lender agrees that it will provide Borrower
with written notice of any Capital Charge with respect to such Lender or
Swingline Lender arising under this SECTION 2.1(e). Such Capital Charges shall
accrue commencing on the "Capital Requirement Change Effective Date" which shall
be the earlier of (i) the date which is ten (10) Business Days prior to the date
of the written notice with respect to such Capital Charges delivered from Lender
or Swingline Lender to Borrower under this section or (ii) the effective date of
any such Capital Requirement Change that is applied retroactively; provided,
that in no event shall Borrower be obligated for any Capital Charges under this
SECTION 2.1(e) (x) relating to a period prior to the Capital Requirement Change
Effective Date, or (y) if such Capital Charges, or substantially the same type
of charges, are not also imposed on all borrowers of such Lender or Swingline
Lender, who have agreed to pay such charges, at the same time. Determinations by
any Lender or Swingline Lender for purposes of this SECTION 2.1(e) of the amount
of such Capital Charges shall be presumptive evidence of the same, provided that
such determinations are made in good faith and on a reasonable basis. Without
affecting its rights under this SECTION 2.1(e) or any other provision of this
Agreement, each Lender and Swingline Lender agrees that if in its good faith
determination there is any increase in any cost to or reduction in any amount
receivable by such Lender or Swingline Lender with respect to which Borrower
would be obligated to compensate such Lender or Swingline Lender pursuant to
this Section 2.1(e), Lender or Swingline Lender, as the case may be, shall use
reasonable efforts to select an alternative lending office which would not
result in any such increase in any cost to or reduction in any amount receivable
by such Lender or Swingline Lender; provided, however, that such Lender or
Swingline Lender shall not be obligated to select an alternative lending office
if such Lender or Swingline Lender determines that (A) as a result of such
selection such Lender or Swingline Lender would be in violation of any
applicable law, regulation, treaty, or guideline, or would incur additional
costs or expenses or (B) such selection would be inadvisable for regulatory
reasons or inconsistent with the interests of such Lender or Swingline Lender.
In the event any Lender or Swingline Lender is unable to select an alternative
lending office which would not result in any such
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increase in any cost to or a reduction in any amount receivable by such Lender
or Swingline Lender, and in the event such Lender or Swingline Lender demands
additional compensation pursuant to this SECTION 2.1(e), Borrower may (upon 30
days' prior written notice to Agent and such Lender or Swingline Lender) elect
(1) to terminate the Commitments of such Lender or Swingline Lender and prepay
on the date of such termination any outstanding Loans made by such Lender or
Swingline Lender, together with accrued interest on any such Loans, subject to
payment of any amounts required pursuant to SECTION 2.2(b), or (2) to cause such
Lender or Swingline Lender to assign its Loans, Swingline Commitment and
Commitments in full to an assignee (so long as such Lender or Swingline Lender
receives payment in full of the principal amount of all Loans outstanding,
together with all interest on such Loans and other amounts payable to such
Lender or Swingline Lender hereunder to the date of such assignment, and such
assignee agrees (pursuant to documentation in form and substance reasonably
acceptable to Agent and such Lender or Swingline Lender) to assume all of the
obligations of such Lender or Swingline Lender hereunder, and, if requested by
Agent, all of the obligations of Agent, hereunder and release such Lender,
Swingline Lender, if applicable, and Agent, if applicable, from all such
obligations); provided that the assignee shall be either (i) a Lender or (ii)
such other assignee as shall be consented to in writing by Agent and Requisite
Lenders, which consent shall not be unreasonably withheld. After such
assignment, such assignee bank shall be a "Lender" and "Swingline Lender," if
applicable, for all purposes hereunder and under the other Loan Documents.
(f) SPECIAL NOTICE REQUIREMENTS. Whenever
Borrower desires to utilize the Commitment hereunder, Borrower shall give
written notice or telephonic notice promptly confirmed in writing (each such
notice, together with each notice of the incurrence of Swingline Loans pursuant
to SECTION 2.1(g), a "Borrowing Notice") to Agent at 435 Tasso Street, Suite
250, Palo Alto, California 94301, Attention: Michelle Arellano or Sarabelle
Hitchner (phone: (415) 853-0404, fax: (415) 853-1425), and which notice shall
comply with the following requirements:
(i) For Base Rate Loans other than Swingline
Loans, a Borrowing Notice specifying that a Base Rate Loan is requested, the
amount thereof and the proposed Funding Date, must be received by Agent no later
than 1:00 p.m., California time, two (2) Business Days prior to the Funding Date
for such Loan.
(ii) For LIBOR Loans, a Borrowing Notice must be
received by Agent no later than 11:00 a.m., California time, four (4) Business
Days preceding the Funding Date for such Loan, specifying that a LIBOR Loan is
requested, the amount and Interest Period thereof and the proposed Funding Date.
(iii) For all Loans, the Borrowing Notice may be
accompanied by, at Borrower's election, an updated Borrowing Base Certificate.
Promptly following receipt of notice as provided in this SECTION 2.1(f),
Agent shall notify by telephone, facsimile or telex each Lender of the principal
amount (including such Lender's
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Commitment Percentage thereof), and type and Funding Date of the Loan being
requested by Borrower. For purposes of this SECTION 2.1(f), notice received by
Agent from Borrower after 1:00 p.m., California time, on any day shall be deemed
to be received on the next succeeding Business Day. Not later than 11:00 a.m.,
California time, on the Funding Date for such Loan, each Lender shall make
advances to Agent for the account of Borrower in the amount of its Commitment
Percentage of the Loan being requested by Borrower. Provided that the applicable
conditions precedent set forth in SECTION 2.11 have been satisfied, not later
than 3:00 p.m. California time on such Funding Date, Agent shall advance to the
Designated Deposit Account all such advances received from Lenders. In the event
that the applicable conditions precedent are not satisfied within two (2)
Business Days, then Agent shall return to each Lender any such advances made by
such Lender to Agent and Agent shall pay on its own behalf, interest at the
Federal Funds Rate.
(g) NOTICE OF SWINGLINE LOANS. Whenever Borrower desires
to incur Swingline Loans hereunder, it shall give Agent written notice (or
telephonic notice promptly confirmed in writing) of each borrowing of Swingline
Loans prior to 1:00 p.m. (California time) one (1) Business Day prior to the
date of such borrowing. Each such notice shall be irrevocable and shall specify
(i) the aggregate principal amount of the Swingline Loans to be made pursuant to
such borrowing and (ii) the date of borrowing (which shall be a Business Day).
Agent shall promptly give the Swingline Lender written notice (or telephonic
notice promptly confirmed in writing) of each proposed borrowing of Swingline
Loans and of the other matters covered by the Borrowing Notice.
(h) NOTICE OF MANDATORY BORROWINGS. Mandatory Borrowings
shall be made upon the notice specified in Section 2.1(b)(ii), with Borrower
irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of
Mandatory Borrowings as set forth in such Section.
(i) CONVERSION AND CONTINUATION OF LOANS. Borrower
shall have the right on prior irrevocable written notice to Agent to (a) convert
any LIBOR Loan to a Base Rate Loan; (b) convert any Base Rate Loan (other than
Swingline Loans), or a portion thereof, to a LIBOR Loan, specifying the Interest
Period applicable thereto; (c) convert the Interest Period with respect to any
LIBOR Loan to another permissible Interest Period; and (d) continue any LIBOR
Loan into a subsequent Interest Period of the same or a different permitted
duration, in each case subject to the satisfaction of the following conditions:
(i) The notice required to be received by Agent
from Borrower hereunder prior to the conversion or continuation of any Loan
shall have been received no later than the time required for receipt of notice
by Agent for the making of the Loan (A) being continued or (B) into which
another Loan is being converted;
(ii) Accrued interest on a Loan (or portion
thereof) being converted or continued shall continue to be paid quarterly in
arrears, except that such amounts shall be paid by Borrower at the time of
conversion or continuation if Agent shall so specify;
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(iii) LIBOR Loans may be converted or continued
only on the last day of the applicable Interest Period except with the payment
of such fees as may be due pursuant to Section 2.2(b);
(iv) LIBOR Loans may not be converted or
continued into an Interest Period having a maturity date occurring after the
Commitment Termination Date;
(v) LIBOR Loans may not be converted or
continued if more than eight (8) LIBOR Loans would be outstanding as a result of
such conversion or continuation;
(vi) Each Base Rate Loan being converted into a
LIBOR Loan and each Loan being continued into another LIBOR Loan shall be in the
minimum principal outstanding amount of at least $1,000,000;
(vii) Any conversion or continuation of any Loan
shall be subject to the satisfaction of the conditions precedent to all Loans
set forth in Sections 2.11(b)(i), (ii), (iii), (iv), (vii) and (viii) at the
time of conversion or continuation; and
(viii) Any conversion or continuation of any Loan
under this Section 2.1(i) shall be made according to each Lender's Commitment
Percentage.
The Interest Period applicable to any LIBOR Loan resulting from a conversion
shall be specified by Borrower in the notice delivered pursuant to this Section;
provided, however, that if no such Interest Period shall be specified, Borrower
shall be deemed to have selected an Interest Period of one (1) month's duration.
(j) LIMITATION ON TYPES OF LOANS. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of an interest
rate for any LIBOR Loans for any Interest Period therefor, Requisite Lenders
determine (which determination shall be conclusive, provided that such
determination shall be made in good faith upon a reasonable basis) that the
rates of interest referred to in the definition of "LIBOR" upon the basis of
which the rate of interest on any LIBOR Loans for such period is determined do
not accurately reflect the cost to Requisite Lenders of making or maintaining
such Loans for such period, then Agent shall give Borrower prompt notice thereof
(and shall thereafter give Borrower prompt notice of the cessation, if any, of
such condition), and so long as such condition remains in effect, Lenders shall
be under no obligation to make LIBOR Loans or to convert Base Rate Loans into
LIBOR Loans and Borrower shall, on the last day(s) of the then current Interest
Period(s) for the outstanding LIBOR Loans either prepay such LIBOR Loans in
accordance with Section 2.2(a) hereof (subject to SECTION 2.2(b) hereof) or
convert such LIBOR Loans into Base Rate Loans in accordance with SECTION 2.1(i)
hereof.
2.2 PREPAYMENT.
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(a) VOLUNTARY PREPAYMENT. Loans that are LIBOR Loans
may be prepaid without premium or penalty on the last day of any Interest Period
applicable thereto and, subject to payment of amounts required pursuant to
SECTION 2.2(b), may be prepaid at any other time, in each case upon three
Business Days' irrevocable notice. Loans that are Base Rate Loans may be prepaid
at any time, without premium or penalty, upon one Business Day's irrevocable
notice. If such notice is given by Borrower, Borrower shall make such prepayment
and the payment amount specified in such notice shall be due and payable on the
date specified therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to Section 2.2(b), in
immediately available funds delivered to Agent not later than 11:00 a.m.,
California time.
(b) PAYMENTS NOT AT END OF INTEREST PERIOD. If Borrower
for any reason makes any payment of principal with respect to any LIBOR Loan on
any day other than the last day of an Interest Period applicable to such LIBOR
Loan, including, without limitation, the payment of principal due on the
Commitment Termination Date with respect to any LIBOR Loan where the Interest
Period with respect to such LIBOR Loan extends beyond the Commitment Termination
Date, or fails to borrow or continue or convert to a LIBOR Loan after giving a
Borrowing Notice or notice of conversion pursuant to Section 2.1(i), promptly
upon written notice thereof from Agent, Borrower shall pay to Agent for the
account of each Lender an amount computed pursuant to the following formula:
L = (R - T) x P x D
---------------
360
L = amount payable to Agent for the account of the Lenders
R = interest rate on such Loan
T = effective interest rate per annum at which any readily marketable
bond or other obligation of the United States, selected at FNBB's
sole discretion, maturing on or near the last day of the then
applicable Interest Period of such Loan and in approximately the
same amount as such Loan can be purchased by FNBB on the day of
such payment of principal or failure to borrow or continue or
convert
P = the amount of principal prepaid or the amount of the requested
Loan
D = the number of days remaining in the Interest Period as of the date
of such payment or the number of days of the requested Interest
Period
Borrower shall pay such amount promptly upon presentation by Agent of a
statement setting forth the amount and Agent's calculation thereof pursuant
hereto, which statement shall be deemed true and correct absent manifest error.
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2.3 FEES AND COMMISSIONS
(a) COMMITMENT FEE. In consideration of Lenders'
agreement to commit to make the Loans available to Borrower, Borrower agrees to
pay to Agent on behalf of Lenders a commitment fee from the Closing Date until
the Commitment Termination Date in an amount equal to one-quarter of one percent
(0.25%) per annum of the average daily difference between (a) the Commitments
and (b) the sum of the aggregate outstanding principal amount of Loans. All such
fees shall be due and payable each quarter in arrears, commencing September 30,
1996, with the final such payment due and payable on the Commitment Termination
Date.
(b) AGENT'S FEE. Borrower shall pay to Agent for Agent's
own account an agency fee in the amount and at the times set forth in the
Agent's Fee Letter.
2.4 CALCULATION OF INTEREST; POST-DEFAULT INTEREST. Interest on
the Loans shall be computed on the basis of a 360-day year and the actual number
of days elapsed in the period during which it accrues. In computing interest on
any Loan, the date of the making of such Loan shall be included and the date of
payment shall be excluded; provided, however, that if a Loan is repaid on the
same day on which it is made, such day shall be included in computing interest
on such Loan. Each change in the interest rate of the Loans based on changes in
the Base Rate or Adjusted LIBOR, as the case may be, shall be effective on the
effective date of such change and to the extent of such change. Agent shall give
Borrower notice of any such change in the Base Rate or Adjusted LIBOR; provided,
however, that any failure by Agent to provide Borrower with notice hereunder
shall not affect Lenders', Swingline Lender's, or Agent's right to make changes
in the interest rate applicable to the Loans based on changes in the Base Rate
or Adjusted LIBOR, as the case may be. Upon the occurrence and during the
continuation of an Event of Default, the Loans shall thereafter bear interest
payable upon demand at a rate which is two percent (2.0%) above the rate of
interest otherwise applicable thereto (the "Default Rate").
2.5 PAYMENTS.
(a) All payments of principal, interest and fees hereunder
and under the Note and the Swingline Note shall be in lawful money of the United
States of America in immediately available funds and shall be debited from the
Designated Deposit Account by Agent, for the account of Lenders and Swingline
Lender, on the date the same shall become due and payable. Borrower hereby
authorizes Agent, and irrevocably constitutes and appoints Agent (and any
officer or agent thereof, with full power of substitution) as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name (which
appointment is coupled with an interest), to debit directly from the Designated
Deposit Amount, the full amount (or any portion thereof) of the Obligations of
Borrower to Lenders, Swingline Lender and Agent hereunder (including all
principal, accrued interest, commitment and other fees, and other amounts
chargeable to Borrower under this Agreement) when and as the same shall become
due and payable. Agent shall provide prompt notice to Borrower of any such
debit.
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(b) All payments by Borrower hereunder and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of and without deduction for any taxes (except as set forth below),
levies, imposts, duties, charges, fees, deductions, withholdings (except as set
forth below), compulsory loans, restrictions or conditions of any nature now or
hereafter imposed or levied by any jurisdiction or any political subdivision
thereof or taxing or other authority therein unless Borrower is compelled by law
to make such deduction or withholding. If any such obligation is imposed upon
Borrower with respect to any amount payable by it hereunder or under any of the
other Loan Documents, Borrower will pay to Agent, for the account of Lenders or
(as the case may be) Swingline Lender or Agent, on the date on which such amount
is due and payable hereunder or under such other Loan Document, such additional
amount in dollars as shall be necessary to enable Lenders, Swingline Lender or
Agent to receive the same net amount which Lenders, Swingline Lender or Agent
would have received on such due date had no such obligation been imposed upon
Borrower. Borrower will deliver promptly to Agent certificates or other valid
vouchers for all taxes or other charges deducted from or paid with respect to
payments made by Borrower hereunder or under such other Loan Document. Borrower
shall not be liable for taxes paid by Agent, Swingline Lender or Lenders which
are based upon Agents's, Swingline Lender's or any Lender's net income or for
any withholding required to made pursuant to applicable law which are credited
against taxes based on Agent's, Swingline Lender's or a Lender's net income. If
any Lender or Swingline Lender shall obtain a credit with respect to all or part
of any tax indemnified by Borrower pursuant to this SECTION 2.5(b), then, to the
extent such items have not previously been taken into account in computing the
amount of any payment pursuant to this sentence or the amount of indemnification
payable under this SECTION 2.5(b), such Lender or Swingline Lender shall
promptly pay to Borrower an amount equal to the amount of such credit, reduced
by the amount of any prior payments by such Lender or Swingline Lender to, or
for the benefit of, Borrower arising from the same claim. All computations
required hereunder shall be made by such Lender or Swingline Lender, acting
reasonably and in good faith and the results of such computations shall be
delivered to Borrower. At the request and expense of Borrower the accuracy of
such computations shall be verified by such Lender's or Swingline Lender's
independent accountants. The computations of such accounting firm shall be
firmly binding and conclusive on Borrower and such Lender or Swingline Lender.
Borrower shall have no right to examine or otherwise have access to the books
and records of such Lender or Swingline Lender or otherwise have access to its
tax returns.
2.6 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder, under the Note, or under the Swingline Note shall be stated to be due
on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in the computation of the payment of interest hereunder, under the
Note, or under the Swingline Note.
2.7 APPLICATION OF PAYMENTS. Borrower irrevocably waives the right
to direct the application of any and all payments at any time hereafter received
by Agent from or on behalf of Borrower, and Borrower irrevocably agrees that
Agent on behalf of Lenders and Swingline
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Lender shall have the continuing exclusive right to apply any and all such
payments against the then due and owing Obligations of Borrower as Agent may
deem advisable. In the absence of a specific determination by Agent with respect
thereto, the same shall be applied in the following order: (a) then due and
payable fees and expenses of Swingline Lender (in its capacity as Swingline
Lender), then due and payable interest payments and mandatory prepayments on
Swingline Loans, and then due and payable principal payments and optional
prepayments on Swingline Loans; (b) then due and payable fees and expenses of
Agent and Lenders; (c) then due and payable interest payments and mandatory
prepayments on Revolving Credit Loans; and (d) then due and payable principal
payments and optional prepayments on Revolving Credit Loans. Agent is authorized
to, and at its sole option may, make advances on behalf of Borrower for payment
of all fees, expenses, charges, costs, principal and interest incurred hereunder
or under the other Loan Documents. To the extent permitted by law, all amounts
advanced by Agent or any Lender hereunder or under other provisions of the Loan
Documents shall be deemed for the purpose of accruing interest thereon, as
constituting a Base Rate Loan.
2.8 DISTRIBUTION OF PAYMENTS. Agent shall immediately distribute
to each Lender and Swingline Lender, at such address as each Lender and
Swingline Lender shall designate, its respective interest in all repayments and
prepayments of principal and all payments of interest, fees, expenses and costs
received by Agent on the same day and in the same type of funds as payment was
received.
2.9 AGENT'S RIGHT TO ASSUME FUNDS AVAILABLE FOR ADVANCES. Unless
Agent shall have been notified by any Lender no later than the Business Day
prior to the respective Funding Date of any Loan that such Lender does not
intend to make available to Agent immediately available funds equal to such
Lender's Commitment Percentage of the total principal amount of such Loan, Agent
may assume that such Lender has made such Advance to Agent on the date of the
Loan and Agent may, in reliance upon such assumption, make available to Borrower
a corresponding Advance. If Agent has made funds available to Borrower based on
such assumption and such Advance is not in fact made to Agent by such Lender,
Agent shall be entitled to recover the corresponding amount of such Advance on
demand from such Lender. If such Lender (the "Defaulting Lender") does not
promptly pay such corresponding amount upon Agent's demand, Agent shall (a) to
the extent that there is availability under the Commitments of the Lenders other
than the Defaulting Lender, notify such Lenders and each such Lender severally
shall make immediately available funds available to Agent at the account
designated by Agent in writing in an amount equal to the lesser of such Lender's
Commitment Percentage of such corresponding amount and such Lender's remaining
Commitment, which amounts advanced shall be deemed to be Advances under this
Agreement; provided, that for purposes of this Section, the Commitment
Percentage of each Lender shall be calculated without regard to the Commitment
of the Defaulting Lender; provided further, that nothing herein shall be deemed
to increase the Commitment of any Lender; and (b) to the extent that (i) there
is no further availability under the Commitments or (ii) Agent is not promptly
reimbursed under SECTION 2.9(a), Agent shall notify Borrower and Borrower shall
repay such Advance to Agent. Agent also shall be entitled to recover from the
Defaulting Lender interest on such Advance in respect of each day from the date
such Advance was made by Agent to Borrower to the date such
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corresponding amount is recovered by Agent at the Federal Funds Rate. Nothing in
this Section 2.9 shall be deemed to relieve any Lender from its obligation to
fulfill its Commitments or to prejudice any rights which Agent, any other Lender
or Borrower may have against such Defaulting Lender as a result of any default
by such Defaulting Lender under this Agreement.
2.10 AGENT'S RIGHT TO ASSUME PAYMENTS WILL BE MADE BY BORROWER.
Unless Agent shall have been notified by Borrower prior to the date on which any
payment to be made by Borrower hereunder is due that Borrower does not intend to
remit such payment, Agent may, in its discretion, assume that Borrower has
remitted such payment when so due and Agent may, in its discretion and in
reliance upon such assumption, make available to each Lender on such payment
date an amount equal to such Lender's Commitment Percentage of such assumed
payment. If Borrower has not in fact remitted such payment to Agent, each Lender
shall forthwith on demand repay to Agent the amount of such assumed payment made
available to such Lender, together with interest thereon in respect of each date
from and including the date such amount was made available by Agent to such
Lender to the date such amount is repaid to Agent at the Federal Funds Rate.
2.11 CONDITIONS PRECEDENT TO LOANS.
(a) FIRST LOAN. The obligation of Lenders or Swingline
Lender to make the first Loan hereunder is subject to the following conditions
precedent:
(i) Agent shall have received in form and
substance satisfactory to Requisite Lenders and Agent and their special counsel
the following:
(A) A certified copy of the records of
all actions taken by Borrower including resolutions of Borrower authorizing or
relating to the execution, delivery and performance of the Loan Documents and
the consummation of the transactions contemplated hereby;
(B) Articles of Incorporation and
Bylaws and any other charter or formation documents of Borrower certified by an
officer of Borrower as in full force and effect;
(C) Certificate of the Secretary of
State of California stating that Borrower is a corporation in good legal
standing under the laws of the State of California;
(D) Certificate of the California
Franchise Tax Board as to the tax good standing of Borrower; and
(E) Certificates of incumbency and
signature with respect to the authorized officers of Borrower executing the Loan
Documents.
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(ii) Agent shall have received the Note, duly
executed by Borrower, dated on or prior to the First Funding Date with
appropriate insertions.
(iii) Swingline Lender shall have received the
Swingline Note, duly executed by Borrower, dated on or prior to the First
Funding Date with appropriate insertions.
(iv) Agent shall have received an originally
executed opinion of counsel for Borrower, satisfactory to Lenders and Agent and
their special counsel, dated on or prior to the First Funding Date and addressed
to each Lender and Agent, which opinion shall be substantially in the form of
Exhibit C.
(v) Borrower shall have executed and delivered
to Agent on behalf of Lenders a Security Agreement substantially in the form of
EXHIBIT B.
(vi) Agent shall have received a certificate of
insurance of Borrower with respect to such insurance as is required to be
maintained by Borrower pursuant to SECTION 5.3 of the Agreement.
(vii) Agent shall have received financial
statements of recent date, in a form reasonably satisfactory to Agent, of
Borrower, which fairly present the financial position of Borrower as of such
date and the results of Borrower's operations for such period then ended, but
subject, however, to the absence of footnotes and to normal, recurring year-end
adjustments that shall not in the aggregate be material in amount to Borrower.
(viii) Agent shall have received an executed
original of Agent's Fee Letter.
(ix) Agent shall have received a Borrowing Base
Certificate.
