SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended May 31, 1994
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission file number 0-15525
CAPITAL ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1055327
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7175 West Jefferson Avenue, 80235
Lakewood, Colorado (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (303) 980-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.008 par value
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 approximate market value of stock held by non-affiliates was $2,570,000
based upon 3,287,800 shares held by such persons and the close price on July
7, 1994 was $.78125. The number of shares outstanding of the Registrant's
$.008 par value common stock at July 7, 1994 was 10,028,647.
Documents incorporated by reference
Certain portions of Registrant's definitive proxy statement to be filed
within 120 days after the end of the Registrant's fiscal year pursuant to
Regulation 14A are incorporated by reference in Part III, Items 10, 11, 12
and 13 of this report.
Page One of 29 Pages Exhibit Index Begins on Page 23
PART I
Item 1. Business
Capital Associates, Inc. ("CAI"), was incorporated as a holding company in
October 1986. Its principal operating subsidiary, Capital Associates
International, Inc. ("CAII"), was incorporated in December 1976. Capital
Associates, Inc., is principally engaged in (1) buying, selling, leasing and
remarketing new and used equipment, (2) managing equipment on and off-lease,
(3) sponsoring, co-sponsoring, managing and co-managing publicly-registered
income funds and (4) arranging equipment-related financing.
DEVELOPMENT OF BUSINESS
The Company reported net income of $710,000 for fiscal year 1994, net income
of $1.4 million for fiscal year 1993 and net losses of ($6.2) million for
fiscal year 1992, ($13.6) million for fiscal year 1991 and ($16.1) million
for fiscal year 1990. See the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1992 (the "1992 Form 10-K") for a discussion of the
factors which contributed to the losses in fiscal years 1992, 1991 and 1990.
Through the first quarter of fiscal year 1991, the Company financed the
acquisition of long-term assets principally with funds drawn on its recourse
debt facility (the "Debt Facility"). At that time, the Debt Facility was a
short-term facility, and the Company had to renew it annually. The Debt
Facility reached a maximum principal balance of approximately $100 million
during August 1990.
During the second quarter of fiscal year 1991, the Company agreed with its
Lenders to begin repaying the Debt Facility. In March 1991, the Company and
its Lenders agreed to divide the Debt Facility into two components--a
revolving credit facility (the "Revolving Credit Facility") and a term loan
facility (the "Term Loan") and extended the term of the Debt Facility through
November 30, 1991. In December 1991, the Company and its Lenders extended
the Debt Facility for twelve months through November 30, 1992. In December
1992, the Company and its Lenders extended the Debt Facility for
thirty-months through May 31, 1995.
During the last four months of fiscal year 1991 and fiscal years 1992, 1993,
and 1994 the Company used substantially all of its cash flow after payment of
operating expenses to pay down the Debt Facility. As of May 31, 1994, the
outstanding principal balance under the Debt Facility was less than $19
million. However, as discussed in more detail in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below, these
circumstances have resulted in a decline in the Company's leasing portfolio
and related revenue (referred to in this discussion as "portfolio run-off").
On September 3, 1991, the Board of Directors appointed a new Chief Executive
Officer ("CEO"). The new CEO restructured management responsibilities and
hired e xperienced marketing and remarketing personnel. Because of the Debt
Facility repayment schedule and the related portfolio run-off resulting
therefrom the Company restructured operations (as described more fully in the
1992 Form 10-K) and implemented a business plan intended to return the
Company to profitability.
During fiscal years 1993 and 1994, the Company implemented its business plan
and reported eight consecutive profitable quarters. The primary strategy
underlying the business plan was to reduce back office costs (by
approximately 51%) and add revenue producing sales personnel. In this
connection, the Company:
* Opened ten new field sales offices since September 1, 1991.
* Raised $34 million through the offering of units of Class A limited
partner interest ("Class A Units") in the Company's fifth sponsored public
income fund ("PIF"), Capital Preferred Yield Fund II, L.P. ("CPYF II").
* Began offering Class A units in the Company's sixth sponsored PIF, Capital
Preferred Yield Fund III ("CPYF III").
* Reemphasized private equity syndications selling $43 million and $14
million of equipment to private investors during fiscal year 1994 and
1993, respectively, compared to $7 million during fiscal year 1992.
* Added remarketing personnel and increased remarketing sales margins to
$5.0, $8.3 million and $4.9 million in fiscal years 1994, 1993 and 1992,
respectively, compared to $4.7 million in fiscal year 1991.
* Maintained strict cost controls and enhanced productivity, including
significant reductions of the Company's workforce. General and
administrative expenses declined from $17 million in fiscal year 1992 to
$12.3 million in fiscal year 1994. The number of employees declined from
162 on May 31, 1992 to 114 on May 31, 1994.
* Favorably resolved several legal proceedings in which the Company was a
defendant.
* Renewed the Company's Debt Facility for thirty months through May 31,
1995, on terms favorable to the Company.
* Reduced the concentration of its investment in aircraft. The net
investment in aircraft declined from $12.4 million at May 31, 1993 to
$10.5 million at May 31, 1994. The Company has a commitment to sell
another aircraft which is expected to close in September 1994. After that
sale, the net equity in aircraft will be less than $8 million.
* Improved its recourse debt/stockholders equity ratio to .9 to 1 at May 31,
1994 compared to 3.3 to 1 at May 31, 1991.
The amount of future profits, if any, will be largely dependent on the amount
of new capital available to the Company. The Company has been pursuing
financing possibilities to obtain new capital. Such capital may be in a
variety of forms including new recourse debt, additional equity (which could
include a sale of the Company, possibly coupled with an infusion of new funds
into the Company from the purchaser), securitized financing vehicles, equity
from private purchases of equipment originated by the Company and/or
strategic alliances/combinations with other leasing companies. The Company
has not yet been successful in its efforts to raise new capital. However, as
a result of the Company's efforts to identify new investors, on June 2, 1994,
Richard Kazan (who at the time was the Company's largest single shareholder
owning approximately 23% of the Company