(x) Agent shall have received such other
documents, information and items from Borrower as reasonably requested by Agent.
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(b) ALL LOANS. The obligation of Lenders and Swingline
Lender to make any Loan is subject to the following further conditions precedent
hereunder that:
(i) Borrower shall have performed all of its
agreements under the Loan Documents to be performed on or before such Funding
Date.
(ii) No event shall have occurred and be
continuing or would result from the consummation of any Loans to be made on such
Funding Date which constitutes an Event of Default or Potential Event of
Default.
(iii) All representations and warranties contained
in the Loan Documents shall be true and correct with the same effect as though
such representations and warranties had been made on and as of such Funding Date
(except to the extent such representations and warranties specifically relate to
an earlier date, in which case they shall be true and correct as of such earlier
date).
(iv) The insurance required to be maintained by
Borrower pursuant to the Loan Documents shall be in full force and effect.
(v) Agent shall have received the following
documents pertaining to each Eligible Lease which is included in the Borrowing
Base calculation:
(A) A Schedule (in the form of SCHEDULE
1 to the Security Agreement) describing such Lease and the Equipment covered
thereby, duly executed by Borrower;
(B) As to any Lease for which any of
the Equipment is titled to the lessee prior to the time that title passes to
Borrower, an opinion of counsel to Borrower (or opinion of counsel for the
lessee, acceptable to Requisite Lenders) that such transfer does not constitute
a fraudulent conveyance or voidable transfer under the law of the relevant
jurisdiction, including without limitation, for Equipment located in California,
Section 3440 of the California Civil Code; provided, however, that this CLAUSE
(C) shall not apply to (i) the funding of Leases in respect of which the total
obligations thereunder of the lessee under such Leases to Borrower will not
exceed, in the aggregate, $5,000,000, or (ii) a transaction approved by
Requisite Lenders, which approval shall not be unreasonably withheld or delayed;
provided further, however, that notwithstanding the foregoing, in the case of a
funding of Leases in respect of which the total obligations of lessee to
Borrower thereunder will exceed, in the aggregate, $500,000, Borrower shall
comply with the requirements of Section 3440 of the California Civil Code in the
case of Equipment located in California or any similar legislation providing for
written notice of such a transaction, if any, in any other State where the
Equipment is located.
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(vi) On or before the Funding Date, such UCC
financing statements, amendments, termination statements, and other documents or
instruments shall have been executed and delivered, as Agent deems necessary or
appropriate to provide Agent, on behalf of Lenders, a first priority, perfected
security interest in the particular Leases included in the Borrowing Base
calculation and the Equipment subject to such Leases.
(vii) Agent shall have received such other
instruments and documents as Agent, on behalf of Lenders, may have reasonably
requested from Borrower in connection with the Loans to be made on such date.
(viii) There shall have been no material adverse
change in the financial condition, profits or business of Borrower, taken as a
whole, in the opinion of Requisite Lenders, in its sole discretion, between the
date of this Agreement and the Funding Date.
2.12 FUNDING SOURCES. Nothing contained herein shall be deemed to
obligate Lenders to fund any Loan hereunder in any particular place or manner
and nothing contained herein shall be deemed to constitute a representation of
any Lender or Agent that it has funded or will fund any Loan hereunder in any
particular place or manner.
2.13 SHARING OF PAYMENTS, ETC. If, other than as expressly
provided elsewhere herein, any Lender shall obtain on account of the Loans made
by it any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) in excess of its Commitment Percentage of
payments on account of the Loans obtained by all the Lenders, such Lender shall
forthwith (a) notify Agent of such fact, and (b) purchase from the other Lenders
such participations in the Loans made by them as shall be necessary to cause
such purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Lender, such purchase shall to that
extent be rescinded and each other Lender shall repay to the purchasing Lender
the purchase price paid therefor, together with an amount equal to such paying
Lender's Commitment Percentage (according to the proportion of (i) the amount of
such paying Lender's required repayment to (ii) the total amount so recovered
from the purchasing Lender) of any interest or other amount paid or payable by
the purchasing Lender in respect of the total amount so recovered. Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this SECTION 2.13 may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off, but subject
to SECTION 11.7) with respect to such participation as fully as if such Lender
were the direct creditor of Borrower in the amount of such participation. Agent
will keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased pursuant to this SECTION 2.13 and
will in each case notify Lenders following any such purchases or repayments.
3. COLLATERAL SECURITY.
All of the Obligations of Borrower to Agent, Swingline Lender and
Lenders arising hereunder and under the other Loan Documents, including, without
limitation, all Obligations of
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Borrower arising in respect of the Loans, shall be secured by the Collateral in
accordance with the terms of the Security Agreement.
4. BORROWER'S REPRESENTATIONS AND WARRANTIES.
The Borrower hereby warrants and represents to Lenders and Swingline
Lender as follows, and agrees that each of said warranties and representations
shall be deemed to continue until full and complete payment and performance of
the Obligations and shall apply anew to each borrowing hereunder:
4.1 ORGANIZATION AND QUALIFICATION. Borrower and each of its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, (b) has all
requisite corporate power to own its property and conduct its business as now
conducted and (c) is duly qualified and in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction where the
nature of its properties or business requires such qualification except where
the failure to be so qualified would not have a Material Adverse Effect.
4.2 CORPORATE AUTHORITY. The execution, delivery and performance
of this Agreement and the Loan Documents and the transactions contemplated
hereby are within the corporate power and authority of the Borrower and have
been authorized by all necessary corporate proceedings, and do not and will not
(a) require any consent or approval of the shareholders of the Borrower, (b)
contravene any provision of the organizational or charter documents or by-laws
of the Borrower or any law, rule or regulation applicable to the Borrower
presently in effect and the contravention of which would result in the
occurrence of a Material Adverse Effect, (c) constitute an event of default or
event that, but for the requirement that time elapse or notice be given, or
both, would constitute an event of default under, any other agreement,
instrument, order or undertaking presently in effect and binding on the
Borrower, which event of default would have a Material Adverse Effect, or (d)
result in or require the imposition of any Liens on any of the properties,
assets or rights of the Borrower, other than pursuant to the Loan Documents.
4.3 VALID OBLIGATIONS. This Agreement and the Loan Documents and
all of their respective terms and provisions are the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the enforcement of creditors' rights generally, and
except as the remedy of specific performance or of injunctive relief is subject
to the discretion of the court before which any proceeding therefor may be
brought.
4.4 CONSENTS OR APPROVALS. The execution, delivery and performance
of this Agreement and the Loan Documents and the transactions contemplated
herein do not require any approval or consent of, or filing or registration
with, any Governmental Agency, or any other party, the failure of which to
obtain would have a Material Adverse Effect.
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4.5 TITLE TO COLLATERAL; ABSENCE OF ENCUMBRANCES. Borrower has
good and marketable title to all of the Collateral, free from all Liens except
Permitted Liens. Borrower has good and marketable title to all of the
properties, assets and rights as are reflected as being owned by Borrower in the
financial statements referred to in Section 4.6 (except such properties, assets
or rights as have been disposed of in the ordinary course of business since the
date thereof), free from any blanket Liens on all or substantially all of such
properties, assets and rights.
4.6 FINANCIAL STATEMENTS. Borrower has furnished Agent its
consolidated balance sheet as of December 31, 1995 and its consolidated
statements of income, changes in shareholders' equity and cash flow for the
fiscal year then ended, and related footnotes, audited and certified by Deloitte
& Touche LLP. Borrower has also furnished Agent its consolidated balance sheet
as of June 30, 1996 and its consolidated statements of income, changes in
stockholders' equity and cash flow for the six months then ended, which are
hereby certified by the principal financial officer of Borrower to present
fairly the financial position of Borrower and its Subsidiaries as of such dates
and the results of the operations of Borrower and its Subsidiaries for such
period, but subject, however, to the absence of footnotes and to normal,
recurring year-end adjustments that shall not in the aggregate be material in
amount to Borrower and its Subsidiaries taken as a whole. All such financial
statements were prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods specified and
present fairly the financial position of Borrower and its Subsidiaries as of
such dates and the results of the operations of Borrower and its Subsidiaries
for such periods. There are no liabilities, contingent or otherwise, not
disclosed in such financial statements that involve an amount material to
Borrower and its Subsidiaries, taken as a whole.
4.7 CHANGES. Since the date of the most recent financial
statements referred to in Section 4.6, there have been no changes in the assets
and liabilities (taken as a whole), financial condition or business of the
Borrower and its Subsidiaries, taken as a whole, that have not been otherwise
disclosed to Lenders other than changes in the ordinary course of business, the
effect of which has not, in the aggregate, resulted in a Material Adverse
Effect.
4.8 DEFAULTS. As of the date of this Agreement and the Closing
Date, no Default exists.
4.9 TAXES. The Borrower and its Subsidiaries have filed all
foreign, federal, state and other tax returns required to be filed, and all
taxes, assessments and other governmental charges due from the Borrower and its
Subsidiaries have been fully paid or are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
established and are being maintained in accordance with GAAP, other than where a
failure to file or pay the same would not have a Material Adverse Effect.
4.10 LITIGATION. There is no litigation, arbitration, proceeding
or investigation pending, or, to the knowledge of the Borrower, threatened,
against Borrower or any of its Subsidiaries that, if adversely determined, could
result in a forfeiture of all or any substantial
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part of the property of Borrower or Borrower and its Subsidiaries, taken as a
whole, or could otherwise have a Material Adverse Effect.
4.11 USE OF PROCEEDS. The Borrower does not own any "margin
security", as that term is defined in Regulations G and U of the Federal Reserve
Board, and the proceeds of the Loans under this Agreement will be used only for
purposes not prohibited hereunder. None of the Loans will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the Loans under this Agreement to be considered a "purpose
credit" within the meaning of Regulations G, T, U and X. The Borrower will not
take or permit any agent acting on its behalf to take any action which might
cause this Agreement or any document or instrument delivered pursuant hereto to
violate any regulation of the Federal Reserve Board.
4.12 INVESTMENT COMPANY ACT. Neither of the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.13 COMPLIANCE WITH ERISA. Borrower has fulfilled its obligations
under the minimum funding standards of ERISA and the Code with respect to each
of its Employee Plans and is in compliance in all material respects with the
applicable provisions of ERISA and the Code, and has not incurred any liability
to the PBGC or an Employee Plan under Title IV of ERISA. No "prohibited
transaction" or "reportable event" (as such terms are defined in ERISA) has
occurred with respect to any of its Employee Plans.
4.14 ENVIRONMENTAL MATTERS.
(i) Borrower and each of its Subsidiaries has obtained all
permits, licenses and other authorizations which are required under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not have a Material Adverse Effect. The Borrower
and each of its Subsidiaries are in compliance with the terms and conditions of
all such permits, licenses and authorizations, and are also in compliance with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply would not have a Material
Adverse Effect.
(ii) No notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has been
filed and served on Borrower or any Subsidiary, no penalty has been assessed and
no investigation or review is pending or, to the knowledge of Borrower,
threatened by any governmental or other entity with respect to any alleged
failure by the Borrower or any of its Subsidiaries to have any permit, license
or authorization required in connection with conduct of its business or with
respect to any Environmental Laws, including, without limitation, Environmental
Laws relating to the
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generation, treatment, storage, recycling, transportation, disposal or release
of any Hazardous Materials, except to the extent that such notice, complaint,
penalty or investigation did not or could not result in the remediation of any
property owned or used by the Borrower or any of its Subsidiaries costing in
excess of $1,000,000 per occurrence or $1,000,000 in the aggregate.
(iii) To the knowledge of Borrower, no material oral or
written notification of a release of a Hazardous Material has been filed by or
on behalf of Borrower or any of its Subsidiaries and no real property now or
previously owned, leased or used by Borrower or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of sites requiring investigation or clean-
up.
(iv) To the knowledge of Borrower there are no Liens
arising under or pursuant to any Environmental Laws on any of the real property
or properties owned, leased or used by Borrower or any of its Subsidiaries and
no governmental actions have been taken or are in process which could subject
any of such properties to such Liens or as a result of which Borrower or any of
its Subsidiaries would be required to place any notice or restriction relating
to the presence of Hazardous Materials at any property owned by it in any deed
to such property.
(v) Neither of the Borrower nor any of its Subsidiaries
nor, to the knowledge of Borrower, any previous owner, tenant, occupant or user
of any real property owned, leased or used by Borrower or any of its
Subsidiaries has (i) engaged in or permitted any operations or activities upon
or any use or occupancy of such property, or any portion thereof, for the
purpose of or in any way involving the handling, manufacture, treatment,
storage, use, generation, release, discharge, refining, dumping or disposal
(whether legal or illegal, accidental or intentional) of any Hazardous Materials
on, under, in or about such property, except to the extent commonly used in the
business conducted on such property and, in such case, in compliance with all
Environmental Laws except to the extent failure to comply would not have a
Material Adverse Effect, or (ii) transported any Hazardous Materials to, from or
across such property except to the extent commonly used in the business
conducted on such property and, in such case, in compliance with all
Environmental Laws except to the extent failure to comply would not have a
Material Adverse Effect; nor to the knowledge of Borrower have any Hazardous
Materials migrated from other properties upon, about or beneath such property;
nor, to the knowledge of Borrower, are any Hazardous Materials presently
deposited, stored or otherwise located on, under, in or about such property
except to the extent commonly used in the business conducted on such property
and, in such case, in compliance with all Environmental Laws except to the
extent failure to comply would not have a Material Adverse Effect.
5. BORROWER'S AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any funds hereunder
shall be available for borrowing and until payment in full of the Note and the
Swingline Note, unless Requisite Lenders shall otherwise consent in writing,
Borrower shall do all of the following:
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5.1 RECORDS AND REPORTS. Maintain a system of accounting in
accordance with GAAP and furnish to Agent, Swingline Lender and Lenders:
(a) AUDITED FINANCIAL STATEMENTS. As soon as available
and in any event within ninety (90) days after the end of each fiscal year of
Borrower, a copy of the audited financial statements of Borrower, including a
balance sheet, a profit and loss statement, and statement of changes in
stockholders' equity and cash flow, as at the close of and for such fiscal year,
all in reasonable detail and in consolidated form, and stating in comparative
form the figures as at the close and for the previous fiscal year, together with
the unqualified opinion thereon of a nationally recognized accounting firm.
(b) UNAUDITED FINANCIAL STATEMENTS. As soon as available,
and in any event within forty-five (45) days after the close of each quarter
which is not the end of a fiscal year, a balance sheet, profit and loss
statement and a statement of source and application of funds as at the close of
such quarter and covering operations for the portion of Borrower's fiscal year
ending on the last day of such quarter, all in reasonable detail, in
consolidated form, all prepared in accordance with GAAP on a basis consistently
maintained by Borrower and certified by a Responsible Officer, subject, however,
to year-end audit adjustments.
(c) COMPLIANCE CERTIFICATES. As soon as available and in
any event within forty-five (45) days of the end of each quarter and at such
other times as shall be required hereunder, a Compliance Certificate (together
with a schedule of calculation of items reflected therein) in the form of
Exhibit D, certified by a Responsible Officer. Without limitation of the
foregoing, the Compliance Certificate shall include a representation and
warranty (i) as to any new Subsidiaries created since the date of the next
preceding Compliance Certificate, and (ii) as to any Liens on the stock owned by
Borrower of any Subsidiary.
(d) BORROWING BASE CERTIFICATES. As soon as available and
in any event within fifteen (15) days of the end of each month and at such other
times as shall be required hereunder, a Borrowing Base Certificate (together
with a schedule of calculation of items reflected therein) in the form of
Exhibit F, certified by a Responsible Officer. Without limitation of the
foregoing, if Borrower discovers that any of Borrower's representations or
warranties made in any Loan Document or any statement or certificate at any time
given in writing pursuant hereto or in connection herewith, which
representations or warranties relate solely to a particular Lease, shall be
false or misleading in any material respect when made, then Borrower shall
submit a new Borrowing Base Certificate to Agent within five (5) Business Days
of such discovery.
(e) COLLATERAL REPORT. A "Collateral Report" detailing
lease portfolio statistics (a) as of the end of each month, within fifteen (15)
days of the end of such month, for Leases financed hereunder, consisting of (i)
a listing of lessees by credit exposure by original funded dollar volume, lease
term and credit rating, (ii) the top five vendors of equipment subject to
financed Leases and the aggregate credit exposure by dollar volume of equipment
financed, (iii) bookings by equipment vendor by dollar volume of equipment
financed and (iv) a
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receivables aging report on such Leases, (b) as of the end of each fiscal
quarter, rolling four quarter default statistics, and (c) as of the end of each
fiscal year, as soon as available, but in any event within ninety (90) days of
the end of such fiscal year, for the entire portfolio of Borrower, consisting of
(i) average equity contribution, (ii) realized residual/cash equity, (iii)
realized residual/book equity and (iv) lease charge-offs.
(f) OTHER FINANCIAL REPORTS.
(i) Copies of the management letters submitted by
certified independent accountants to Borrower in connection with any audit or
examination of Borrower, annual, interim or otherwise, all promptly upon receipt
in final form by Borrower.
(ii) As soon as available and in no event later
than fifteen (15) days after the same shall have been filed with the Securities
and Exchange Commission, a copy of each Form 8-K Current Report, Form 10-K
Annual Report, Form 10-Q Quarterly Report, Annual Report to Shareholders, and,
when distributed to Borrower's shareholders, each Proxy Statement and
Registration Statement of Borrower.
(g) OTHER DATA. Notices of any "prohibited transaction"
or "reportable event" (as such terms are defined in Section 4043 of ERISA) with
respect to any Employee Plan of Borrower that might constitute grounds for a
termination of such Employee Plan under Title IV of ERISA, and such other
information relating to the business, properties, condition, operations and
financial and other affairs of Borrower as Lenders or Agent may reasonably
request from time to time.
(h) CREDIT POLICY MANUAL. Borrower shall provide Agent
with a copy of Borrower's credit policy manual as in effect from time to time
and shall promptly provide Agent with any updates to the credit policy manual.
5.2 CORPORATE RIGHTS; FACILITIES; CONDUCT OF BUSINESS.
(i) Maintain and preserve in full force and effect its
corporate existence and all rights, licenses, leases, qualifications,
privileges, franchises and other authority (collectively, "Rights") adequate for
the conduct of its business, except where the lapsing of any such Right would
not have a Material Adverse Effect;
(ii) Maintain, preserve and protect its properties, assets,
equipment and facilities in working order and good repair and condition (taking
into consideration ordinary wear and tear) and from time to time make, or cause
to be made, all needful and proper repairs, renewals and replacements thereto,
except where the failure to do so would not have a Material Adverse Effect;
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(iii) Maintain, preserve and protect all of its rights to
enjoy and use trademarks, trade names, service marks, patents, copyrights,
licenses, leases, franchise agreements and franchise registrations where the
failure to do so would have a Material Adverse Effect; and
(iv) Conduct its business in an orderly manner without
voluntary interruption.
5.3 INSURANCE. Maintain with financially sound and reputable
companies, such insurance in such amounts and subject to such deductibles and
other terms as is usual in the business conducted by Borrower, covering, without
limitation, fire, theft, public liability, property damage, product liability,
worker's compensation and extended coverage insurance covering Borrower's
properties and assets.
5.4 TAXES AND OTHER LIABILITIES. Promptly pay and discharge all
taxes, assessments, levies and other liabilities payable by Borrower when due
and payable except such as may be (a) paid thereafter without penalty or (b)
contested in good faith by appropriate proceedings and for which an adequate
reserve has been established and is maintained in accordance with GAAP. Borrower
shall promptly notify Lenders of any material challenge, contest or proceeding
pending by or against Borrower before any taxing authority.
5.5 CERTAIN NOTICES. Give prompt written notice to Lenders of (a)
the occurrence of any Event of Default or Potential Event of Default, (b) the
occurrence of a material adverse change in Borrower's business, operations or
financial condition or in any of those matters reflected in the reports and
records supplied to Lenders under Section 5.1, (c) the pendency or institution
of, or any adverse determination in, any litigation, arbitration proceeding or
governmental proceeding or investigation which would have a Material Adverse
Effect, and (d) institution of any proceeding to attach or otherwise levy
against any of the Collateral.
5.6 INSPECTION RIGHTS. After the occurrence of an Event of
Default, at any reasonable time and from time to time during normal business
hours, permit Agent or any Lender or any agent, representative or employee of
any of them, to examine and make copies of and abstracts from the financial
records and books of account of, and visit the properties of, Borrower.
5.7 CONVERSATIONS WITH MANAGEMENT. At any reasonable time upon
reasonable notice and from time to time during normal business hours, permit
Agent or any Lender or any agent, representative or employee thereof, to discuss
the affairs, finances and accounts of Borrower with any officer of any of them
to the extent any of the foregoing may be relevant to Borrower's obligations
under the Loan Documents.
5.8 PERIODIC AUDITS. At any reasonable time upon reasonable notice
and from time to time during normal business hours, permit Lenders, or any
agent, representative or employee thereof, to conduct periodic audits at
Lenders' expense of the Collateral and documentation
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relating thereto, including, without limitation, all records of payments
received on account of the Collateral; provided, however, that notwithstanding
the foregoing, Borrower shall at any reasonable time upon reasonable notice and
during normal business hours, permit Agent, or any agent, representative or
employee thereof, to conduct up to two (2) audits within any twelve (12) month
period at Borrower's expense, not to exceed $5,500.00 per audit, of the
Collateral and documentation relating thereto, including, without limitation,
all records of payments received on account of the Collateral.
5.9 USE OF PROCEEDS. Use the proceeds of the Loans under the
Facility only for (a) (i) refinancing the amounts owing to Lenders and Agent
under the Existing Agreement; (ii) to the extent not previously paid, paying the
purchase price of Equipment leased by Borrower pursuant to Eligible Leases which
are Collateral for Loans; (iii) refinancing a Previously Financed Lease to the
extent permitted under paragraph (c) of the definition of Eligible Lease; (iv)
to the extent not previously paid, paying the purchase price for Eligible Leases
and the Equipment thereunder purchased from brokers, which Eligible Leases and
Equipment are Collateral for Loans; and (v) to the extent not previously paid,
paying the purchase price for Eligible Software Leases, which Eligible Software
Leases are Collateral for Loans; and (b) then for general corporate purposes.
5.10 COMPLIANCE WITH LAWS. Exercise all due diligence in order to
comply with the requirements of all applicable laws, rules, regulations, orders,
writs, judgments, decrees, determinations and awards of any Governmental Agency,
non-compliance with which would have a Material Adverse Effect; provided,
however, that Borrower may contest any act, regulation, order, decree or
direction in any reasonable manner which shall not, in the opinion of Requisite
Lenders, adversely affect Lenders' rights hereunder or adversely affect the
priority of Lenders' Liens in and on the Collateral.
5.11 PUNCTUAL PAYMENT. Duly and punctually pay or cause to be paid
the Obligations, including, without limitation, the principal outstanding and
interest accrued on the Note, the Swingline Note and all other amounts from time
to time owing hereunder, all in accordance with the terms of this Agreement, the
Note and the Swingline Note.
5.12 DESIGNATED DEPOSIT ACCOUNT. Borrower shall establish and
maintain with FNBB a demand deposit account, and shall deposit into such
Designated Deposit Account funds sufficient to make all payments due hereunder.
5.13 IMPOSITION OF MORE RESTRICTIVE COVENANTS. In the event that
Borrower enters into any agreement evidencing a substantially similar recourse
facility to that provided by this Agreement, including, without limitation, any
recourse loan agreement secured by a first priority security interest in
equipment or leases of Borrower, which agreement contains financial covenants
more restrictive on Borrower thereunder than are contained in SECTION 7 of this
Agreement the breach whereof would be a default permitting acceleration of such
Indebtedness, such covenants shall be deemed included in this Agreement so long
as such financial covenants are included in the other agreement and such
agreement remains in effect and Borrower shall
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promptly notify Agent and Lenders of the same and shall execute such amendments
or other agreements with Agent and Lenders as Agent or Requisite Lenders shall
reasonably deem necessary to evidence such inclusion. For the purposes of this
Section 5.13, "financial covenants" shall mean any ratios or measurements
derived from information contained on Borrower's balance sheet, income statement
or cash flow statement.
5.14 AGREEMENTS. Borrower shall perform, within all required time
periods (after giving effect to any applicable grace periods), all of its
obligations and enforce all of its rights under each agreement to which it is a
party, including any leases to which it is a party, where the failure to so
perform and enforce would have a Material Adverse Effect. Borrower shall not
terminate or modify any provision of any agreement to which it is a party if
such termination or modification could have a Material Adverse Effect. If
Borrower obtains notice or knowledge of the occurrence of any Lease Default, or
any event which, with the passage of time or the giving of notice or both, would
become a Lease Default, Borrower will notify Agent immediately of such event,
and, upon request of Requisite Lenders, Borrower will enforce all of its rights
as lessor under the Lease as it deems reasonably necessary in the circumstances.
5.15 LOCATION OF COLLATERAL. Borrower shall maintain the lessor's
original of each Lease at its office at 10 Almaden Blvd., Suite 1500, San Jose,
California, or such other location as Requisite Lenders shall approve in
writing. Borrower shall mark any duplicate original of a Lease provided to a
lessee after the date hereof as "duplicate," "lessee's original," or in a
similar fashion to distinguish it from the lessor's original.
5.16 NOTICES TO AND CONSENTS FROM LESSEES. Promptly after each
Funding Date, Borrower shall:
(i) send a notice by certified mail, return receipt requested, to
the lessee under any Lease which requires that notice of
assignment be given to such lessee; and
(ii) send a request by certified mail, return receipt requested, for
the written consent of the lessee under any Lease which
requires that consent to assignment of such Lease be obtained
from such lessee, other than a lease under which the lessee is
the State of California; and
(iii) comply with any notice requirements and obtain any required
consents under any vendor program agreement entered into in
connection with any Eligible Lease which is Collateral for
Loans, in connection with the grant to Agent, on behalf of
Lenders, of a security interest in Borrower's rights under such
vendor program agreement.
5.17 COPIES OF LEASES. Upon Agent's request, Borrower shall deliver
to Agent a copy of each Lease which is included in the Borrowing Base
calculation (including, in the case of a master lease agreement, a copy of the
particular equipment schedule or supplement being
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financed and a copy of the related master lease agreement unless previously
delivered to Agent), certified as a true and complete copy of the original by a
Responsible Officer.
5.18 POST-CLOSING DOCUMENTS. Borrower shall deliver to Agent an
updated UCC search of the records of the California Secretary of State with
copies of financing statements, dated of as a date not more than fifteen days
prior to the date of this Agreement, within thirty (30) days after the date of
this Agreement, in form and substance satisfactory to Requisite Lenders.
6. BORROWER'S NEGATIVE COVENANTS.
From the date of execution of this Agreement and so long as funds
hereunder shall be available and until payment in full of the Loans, unless
Requisite Lenders shall otherwise consent in writing, Borrower covenants and
agrees as follows:
6.1 LIENS AND ENCUMBRANCES. Without the prior written approval of
Requisite Lenders, Borrower shall not create, assume or permit to exist any Lien
on any of the Collateral, except (collectively, the "Permitted Liens"):
(1) Liens granted to Agent and Lenders on and in
the Collateral;
(2) Liens for taxes, assessments or levies if
payment shall not at the time be required to be made in accordance with SECTION
5.4 and for which proper reserves are established; and
(3) Liens for mechanics', laborers' and
materialmen's and similar Liens not then delinquent and for which proper
reserves are established.
6.2 EMPLOYEE LOANS. Borrower shall not make or accrue any loans or
other advances of money to any officer or employee of Borrower during the term
of the Facility, other than (a) reimbursable advances incurred in the ordinary
course of Borrower's business, (b) promissory notes issued upon the exercise of
stock options, and (c) loans not to exceed $1,000,000 in the aggregate amount at
any time outstanding to such officers or employees.
6.3 DIVIDENDS. Borrower may declare but shall not make, pay or set
apart any funds for the payment of any dividends or any other distribution with
respect to its Stock, make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of its Stock, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of Borrower, except:
(i) dividends payable solely in shares of
Borrower's capital Stock; and
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(ii) dividends payable in cash and/or property other
than shares of Borrower's capital Stock to the extent that such dividends do not
exceed, in the aggregate, twenty-five (25%) of Borrower's net income in that
fiscal year.
6.4 RESTRICTION ON FUNDAMENTAL CHANGES. Borrower shall not enter
into any transaction of merger or consolidation, directly or indirectly, whether
by operation of law or otherwise, if Borrower shall not be the continuing or
surviving corporation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, all or substantially
all of its business, property or assets, whether now owned or hereafter
acquired; provided, however, that notwithstanding the foregoing (a) Borrower may
reincorporate in Delaware, provided that (i) no Default has occurred and is
continuing or would occur, with the lapse of time or the giving of notice or
both, immediately after giving effect to such reincorporation, (ii) Borrower
gives Agent at least thirty (30) days' prior written notice of such
reincorporation, (iii) such reincorporation does not adversely affect the rights
of Lenders under this Agreement, (iv) all of Borrower's assets are transferred
to the surviving corporation (the "Survivor") in such reincorporation, (v) the
Survivor assumes all of Borrower's obligations under this Agreement and the
other Loan Documents pursuant to an agreement in form and substance reasonably
satisfactory to Agent, and (vi) the Survivor executes any financing statements
or amendments thereto reasonably requested by Agent to perfect Agent's security
interest, on behalf of Lenders and (b) Borrower may create new wholly-owned
Subsidiaries and sell, assign or otherwise transfer equipment and leases to such
Subsidiaries in connection with securitization transactions, provided, that
Borrower shall not sell, assign or otherwise transfer any Equipment or Leases
which are Collateral if the effect of such sale, assignment or transfer would be
to create an Overadvance.
6.5 TRANSACTIONS WITH AFFILIATES. Borrower shall not enter into or
be a party to any agreements or transactions with any Affiliate of Borrower
having a value in excess of $1,000,000 in the aggregate except (a) as otherwise
permitted hereunder, (b) with respect to the raising of new equity for Borrower;
provided, however, that any indebtedness incurred in connection therewith be
subordinated to the Obligations of Borrower to Lenders on terms and conditions
reasonably satisfactory to Requisite Lenders, (c) for securitization
transactions as contemplated by SECTION 6.4, (d) with respect to an Affiliate
other than a subsidiary, in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms that are approved by Borrower's board of directors, or (e) with respect to
a Subsidiary, pursuant to the reasonable requirements of Borrower's business and
upon fair and reasonable terms that are approved by Borrower's board of
directors.
6.6 MAINTENANCE OF BUSINESS. Borrower shall not engage in any
business materially different than the business of providing equipment lease
financing and services to manufacturers and users of equipment, including,
without limitation, asset management services relating to leases.
6.7 ERISA.
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(i) Except as set forth on Schedule 6.7, neither Borrower
nor any Affiliate shall incur any obligation to contribute to an employee
pension benefit plan as defined in Section 3(2) of ERISA or subject to the
minimum funding standards under Section 412 of the Code (a "Plan"), including a
Plan required by a collective bargaining agreement or as a consequence of the
acquisition of an Affiliate, unless (i) Borrower or the Affiliate shall notify
Lenders in writing that it intends to incur such obligation and (ii) after
Lenders' receipt of such notice, Requisite Lenders consent to the establishment,
maintenance, or Borrower's incurring an obligation to contribute to, the Plan,
which consent may not be unreasonably withheld or unreasonably delayed, but may
be subject to such reasonable conditions as Requisite Lenders may require.
(ii) If Borrower or any Affiliate incurs any obligation to
contribute to any Plan, then Borrower shall not (i) terminate, or permit any
Affiliate to terminate, any Plan so as to result in any liability which will
have a Material Adverse Effect on Borrower or an Affiliate or (ii) make or
permit any Affiliate to make a complete or partial withdrawal (within the
meaning of Section 4201 of ERISA) from any multiemployer Plan so as to result in
any liability which will have a Material Adverse Effect on Borrower or any
Affiliate.
6.8 NO USE OF LENDERS' NAME. Borrower shall not use or authorize
others to use any Lender's name or marks in any publication or medium,
including, without limitation, any prospectus, without such Lender's advance
written authorization.
6.9 FISCAL YEAR. Borrower shall not change its fiscal year end
from December 31 of each year unless required to do so by law or Requisite
Lenders consent to such change.
7. FINANCIAL COVENANTS OF BORROWER.
Borrower covenants and agrees that, so long as the Commitment hereunder
shall be available, and until payment in full of the Note and the Swingline
Note, unless Requisite Lenders shall otherwise consent in writing, Borrower
shall perform all of the following financial covenants. In connection with
performance of Borrower's obligations under this Section 7, Borrower agrees and
understands that all covenants under this Section 7 shall be measured on the
last day of each fiscal quarter of Borrower, and in each case upon review by
Lenders of the respective quarter's consolidated financial statements.
7.1 MINIMUM INTEREST COVERAGE RATIO. Maintain from and after the
date hereof an Interest Coverage Ratio in excess of 1.20 to 1.
7.2 MINIMUM TANGIBLE NET WORTH. Maintain from and after the date
hereof a minimum Tangible Net Worth equal to or greater than the sum of (a)
$45,154,000, plus (b) seventy-five percent (75%) of Net Income (without regard
to net losses) after June 30, 1996, plus (c) seventy-five percent (75%) of New
Equity issued after June 30, 1996.
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7.3 MAXIMUM RECOURSE DEBT RATIO. Maintain from and after the date
hereof a Recourse Debt Ratio not to exceed 4.5 to 1.
7.4 PROFITABILITY
(i) Borrower shall not have an operating loss and/or incur
negative Net Income on a consolidated basis in any two consecutive fiscal
quarters;
(ii) Borrower shall not have an operating loss and/or incur
negative Net Income on a consolidated basis greater than $500,000 in any fiscal
quarter; and
(iii) Borrower shall not have an operating loss and/or incur
negative Net Income on a consolidated basis, in any amount, in any fiscal year.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an Event of Default:
(a) Failure to pay any installment of principal under this
Agreement, the Note, or the Swingline Note on the date such installment shall
become due and payable; or
(b) Failure to pay any installment of interest on the
Loans or any of the other Obligations of Borrower to Lenders, Swingline Lender
or Agent arising under this Agreement, the Note, the Swingline Note or any of
the other Loan Documents when and as the same shall become due and payable
whether by acceleration or otherwise and such failure shall not have been cured
within five (5) calendar days; or
(c) Borrower defaults on the payment of any principal of
or any interest on any recourse Funded Debt or Funded Debt under which the
lender acquires recourse for any reason, or breaches any term of any evidence of
such recourse Funded Debt or of any loan agreement, mortgage, indenture or other
agreement relating thereto if (i) the amount of such Funded Debt exceeds
$1,000,000 in principal amount, and (ii) the effect of such breach is to permit
acceleration under the applicable instrument or agreement, and such breach is
neither waived by the note holder or obligee nor cured, in each case within five
(5) calendar days of the date of such breach, or there is an acceleration under
the applicable instrument; or
(d) Subject to SECTION 8.1(c), Borrower defaults on the
payment of any principal of or any interest on any recourse Indebtedness or
Indebtedness under which the lender acquires recourse for any reason, or
breaches any term of any evidence of such recourse Indebtedness or of any loan
agreement, mortgage, indenture or other agreement relating thereto if (i) the
amount of such Indebtedness exceeds $5,000,000 in principal amount, and (ii)
there is an acceleration under the applicable instrument; or
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(e) Borrower fails or neglects to perform, keep or observe
any of the financial covenants contained in Section 7 of this Agreement; or
(f) Subject to SECTIONS 8.1(a), (b), (c), (d) and (e),
Borrower fails or neglects to perform, keep or observe any covenant or provision
of this Agreement or of any of the other Loan Documents or any other document or
agreement executed by Borrower in connection therewith and the same has not been
cured to Requisite Lenders' satisfaction within ten (10) calendar days after
Borrower shall become aware thereof, whether by written notice from Agent or
Requisite Lenders or otherwise; or
(g) Any of Borrower's representations or warranties made
in any Loan Document or any statement or certificate at any time given in
writing pursuant hereto or in connection herewith, other than representations or
warranties that relate solely to a particular Lease, shall be false or
misleading in any material respect when made; or
(h) Borrower shall become insolvent; or
(i) Borrower or any Subsidiary of Borrower shall admit in
writing its inability to pay its debts as they mature; or make an assignment for
the benefit of creditors; or apply for or consent to the appointment of a
receiver, liquidator, custodian or trustee for it or for a substantial part of
its property or business, or such a receiver, liquidator, custodian or trustee
otherwise shall be appointed and shall not be discharged within sixty (60) days
after such appointment; or
(j) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against Borrower or any
Subsidiary of Borrower, or any order, judgment or decree shall be entered
against Borrower or any Subsidiary of Borrower decreeing its dissolution or
division; provided, however, with respect to an involuntary petition in
bankruptcy, such petition shall not have been dismissed within sixty (60) days
after the filing of such petition; or
(k) There shall have been a change in the assets,
liabilities, financial condition, operations, or business of Borrower, other
than changes in the ordinary course of business, which in the reasonable
determination of Requisite Lenders has, either individually or in the aggregate,
had a Material Adverse Effect; or
(l) There shall be a money judgment, writ or warrant of
attachment or similar process entered or filed against Borrower which is not
fully covered by insurance in accordance with Section 5.3 or remains unvacated,
unbonded, unstayed or unpaid or undischarged for more than sixty (60) days
(whether or not consecutive) or in any event later than five (5) calendar days
prior to the date of any proposed sale thereunder, which, together with all such
other judgments or attachments against Borrower exceeds in the aggregate
$1,000,000.
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8.2 REMEDIES.
(a) EXERCISE OF REMEDIES. Upon the occurrence and
continuance of an Event of Default, Agent and Requisite Lenders may at the
option of Requisite Lenders do any one or more of the following, all of which
are authorized by Borrower:
(i) Declare the Commitment of each Lender, and
the Swingline Commitment of Swingline Lender, to make Loans to be terminated,
whereupon such Commitments and Swingline Commitment shall forthwith be
terminated;
(ii) Declare all or any of the Obligations of the
Borrower under this Agreement, the Note, the Swingline Note, the other Loan
Documents and any other instrument executed by Borrower pursuant to such Loan
Documents to be immediately due and payable, and upon such declaration such
obligations so declared due and payable shall immediately become due and payable
and Requisite Lenders may exercise from time to time any and all rights and
remedies available to them under applicable law, provided that if such Event of
Default is under part (h), (i) or (j) of Section 8.1, then the Note and the
Swingline Note shall become immediately due and payable forthwith without the
requirement of any notice or other action by Lenders.
(iii) Without notice to or demand upon Borrower,
make such payments and do such acts as Requisite Lenders consider necessary or
commercially reasonable to protect their security interest in the Collateral;
(iv) Terminate this Agreement as to any future
liability or obligation of Requisite Lenders', but without affecting their
rights and security interest in the Collateral;
(v) Exercise all of Agent's and Lenders' rights
under the Security Agreement; and
(vi) Exercise in addition to all other rights and
remedies granted hereunder, any and all rights and remedies granted under the
Loan Documents or otherwise available at law or in equity.
(b) DEFICIENCY. Borrower shall remain liable for, and pay
immediately, any deficiency if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay all of the Obligations, Borrower also
being liable for the reasonable fees and expenses of any attorneys employed by
Lenders and Swingline Lender to collect such deficiency; and
(c) SET-OFF. In addition to any rights and remedies of
the Lenders and Swingline Lender provided by law, if an Event of Default exists,
each Lender and Swingline Lender is authorized at any time and from time to
time, without prior notice to Borrower, any
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such notice being waived by Borrower to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing from, such Lender to or for the credit or the account of Borrower against
any and all Obligations owing to such Lender or Swingline Lender, then existing,
irrespective of whether or not Agent, Swingline Lender or such Lender shall have
made demand under this Agreement or any Loan Document. Each Lender and Swingline
Lender agrees promptly to notify Borrower and Agent after any such set-off and
application made by such Lender or Swingline Lender; provided, however, that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender and Swingline Lender under this Section
8.2(c) are in addition to the other rights and remedies (including other rights
of set-off) which Lender or Swingline Lender may have.
(d) RIGHTS AND REMEDIES CUMULATIVE. Lenders' and
Swingline Lender's rights and remedies under this Agreement shall be cumulative.
Lenders and Swingline Lender shall have all other rights and remedies not
inconsistent herewith as provided by law or in equity. No exercise by Lenders or
Swingline Lender of one right or remedy shall be deemed an election. No delay by
Lenders, Swingline Lender or Agent shall constitute a waiver, election or
acquiescence by such party.
9. AGENT.
9.1 APPOINTMENT. Each Lender and Swingline Lender hereby appoints
FNBB as Agent hereunder and under the other Loan Documents and each Lender and
Swingline Lender hereby irrevocably authorizes Agent to act hereunder and
thereunder as Agent of such Lender and Swingline Lender. Agent agrees to act as
such upon the express conditions contained in this SECTION 9. In performing its
functions and duties under this Agreement and under the other Loan Documents,
Agent shall act solely as Agent of Lenders and Swingline Lender and does not
assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for Borrower.
9.2 POWERS; GENERAL IMMUNITY, ETC. Each Lender and Swingline
Lender irrevocably authorizes Agent to take such action on such Lender's and
Swingline Lender's behalf and to exercise such powers hereunder as are
specifically delegated to Agent by the terms hereof, together with such powers
as are reasonably incidental thereto. Agent shall have only those duties which
are specified in this Agreement and it may perform such duties by or through its
agents, representatives or employees. In performing its duties hereunder on
behalf of Lenders and Swingline Lender, Agent shall exercise the same care which
it would exercise in dealing with loans made for its own account, but it shall
not be responsible to any Lender or Swingline Lender for the execution,
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of all or any of the Loan Documents, or for any representations,
warranties, recitals or statements made herein or therein or made in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents furnished or delivered in connection
herewith or therewith by Agent to any Lender or Swingline Lender or by or on
behalf of Borrower to Agent, Swingline Lender or any Lender, or be required to
ascertain
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or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the use
of the proceeds of the Loans. Agent shall not be responsible for insuring the
Collateral or for the payment of any taxes, assessments, charges or any Liens of
any nature whatsoever upon the Collateral or otherwise for the maintenance of
the Collateral. Unless the officers of Agent acting in their capacity as
officers of Agent on Borrower's account have actual knowledge thereof or have
been notified in writing thereof by Lenders or Swingline Lender, Agent shall not
be required to ascertain or inquire as to the existence or possible existence of
any Event of Default or Potential Event of Default. Neither Agent nor any of its
officers, directors, employees, representatives or agents shall be liable to
Lenders or Swingline Lender for any action taken or omitted hereunder or under
any of the other Loan Document or in connection herewith or therewith unless
caused by its or their gross negligence or willful misconduct. No provision of
this Agreement or of any other Loan Document shall be deemed to impose any duty
or obligation on Agent to perform any act or to exercise any power in any
jurisdiction in which it shall be illegal, or shall be deemed to impose any duty
or obligation on Agent to perform any act or exercise any right or power if such
performance or exercise (a) would subject Agent to a tax in a jurisdiction where
it is not then subject to a tax or (b) would require Agent to qualify to do
business in any jurisdiction where it presently is not so qualified. Without
prejudice to the generality of the foregoing, no Lender or Swingline Lender
shall have any right of action whatsoever against Agent as a result of Agent
acting or (where so instructed) refraining from acting under this Agreement or
under any of the other Loan Documents in accordance with the instructions of
Requisite Lenders. Agent shall be entitled to refrain from exercising any power,
discretion or authority vested in it under this Agreement unless and until it
has obtained the written instructions of the Requisite Lenders. The agency
hereby created shall in no way impair or affect any of the rights and powers of,
or impose any duties or obligations upon Agent in its individual capacity.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR
INSPECTION. Each Lender and Swingline Lender represents and warrants that it has
made its own independent investigation of the financial condition and affairs of
Borrower in connection with the making of the Loans hereunder and has made and
shall continue to make its own appraisal of the creditworthiness of Borrower.
Agent shall have no duty or responsibility either initially or on a continuing
basis to make any such investigation or any such appraisal on behalf of Lenders
or Swingline Lender or to provide any Lender or Swingline Lender with any credit
or other information (other than information obtained under the provisions of
this Agreement which Agent shall make available to each Lender and Swingline
Lender upon request by such Lender or Swingline Lender) with respect thereto
whether coming into its possession before the Closing Date or any time or times
thereafter and shall further have no responsibility with respect to the accuracy
of or the completeness of the information provided to Lenders or Swingline
Lender. With respect to its participation in the Loans hereunder, Agent shall
have the same rights and powers hereunder as any other Lender or Swingline
Lender and may exercise the same rights and powers as though it were not
performing the duties and functions delegated to it hereunder and the term
"Lender," "Swingline Lender" or "Lenders" or any similar term shall unless the
context clearly indicates otherwise include Agent in its individual capacity.
Agent and each of its
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affiliates may accept deposits from, lend money to and generally engage in any
kind of business with Borrower as if it were not Agent.
9.4 RELIANCE BY AGENT.
(i) Agent may consult with counsel, and any opinion or
legal advice of such counsel who are not employees of Agent or Borrower or any
Affiliate of Borrower shall be full and complete authorization and protection
from and with respect to Lenders and Swingline Lender in respect of any action
taken or suffered by Agent hereunder or under any other Loan Documents in
accordance therewith. Agent shall have the right at any time to seek
instructions concerning the administration of the Collateral from any court of
competent jurisdiction.
(ii) Agent may rely, and shall be fully protected in
acting, upon any resolution, statement, certificate, instrument, opinion,
report, notice, request, consent, order, bond or other paper or document that it
has no reason to believe to be other than genuine and to have been signed or
presented by the proper party or parties or, in the case of cables, telecopies
and telexes, to have been sent by the proper party or parties. In the absence of
its gross negligence or willful misconduct, Agent may conclusively rely, as to
the truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to Agent and conforming to
the requirements of this Agreement or any of the other Loan Documents.
(iii) Agent shall not be under any obligation to exercise
any of the rights or powers granted to Agent by this Agreement and the other
Loan Documents at the request or direction of Lenders or Swingline Lender unless
Agent shall have been provided by Lenders or Swingline Lender, as the case may
be, adequate security and indemnity against the costs, expenses and liabilities
that may be incurred by it in compliance with such request or direction.
9.5 DELEGATION OF DUTIES. Agent may execute any of the powers
hereof and perform any duty hereunder either directly or by or through agents or
attorneys-in-fact. Agent shall be entitled to advice of counsel concerning all
matters pertaining to such powers and duties. Agent shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact selected by it
without gross negligence or willful misconduct on the part of Agent.
9.6 RIGHT TO INDEMNITY. Each of Lenders severally, but not
jointly, agrees (a) to indemnify and hold Agent (and any Person acting on behalf
of Agent) harmless from and against and (b) promptly on receipt by each Lender
of Agent's statement, to reimburse Agent, according to such Lender's Commitment
Percentage of the Commitments, to the extent Agent shall not otherwise have been
reimbursed by Borrower on account of and for, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including, without limitation, the fees and disbursements of counsel
and other advisors) or disbursements of any kind of nature whatsoever with
respect to Agent's performance of its duties under this Agreement and the other
Loan Documents (collectively, "Losses"), including, without limitation, any
Losses arising under SECTIONS 2.9 or 2.10, except to the extent that such Losses
are caused
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by Agent's gross negligence or willful misconduct. Such reimbursement shall not
in any respect release Borrower from any liability or obligation. If any
indemnity furnished to Agent for any purpose shall, in the opinion of Agent, be
insufficient or become impaired, Agent may call for additional indemnity and
cease, or not commence, to do the acts indemnified against until such additional
indemnity is furnished.
9.7 MONEYS TO BE HELD. All moneys received by Agent under or
pursuant to any provision of this Agreement or any other Loan Document (except
Agent's Reimbursement) shall be held for the purposes for which they were paid
or are held and shall be distributed in accordance with this Agreement for the
benefit of Agent, Swingline Lender and Lenders as their respective interests may
appear.
9.8 AGENT'S REIMBURSEMENT. Borrower agrees to pay to Agent, within
thirty days of the date of an invoice submitted therefor to Borrower, the
Agent's Reimbursement. Any demand for payment of Agent's Reimbursement submitted
to Borrower by or on behalf of Agent shall be accompanied by such invoices or
other documentation evidencing the expenses incurred for which payment is
demanded as are available to Agent. All unpaid amounts owing by Borrower in
respect of the Agent's Reimbursement shall be added to the Obligations and shall
be secured by, and entitled to the rights and benefits in respect of, the Loan
Documents. The obligations of Borrower under this Section 9.8 shall survive the
termination of the other provisions of this Agreement and shall survive the
commencement of a case under Title 11 of the United States Code on behalf of or
against Borrower as debtor, or any other proceeding for the reorganization,
arrangement, adjustment of debt, dissolution or liquidation on behalf of or
against Borrower as debtor.
9.9 RESIGNATION OR REMOVAL OF AGENT AND APPOINTMENT OF SUCCESSOR
AGENT. Agent (a) may resign at any time by giving thirty (30) days' prior
written notice thereof to Lenders and Borrower or (b) shall resign upon thirty
(30) days' prior written notice, requesting resignation, from Borrower and
Requisite Lenders; provided, however, that the retiring Agent shall continue to
serve until a successor Agent shall have been selected and approved pursuant to
this SECTION 9.9. Upon any such notice, Agent shall have the right to appoint a
successor Agent; provided, however, that if such successor shall not be a Lender
on the Closing Date, such appointment shall be subject to the consent of
Borrower, which consent shall not be unreasonably withheld, and Lenders. Upon
the acceptance of any appointment as an Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from any of its future duties and obligations under
this Agreement. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 9 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent under this Agreement.
9.10 CONFLICTS. FNBB and its affiliates may accept deposits from,
lend money to, act as trustee under indentures of, act as merchant banker in any
transaction for, and generally engage in any kind of business with, Borrower and
any Person who may do business with or own securities of Borrower, all as if
FNBB were not Agent and without any duty to account
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therefor to Lenders or to disclose to Lenders confidential information which
FNBB may receive from Borrower in connection with such other activity or
business.
9.11 COMMUNICATIONS. Agent will promptly notify each Lender of any
Event of Default or Potential Event of Default of which it becomes aware. Agent
will promptly upon receipt thereof furnish copies to each Lender of all
financial statements and other documents provided to Agent by Borrower pursuant
to Section 5.1. Lenders agree that written communications from Agent to Borrower
on behalf of Lenders shall be binding on Lenders.
9.12 NO OBLIGATIONS OF BORROWER. Nothing contained in this Section
9 shall be deemed to impose upon Borrower any obligation in respect of the due
and punctual performance by Agent of its obligations to Lenders or Swingline
Lender under any provision of this Agreement, and Borrower shall have no
liability to Agent, Swingline Lender or any Lender in respect of any failure by
Agent, Swingline Lender or any Lender to perform any of their respective
obligations to each other under this Agreement. Without limiting the generality
of the foregoing sentence, where any provision of this Agreement relating to the
payment of any amounts due and owing under the Loan Documents provides that such
payments shall be made by Borrower to Agent for the account of Lenders,
Borrower's obligations to Lenders in respect of such payments shall be deemed to
be satisfied upon the making of such payments to Agent in the manner provided by
this Agreement.
10. EXPENSES AND INDEMNITIES.
10.1 EXPENSES. Borrower agrees to pay within thirty days of the
date of an invoice submitted to Borrower (a) all actual and reasonable costs and
expenses (including, without limitation, all reasonable attorneys' fees and
allocated expenses of Agent's in-house legal staff or outside counsel) of
preparation of the Loan Documents and all amendments, modifications and
substitutions thereto, all costs of furnishing all opinions of counsel for
Borrower (including, without limitation, any opinions requested by Agent or
Requisite Lenders as to any legal matters arising hereunder) and of Borrower's
performance of and compliance with all agreements and conditions contained
herein on its part to be performed or complied with; (b) all other actual and
reasonable out-of-pocket expenses (including, without limitation, all reasonable
attorneys' fees and allocated expenses of the Person to be reimbursed's in-house
legal staff or outside counsel) incurred by (i) Agent in connection with the
negotiation, preparation, execution and enforcement of the Loan Documents and
(ii) if an Event of Default has occurred and is continuing, Lenders in
connection with the enforcement of the Loan Documents; and (c) regardless of the
existence of an Event of Default, all legal, appraisal, audit, accounting,
consulting or other fees, costs or expenses incurred in connection with any
litigation, contest, dispute, suit, proceeding or action in which (i) Borrower
is a party and (ii) any Lender or Agent shall be the prevailing party (whether
instituted by Lenders, Agent, Borrower or any other Person) in any way relating
to the Loan Documents, or any other agreement to be executed or delivered in
connection herewith. Borrower shall be liable for all fees, costs and expenses
listed in this Section 10.1 whether or not the transactions contemplated by this
Agreement are completed, unless the failure to complete
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such transactions is due solely to Lenders' or Agent's failure to comply with
the terms and conditions of this Agreement.
10.2 TAXES, ETC. Borrower agrees to pay all governmental
assessments, charges or taxes (except income, gross receipts, ad valorem,
intangibles, franchise or other similar taxes imposed on Agent or any Lender),
including any interest or penalties thereon, at any time payable or ruled to be
payable in respect of the existence, execution or delivery of the Loan Documents
or the issuance of the Note or the Swingline Note by reason of any existing or
hereafter enacted federal, state or local statute, and to indemnify and hold
each Lender, Swingline Lender and Agent and each and every other holder of any
Note or Swingline Note harmless against liability in connection with any such
assessments, charges or taxes. This obligation on the part of Borrower shall
survive the payment and performance of the Obligations and the termination of
this Agreement.
10.3 INDEMNIFICATION. To the fullest extent permitted by law,
Borrower agrees to protect, indemnify, defend and hold harmless Agent, Swingline
Lender, each Lender and each of their respective Affiliates, directors,
officers, employees, agents and any person who controls any of them within the
meaning of the Federal and State securities laws ("Indemnitees") from and
against any liabilities, losses, damages or expenses of any kind or nature and
from any suits, claims or demands (including, without limitation, in respect of
or for reasonable attorney's fees and other expenses) arising on account of or
in connection with any matter or thing or action or failure to act by
Indemnitees, or any of them, arising out of or relating to the Loan Documents or
any agreement or instrument contemplated by the Loan Documents, except to the
extent such liability arises from the willful misconduct or gross negligence of
any of the Indemnitees. Upon receiving knowledge of any suit, claim or demand
asserted by a third party that Lenders or Agent believes is covered by this
indemnity, Lenders or Agent shall give Borrower notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel reasonably satisfactory to Lenders. Lenders may also require Borrower to
defend the matter. This obligation on the part of Borrower shall survive the
payment and performance of the Obligations and the termination of this
Agreement.
11. MISCELLANEOUS.
11.1 SURVIVAL. All covenants, agreements, representations and
warranties made herein shall survive the execution and delivery of the Loan
Documents and the making of the Loans hereunder.
11.2 NO WAIVER BY AGENT OR LENDERS. No failure or delay on the part
of Agent, Swingline Lender or any Lender in the exercise of any power, right or
privilege hereunder, under the Note, under the Swingline Note, or under any of
the other Loan Documents shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
55
<PAGE>
11.3 NOTICES. Except as otherwise provided in this Agreement, any
notice or other communication herein required or permitted to be given shall be
in writing and may be delivered in person, with receipt acknowledged, or sent by
telex, telecopy, computer transmission or by United States mail, registered or
certified, return receipt requested, postage prepaid and addressed as set forth
on the signature pages to this Agreement or at such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged, or five
(5) Business Days after the same shall have been deposited in the United States
mail. Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to the persons designated
below (other than the parties hereto) to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
11.4 SEVERABILITY. In case any provision or obligation under the
Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
11.5 CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of Borrower, Swingline Lender, Lenders and
Agent and their respective counsel; accordingly, this Agreement shall be deemed
to be the product of each party hereto, and no ambiguity shall be construed in
favor of or against either Borrower, Swingline Lender, Lenders or Agent.
11.6 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) This Agreement, the other Loan Documents and any
other agreement submitted in connection herewith, each dated as of the date
hereof, taken together, constitute and contain the entire agreement of Borrower,
Swingline Lender, Lenders and Agent and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications between the
parties, whether written or oral, respecting the subject matter hereof.
Borrower, Swingline Lender, Lenders and Agent agree that they intend the literal
words of this Agreement and the other Loan Documents and that no parol evidence
shall be necessary or appropriate to establish either Borrower's, Swingline
Lender's, Lenders' or Agent's actual intentions.
(b) No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Requisite Lenders and Borrower, and then such waiver
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all Lenders, Swingline Lender, Borrower
and acknowledged by Agent, do any of the following:
56
<PAGE>
(A) increase or extend the Commitment of any
Lender or Swingline Lender (or reinstate any Commitment terminated pursuant to
Section 8.2(a)(i)) or subject any Lender or Swingline Lender to any additional
monetary obligations;
(B) postpone or delay any date fixed for any
payment of principal, interest, fees or other amounts due to the Lenders (or any
of them) or Swingline Lender hereunder or under any Loan Document;
(C) reduce the principal of, or the rate of
interest specified herein on any Loan, or of any fees or other amounts payable
hereunder or under any Loan Document;
(D) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Loans which shall be required
for Lenders or any of them to take any action hereunder, except as specifically
contemplated by Section 2.9;
(E) amend this Section 11.6 or Section 2.13
(sharing of payments); or
(F) release any material portion of the
Collateral except as otherwise may be provided in the Security Agreement or
except where the consent of the Requisite Lenders only is specifically provided
for;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
writing and signed by Agent in addition to the Requisite Lenders or all Lenders
and Swingline Lender, as the case may be, affect the rights or duties of Agent
under this Agreement or any other Loan Document and (ii) no amendment, waiver or
consent shall, unless in writing and signed by Swingline Lender in addition to
the Requisite Lenders or all Lenders and Agent, as the case may be, affect the
rights or duties of Swingline Lender (in its capacity as Swingline Lender) under
this Agreement or any other Loan Documents. No notice to or demand on Borrower
in any case shall entitle Borrower to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, waiver or consent
effected in accordance with this Section 11.6 shall be binding upon each holder
of any Note or Swingline Note at the time outstanding, each future holder of any
such Note or Swingline Note, and, if signed by Borrower, on Borrower.
Notwithstanding the foregoing, Borrower, Agent, and any Affected Lender (defined
below) may amend this Agreement without the consent of any other Lender or
Swingline Lender (i) to increase the Commitment of any such Affected Lender or
(ii) to add such Affected Lender as a party to this Agreement, provided that in
each case under (i) or (ii) above, the aggregate Commitments of all Lenders
after giving effect to such amendment shall not exceed One Hundred Seventy-Five
Million Dollars ($175,000,000) (collectively, a "Permitted Amendment"). For
purposes of this section, "Affected Lender" shall mean any Lender increasing its
Commitment or any new Lender added as a party to this Agreement, pursuant to the
preceding sentence. Agent shall promptly notify each Lender of any Permitted
Amendment and shall send
57
<PAGE>
each Lender a copy of such Permitted Amendment which shall be substantially in
the form of EXHIBIT H.
11.7 NO SET-OFFS BY BORROWER. All sums payable by Borrower
pursuant to this Agreement, the Note, the Swingline Note or any of the other
Loan Documents shall be payable without notice or demand and shall be payable in
U.S. Dollars without set-off or reduction of any manner whatsoever.
11.8 HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
11.9 GOVERNING LAW. Except as otherwise expressly provided in any
of the Loan Documents, in all respects, including all matters of construction,
validity and performance, this Agreement and the Obligations arising hereunder
shall be governed by, and construed and enforced in accordance with, the laws of
the State of California applicable to contracts made and performed in such
state, without regard to the principles thereof regarding conflict of laws, and
any applicable laws of the United States of America.
11.10 WAIVER OF JURY TRIAL. LENDERS, SWINGLINE LENDER, AGENT AND
BORROWER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR
SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR
ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY
RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP
BETWEEN THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE
PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY LENDERS,
SWINGLINE LENDER, AGENT AND BORROWER, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NEITHER LENDERS, SWINGLINE LENDER, AGENT NOR
BORROWER HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
11.11 SUBSEQUENT HOLDERS. The terms and provisions of the Loan
Documents shall inure to the benefit of any assignee or transferee of the Note
or the Swingline Note, and in the event of such transfer or assignment, the
rights and privileges conferred in the Loan Documents upon Lenders and Swingline
Lender shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof.
11.12 ASSIGNABILITY.
(a) This Agreement, the Note, the Swingline Note and the
other Loan Documents shall be binding upon and shall inure to the benefit of the
parties hereto and thereto and their respective successors and assigns EXCEPT
that Borrower may not assign its rights
58
<PAGE>
hereunder or thereunder or any interest herein or therein, whether by operation
of law or otherwise, without the prior written consent of each Lender. Each
Lender and Swingline Lender shall, with the prior consent of each of Borrower
and Agent, which consent in each case shall not be unreasonably withheld, (i)
have the right in accordance with this Section 11.12 to sell and assign either
(A) all of its interest or (B) any portion of its interest equal to or greater
than Seven Million Five Hundred Thousand Dollars ($7,500,000), under this
Agreement, the Note, the Swingline Note and the other Loan Documents and (ii) to
grant any participation or other interest herein or therein; provided, that if a
Lender or Swingline Lender sells or assigns less than all of its interest under
this Agreement and the other Loan Documents, it shall continue to hold at least
a Seven Million Five Hundred Thousand Dollar ($7,500,000) interest after such
sale or assignment; provided further, that upon any such sale and assignment or
participation, such Lender shall pay to Agent a documentation fee equal to Two
Thousand Five Hundred Dollars ($2,500), unless such sale and assignment or
participation is to an Affiliate of such Lender.
(b) Notwithstanding any other provision contained in this
Agreement or any other Loan Document to the contrary, any Lender may assign all
or any portion of the Loans, the Note or the Swingline Note held by it to any
Federal Reserve Bank or the United States Treasury as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any Operating Circular issued by such Federal Reserve Bank, provided that
any payment in respect of such assigned Loans, Note or Swingline Note made by
Borrower to or for the account of the assigning or pledging Lender in accordance
with the terms of this Agreement shall satisfy Borrower's obligations hereunder
in respect to such assigned Loans, Note or Swingline Note to the extent of such
payment. No such assignment shall release the assigning Lender from its
obligations hereunder.
11.13 CONFIDENTIALITY. Each Lender agrees to hold in trust and
confidence all non-public information concerning the business or operation of
Borrower received from Borrower and clearly marked as confidential, and to use
such information only in connection with its administration of this Agreement,
except with the consent of Borrower. This Section 11.13 shall survive the
performance and repayment in full of the Obligations hereunder.
11.14 COUNTERPARTS. This Agreement and any amendments, waivers,
consents, or supplements hereto and thereto may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each
such agreement shall become effective upon the execution of a counterpart hereof
or thereof by each of the parties hereto and telephonic notification thereof has
been received by Borrower and Agent.
59
<PAGE>
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
BORROWER LEASING SOLUTIONS, INC.
By:
---------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
Notices to be sent to:
LEASING SOLUTIONS, INC.
10 Almaden Blvd, Suite 1500
San Jose, California 95113
Attention: Tim Laehy, Treasurer
Telephone No.: (408) 494-2906
Telecopy No.: (408) 995-0696
With copies to:
Douglas C. Neilsson, Esq.
Leasing Solutions, Inc.
10 Almaden Blvd., Suite 1500
San Jose, California 95113
Telephone No.: (408) 995-6565
Telecopy No.: (408) 995-0696
60
<PAGE>
AGENT THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------------------
Name:
-------------------------------------
Agent's Payment Office:
_________________
ABA No.
________________, California
for credit to: THE FIRST NATIONAL BANK OF BOSTON
Account No.:
Notices to be sent to:
THE FIRST NATIONAL BANK OF BOSTON
The First National Bank of Boston
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attention: High Technology Division
Telephone No.: (415) 853-0404
Telecopy No.: (415) 853-1425
With copies to:
COOLEY GODWARD CASTRO HUDDLESON & TATUM
One Maritime Plaza, Suite 2000
San Francisco, California 94111
Attn: Joseph A. Scherer, Esq.
Telephone: (415) 981-5252
Telecopy: (415) 951-3699
61
<PAGE>
SWINGLINE LENDER THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------------------
Name:
-------------------------------------
Notices to be sent to:
THE FIRST NATIONAL BANK OF BOSTON
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attention: High Technology Division
Telephone No.: (415) 853-0404
Telecopy No.: (415) 853-1425
LENDERS THE FIRST NATIONAL BANK OF BOSTON
By:
---------------------------------------
Name:
-------------------------------------
Notices to be sent to:
THE FIRST NATIONAL BANK OF BOSTON
435 Tasso Street, Suite 250
Palo Alto, California 94301
Attention: High Technology Division
Telephone No.: (415) 853-0404
Telecopy No.: (415) 853-1425
62
<PAGE>
FLEET BANK, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
FLEET BANK, N.A.
175 Water Street
New York, NY 10038
Attention: Maureen Brody, Vice President
Telephone: (212) 602-2792
Facsimile: (212) 602-3139
WELLS FARGO BANK, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
NOTICES TO BE SENT TO:
WELLS FARGO BANK, N.A.
121 Park Center Plaza
Commercial Banking, Third Floor
San Jose, California 95113
Attention: Wendy Hibberd, Vice President
Telephone: (408) 277-6158
Facsimile: (408) 295-0639
63
<PAGE>
THE SUMITOMO BANK OF CALIFORNIA
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
THE SUMITOMO BANK OF CALIFORNIA
Commercial Banking Division
84 W. Santa Clara
San Jose, CA 95113
Attention: Arne F. Olson, Vice President
Telephone No.: (408) 288-6267
Facsimile No.: (408) 288-6292
BANK HAPOALIM B.M.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
BANK HAPOALIM B.M.
6222 Wilshire Blvd.
Los Angeles, California 90048
Attention: Shohre Afshar, Vice President
Telephone No.: (213) 937-3896
Facsimile No.: (213) 937-1439
64
<PAGE>
CORESTATES BANK N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
CORESTATES BANK N.A.
Lease Finance Group
1339 Chestnut Street
Widener Bldg., 11th Floor
PO Box 7618 (no PO Box for overnight mail)
FC 1-8-11-24
Philadelphia, PA 19101-7618
Attention: Hugh Connelly, Vice President
Telephone No.: (215) 973-3352
David D'Antonio, Vice President
Telephone No.: (215) 973-7038
Facsimile No.: (215) 786-7704
THE BANK OF NOVA SCOTIA
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
THE BANK OF NOVA SCOTIA
580 California Street, 21st Floor
San Francisco, California 94104
Attention: Chris Johnson, Sr. Relationship Manager
Telephone No.: (415) 986-1100
Facsimile No.: (415) 397-0791
65
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
UNION BANK OF CALIFORNIA, N.A.
4000 California Street, 17th Floor
San Francisco, CA 94104
Attention: Robert John Vernagallo, Vice President
Telephone No.: (415) 765-2614
Facsimile No.: (415) 765-2634
MELLON BANK, N.A.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
MELLON BANK, N.A.
One Mellon Bank Center
Room 151-0370
Pittsburgh, Pennsylvania
15258-0001
Attention: Henry Voorhees, First Vice President
Telephone No.: (412) 234-2905
Facsimile No.: (412) 234-8087
66
<PAGE>
THE SUMITOMO BANK, LIMITED
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
Notices to be sent to:
THE SUMITOMO BANK, LIMITED
U.S. Commercial Banking Department
100 Pine Street, Suite 3300
San Francisco, California 94111
Attention: Carole Daley, Vice President
Telephone No.: (415) 394-0868
Facsimile No.: (415) 394-9797
67
<PAGE>
EXHIBIT A-1
FORM OF PROMISSORY NOTE
$155,000,000 San Jose, California
Date: September 13, 1996
LEASING SOLUTIONS, INC., a California corporation ("Borrower"), for value
received, hereby promises to pay to the order of THE FIRST NATIONAL BANK OF
BOSTON ("Agent"), in lawful money of the United States of America on September
11, 1997, pursuant to that certain Amended and Restated Warehousing Credit
Agreement, dated as of September 13, 1996, by and among Borrower, the Lenders
named therein and The First National Bank of Boston, as Agent (the "Credit
Agreement"), the lesser of (i) the principal amount of One Hundred Fifty-Five
/Million Dollars ($155,000,000) or (ii) the principal amount of all Loans
outstanding as of the maturity date hereof.
This Note is the Note referred to in the Credit Agreement. All terms defined
in the Credit Agreement shall have the same definitions when used herein, unless
otherwise defined herein.
1. INTEREST RATE
Borrower further promises to pay interest on each Loan hereunder in
like funds on the principal amount hereof from time to time outstanding from the
date hereof until paid in full, at a rate or rates per annum and payable on the
dates determined pursuant to the Credit Agreement.
2. PLACE OF PAYMENT
All amounts payable hereunder shall be payable in immediately available
funds from the Designated Deposit Account or other immediately available funds.
3. APPLICATION OF PAYMENTS; PREPAYMENT; ACCELERATION
Payment on this Note shall be applied in the manner set forth in the
Credit Agreement. The Credit Agreement contains provisions for acceleration of
the maturity of Loans hereunder upon the occurrence of certain stated events and
also provides for optional and mandatory prepayments of principal hereof prior
to any stated maturity upon the terms and conditions therein specified.
All Loans made by Lenders to Borrower pursuant to the Credit Agreement
shall be recorded by Agent on the books and records of Agent. The failure of
Agent to record any Loan or any prepayment or payment made on account of the
principal balance hereof shall not
1
<PAGE>
limit or otherwise affect the obligation of Borrower under this Note and under
the Credit Agreement to pay the principal, interest and other amounts due and
payable under the Loans.
Any principal or interest payments on this Note not paid when due,
whether at stated maturity, by acceleration or otherwise, shall bear interest at
the Default Rate.
4. DEFAULT
Borrower's failure to timely pay any of the principal amounts hereunder
on the date the same shall become due and payable or any installment of interest
within five calendar days after the same shall become due and payable, shall
constitute a default under this Note. Upon the occurrence of a default hereunder
or an Event of Default under the Credit Agreement, all unpaid principal, accrued
interest and other amounts owing hereunder shall, at the option of Requisite
Lenders, be immediately collectible by or on behalf of Lenders pursuant to the
Credit Agreement and applicable law.
5. WAIVERS
Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest of this Note, and shall pay all reasonable out-of-
pocket costs of collection incurred, including reasonable allocated costs of
inhouse counsel and reasonable attorneys' fees, costs and expenses in accordance
with the terms of the Credit Agreement.
The right to plead any and all statutes of limitations as a defense to
any demand hereunder is hereby waived to the full extent permitted by law.
6. SECURED NOTE
The amount of this Note is secured by the Collateral identified and
described as security therefor in the Security Agreement.
7. GOVERNING LAW
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of the laws of any other
jurisdiction.
2
<PAGE>
8. SUCCESSORS AND ASSIGNS
The provisions of this Note shall inure to the benefit of and be
binding upon any successor to Borrower and shall extend to any holder hereof.
Leasing Solutions, Inc.,
a California corporation
By:
---------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
3
<PAGE>
EXHIBIT A-2
FORM OF SWINGLINE PROMISSORY NOTE
$5,000,000 San Jose, California
Date: September 13, 1996
LEASING SOLUTIONS, INC., a California corporation ("Borrower"), for value
received, hereby promises to pay to the order of THE FIRST NATIONAL BANK OF
BOSTON, in its individual capacity ("FNBB"), in lawful money of the United
States of America on September 11, 1997, pursuant to that certain Amended and
Restated Warehousing Credit Agreement, dated as of September 13, 1996, by and
among Borrower, the Lenders named therein and The First National Bank of Boston,
as Agent (the "Credit Agreement"), the lesser of (i) the principal amount of
Five Million Dollars ($5,000,000) or (ii) the principal amount of all Swingline
Loans outstanding as of the maturity date hereof.
This Swingline Note is the Swingline Note referred to in the Credit
Agreement. All terms defined in the Credit Agreement shall have the same
definitions when used herein, unless otherwise defined herein.
1. INTEREST RATE
Borrower further promises to pay interest on each Loan hereunder in
like funds on the principal amount hereof from time to time outstanding from the
date hereof until paid in full, at a rate or rates per annum and payable on the
dates determined pursuant to the Credit Agreement.
2. PLACE OF PAYMENT
All amounts payable hereunder shall be payable in immediately available
funds from the Designated Deposit Account or other immediately available funds.
3. APPLICATION OF PAYMENTS; PREPAYMENT; ACCELERATION
Payment on this Swingline Note shall be applied in the manner set forth
in the Credit Agreement. The Credit Agreement contains provisions for
acceleration of the maturity of Loans hereunder upon the occurrence of certain
stated events and also provides for optional and mandatory prepayments of
principal hereof prior to any stated maturity upon the terms and conditions
therein specified.
All Loans made by Lenders to Borrower pursuant to the Credit Agreement
shall be recorded by Agent on the books and records of Agent. The failure of
Agent to record any Loan or any prepayment or payment made on account of the
principal balance hereof shall not limit or otherwise affect the obligation of
Borrower under this Swingline Note and under the
1
<PAGE>
Credit Agreement to pay the principal, interest and other amounts due and
payable under the Loans.
Any principal or interest payments on this Swingline Note not paid when
due, whether at stated maturity, by acceleration or otherwise, shall bear
interest at the Default Rate.
4. DEFAULT
Borrower's failure to timely pay any of the principal amounts hereunder
on the date the same shall become due and payable or any installment of interest
within five calendar days after the same shall become due and payable, shall
constitute a default under this Swingline Note. Upon the occurrence of a default
hereunder or an Event of Default under the Credit Agreement, all unpaid
principal, accrued interest and other amounts owing hereunder shall, at the
option of Requisite Lenders, be immediately collectible by or on behalf of
Lenders pursuant to the Credit Agreement and applicable law.
5. WAIVERS
Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest of this Swingline Note, and shall pay all
reasonable out-of-pocket costs of collection incurred, including reasonable
allocated costs of inhouse counsel and reasonable attorneys' fees, costs and
expenses in accordance with the terms of the Credit Agreement.
The right to plead any and all statutes of limitations as a defense to
any demand hereunder is hereby waived to the full extent permitted by law.
6. SECURED NOTE
The amount of this Swingline Note is secured by the Collateral
identified and described as security therefor in the Security Agreement.
7. GOVERNING LAW
This Swingline Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, excluding conflict of laws
principles that would cause the application of the laws of any other
jurisdiction.
2
<PAGE>
8. SUCCESSORS AND ASSIGNS
The provisions of this Swingline Note shall inure to the benefit of and
be binding upon any successor to Borrower and shall extend to any holder hereof.
LEASING SOLUTIONS, INC.,
a California corporation
By:
---------------------------------------
Printed Name:
------------------------------
Title:
-------------------------------------
3
<PAGE>
Exhibit C
To be attached at the first funding.
4
<PAGE>
Exhibit E
See attached pages.
5
<PAGE>
Schedule 6.7
ERISA Plans
None.
6
<PAGE>
Schedule 1
- -------------------------------------------------------------------------------
Commitment Commitment Percentage
- -------------------------------------------------------------------------------
The First National Bank of Boston $ 25,000,000 16.12902
- -------------------------------------------------------------------------------
Fleet Bank, N.A. $ 22,500,000 14.51613
- -------------------------------------------------------------------------------
Bank Hapoalim B.M. $ 12,500,000 8.06452
- -------------------------------------------------------------------------------
CoreStates Bank, N.A. $ 20,000,000 12.90323
- -------------------------------------------------------------------------------
The Sumitomo Bank of California $ 15,000,000 9.67742
- -------------------------------------------------------------------------------
Bank of Nova Scotia $ 7,500,000 4.83871
- -------------------------------------------------------------------------------
Mellon Bank, N.A. $ 7,500,000 4.83871
- -------------------------------------------------------------------------------
The Union Bank of California, N.A. $ 20,000,000 12.90323
- -------------------------------------------------------------------------------
Wells Fargo Bank $ 17,500,000 11.29032
- -------------------------------------------------------------------------------
The Sumitomo Bank, LTD $ 7,500,000 4.83871
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total $155,000,000 100.00000000%
- -------------------------------------------------------------------------------
7
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of September 13, 1996 (the "Security
Agreement"), is made by LEASING SOLUTIONS, INC., a California corporation
("Grantor") in favor of THE FIRST NATIONAL BANK OF BOSTON, not in its capacity
as a Lender (as defined in the Credit Agreement) but solely as agent for the
benefit of the Lenders and Swingline Lender ("Agent").
RECITAL
A. Pursuant to that certain Amended and Restated Warehousing Credit
Agreement dated as of September 13, 1996 (as the same may from time to time be
amended, modified, restated, supplemented or extended, the "Credit Agreement")
by and among Grantor, Lenders (as defined therein), and Agent, for the benefit
of Lenders and Swingline Lender, Lenders and Swingline Lender have agreed to
make certain advances of money and to extend certain financial accommodations to
Grantor in the amounts and manner set forth in the Credit Agreement. All
capitalized terms used herein without definition shall have the meanings
ascribed to them in the Credit Agreement.
B. Lenders and Swingline Lender are willing to make the Loans, but only
upon the condition, among others, that Grantor shall have executed and delivered
to Agent, for the benefit of Lenders and Swingline Lender, this Agreement
whereby Grantor shall have granted to Agent, for the benefit of Lenders and
Swingline Lender, a security interest in the Collateral (as hereinafter defined)
securing Grantor's obligations under the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and in order to induce
Lenders to make the Loans and for other good and valuable consideration, the
receipt and adequacy of why acknowledged and intending to be legally bound,
Grantor hereby represents, warrants, covenants and agrees as follows:
1. GRANT OF SECURITY. Grantor hereby assigns, pledges and grants a
security interest to Agent, for the benefit of Lenders and Swingline Lender, in
all of Grantor's right, title and interest to the following described property
(the "Collateral"):
(a) All of Grantor's right, title and interest in and to any Leases
and other agreements that shall be described on each Schedule to be executed by
Agent and Grantor from time to time in the form of Schedule 1 to this Agreement
and all rentals thereunder and all proceeds thereof, including, without
limitation, all supporting documentation, guaranties, other
1.
<PAGE>
credit documentation, financing statements, certificates of acceptance and other
lease documentation;
(b) All of the Equipment covered by such Leases, together with all
attachments, additions, accessories, accessions, improvements, substitutions and
replacements thereto and therefor, now existing or hereafter acquired by
Grantor, and all proceeds, including insurance proceeds, thereof;
(c) All of Grantor's rights as a secured party in any and all of
lessee's interest in Equipment, machinery, tenant improvements, furniture,
fixtures, vehicles, tools, parts and attachments, including, without limitation,
all attachments, additions, accessories, accessions, improvements, substitutions
and replacements thereto and therefor, whether now owned or hereafter acquired,
and all proceeds, including insurance proceeds, thereof;
(d) All claims, rights and remedies which Grantor may now or hereafter
have with respect to the maintenance and storage of such Equipment;
(e) All claims, rights and remedies which Grantor may now or hereafter
have against Sybase, Inc. or any other software licensor, with respect to
Equipment which is software under an Eligible Software Lease;
(f) All governmental or other approvals, permits, licenses, franchise
agreements, authorities or certificates required or used in connection with the
ownership, operation and maintenance of such Equipment;
(g) Any beneficial interest of Grantor under any trust created with
respect to such Equipment;
(h) All rights of the Grantor under any agreement relating to such
Equipment, including, without limitation, any agreement in which Grantor or
Grantor's predecessor in interest acquired, or is acquiring, rights in the
Equipment;
(i) Any agreement or commitment of a third party to purchase, lend
funds secured by, or otherwise provide financing with respect to any such Lease
or Equipment;
(j) All deposit accounts, cash, instruments, documents, securities,
chattel paper, contracts, or other property of Grantor at any time in the
possession of any Lender or Agent; provided, that the items described in this
subsection (j) shall only constitute Collateral to the extent that such items
are listed in other subsections of this SECTION 1 or are proceeds or products of
Collateral listed in other subsections of this SECTION 1; and
(k) All proceeds and products of the foregoing, other than the
collateral described in subsection (j) above (to the extent that such collateral
described in subsection (j)
2.
<PAGE>
does not constitute (1) collateral which is also described in any of subsections
(a) through (i) or (2) proceeds or products of any collateral described in any
of subsections (a) through (i)), (and proceeds and products of proceeds and
products), in whatever form and whether such proceeds arise before or after the
commencement of any case under Title 11 of the United States Code (the
"Bankruptcy Code") by or against Grantor, including, without limitation, all
payments with respect to such Equipment under insurance whether or not Agent or
any Lender is the loss payee thereof, all proceeds of any governmental taking,
and any indemnity, warranty, letter of credit (including the right to draw on
such letter of credit) or guaranty payable by reason of any default under, loss
of, or damage to or otherwise with respect to any of the foregoing.
All of the property described in subsections (a) through (k), above, is herein
collectively called the "Collateral." References below in this Agreement to
"Lease," "Leases," or "Equipment" shall be deemed to refer only to such of the
same as are included as Collateral under this Agreement.
2. SECURITY FOR AMOUNTS PAYABLE. This Agreement secures the payment
of all amounts payable by Grantor in connection with the repayment of Loans made
from time to time by Lenders, including, without limitation, the amounts payable
by Grantor under the Credit Agreement, the Note issued pursuant to the Credit
Agreement and any note or notes issued in connection with the refunding or
rollover of such Note, and all amounts, whether for fees, expenses or otherwise,
of Grantor now or hereafter payable to Agent or any Lender or any of Agent's or
any Lender's affiliates under the Credit Agreement, the Note, each Schedule, any
other credit or loan agreement or note, any of the Loan Documents (including
this Agreement) or any other security agreement (all such amounts payable being
the "Amounts Payable") and all other Obligations under the Loan Documents.
3. LIABILITY UNDER LEASES. Anything herein to the contrary
notwithstanding, (a) Grantor shall remain liable under the Leases to the extent
set forth therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise by
Agent or any Lender of any of the rights hereunder shall not release Grantor
from any of its duties or obligations under the Leases and (c) neither Agent nor
any Lender shall have any obligations or liability under the Leases by reason of
this Agreement, nor shall Agent or any Lender be obligated to perform any of the
obligations or duties of Grantor thereunder or to take any action to collect or
enforce any claim for payment assigned hereunder.
4. REPRESENTATIONS AND WARRANTIES. Upon the addition of any Lease
to the Collateral, Grantor shall make the representations, warranties and
covenants set forth in a Schedule in the form of Schedule 1 hereto and shall
deliver such Schedule to Agent, for the benefit of Lenders and Swingline Lender,
with respect to such Lease.
5. DOCUMENTATION.
3.
<PAGE>
(a) Grantor shall from time to time, at the expense of
Grantor, promptly execute and deliver all further instruments and documents, and
take all further action, that Agent or Requisite Lenders may reasonably request,
in order to perfect with first priority and otherwise protect the security
interest granted hereby or to enable Agent or Requisite Lenders to exercise and
enforce their rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Grantor shall: (i) duly note
the security interest of Agent and Lenders on each certificate of title covering
any of the Equipment and on any registration without certification of title
covering any of the Equipment, and (ii) execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, and make such recordings, as Agent or Requisite Lenders may reasonably
request, in order to perfect and preserve the security interests granted or
purported to be granted hereby, including, without limitation, execution and
filing of such instruments and recordings as may be necessary under state or
federal law relating to the creation and perfection of a security interest in
any of the Leases and Equipment.
(b) To the best of its ability, Grantor shall furnish to
Agent from time to time statements and schedules further identifying and
describing the Collateral (including, without limitation, the locations and
condition thereof) and such other reports in connection with the Collateral as
Agent or Requisite Lenders may reasonably request, all in reasonable detail.
6. EQUIPMENT. Grantor shall:
(a) Cause the Equipment to be kept in jurisdictions where
all action required by SECTION 5 has been taken with respect to the
Equipment.
(b) Cause each lessee under the Leases to maintain and
preserve the Equipment covered by its Lease in accordance, in all material
respects, with the terms and provisions thereof and otherwise to perform in a
timely manner all obligations of the lessee under its Lease. Without limitation
of the foregoing, Grantor shall cause the Equipment to be maintained and
preserved, by the lessee or otherwise, in the same condition, repair and working
order as when delivered to the lessee, ordinary wear and tear excepted, and in
accordance with any manufacturer's manual, and shall forthwith, or in the case
of any loss or damage to any of the Equipment as quickly as practicable after
the occurrence thereof, make or cause to be made, by the lessee or otherwise,
all repairs, replacements and other improvements in connection therewith which
are necessary or desirable to such end. Grantor shall promptly furnish to Agent
a statement respecting any material loss or damage to any of the Equipment.
(c) Pay promptly when due, or cause to be so paid in
accordance with the Leases or contest in good faith by appropriate proceedings
and with adequate reserves established and maintained in accordance with GAAP,
all property and other taxes, fees, assessments and governmental charges or
levies imposed upon or in respect of the Equipment or this Agreement and all
claims, including claims for labor, materials and supplies, against the
Equipment.
(d) Perform in a timely manner all obligations of Grantor
under the Leases.
4.
<PAGE>
(e) At the reasonable request of Agent or Requisite Lenders,
at Grantor's own cost and expense, cause each item of the Equipment (if not
prevented by applicable law or regulations or governmental authority, and if it
will not adversely affect the proper use thereof) to be legibly marked in a
reasonably prominent location with such a plate, disk or other marking of
customary size, and bearing such a legend, as shall be appropriate or desirable
to evidence the fact that it is subject to the lien and security interest of
Agent and Lenders hereunder. So long as Agent or Lenders shall retain a security
interest in such item of Equipment, Grantor shall not remove or deface, or
permit to be removed or defaced, any such plate, disk, or other marking or the
identifying manufacturer's serial number, and, in the event of such removal,
defacement or other disappearance thereof, Grantor shall promptly cause such
plate, disk or other marking or serial number to be promptly replaced.
7. INSURANCE.
(a) Grantor shall cause the lessees under the Leases to
maintain insurance on the Equipment strictly in accordance with the terms and
provisions of the Leases. Without limitation of the foregoing, Grantor shall at
its own expense maintain such additional insurance in such amounts, against such
risks, in such form and with such insurers as provided by SECTION 5.3 of the
Credit Agreement. Grantor shall, if so requested by Agent or Requisite Lenders,
deliver to Agent original or duplicate policies of such insurance and, as Agent
or Requisite Lenders may reasonably request, a report of a reputable insurance
broker with respect to such insurance.
(b) Reimbursement under any liability insurance maintained
pursuant to this SECTION 7 may be paid directly to the person who incurred
liability covered by such insurance. In case of any loss involving damage to
Equipment when SECTION 7(c) is not applicable, Grantor shall make or cause to be
made, by the lessee or otherwise, the necessary repairs to or replacement of
such Equipment, and any proceeds of insurance maintained pursuant to this
Section 7 shall be paid to Grantor, the lessee or otherwise, as the case may be,
as reimbursement for the costs of such repairs or replacement.
(c) Upon the occurrence and during the continuance of any
Event of Default, all insurance payments in respect of such Equipment shall be
paid to and applied by Agent as specified in SECTION 13(d) hereof, except
insofar as the Lease covering such Equipment provides for the insurance payments
to be paid to the lessee for purposes of repairing the Equipment."
8. LEASES.
(a) Grantor shall keep its principal place of business and
chief executive office and the office where it keeps its records and files
concerning the Leases and its copies of the Leases at the location specified in
SECTION 16 or, upon thirty (30) days' prior written notice to Agent, at another
location in a jurisdiction where all action required by SECTION 5 shall have
been
5.
<PAGE>
taken with respect to the Leases. Grantor shall hold and preserve such records
and files concerning the Leases and shall permit representatives of Agent or
Lenders at any time during normal business hours to inspect and make abstracts
from such records and files.
(b) Grantor shall take such action as Grantor may deem
necessary or advisable to enforce collection of the Leases. Agent or Requisite
Lenders shall have the right at any time while an Event of Default is continuing
and upon written notice to Grantor of its intention to do so, at the expense of
Grantor, to enforce collection of any of the Leases in the same manner and to
the same extent as Grantor might have done.
(c) Grantor shall accept no prepayment from any lessee of
amounts due under any of the Leases if the same shall not be immediately applied
to prepay the principal amount advanced under this Agreement, without obtaining
the prior written consent of Requisite Lenders, except such amounts as are
required under any Lease to be paid in advance (including, without limitation, a
security deposit or a maintenance reserve account).
9. TRANSFERS AND OTHER LIENS. Grantor shall not:
(a) Except as expressly permitted by the Credit Agreement,
sell, assign (by operation of law of otherwise), lease, charter or otherwise
dispose of any of the Collateral without the prior written consent of Requisite
Lenders; or
(b) Create or suffer to exist any lien, security interest or
other charge or encumbrance upon or with respect to any of the Collateral,
except for Permitted Liens, for so long as such security interests are permitted
by the provisions of this Agreement.
10. ATTORNEY-IN-FACT. Grantor hereby irrevocably appoints Agent, on
behalf of Lenders, Grantor's attorney-in-fact, with full authority in the place
and stead of Grantor and in the name of Grantor, Agent, any Lender or otherwise,
from time to time in Agent's or Requisite Lenders' discretion, and, with respect
to (a) through (d) of this Section 10, from time to time in Requisite Lenders'
discretion upon the occurrence of an Event of Default and so long as such Event
of Default is continuing, to take any action and to execute any instrument which
Requisite Lenders may deem necessary or advisable to accomplish the purposes of
this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to
Agent, for the benefit of Lenders and Swingline Lender, or to any Lender
pursuant to SECTION 7;
(b) to ask, demand, collect, sue for, recover, compound,
receive and give acquittance and receipts for moneys due and to become due under
or in respect of any of the Collateral;
6.
<PAGE>
(c) to receive, indorse and collect any drafts or other
instruments and documents in connection with clauses (a) and (b), above;
(d) to file claims or take any action or institute any
proceedings which Requisite Lenders may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Lenders with respect to any of the Collateral; and
(e) to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral without the signature of Grantor where permitted by law.
11. AGENT MAY PERFORM. If Grantor fails to perform any agreement
contained herein, Agent, on behalf of Lenders, may, upon notice to Grantor, or
if an Event of Default has occurred and is continuing, without notice, perform,
or cause performance of, such agreement, and the expenses of Agent incurred in
connection therewith shall be payable by Grantor under SECTION 14(b).
12. NO DUTIES. The powers conferred on Agent and each Lender
hereunder are solely to protect their respective interests in the Collateral and
shall not impose any duty upon Agent or any Lender to exercise any such powers.
Except for the safe custody of any Collateral in their possession and the
accounting for moneys actually received by them hereunder, neither Agent nor any
Lender shall have any duty as to any Collateral or as to the taking of any
necessary steps to preserve rights against prior parties or any other rights
pertaining to any Collateral.
13. REMEDIES. If any Event of Default shall have occurred and be
continuing and Grantor shall not have paid all Amounts Payable:
(a) Requisite Lenders may, by notice to Grantor, declare all
of the Amounts Payable to be forthwith due and payable.
(b) Requisite Lenders, in lieu of or in addition to
exercising any other power hereby granted, may without notice, demand or
declaration of default, which are hereby waived by Grantor, proceed by an action
or actions in equity or at law for the seizure and sale of the Collateral or any
part thereof, for the specific performance of any covenant or agreement herein
contained or in aid of the execution of any power herein granted, for the
foreclosure or sale of the Collateral or any part thereof under the judgment or
decree of any court of competent jurisdiction, for the appointment of a receiver
pending any foreclosure hereunder or the sale of the Collateral or any part
thereof or for the enforcement of any other appropriate equitable or legal
remedy.
(c) Requisite Lenders may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to Agent or Lenders, all the rights and remedies (i) of
Grantor under each Lease and other agreement or commitment forming
7.
<PAGE>
part of the Collateral and (ii) of a secured party on default under the UCC,
whether or not the UCC applies to the affected Collateral, and also may (A)
require Grantor to, and Grantor hereby agrees that at its expense and upon
request of Agent it shall forthwith, assemble all or part of the Collateral as
directed by Agent and make it available to Agent at such places reasonably
convenient to all parties as Agent may designate and (B) without notice except
as specified below, sell the Collateral or any part thereof in one or more
public or private sales, at any of Lenders' offices or elsewhere, for cash, on
credit or for future delivery, and at such price or prices and upon such other
terms as Agent may deem commercially reasonable. Grantor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' notice
to Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Neither
Agent nor any Lender shall be obligated to make any sale of Collateral
regardless of notice of sale having been given. Agent and Lenders may adjourn
any public or private sale from time to time by public announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(d) All cash proceeds received by Agent or any Lender in
respect of any sale of, collection from or other realization upon all or any
part of the Collateral shall be applied as follows:
(i) First, to the payment of all reasonable out-of-
pocket costs and expenses incident to the enforcement of this Agreement,
including but not limited to compensation to the agents, contractors and
attorneys of Agent and reasonable allocated costs of in-house counsel;
(ii) Second, to the payment of the Amounts Payable
and other Obligations; and
(iii) Finally, the remainder, if any, to Grantor or to
whomever may be lawfully entitled to receive such remainder; provided, however,
that Grantor shall remain liable to Agent and Lenders for any deficiency in the
Amounts Payable remaining after the application of such proceeds as provided in
this Section 13(d) and, provided, further, that nothing herein contained shall
in any way limit or restrict Agent's or Lenders' right to proceed directly
against Grantor without first exhausting, or in any manner exercising its rights
in respect of, the Collateral.
(e) Agent and each Lender shall have the right to become the
purchaser at any public sale made pursuant to the provisions of this Section 13
and shall have the right to credit against the amount of the bid made therefor
the amount payable to Agent or such Lender, as the case may be, out of the net
proceeds of such sale. Recitals contained in any conveyance to any purchaser at
any sale made hereunder shall, absent manifest error, conclusively establish the
truth and accuracy of the matters therein stated, including, without limitation,
nonpayment of the Amounts Payable and advertisement and conduct of such sale in
the manner provided herein.
8.
<PAGE>
Grantor does hereby ratify and confirm all legal acts that Agent may do in
carrying out the provisions of this Agreement.
(f) Any sale of the Collateral or any part thereof pursuant
to the provisions of this SECTION 13 shall operate to divest all right, title,
interest, claim and demand of Grantor in and to the property sold and shall be a
perpetual bar against Grantor. Nevertheless, if requested by Agent or Requisite
Lenders to do so, Grantor shall join in the execution, acknowledgement and
delivery of all proper conveyances, assignments and transfers of the property so
sold. It shall not be necessary for Agent or any Lender to have physically
present or constructively in its possession any of the Collateral at any such
sale, and Grantor shall deliver all of the Collateral to the purchaser at such
sale on the date of sale and, if it should be impossible or impractical then to
take actual delivery of the Collateral, the title and right of possession to the
Collateral shall pass to the purchaser at such sale as completely as if the same
had been actually present and delivered. Grantor agrees that, if Grantor retains
possession of the property or any part thereof subsequent to such sale, Grantor
shall be considered a tenant at sufferance of the purchaser and shall, if
Grantor remains in possession after demand to remove, be guilty of forceful
detainer and be subject to eviction and removal, forcible or otherwise, with or
without process of law, and all damages by reason thereof are hereby expressly
waived by Grantor.
(g) Subject to any requirements of applicable law, Grantor
agrees that neither Grantor nor any of its Affiliates shall at any time have or
assert any right, under any law pertaining to the marshalling of assets, the
sale of property in the inverse order of alienation, the administration of
estates of decedents, appraisement, valuation, stay, extension or redemption now
or hereafter in force in order to prevent or hinder the rights of Agent or any
Lender or any purchaser of the Collateral or any part thereof under this
Agreement, and Grantor, to the extent permitted by applicable law, hereby waives
the benefit of all such laws.
(h) Upon any sale made under the powers of sale herein
granted and conferred, the receipt of Agent or any Lender, as the case may be,
shall be sufficient discharge to the purchaser or purchasers at any sale for the
purchase money, and such purchaser or purchasers and the heirs, devisees,
personal representatives, successors and assigns thereof shall not, after paying
such purchase money and receiving such receipt of Agent or such Lender, be
obliged to see to the application thereof or be in any way answerable for any
loss, misapplication or nonapplication thereof.
(i) Each and every right, power or remedy hereby granted to
Agent and Lenders is in addition to, and not in derogation of, any right, power
or remedy granted by the Credit Agreement and the Note and shall be cumulative
and not exclusive, and each and every right, power or remedy, whether
specifically hereby granted or otherwise existing, may be exercised from time to
time and as often and in such order as may be deemed expedient by Agent or, as
applicable, any Lender, as the case may be, and the exercise of any such right,
power or remedy shall not be deemed a waiver of the right to exercise, at the
same time or thereafter, any other right, power or remedy. No delay or omission
by Agent or any Lender in the exercise of any right, power or remedy shall
impair any such right, power or remedy or
9.
<PAGE>
operate as a waiver thereof or of any other right, power or remedy then or
thereafter existing. Any and all covenants in this instrument may from time to
time by instrument in writing signed by Requisite Lenders be waived to such
extent and in such manner as Requisite Lenders may desire, but no such waiver
shall ever affect or impair Agent's or any Lender's right hereunder, except to
the extent specifically stated in such written instrument.
(j) Notwithstanding the foregoing, Agent and Lenders agree
not to interfere with a lessee's quiet enjoyment of Equipment under a Lease, so
long, but only so long, as no event of default or termination, and no event
which with the giving of notice or lapse of time, or both, would constitute such
an event, has occurred under such Lease.
14. INDEMNITY AND EXPENSES.
(a) Grantor agrees to indemnify Agent and each Lender from
and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from Agent's or
any such Lender's gross negligence or willful misconduct.
(b) Grantor shall upon demand pay to Agent the amount of any
and all reasonable out-of-pocket expenses, including reasonable allocated costs
of in-house counsel and the reasonable fees and disbursements of its counsel and
or any experts and agents, which Agent may incur in connection with (i) the
custody, preservation, use or operation of, sale of, collection from or other
realization upon any of the Collateral, (ii) the exercise or enforcement of any
of the rights of Agent or any Lender hereunder or (iii) the failure by Grantor
to perform or observe any of the provisions hereof.
15. AMENDMENTS; ETC. Any amendment or waiver of any provision of
this Agreement, and any consent to any departure by Grantor herefrom, shall be
effected in accordance with and shall be governed by SECTION 11.6 of the Credit
Agreement.
16. NOTICES; ETC. All notices and other communications provided for
hereunder shall be in writing (including telegraphic, telecopied or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to each
party at its address set forth in the Credit Agreement or, as to each party, at
such other address as shall be designated by such party in a written notice to
the other party complying as to delivery with the terms of this section. All
such notices and communications shall, when mailed, telegraphed, telecopied or
delivered, be effective on receipt or, if sent by telex, when the telex is sent
and the appropriate answer back is received.
17. CONTINUING SECURITY INTEREST; ETC. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until payment in full of the Amounts Payable and performance in
full of all of Grantor's Obligations; (b) be binding upon Grantor, its
successors and assigns, provided, however, that Grantor shall not have the right
to assign its rights or obligations hereunder or any interest herein without the
prior written consent of Requisite Lenders; and (c) inure to the benefit of
Agent, Swingline Lender and each
10.
<PAGE>
Lender and Agent's, Swingline Lender's and Lenders' respective successors,
transferees and assigns. In the event that (i) there is excess capacity under
the Borrowing Base and (ii) no Default has occurred and is continuing, Agent
shall, upon the request of Grantor, release, on behalf of Lenders, the security
interest granted herein in a particular Lease, in which case Agent's and
Lenders' security interest therein shall terminate, and all rights in such
portion of the Collateral shall revert to Grantor; provided, that (A) in no
event shall Collateral be released if immediately after such release the
outstanding principal balance of the Loans would exceed the Borrowing Base and
(B) the particular Collateral to be released shall be subject to the approval of
Requisite Lenders, in their sole discretion. Upon payment in full of the Amounts
Payable and performance in full of all of Grantor's Obligations, the security
interest granted hereby shall terminate and all rights to the Collateral shall
revert to Grantor. Upon any such termination, Agent and Lenders shall, at
Grantor's expense, execute and deliver to Grantor such documents as Grantor
shall reasonably request to evidence such termination.
18. GOVERNING LAW; TERMS. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, as applied to
contracts entered into by California residents and to be performed entirely
within California, except to the extent that the validity or perfection of the
security interest hereunder or remedies hereunder in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
California, including federal law. Unless otherwise defined herein, terms used
in Division 9 of the UCC in the State of California are used herein as therein
defined.
19. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be modified rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
20. RELEASES. No release from the lien of this Agreement of any part
of the Collateral by Agent or Lenders shall in any way alter, vary or diminish
the force, effect or lien of this Agreement on the balance of the Collateral.
21. SUBROGATION. This Agreement is made with full substitution and
subrogation of Agent and each Lender in and to all covenants and warranties by
others heretofore given or made in respect of the Collateral or any part
thereof.
22. NATURE OF AGREEMENT. This Agreement will be deemed to be and
may be enforced from time to time as an assignment, chattel mortgage, contract,
deed of trust, financing statement, or security agreement, and from time to time
as any one or more thereof as is appropriate under applicable state law.
23. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Agreement.
11.
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24. HEADINGS. The section headings used in this Agreement are
intended principally for convenience and shall not, by themselves, determine the
rights and obligations of the parties to this Agreement.
25. ENTIRE AGREEMENT. This Agreement, the Credit Agreement, the
Note and each Schedule delivered under this Agreement and all documents or
instruments to be delivered to Agent or any Lender hereunder or thereunder
contain all of the terms and conditions agreed upon by the parties relating to
the subject matter of this Agreement and supersede any and all prior and
contemporaneous agreements, negotiations, correspondence, understandings and
communications of the parties, whether oral or written, respecting that subject
matter.
12.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
GRANTOR: LEASING SOLUTIONS, INC.
By: __________________________
Printed Name__________________
Title: _______________________
AGENT: THE FIRST NATIONAL BANK OF BOSTON, AS AGENT
By: __________________________
Printed Name__________________
Title: _______________________
13.
<PAGE>
SCHEDULE 1
LEASE AND EQUIPMENT SCHEDULE
THIS LEASE AND EQUIPMENT SCHEDULE, dated as of ____________________,
19_____ (the "Schedule"), is made by LEASING SOLUTIONS, INC., a California
corporation ("Grantor") in favor of each of the Lenders and THE FIRST NATIONAL
BANK OF BOSTON, as Agent for the benefit of Lenders and Swingline Lender.
RECITAL
A. Pursuant to that certain Amended and Restated Warehousing Credit
Agreement dated as of September 13, 1996 (as the same may from time to time be
amended, modified or supplemented, the "Credit Agreement") by and among Grantor,
Lenders (as defined therein), Swingline Lender (as defined therein) and Agent,
for the benefit of Lenders and Swingline Lender, Lenders and Swingline Lender
have agreed to make certain advances of money and to extend certain financial
accommodations to Grantor in the amounts and manner set forth in the Credit
Agreement.
B. Grantor has executed that certain Security Agreement, dated as of
September 13, 1996, in favor of Lenders, Swingline Lender and Agent (the
"Security Agreement").
C. As a condition precedent to Lenders' obligation to make Loans to
Grantor, the Credit Agreement and the Security Agreement provide that Agent and
Lenders must receive an executed Schedule substantially in this form covering
each Lease and the Equipment covered thereby which is Collateral for the Loans.
NOW, THEREFORE, the parties agree as follows:
26. DEFINITIONS AND TERMS
The terms defined in the Credit Agreement and the Security
Agreement have the respective meanings set forth therein and such definitions
are incorporated herein by this reference. The definitions are equally
applicable to both the singular and plural forms of the respective terms.
27. INCLUSION OF LEASES OR EQUIPMENT SCHEDULES AND EQUIPMENT IN
COLLATERAL
Each of the Leases listed in Exhibit A hereto together with all
of the Equipment subject to each such Lease is hereby included as "Collateral,"
as defined in Section 1 of the Security Agreement, to the same effect as if such
Lease and Equipment were expressly set forth in the definition of Collateral
contained in such Security Agreement.
1.
<PAGE>
28. REPRESENTATIONS AND WARRANTIES RESPECTING COLLATERAL
Grantor hereby represents and warrants with respect to the Lease
and Equipment described in Section 2 above, as follows:
(a) The principal place of business and chief executive
office of Grantor and the office where Grantor keeps its records and files
concerning the Leases and its original executed copies of the Leases are located
at 10 Almaden Blvd., Suite 1500, San Jose, California 95113. Grantor has
delivered to Agent, for the benefit of Lenders and Swingline Lender, a photocopy
of each of the Leases.
(b) Grantor owns the Collateral described in Section 2 above
free and clear of any lien, security interest, charge or encumbrance, except for
(i) the security interest created by the Security Agreement, (ii) the interests
of the lessees under the Leases, and (iii) other Permitted Liens. Grantor has
paid, caused to be paid or will cause to promptly be paid, all invoice prices,
transportation and delivery costs, taxes and any acquisition or other fees
relating to the Equipment, any Eligible Software Lease, or any Lease purchased
from a broker. Grantor has all necessary authority to encumber and grant a
security interest in the Collateral.
(c) Each item of Equipment the ownership of which, under
applicable law, is or should be evidenced by a certificate of title, will be
properly titled in the name of Grantor no later than the next Funding Date after
the date of this Schedule.
(d) All information furnished or to be furnished Agent by or
on behalf of Grantor in connection with the Collateral is or will be complete
and accurate. Grantor shall defend and hold harmless Agent against all persons
whomsoever claiming the Collateral or any part thereof.
(e) Grantor has received from the lessees under the Leases
all such documents, schedules, agreements, Certificates of Delivery and
Acceptance, certificates and other items as were required pursuant to each such
Lease, and each such Lease is in the form attached to the Credit Agreement as
Exhibit E, as may be modified pursuant to the Credit Agreement.
(f) This Schedule together with the Security Agreement
create a valid security interest of Agent and Lenders in the Collateral (subject
only to the security interests of others referred to in (b), for so long as such
security interests are permitted by the provisions of the Security Agreement),
securing the payment of the Obligations, and all filings and other actions
necessary to perfect and protect such security interest have been duly taken,
including, without limitation, the making of all filings against the lessees
under the Leases necessary to perfect Grantor's interest in the Equipment.
2.
<PAGE>
(g) No consent, authorization, approval or other action by,
and no notice to or filing with, any Governmental Agency, lessee or other person
or entity is required either (i) for the grant by Grantor of the security
interest granted in the Security Agreement and hereby or for the execution,
delivery or performance of this Schedule by Grantor or (ii) except for the
filing of a financing statement in the appropriate jurisdictions, for the
perfection or exercise by Agent of Lenders' rights and remedies hereunder.
(h) Each Lease described in Exhibit A constitutes the valid
and enforceable obligation of the lessee thereunder, enforceable against such
lessee in accordance with its respective terms, except as the enforceability
thereof may be subject to or limited by bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors generally, and except as the remedy of specific performance
or of injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought. Each item of Equipment subject to any
such Lease has been delivered to, and accepted by, the lessee under the
respective Lease. No event of default or termination, and no event which with
the giving of notice or lapse of time, or both, would constitute such an event,
has occurred on the part of any party under any such Lease. There does not exist
in respect of any such Lease any claim, offset, defense or other right on the
part of the lessee thereunder to reduce in any manner the amounts payable under
such Lease.
29. GENERAL REPRESENTATIONS AND WARRANTIES
(a) The representations and warranties set forth in Section
4 of the Credit Agreement are true and correct as of the date hereof, provided
that the representations and warranties set forth in Section 4.6 of the Credit
Agreement shall be deemed to be made with respect to the financial statements
most recently delivered to Lenders.
(b) As of the date hereof, there exists no Default under the
Credit Agreement.
30. SCHEDULE
This Schedule shall be construed as supplemental to the Security
Agreement and shall form a part of the Security Agreement. The Security
Agreement is incorporated herein by this reference. The Security Agreement, and
each and every provision thereof, remain in full force and effect and are hereby
ratified, approved and confirmed.
31. COUNTERPARTS
This Schedule may be executed in separate counterparts, each of
which when executed and delivered is an original, but all such counterparts
shall together constitute the Schedule.
3.
<PAGE>
IN WITNESS WHEREOF, Grantor has executed this Schedule as of the date
first above written.
GRANTOR: LEASING SOLUTIONS, INC.
By____________________________
Printed Name__________________
Title_________________________
AGENT: THE FIRST NATIONAL BANK OF BOSTON, AS AGENT
By____________________________
Printed Name__________________
Title_________________________
4.
<PAGE>
EXHIBIT A
LEASES
5.
<PAGE>
Exhibit 10.72
MARKETING AGREEMENT
BETWEEN
NCR CORPORATION
AND
LEASING SOLUTIONS, INC.
JULY 24, 1996
<PAGE>
NCR/LSI Agreement
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS 1
1.0 DEFINITIONS..................................... 1
2.0 LEASING SERVICES................................ 3
2.1 PROVISION OF SERVICES; EXCLUSIVITY.............. 3
2.2 LEASE QUOTATIONS................................ 4
2.3 CUSTOMER QUALIFICATIONS......................... 4
2.4 TERMS OF LEASES OFFERED BY LSI.................. 4
2.5 UPGRADES........................................ 4
2.6 BILLING AND COLLECTION.......................... 5
2.7 OBLIGATION TO ENTER INTO LEASES................. 5
3.0 PRODUCTS........................................ 5
3.1 PRODUCTS TO BE LEASED........................... 5
3.2 PRODUCT PURCHASES FROM VENDOR BY LSI............ 5
3.3 MARKETING AND REMARKETING BY VENDOR AND LSI..... 6
3.4 LICENSING OF SOFTWARE........................... 7
4.0 POOLING AND REMARKETING FEES.................... 8
4.1 POOLS........................................... 8
4.2 REMARKETING FEE................................. 8
4.3 LOSSES FROM POOLS............................... 8
4.4 AMORTIZATION OF COSTS AND EXPENSES.............. 9
5.0 SHARED OBLIGATIONS OF LSI AND VENDOR............ 10
5.1 PROGRAM EXPENSES................................ 10
5.2 TRAINING........................................ 10
</TABLE>
Page 1
<PAGE>
NCR/LSI Agreement
<TABLE>
<S> <C>
6.0 OBLIGATIONS OF VENDOR........................... 10
6.1 Vendor Program Manager.......................... 10
6.2 New Product Plans............................... 10
6.3 Pricing......................................... 10
7.0 OBLIGATIONS OF LSI.............................. 11
7.1 Program Manager................................. 11
7.2 Reports......................................... 11
7.3 Sales Incentive................................. 11
7.4 Audit........................................... 11
8.0 REPRESENTATIONS, WARRANTIES AND COVENANTS....... 12
8.1 Representations and Warranties of Vendor........ 12
8.2 Representations and Warranties of LSI........... 13
8.3 Product Warranty................................ 14
8.4 Repurchase of Certain Products by Vendor........ 14
8.5 Intellectual Property Claims.................... 14
9.0 INDEMNIFICATION................................. 15
9.1 Indemnification by Vendor....................... 15
9.2 Indemnification by LSI.......................... 15
9.3 Indemnification Procedures...................... 16
10.0 DEFAULT AND REMEDIES............................ 16
10.1 Defaults........................................ 16
10.2 Remedies........................................ 17
11.0 ASSIGNMENT...................................... 17
11.1 No Assignment of Rights or Obligations.......... 17
11.2 Assignment of Lease Transactions................ 17
</TABLE>
Page 2
<PAGE>
NCR/LSI Agreement
<TABLE>
<S> <C>
12.0 MISCELLANEOUS................................. 18
12.1 Term; Termination............................. 18
12.2 Entire Agreement; Waiver; Modification........ 18
12.3 Notices....................................... 19
12.4 Exhibits...................................... 19
12.5 Survival...................................... 19
12.6 Governing Law................................. 19
12.7 Severability.................................. 20
12.8 Counterparts.................................. 20
12.9 Headings...................................... 20
12.10 Limitation of Liability; Exclusive Remedies... 20
12.11 Dispute Resolution............................ 20
EXHIBIT A - FORM OF LEASE............................ 22
EXHIBIT B - VENDOR PRODUCTS.......................... 23
EXHIBIT C - LEASE PRICING............................ 26
</TABLE>
Page 3
<PAGE>
MARKETING AGREEMENT
This Marketing Agreement (this "Agreement") is entered into as of July 24, 1996,
by and between NCR Corporation, a Maryland corporation ("Vendor"), and Leasing
Solutions, Inc., a California corporation ("LSI").
RECITALS
A. LSI has the expertise and experience to provide a leasing facility to Vendor
for use principally with Vendor's marketing of certain of its products to
its domestic customers. Although such leasing facility would focus on the
providing of financing for operating leases, it could also involve providing
custom-tailored leases, leases of packages of equipment (including related
software and non-Vendor products), and other lease and conditional sale
transactions with respect to which LSI's services are deemed to be of value
to Vendor and such customers.
B. Vendor desires, consistent with its contractual obligations to other
providers of leasing facilities, to make available such leasing services of
LSI to such customers and, in connection therewith, to sell Vendor products
to LSI at an agreed upon price.
C. LSI and Vendor jointly have the expertise to remarket Vendor products
purchased by LSI, as such products cease to be subject to a lease, and LSI
desires to facilitate such a joint remarketing effort by paying Vendor a
remarketing fee from certain residual revenues generated by such
remarketing.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants of
the parties herein, and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1.0 DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
provided below:
Page 1
<PAGE>
1.1 "Business Day" shall mean any day except Saturday or Sunday or a day on
------------
which banks are required or permitted to be closed in California.
1.2 "Confidential Information" shall have the meaning ascribed to it in Section
------------------------
8.1 hereof.
1.3 "Customer" or "Lessee" shall mean a domestic customer of Vendor which
-------- ------
qualifies as a lessee of Products from LSI under the terms and conditions of
this Agreement.
1.4 "Customer Purchase Price" shall mean, with respect to any Product and
-----------------------
Customer, the price for such Product that Vendor has quoted to such Customer.
1.5 "Initial Term" shall mean August 1, 1996 through July 31, 1997.
------------
1.6 "Lease" shall mean a lease between LSI and a Lessee, in the form attached
-----
hereto as Exhibit A, as such form may change, in LSI's sole discretion, from
time to time. A Lease, based on its economic terms, may also constitute a
conditional sale agreement.
1.7 "Net Purchase Price" shall mean, with respect to any Product and Customer,
------------------
the Customer Purchase Price, less any applicable discounts granted to LSI by
Vendor for such Product.
1.8 "Operating Lease" shall mean a lease transaction that qualifies as such
---------------
under the guidelines of Statement of Financial Accounting Standards No. 13.
("FASB 13"), as determined by the Lessee thereunder.
1.9 "Period One" shall mean the period from August 1, 1996 through July 30,
----------
1997.
1.10 "Pool One - Large Systems" shall have the meaning ascribed to it in
------------------------
Section 4.1 hereof.
1.11 "Pool One - Mid-Range Systems" shall have the meaning ascribed to it in
----------------------------
Section 4.1 hereof.
1.12 "Products" shall mean all Vendor Products and any other products, items or
--------
services, including, without limitation, maintenance and installation, that may
be included in a Lease pursuant to the terms of this Agreement.
1.13 "Program" shall mean the vendor leasing program between Vendor and LSI
-------
described herein.
1.14 "Qualified Transaction" shall mean a leasing transaction with a Lessee
---------------------
which involves Products with a Net Purchase Price to LSI of not less than
$25,000 and which meets the credit, product and other criteria set forth in this
Agreement, including, without limitation, in Section 2.3 hereof.
1.15 "Repurchase Price" shall mean, with respect to any Product, the price
----------------
equal to the Net Purchase Price of such Product, plus interest on the
unamortized portion of the Net Purchase Price, from the date of LSI's purchase
of such Product until the payment of the Repurchase Price, at a rate equal to
the interest rate on 36 month U.S. Treasury Notes, with a constant maturity, as
of such date of repurchase, plus 650 basis points, less the lease payments (net
of administrative fees and other costs and expenses described in Section 4.4
hereof) with respect to such Product received by LSI.
Page 2
<PAGE>
1.16 "Residuals" shall mean, with respect to any pool of Products subject to
---------
Leases, the total lease and/or sale proceeds collected with respect to such
Products after all costs and expenses of LSI related to such Products,
including, without limitation, the Net Purchase Price thereof, have been
amortized. All such costs and expenses, which are listed below and described in
Section 4.4 hereof, shall be amortized by such lease and sale proceeds that are
payable to, and received by, LSI on or after the commencement date of the
related Lease, in the following order: (i) Administrative Fees; (ii) Sales
Commissions; (iii) Other Expenses; (iv) Investment Recovery Expenses; and (v)
Net Purchase Price Recovery.
1.17 "Subsequent Period" shall mean each period of one year, or any portion
-----------------
thereof, beginning on each anniversary date of this Agreement and subsequent to
the Initial Term of this Agreement, during which this Agreement is in effect.
1.18 "Vendor Products" shall mean hardware and software products marketed by
---------------
Vendor set forth on Exhibit B, which may be amended from time to time by the
mutual agreement of Vendor and LSI. Vendor Products initially covered by this
Agreement shall be categorized as either (a) "NCR Large Systems", or (b) "NCR
Mid-Range Systems", as defined in Exhibit B.
1.19 "Upgrade" shall mean a product that is an addition, modification,
-------
enhancement or replacement product which enhances the efficiency or productivity
of previously installed Vendor Product(s).
2.0 LEASING SERVICES
2.1 PROVISION OF SERVICES; EXCLUSIVITY.
LSI shall provide lease financing services to Vendor's Customers pursuant to the
terms and conditions of this Agreement. Vendor hereby designates LSI as its
preferred source, through Vendor, for providing lease financing for Vendor
Products to Customers in cases where AT&T Capital Corporation or an affiliate
thereof has declined to provide such lease financing or a Customer has requested
that Vendor provide to it more that one source for lease financing. As a
result, Vendor (a) shall, within fifteen (15) days of the execution of this
Agreement, take appropriate steps to inform Vendor field sales personnel of
such designation, and (b) shall use all reasonable efforts to give LSI the same
advance written notice of its relevant sales, marketing and training events and
other events involving Customers as it gives to its own personnel, and shall
permit LSI personnel to attend and, as appropriate, participate in each such
event. Notwithstanding the foregoing, nothing herein or in any other
contractual obligation of Vendor shall preclude any Customer from obtaining
lease financing for Products from any source it chooses. In the event LSI
chooses not to provide a requested lease quotation for a proposed Lease with a
Customer, or fails to timely response to any such requested lease quotation,
Vendor may permit the Vendor field sales personnel to assist such Customer in
obtaining lease financing for such Lease from another source.
Page 3
<PAGE>
2.2 LEASE QUOTATIONS.
LSI shall provide lease quotations for proposed Leases with Customers for
Qualified Transactions submitted to LSI by Vendor during the term of this
Agreement. The lease pricing terms, and the assumptions underlying such terms,
to be used initially by LSI for the purposes of making such quotations are set
forth on Exhibit C hereto. Any material change in any of such terms or
assumptions, whether as a result of such term or assumption ceasing to be valid
or correct or otherwise, shall, at LSI's election and sole discretion, result in
a modification of the lease pricing specified in Exhibit C, and Vendor shall not
be responsible for any costs or expenses of LSI resulting from such
modification.
2.3 CUSTOMER QUALIFICATIONS.
LSI shall not be obligated to enter into Leases with any Customer which (a) is
not a corporation formed, and with its principal offices in, the United States,
(b) proposes to locate Products subject to a Lease outside the United States, or
does not have a credit rating of Baa or better, as rated by Moody's Investor
Services or, in the case of a non-rated company, at least an equivalent
financial rating based on LSI's review of audited financial information of such
non-rated company made available to LSI. The determination of the financial
rating of any such company by LSI, after conducting such review, shall be
conclusive.
2.4 TERMS OF LEASES OFFERED BY LSI.
LSI shall offer Leases with non-cancelable terms of 24, 36, 48 and 60 months.
Upon the mutual agreement of LSI and Vendor, LSI shall offer Leases with (a) a
firm rental term of 12 months on a case-by-case basis, or (b) special structures
or term lengths not described herein if so requested by a Customer.
2.5 UPGRADES.
If LSI has leased Vendor Products pursuant to this Agreement to a Customer and
such Customer has notified Vendor that it desires to upgrade such Vendor
Products with additional Vendor Products or related Vendor software, Vendor will
give LSI written notice of such proposed upgrades. LSI shall have a right of
first refusal to purchase such upgrades from Vendor (for the purpose of leasing
them to such Customer) at terms no less favorable than those that would
otherwise be offered to the Customer if it desired to purchase such upgrades
itself. If LSI has leased Vendor Products pursuant to this Agreement to a
Customer and such Customer has notified Vendor that it desires to replace such
Vendor Products with new or substitute Vendor Products ("Replacement Products"),
Vendor will give LSI written notice of such proposed Replacement Products. LSI
shall have a right of first refusal to purchase such Replacement Products from
Vendor (for the purpose of leasing them to such Customer) at terms no less
favorable than those that would otherwise be offered to the Customer if it
desired to purchase the Replacement Products itself. The remarketing for the
Vendor Products being replaced by Replacement Products shall be subject to the
relevant provisions of this Agreement.
Page 4
<PAGE>
2.6 BILLING AND COLLECTION.
LSI shall perform, at its expense, all billing and collection of the lease
payments and other amounts due from Customers under Leases subject to this
Agreement. Such services shall include filing UCC financing statements, as
necessary, with respect to Products, asset tracking of Products, and personal
property and sales tax reporting and filings. Vendor shall, at LSI's request,
cooperate with LSI and give LSI reasonable assistance in such collection
activities with respect to any monthly rental payments more than sixty (60) days
past due. LSI shall reimburse Vendor for any reasonable out-of-pocket expenses
it incurs in response to any such request by LSI.
2.7 OBLIGATION TO ENTER INTO LEASES.
LSI's obligation to enter into any Lease of Products with any Customer is
subject to (a) receipt by LSI of documentation with respect to such Lease in
form and substance acceptable to LSI, (b) the prospective Lessee under such
Lease not being in breach of any of its obligations to LSI under any other
agreement with LSI, and (c) the other conditions specified in this Agreement,
with respect to such obligations, having been met.
3.0 PRODUCTS
3.1 PRODUCTS TO BE LEASED.
Subject to the other provisions of this Agreement:
(a) LSI shall provide lease financing to Customers with respect to all
Products;
(b) With respect to proposed Leases of NCR Large Systems with terms of 24 or 36
months, LSI shall use its best efforts to structure such Leases such that
the Customers under such Leases will be able to determine that such Leases
qualify as Operating Leases;
(c) Upon the mutual agreement of Vendor and LSI, on a lease-by-lease basis, LSI
shall also provide lease financing to Customers with respect to Products
that are not Vendor Products.
Vendor hereby acknowledges that no assurances can be given, and no
representations or warranties have been made, by LSI with respect to the
eligibility for Operating Lease treatment of any Lease.
3.2 PRODUCT PURCHASES FROM VENDOR BY LSI.
(a) Vendor and LSI may mutually agree in writing, from time to time, to
negotiate unique discounts from the Customer Purchase Price for selected
transactions on a case-by-case basis.
(b) As soon as LSI receives from a Customer executed documentation with respect
to a Lease which is acceptable to LSI, LSI will promptly execute and
deliver to Vendor a
Page 5
<PAGE>
purchase order, in the form of Exhibit D hereto, authorizing shipment to
such Customer of, and billing to LSI for, the Products subject to such
Lease.
(c) LSI shall pay Vendor the Net Purchase Price for Products purchased
hereunder on or before the fifteenth (15th) day of the month immediately
following the month in which LSI receives a Notice of Acceptance, in the
form set forth as part of Exhibit A hereto, with respect to such Products
from the Customer (the "Payment Date").
(d) LSI shall have the right to exercise a Customer's price protection rights
in the purchase agreement with respect to Products purchased by LSI for
lease to such Customer.
3.3 MARKETING AND REMARKETING BY VENDOR AND LSI.
(a) Marketing: Vendor and LSI shall cooperate with each other in order to
---------
permit LSI to accommodate a Customer's request to: (i) extend or renew a
Lease to such Customer; (ii) sell the Products subject to such Lease to
such Customer in the event such Customer elects to purchase such Products
at the end of the term of such Lease; or (iii) sell such Products during
the term of such Lease pursuant to a purchase option in such Lease
(collectively referred to as "Marketing"). Vendor and LSI will each give
the other notice of a potential Marketing of Products subject to this
Agreement within a reasonable time after becoming aware of such Marketing
opportunity.
(b) Returned Products: All Products subject to a Lease which are returned by a
-----------------
Customer to LSI for any reason ("Returned Products"), and which LSI desires
be remarketed with a product warranty from Vendor, shall be sent by LSI to
a location in the continental United States designated by Vendor so that
such Products may be refurbished according to Vendor's operational and
cosmetic standards. All refurbishing performed by Vendor with respect to
such Product shall be performed on a non-discriminatory basis, such that it
is performed, in any case, no differently (including from a quality,
prioritization and timing standpoint) than Vendor refurbishes or
manufactures any other unit of the same or a similar product. All costs of
refurbishing and certifying such Products so that they qualify for such
warranty shall be at LSI's expense; provided that the amount Vendor charges
LSI for refurbishing and certifying Products for such warranty shall not
exceed Vendor's then current GSA pricing for such services.
(c) Remarketing: All Returned Products shall be offered for resale or re-lease
-----------
(collectively referred to as "Remarketing") by Vendor, on a non-
discriminatory basis, such that it is offered for sale and sold, or for
lease and leased, no differently (including from a prioritization and
timing standpoint) than Vendor resells or releases any other unit of such
Product. Each Remarketing shall be subject to LSI's approval; provided,
however, LSI shall not have the right to insist that any Returned Product
be sold or re-leased at a price in excess of the price at which Vendor is
then selling or leasing units of such Product. Vendor shall request in
writing LSI's prior written approval before consummating the sale or re-
lease of any Returned Product, and all such sales and re-leases shall be
documented by LSI. Vendor shall invoice LSI for all charges for
Page 6
<PAGE>
refurbishing and certifying Products during the month immediately following
the month in which such Products are Remarketed. A statement of such
charges, in reasonable detail, shall accompany such invoice. LSI shall
remit payment for such invoice on the terms applicable with respect to the
payment of such services under Vendor's then current GSA pricing for such
services.
(d) Sales Commission: In consideration of Vendor's Marketing and Remarketing
----------------
assistance, LSI shall pay to Vendor a sales commission ("Sales Commission")
consistent in magnitude with Vendor's field compensation plan for
comparable efforts on Vendor's behalf. It is the intent of the parties
that the Sales Commission be directed to the sales person and sales
management whose efforts can be attributed to such Marketing and
Remarketing. Vendor shall include all of the economic attributes of
marketing or remarketing giving rise to a Sales Commission to a sales
person or sales manager in the determination of such sales person's and
sales manager's commission and quota goals. LSI reserves the right to
modify the amount of any such Sales Commission. LSI shall remit payment
for Sales Commissions within 15 days after the end of the calendar month in
which such Marketing and Remarketing is concluded.
(e) LSI Identified Remarketing Opportunity: Vendor and LSI agree that Vendor's
--------------------------------------
responsibilities under this Paragraph 3.3 are not intended to be exclusive
and that LSI may engage in Remarketing of LSI owned Products. In such
event, Vendor shall cooperate with LSI in Remarketing Returned Products for
which LSI has identified a Remarketing opportunity. LSI shall give Vendor
written notice of each such Remarketing opportunity, and Vendor shall have
five Business Days from receipt of such notice to either (i) purchase from
LSI the Returned Products at a price and terms agreeable to LSI, or (ii)
consent to LSI consummating such Remarketing opportunity. In the event LSI
does not timely consummate any such purchase of Products, it shall be
deemed to have consented to the Remarketing opportunity for such Products.
3.4 LICENSING OF SOFTWARE.
In connection with each Lease of Vendor Products, Vendor will license the
software included in such Vendor Products to LSI (with a right to sublicense to
the Customer under such Lease) pursuant to the terms and conditions of Vendor's
standard license agreement for such software, but without any obligation to pay
a fee or any similar payment for such license other than the fee that would be
payable by such Customer if it licensed such software directly from Vendor. If
LSI sells or re-leases such Vendor Products, the first entity that purchases or
re-leases such Vendor Products directly from LSI shall have the right to license
such software, as is, pursuant to the terms and conditions of Vendor's standard
license agreement for such software that existed at the time of the initial
installation of such Vendor Products under such Lease. Such sale or re-lease by
LSI shall not, by itself, cause any additional license or similar fees to be due
Vendor with respect to such software. Any entity that purchases or takes
assignment of rights and interests in Vendor Products from a party other than
Vendor or LSI shall not have the rights described in this Section 3.4.
Page 7
<PAGE>
4.0 POOLING AND REMARKETING FEES
4.1 POOLS.
All NCR Mid-Range Products purchased by LSI from Vendor for lease to Customers
during Period One, and the related Leases, shall be grouped into a pool
designated as "Pool One - Mid-Range." All NCR Mid-Range Products purchased by
LSI from Vendor for lease to Customers during each Subsequent Period, and the
related Leases, shall be grouped into a pool with an appropriate alpha numeric
designation for each Subsequent Period (a "Subsequent Pool"). With regard to NCR
Large System Products, all NCR Large System Products purchased by LSI from
Vendor for lease to Customers during Period One, and the related Leases, shall
be grouped into a pool designated as "Pool One - Large Systems." All NCR Large
Systems Products purchased by LSI from Vendor for lease to Customers during each
Subsequent Period, and the related Leases, shall be grouped into a pool with an
appropriate alpha numeric designation for each Subsequent Period (a "Subsequent
Pool").
4.2 REMARKETING FEE.
So long as this Agreement is in effect and Vendor is not in breach of any of its
obligations or representations or warranties in this Agreement, LSI shall pay
Vendor a remarketing fee equal to fifty percent (50%) of the total Residuals
received with respect to each Pool and each Subsequent Pool, determined on a
pool-by-pool basis. The remarketing fee with respect to Residuals received
during a calendar month shall be paid to Vendor on or before the thirtieth
(30th) day of the immediately succeeding month.
4.3 LOSSES FROM POOLS.
If a Pool has begun to generate Residuals and any other pool is projected, at
that time or at any subsequent time, to show a loss such that there will not be
any Residuals with respect to such pool, the remarketing fee payable to Vendor
from Residuals with respect to any pool that is generating Residuals shall
terminate and all such remarketing fees shall be applied to amortize the costs
and expenses of LSI and Vendor specified in Section 4.4 hereof with respect to
the Products in any pool projected to show a loss. For purposes of this
Agreement, a pool will be deemed to be projecting a loss when, on the
Determination Date (as hereinafter defined) or thereafter, all of the costs and
expenses with respect to such pool, as described in Section 4.4 hereof, will not
be completely amortized by the lease payments remaining under the non-cancelable
term of the Leases in such pool under which no event of default has occurred and
is continuing. The "Determination Date" shall be such number of months after
the close of the pool equal to the then dollar weighted average unexpired term
of all Leases in such pool as of the close of such pool (by reference to the Net
Purchase Price of all Products subject to such Leases).
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4.4 AMORTIZATION OF COSTS AND EXPENSES.
For the purpose of calculating Residuals for a pool, all lease payments received
on or after the commencement date of each Lease, and proceeds of sale received
with respect to Products in such pool, shall be used to amortize all of the
costs and expenses of LSI and Vendor described in this Section 4.4, in the
following order:
(a) Administrative Fees. Two percent (2%) of the lease payments received and
-------------------
sale proceeds received with respect to such Products (before amortization
of any such costs and expenses) as an administrative fee (an
"Administrative Fee"), which LSI shall be entitled to retain to partially
reimburse it for the expenses associated with its administrative activities
with respect to the Leases, including, without limitation, billing,
collecting, filing UCC financing statements, asset tracking, personal
property tax filings, sales tax reporting and production of lease analysis
reports reflecting the status of all lease activity;
(b) Sales Commissions. Any Sales Commissions paid by LSI to Vendor pursuant to
-----------------
Section 3.3 (d) hereof;
(c) Other Expenses. Other expenses shall include reasonable commercial out-of-
--------------
pocket expenses incurred by LSI associated with the leasing and remarketing
of Products ("Other Expenses"), including, without limitation, cost of
repossession, transportation, insurance, storage, refurbishing and warranty
certification, as well as sales commissions (other than as described in
Paragraph (b) above) paid to Vendor employees and LSI employees, including,
without limitation, the sales assistance fee described in Section 7.3
hereof. Other Expenses shall not include the salary of employees of LSI or
Vendor and shall not include other overhead items of either party;
(d) Investment Recovery Expense. The investment recovery expense ("Investment
---------------------------
Recovery Expense") determined by multiplying the applicable amount
indicated below ("Investment Recovery Rate") times the unamortized portion
of the Net Purchase Price of Products subject to Leases, commencing with
the date of payment of such purchase price, and assuming that the lease
payments and proceeds of sale are received on the last day of the month in
which such payments and proceeds are received. The Investment Recovery
Rate shall be:
(i) with respect to Period One, for pools consisting of NCR Mid-Range
Products, 9.75% per annum; and for pools consisting of NCR Large Systems,
11.75% per annum; and
(ii) with respect to any Subsequent Period, for pools consisting of NCR
Mid-Range Products, a rate equal to the per annum interest rate, as of
April 1 of such period, of 36 month U.S. Treasury Notes, with a constant
maturity, plus 400 basis points; and for pools consisting of NCR Large
System Products, a
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rate equal to the interest rate, as of April 1 of such
period, of 36 month U.S. Treasury Notes, with a constant maturity, plus 600
basis points; and
(e) Net Purchase Price Recovery. The Net Purchase Price for Products paid by
---------------------------
LSI.
5.0 SHARED OBLIGATIONS OF LSI AND VENDOR
5.1 PROGRAM EXPENSES.
During the term of this Agreement, LSI shall be solely responsible for, and
shall pay the costs associated with, the creation and publication of sales and
marketing materials for the Program. LSI and Vendor shall share equally all
other reasonable out-of-pocket costs with respect to the Program incurred by the
parties, including, without limitation, training of personnel, provided that
incurring, and the amount of, such costs are mutually agreed to in writing in
advance by LSI and Vendor. Such costs shall not include normal travel, living
and entertainment expenses of Vendor and LSI.
5.2 TRAINING.
LSI and Vendor will jointly develop and conduct lease financing training courses
for Vendor's sales personnel. Such training will focus on increasing the level
of knowledge of basic leasing fundamentals among Vendor's field sales force and
increasing utilization of the Program by all of such personnel and their
Customers. It is expected that such training will involve the use of printed
materials, videos, and seminars. LSI and Vendor will jointly develop a
newsletter with respect to leasing of Products and the Program for distribution
to Vendor's field sales organization.
6.0 OBLIGATIONS OF VENDOR
6.1 VENDOR PROGRAM MANAGER.
Vendor shall designate a Manager with respect to the Program (the "Vendor
Manager") who will act as the primary contact with, and liaison to, LSI in
connection with the Program. Vendor shall promptly notify LSI of any change or
imminent change in the individual designated as the Vendor Manager.
6.2 NEW PRODUCT PLANS.
Vendor shall use its best efforts to provide LSI with information regarding
Vendor's introduction of a new Product, and its intention to cease offering for
sale any Product, no later than ninety (90)
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days prior to such action. Such information shall be treated by LSI as
Confidential Information of Vendor pursuant to Sections 8.1 and 8.2 hereof.
6.3 PRICING.
Vendor shall use its best efforts to provide advance notification to LSI of
changes in Product pricing, including, without limitation, list prices, trade-in
allowances and rebates or other inducements. Notification of any such change
shall be made as promptly as practicable after Vendor has determined to make
such change and, in any event, in advance of announcement of such change to the
public. Such information shall be treated by LSI as Confidential Information
pursuant to Sections 8.1 and 8.2 hereof.
7.0 OBLIGATIONS OF LSI
7.1 PROGRAM MANAGER.
LSI shall designate a Manager for the Program (the "Program Manager"). The
Program Manager will act as the primary contact with, and liaison to, Vendor in
connection with the Program. LSI shall promptly notify Vendor of any change or
expected change in the individual designated as the Program Manager.
7.2 REPORTS.
LSI shall provide Vendor with reports, on a quarterly basis, with respect to
such information concerning the Program as Vendor may reasonably request and
which is readily available to LSI. Such reports shall include, without
limitation, information regarding total Vendor Product purchases by LSI by
location. In order to alert Vendor's sales personnel to additional sales
opportunities, LSI shall also quarterly provide to Vendor reports specifying all
Leases that are scheduled to expire within 180 days of each such report.
7.3 SALES INCENTIVE.
LSI shall pay Vendor a sales assistance fee equal to an amount mutually agreed
upon at the time it purchases Products. Such fees shall be used by Vendor in
any manner to provide incentive to Vendor's sales personnel as a result of
Customers entering into Leases under the Program, including, without limitation,
as bonuses, incentive programs, sales commissions and other awards.
7.4 AUDIT.
Upon at least five Business Days advance written notice, LSI shall permit Vendor
to conduct a reasonable audit of LSI's records, during normal business hours, in
order to confirm compliance by LSI with its obligations under this Agreement.
LSI shall not be responsible for any of Vendor's expenses in conducting such
audit.
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8.0 REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 REPRESENTATIONS AND WARRANTIES OF VENDOR.
Vendor hereby represents and warrants to LSI, as of the date of this Agreement,
as follows:
(a) Organization and Good Standing. Vendor is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the state of its
incorporation. Vendor is duly qualified and in good standing as a foreign
corporation in each state where failure to be so qualified may have a
material adverse effect on the business or condition (financial or
otherwise) of Vendor or the ability of Vendor to meet its obligations under
this Agreement.
(b) Authority. Vendor has all requisite legal and corporate power to execute
---------
and deliver this Agreement and to perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement has
been duly authorized by Vendor. Upon execution and delivery by each of the
parties hereto, this Agreement shall constitute the valid and binding
obligations of Vendor, enforceable against Vendor according to its terms.
(c) Consent. No consent, approval or authorization of any person or entity,
-------
including, without limitation, any governmental authority having
jurisdiction over the business or operations of Vendor, is required in
connection with the execution, delivery and performance by Vendor of this
Agreement.
(d) Conflicts. The execution, delivery, and performance of, and compliance
---------
with, this Agreement by Vendor will not result in any violation of, or be
in conflict with or constitute a default under, Vendor's Certificate of
Incorporation or Bylaws, any applicable law, including, without limitation,
any statute, rule, or regulation, or any contract, agreement, mortgage,
indenture, instrument, judgment, decree or order presently in effect and
applicable to Vendor, the violation of which, a conflict with which or a
default under which may have a material adverse effect on the business or
condition (financial or otherwise) of Vendor or on the ability of Vendor to
meet its obligations under this Agreement (collectively, the "Vendor
Agreements and Orders").
(e) Litigation. No action, suit, proceeding or investigation, the outcome of
----------
which could have a material adverse effect on the business or condition
(financial or otherwise) of Vendor, or on the ability of Vendor to meet its
obligations under this Agreement, is pending against Vendor.
(f) No Default. Vendor is not in default with respect to any of the Vendor
----------
Agreements and Orders, nor has Vendor received any notice of default under
any of the Vendor Agreements and Orders, which default may have a material
adverse effect on the
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business or condition (financial or otherwise) of Vendor or on the ability
of Vendor to meet its obligations under this Agreement.
(g) Products. With respect to Products sold by Vendor to LSI pursuant to this
--------
Agreement, (i) Vendor will have the absolute right to sell and transfer all
of the hardware Products it sells to LSI, and to license all of the
software Products it licenses to LSI, as of the respective effective dates
of such sales and licenses; (ii) upon each sale of Products to LSI by
Vendor, Vendor will pass to LSI good and marketable title to such Products,
and upon each license of Products constituting software, Vendor will pass
to LSI valid and enforceable licenses to such Products, free and clear of
all liens, claims and encumbrances; (iii) Vendor will have no agreements,
whether written or oral, with any Customer with respect to any Products it
sells or licenses to LSI that have not been disclosed in writing to LSI
prior to the consummation of such sale or license, and (iv) all Products,
other than insignificant portions thereof, shall be new and not
refurbished.
8.2 REPRESENTATIONS AND WARRANTIES OF LSI.
LSI hereby represents and warrants and covenants to Vendor, as of the date of
this Agreement, as follows:
(a) Organization and Good Standing. LSI is a corporation duly organized,
------------------------------
validly existing and in good standing under the laws of the State of
California. LSI is duly qualified and in good standing as a foreign
corporation in each state where failure to be so qualified may have a
material adverse effect on the business or condition (financial or
otherwise) of LSI or the ability of LSI to meet its obligations under this
Agreement.
(b) Authority. LSI has all requisite legal and corporate power to execute and
---------
deliver this Agreement, and to perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement by
LSI has been duly authorized by LSI. Upon execution and delivery by each
of the parties hereto, this Agreement shall constitute the valid and
binding obligations of LSI, enforceable against LSI according to its terms.
(c) Consent. No consent, approval or authorization of any person or entity,
-------
including, without limitation, any governmental authority having
jurisdiction over the business or operations of LSI, is required in
connection with the execution, delivery and performance by LSI of this
Agreement.
(d) Litigation. No action, suit, proceeding or investigation, the outcome of
----------
which could have a material adverse effect on the business or condition
(financial or otherwise) of LSI, or the ability of LSI to meet its
obligations under this Agreement, is pending against LSI.
(e) Conflicts. The execution, delivery, and performance of, and compliance
---------
with, this Agreement by LSI will not result in any violation of, or be in
conflict with or constitute a default under, LSI's Articles of
Incorporation or Bylaws, any applicable law, including,
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without limitation, any statute, rule or regulation, or any contract,
agreement, mortgage, indenture, instrument, judgment, decree or order
presently in effect and applicable to LSI (collectively, the "LSI
Agreements and Orders"), the violation of which, a conflict with which or a
default under which may have a material adverse effect on the business or
condition (financial or otherwise) of LSI or on the ability of LSI to meet
its obligations under this Agreement (collectively, the "LSI Agreements and
Orders").
(f) No Default. LSI is not in default with respect to any of the LSI
----------
Agreements and Orders, nor has LSI received any notice of default under any
of the LSI Agreements and Orders, which default may have a material adverse
effect on the business or condition (financial or otherwise) of LSI or the
ability of LSI to perform its obligations under this Agreement.
8.3 PRODUCT WARRANTY.
Each of the Vendor Products sold to LSI pursuant to this Agreement shall have
the same warranty as is normally granted by Vendor to other purchasers of such
Vendor Products, and LSI shall not make any representations or warranties
regarding any Vendor Product, whether in a Lease or otherwise, which is more
extensive than, or outside the scope of, Vendor's standard warranty for such
Vendor Product. Vendor shall, to the extent reasonably possible, assign to LSI
any warranty on any Product purchased hereunder which is not a Vendor Product.
8.4 REPURCHASE OF CERTAIN PRODUCTS BY VENDOR.
In the event that a Lessee under any Lease to which Products are subject, prior
to expiration of any committed term under the Lease, ceases to make lease
payments as a result of a "Vendor Default" (as defined below), then Vendor
shall, at LSI's election, repurchase from LSI the Products subject to such Lease
at the Repurchase Price thereof plus any other out-of-pocket expenses incurred
by LSI directly as a result of such Vendor Default. A "Vendor Default," with
respect to a Vendor Product, shall mean that such Vendor Product failed to
perform in accordance with Vendor's specifications with respect to such Vendor
Product, Vendor's standard warranty with respect to such Vendor Product or any
other written representations or written warranties given by Vendor to LSI or
the Lessee of such Vendor Product.
8.5 INTELLECTUAL PROPERTY CLAIMS.
Each party will notify the other party promptly after it becomes aware of any
third party Claim of infringement of a United States patent, copyright or trade
secret involving any Vendor Product leased by LSI to a Customer (collectively, a
"Claim"). Vendor shall defend or settle, at its own expense, any Claim or suit
involving a Claim brought against LSI or any Assignee permitted pursuant to
Section 11.2 hereof (the "Assignee"). Vendor shall pay all amounts payable in
any such settlement and all costs and damages awarded in any such suit if: (a)
Vendor is not otherwise aware of such Claim or suit and LSI gives Vendor
sufficient notice of such Claim or suit that its ability to defend such Claim or
suit is not materially adversely affected; (b) LSI provides to Vendor all
information concerning such Claim or suit as it reasonably requests; and
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(c) LSI provides Vendor with such cooperation and assistance with respect to its
involvement in such Claim or suit, at Vendor's expense, as Vendor may reasonably
request. Vendor shall have sole authority to settle or defend any Claim or suit
involving a Claim; provided, however, any such settlement shall include a
complete release of LSI and, as applicable, the Assignee. In the defense or
settlement of any Claim or suit involving a Claim, Vendor may, at its expense,
(y) procure for LSI and, as applicable, the Assignee, and each Customer leasing
the subject Vendor Product from LSI, and their respective assigns and
transferees, the right to continue using and leasing such Vendor Product, or (z)
modify such Vendor Product so that it becomes non-infringing but continues to
have the same performance and compatibility characteristics and capabilities as
it possessed prior to such modification. If Vendor is unable, after reasonable
efforts, to obtain either of such remedies with respect to a Vendor Product, it
will have the right to refund the purchase price paid by LSI to Vendor for such
Vendor Product and the one-time license fees for software included in such
Vendor Product, as well as the purchase price and licensee fees paid by LSI with
respect to other Vendor Products and related software acquired for use with such
Vendor Product and related software. The amount of such refund will be pro-
rated, based on the number of full months between the date of purchase of such
products and software and the date of such refund and an assumed five (5) year
sum-of-the-digits amortization of the refund amount. Vendor's indemnification
obligations under this Section 8.5 shall not be applicable with respect to any
Vendor Products modified by other than Vendor. This Section 8.5 states Vendor's
entire liability for infringement of patents, copyrights and trade secrets with
respect to any Vendor Products acquired by LSI in connection with this
Agreement.
9.0 INDEMNIFICATION
9.1 INDEMNIFICATION BY VENDOR.
Subject to Section 12.11 hereof, Vendor hereby agrees to indemnify LSI against,
and defend and hold LSI harmless from, all damages, liabilities, losses and out-
of-pocket expenses and costs suffered or incurred by LSI, and any claims or
actions with respect thereto (other than those based upon any act or failure to
act by LSI or its employees or agents), (a) arising out of the wrongful or
negligent act or omission of Vendor in the performance of its duties and
obligations under this Agreement, (b) arising out of any breach by Vendor of any
of its representations and warranties or covenants in this Agreement, or (c)
arising out of the authorized operation, use, maintenance, or malfunction of any
Vendor Product subject to a Lease covered by this Agreement.
9.2 INDEMNIFICATION BY LSI.
LSI hereby agrees to indemnify Vendor against, and defend and hold Vendor
harmless from, all damages, liabilities, losses and out-of-pocket expenses and
costs suffered or incurred by it, and any claims or actions with respect thereto
(other than those based upon any act or failure to act by Vendor or its
employees or agents), (a) arising out of of LSI in the performance of its
duties and obligations under this Agreement, (b) arising out of
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the wrongful or negligent act or omissionany breach by LSI of any of its
representations and warranties or covenants in this Agreement, or (c) with
respect to any breach by LSI of its obligations under any Lease subject to this
Agreement.
9.3 INDEMNIFICATION PROCEDURES.
Any entity seeking indemnity pursuant to this Article 9 (the "Indemnified
Party") shall notify the indemnifying party (the "Indemnifying Party") of any
matter in respect of which it intends to seek indemnity promptly after becoming
aware of such matter. The indemnification contained herein with respect to such
matter and such Indemnified Party is expressly conditioned upon receipt by the
Indemnifying Party of such notice from such Indemnified Party; provided,
however, any such failure of the Indemnified Party to give such prompt notice of
such matter shall not relieve the Indemnifying Party of any of its obligations
hereunder with respect to such matter unless and to the extent that such failure
materially adversely affects its ability to defend any claim or action
constituting such matter. If so notified in writing of any action or claim
brought or threatened against an Indemnified Party for which an Indemnifying
Party is to provide indemnification hereunder, such Indemnifying Party shall
defend such action or claim at its expense, with counsel of its own choice, but
which shall be subject to approval by the Indemnified Party (which approval
shall not be unreasonably withheld or delayed), and pay the costs, damages and
attorneys' fees awarded in any such action or arising from any such claim and
any related liabilities, losses and expenses suffered or incurred by the
Indemnified Party; provided, however, that the Indemnifying Party shall have the
absolute right to control the defense and settlement of each such action and
claim. Notwithstanding the foregoing, the Indemnified Party shall have the
right to participate in the defense of any such claim or action with counsel of
its choice and at its expense and to approve any such settlement unless such
settlement includes a complete release of the Indemnified Party by the claimant
or plaintiff. Each Indemnified Party will take such actions (at the expense of
the Indemnifying Party) as may be reasonably requested by the Indemnifying Party
to assist the Indemnifying Party in connection with any such defense or
settlement.
10.0 DEFAULT AND REMEDIES
10.1 DEFAULTS.
Any of the following shall constitute a default hereunder (a "Default") by a
party:
(a) Such party shall fail to make any payment of any amount due and
undisputed pursuant to this Agreement, when due and payable, and such
failure shall continue for a period of ten (10) Business Days after the
non-defaulting party shall have made written demand therefor to the
defaulting party; or
(b) Such party shall fail or neglect to perform, keep, or observe any of
its covenants contained in this Agreement (other than with respect to any
of the covenants referred to in
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subsection 11.1(a) above), and such failure shall continue for a period of
thirty (30) days after the non-defaulting party shall have given written
notice thereof to the defaulting party; or
(c) Any representation or warranty made by such party in this Agreement
shall not be true and correct in any material respect as of the date made;
or
(d) Such party (i) makes an assignment for the benefit of its creditors,
(ii) admits in writing its inability to pay its debts as they mature,
(iii) institutes proceedings under the bankruptcy laws of the United
States, or (iv) has instituted against it, by a third party, proceedings
under the bankruptcy laws of the United States and such proceedings are
not dismissed within ninety (90) days after being commenced.
10.2 REMEDIES.
If a party is in Default hereunder, the other party may (a) proceed by
appropriate proceedings to enforce performance of the Agreement or to obtain an
injunction against its breach under Section 12.11 below, (b) recover damages for
such Default subject to and under Sections 12.10 and 12.11 below, and/or (c)
terminate this Agreement pursuant to Section 12.1 hereof.
11.0 ASSIGNMENT
11.1 NO ASSIGNMENT OF RIGHTS OR OBLIGATIONS.
Except as otherwise provided herein, the rights and obligations of either party
may not be assigned without the prior written consent of the other party.
11.2 Assignment of Lease Transactions.
(a) LSI may assign to others, other than a direct competitor of Vendor,
(an "Assignee") any or all of its rights in any Lease and the related
Products, and Assignee will, in entering into such transaction with LSI,
be acting in reliance upon and be entitled to the benefits of this Section
12.2. Accordingly, Vendor agrees with LSI and with each Assignee (for
whose benefit this covenant is expressly made) that:
(i) In the event of any such assignment of a Lease and the related
Product, Vendor shall, after receiving written notice of the
assignment by LSI to Assignee and LSI's authorization with respect
thereto, promptly pay to Assignee when due any payments that
thereafter became due to LSI hereunder with respect to such Lease or
Product, notwithstanding any defense, set-off or counterclaim
whatsoever (whether arising from a breach of this Agreement or
otherwise) that Vendor may from time to time have against LSI;
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(ii) After receipt of notice of such assignment of a Lease and the
related Product, Vendor shall not permit this Agreement, as it relates
to such Lease and related Product, to be terminated or canceled,
except in accordance with the terms hereof, or any of the provisions
hereof, as they relate to such Lease and related Product, to be
materially amended, without the prior written consent of Assignee; and
(iii) Vendor shall not require Assignee to perform any obligation or
covenant of LSI hereunder (and LSI shall not be released from any such
obligations or covenants), except that, if Assignee is making
collections directly from the Lessee under such Lease, Assignee shall
transmit to Vendor, pursuant to the terms and conditions of this
Agreement, all fees and other monies due to Vendor hereunder with
respect to such Lease.
(b) Notwithstanding the foregoing, it is parties' intention that, despite
any assignment of rights with respect to a Lease and the related Products,
for purposes of financing or refinancing the acquisition of such Products:
(i) LSI would continue to bill and collect the periodic rental
payments under such Lease and otherwise administer the Lease; and
(ii) LSI would continue to have the right to finance Upgrades to such
Products.
12.0 MISCELLANEOUS
12.1 TERM; TERMINATION.
(a) This Agreement shall remain in full force and effect for the Initial
Term. Thereafter, the term of this Agreement shall continue until ninety
(90) days after either party gives the other party written notice of its
intention to terminate this Agreement.
(b) Notwithstanding subsection (a) above, this Agreement may be terminated
at any time by mutual written agreement of both parties, or by one party
if a Default by the other party has occurred and has continued unremedied
for a period of thirty (30) days after the defaulting party has received
written notice of such Default.
12.2 ENTIRE AGREEMENT; WAIVER; MODIFICATION.
This Agreement constitutes the entire agreement between the parties with respect
to its subject matter, and supersedes all prior and contemporaneous agreements,
understandings and negotiations, whether written or oral, between the parties
with respect to such subject matter. The failure of either party to enforce any
threatened or existing breach of this Agreement shall not be deemed a waiver of
such breach at that time or any other time or of any other breach. Any
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waiver, modification or amendment of any of the provisions of this Agreement
shall only be effective if in a writing, specifying such waiver, modification or
amendment, signed by the party against which such waiver, modification or
amendment is being enforced.
12.3 NOTICES.
Notices or other communication with respect to the matters set forth in this
Agreement shall be in writing and hand delivered, sent by mail, postage prepaid,
to the respective party at the following address for such party:
To Vendor: To LSI:
NCR Corporation Leasing Solutions, Inc.
1334 South Patterson Boulevard 10 Almaden Boulevard
Dayton, OH 45479 Suite 1500
Attn: Vice President, Enterprise San Jose, CA 95113
Computing Division - Sales Attn: President
FAX: (513) 445-9679 FAX: (408) 995-0696
With a copy to:
Senior Vice President and General Counsel
NCR Corporation
1700 South Patterson Boulevard
Dayton, OH 45479
FAX: (503) 445-7214
or to such other address for a party as such party may designate in writing to
the other party from time to time. Notices which are (a) hand delivered shall be
deemed effective on receipt, and (b) so mailed shall be deemed effective five
(5) Business Days after being so mailed.
12.4 EXHIBITS.
Each exhibit hereto is hereby incorporated herein, and made a part hereof, by
this reference.
12.5 SURVIVAL.
Articles and Sections 2.5, 2.6, 3.3, 3.4, 4, 6.2, 6.3,7.2, 7.4, 8, 9, 10.2, 11
and 12 (other than Section 12.1) hereof shall survive the termination of this
Agreement.
12.6 GOVERNING LAW.
This Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
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12.7 SEVERABILITY.
This Agreement is intended to be valid and effective under applicable law, and,
to the extent permissible under applicable law, shall be construed in such a
manner as to avoid violation of such law or invalidity thereunder. If any
provision of this Agreement is held to be invalid, illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected and
shall remain in full force and effect.
12.8 COUNTERPARTS.
This Agreement may be executed in counterparts, both of which shall be deemed
originals, and each of which, taken together, shall constitute one and the same
instrument.
12.9 HEADINGS.
The headings of the articles and sections of this Agreement are for convenience
of reference and shall not affect the contents or interpretation of this
Agreement.
12.10 LIMITATION OF LIABILITY; EXCLUSIVE REMEDIES.
(a) IN NO EVENT WILL EITHER PARTY HEREUNDER BE LIABLE FOR ANY INDIRECT,
INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR FOR LOSS OF PROFITS,
BUSINESS, INVESTMENTS, GOODWILL, COMMITMENTS, REVENUE OR DATA, WHETHER IN AN
ACTION ALLEGING BREACH OF CONTRACT, TORT, PRODUCT LIABILITY, VIOLATION OF
STATUTE OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF THOSE DAMAGES.
(b) Vendor's liability with respect to any Vendor Products will not exceed the
amount paid by LSI to Vendor for such Vendor Products even if any term of this
Agreement fails of its essential purpose.
12.11 DISPUTE RESOLUTION.
(a) "Dispute" means any controversy or claim between LSI and Vendor related to
this Agreement, whether based on contract, statute, tort, fraud, fraudulent
inducement, misrepresentation, or other legal or equitable theory, whenever
brought, and whether or not any employee or agent of LSI or Vendor, or any
Lessee of Vendor Products, leased by LSI, is involved in such dispute.
(b) Mediation -- Vendor and LSI agree to use good faith efforts to resolve any
Dispute promptly and fairly. If Vendor and LSI are unable to resolve a Dispute
by negotiation, both parties agree to submit it to non-binding mediation
conducted by a mutually selected mediator or, at the option of either party, by
the American Arbitration Association ("AAA").
(c) Arbitration -- If a Dispute submitted to mediation is not successfully
resolved, it shall be subject to binding arbitration under the then-current
rules and supervision of the AAA . The Federal Arbitration Act, 9 U.S.C.
Sections 1 to 16, not New York law, will govern the arbitrability of all claims.
A single arbitrator, either mutually agreeable to the parties or selected by the
AAA if the parties cannot mutually agree on such arbitrator, who is
knowledgeable in the leasing of business information and electronic data
processing systems will conduct the
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<PAGE>
arbitration. The arbitrator's decision and award will be final and binding, and
either party may enter it in any court of competent jurisdiction. The arbitrator
will not have authority to award punitive or other non-compensatory damages to
either party. The arbitration will be held in San Jose, California if the
claimant is Vendor and in Dayton, Ohio, if the claimant is LSI. Each party will
bear its own attorneys' fees and related costs associated with the arbitration.
Vendor and LSI will pay all other costs and expenses of the arbitration as the
rules of the AAA provide.
(d) Court Proceedings -- Except as permitted in this Section 12.11, neither
party may bring a case in court with respect to a Dispute. If Vendor or LSI
disregards this restriction, files a court case and fails to dismiss it promptly
upon being notified of this provision, that party will pay the other party's
costs and expenses, including attorneys' fees, incurred after its receipt of
such notice in defending the court case. Each party retains the right to obtain
injunctive relief in court to prevent the other party's breach or continuing
breach of any of its obligations under this Agreement.
(e) Two Year Limitation -- Neither LSI nor Vendor may bring a claim or action
arising out of or related to this Agreement, including any claim of fraud or
misrepresentation, more than two years after the cause of action accrues.
(f) Substitute Products -- LSI's acceptance of refunds of the Net Purchase
Price or substitute Vendor Products under this Agreement waives all claims
relating to the non-performing Vendor Products involved.
IN WITNESS WHEREOF, the parties hereto have executed this Marketing Agreement by
their duly authorized officers as of the date first above written.
LEASING SOLUTIONS, INC. NCR CORPORATION
By:__________________________ By:__________________________
Title:_______________________ Title:_______________________
By:__________________________
Title:_______________________
By:__________________________
Title:_______________________
Page 21
<PAGE>
EXHIBIT A
FORM OF LEASE
Page 22
<PAGE>
EXHIBIT B
VENDOR PRODUCTS
Page 23
<PAGE>
HARDWARE
- --------
MID-RANGE SYSTEMS:
S-40
3400
3500
4100
4500
LARGE SYSTEMS:
DBC1012 Model 4
3600
5100S
5100C
5100M
SOFTWARE (subject to remarketing)
- ---------------------------------
Product-Id Description
- ---------- -----------
3600 SOFTWARE
F684-1011-0000 SW;AP CHANNEL CONNECT (PER-AP)
F684-4111-0000 SW;TERADATA DBMS V1R5 AMP
F684-4211-0000 SW;TERADATA V1R5 PE SOFTWARE (QTY 2)
F684-4311-0000 SW;V1R5 AMP/3600 UPGRADE(QTY 2)
F684-4411-0000 SW;V1R5 PE/3600 UPGRADE(QTY 2)
F684-4611-0000 SW; TERADATA FastExport For AP (Per Sys)
F684-6001-0000 SW; Teradata Client for 3600 (AP License)
F684-6001-4000 SW; Teradata Client for 3600 (System License)
HOST SOFTWARE
H075-5121-0000 SW; TERADATA MANAGER 2.0 SOFTWARE
H075-5126-0000 SW; TERADATA MANAGER 2.0 SOFTWARE UPGRADE
H075-5127-0000 SW;TERADATA MGR FOR DBS(UNIX)-INITIAL
H075-5128-0000 SW;TERADATA MGR FOR DBS(UNIX) 2-6 ADD USERS
H075-5129-1000 SW;TERADATA MGR FOR DBS(UNIX)-SITE LIC
H075-8000-0000 SW; TERADATA CLIENT FOR IBM MVS
H075-8010-0000 SW: TERADATA UTILITIES FOR IBM MVS
H075-8020-0000 SW; TERADATA ITEQ FOR IBM MVS
H075-8040-0000 SW; TERADATA BTEQ FOR IBM MVS
H075-8050-0000 SW; TERADATA CICS INTERFACE FOR IBM MVS
H075-8060-0000 SW; TERADATA CLIENT FOR IBM MVS
H075-8141-0000 SW;TRANSP. SERIES/API MVS REL 2.0
H075-8146-0000 SW;TRANSP. SERIES/API VM REL 2.0
H075-8150-0000 SW; TERADATA MULTILOAD FOR IBM MVS
H075-8161-0000 SW; TERADATA V1R5 FASTEXPORT FOR IBM MVS
H075-8162-0000 SW; TERADATA V1R5 FASTEXPORT FOR IBM VM
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<PAGE>
H075-8400-0000 SW; TERADATA COBOL PREPROCESSOR2/MVS
H075-8401-0000 SW; TERADATA COBOL PREPROCESSOR2/VM
H075-8420-0000 SW; TERADATA PL1 PREPROCESSOR2/MVS
H075-8421-0000 SW; TERADATA PL1 PREPROCESSOR2/VM
ODBC SOFTWARE
F384-1009-0000 SW;ODBC DRIVER FOR TDATA DBS UPG REL. 2.0 (SINGLE PC LIC.)
F384-1009-1000 SW;ODBC DRIVER FOR TDATA DBS UPG REL. 2.0 (SITE LIC.)
F384-1010-0000 SW;ODBC DRIVER FOR TDATA DBS REL. 2.X (SINGLE PC LIC.)
F384-1010-1000 SW;ODBC DRIVER FOR TDATA DBS REL. 2.X (SITE LIC.)
5100 SOFTWARE
F784-1031-0000 SW;TDAT ASF2 (Node)
F784-1031-4000 SW;TDAT ASF2 (System)
F784-1041-0000 SW;TDAT FastExport 5100 Node
F784-1041-4000 SW;TDAT FastExport 5100 System
F784-1051-0000 SW;TDAT 5100 Channel Connect (Cnct)
F784-1051-4000 SW;TDAT 5100 Channel Connect (System)
F784-1061-0000 SW;TDAT MultiLoad 5100 Node
F784-1061-4000 SW;TDAT MultiLoad 5100 System
F784-1071-0000 SW;TDAT C Preprc2 5100 Node
F784-1071-4000 SW;TDAT C Preprc2 5100 System
F784-1081-0000 SW;TDAT Cobol Preprc2 5100 Node
F784-1081-4000 SW;TDAT Cobol Preprc2 5100 System
F784-1091-0000 SW;TDAT Client (Node)
F784-1091-4000 SW;TDAT Client (System)
TERADATA V2 5100 SOFTWARE
F784-1011-0000 TDATA V2R1.1 FOR 5100S - BASE SYSTEM (4 PROC)
F784-1021-0000 TDATA V2R1.1 FOR 5100S - ADD ON (2 PROC)
F784-1111-0000 TDATA V2R1.1 FOR 5100M - BASE SYST (1NODE+4PROC)
F784-1121-0000 TDATA V2R1.1 FOR 5100M - ADD ON (2 PROC)
F784-1131-0000 TDATA V2R1.1 FOR 5100M - ADD NODE (1NODE+4PROC)
Page 25
<PAGE>
EXHIBIT C
LEASE PRICING
Page 26
<PAGE>
EXHIBIT C
PRODUCTS: S-40, 3400, 3500, 4100, 4500
LEASE RATE FACTORS
(Expressed as a % of LSI's Cost)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LSI CREDIT LEASE TERM (MONTHS)
RATING 24 36 48 60
A 3.997% 2.978% 2.368% 1.991%
B+ 4.015% 2.999% 2.390% 2.014%
B 4.034% 3.019% 2.412% 2.037%
C 4.072% 3.062% 2.456% 2.084%
NOTE: Assumes transaction size > $250,000
</TABLE>
PRODUCTS: DBC1012, 3600, 5100S/C/M
LEASE RATE FACTORS
(Expressed as a % of LSI's Cost)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
LSI CREDIT LEASE TERM (MONTHS)
RATING 24 36 48 60
A CALL CALL CALL CALL
B+ CALL CALL CALL CALL
B CALL CALL CALL CALL
C CALL CALL CALL CALL
NOTE: Each Transaction quoted separately
</TABLE>
Page 27
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The subsidiaries of the Registrant are Leasing Solutions Receivable, Inc.
("LSRI"), Leasing Solutions Receivables, Inc. II ("LSRI-II"), and Leasing
Solutions International, Ltd. ("LSIL"). LSRI and LSRI-II are incorporated in
California and do business under their corporate names. LSIL is incorporated in
the United Kingdom and does business under its corporate name.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statement Nos. 33-
72000 and 33-93014 of Leasing Solutions, Inc. and subsidiaries on Form S-8, of
our reports dated January 22, 1997 included in this Annual Report on Form 10-K
of Leasing Solutions, Inc. and subsidiary for the year ended December 31, 1996.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Leasing Solutions, Inc.,
listed in Item 14(a)2. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
San Jose, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 6,888 8,423
<SECURITIES> 0 0
<RECEIVABLES> 11,534 4,068
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 2,338 1,527
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 407,291 224,102
<CURRENT-LIABILITIES> 13,749 25,638
<BONDS> 0 0
0 0
0 0
<COMMON> 37,658 14,661
<OTHER-SE> 25,898 16,251
<TOTAL-LIABILITY-AND-EQUITY> 407,291 224,102
<SALES> 144,596 80,676
<TOTAL-REVENUES> 144,596 80,676
<CGS> 0 0
<TOTAL-COSTS> 92,256 51,164
<OTHER-EXPENSES> 13,400 9,225
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,018 10,428
<INCOME-PRETAX> 15,922 9,859
<INCOME-TAX> 6,549 3,931
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,373 5,928
<EPS-PRIMARY> 1.16 .93
<EPS-DILUTED> 0 0
</TABLE>
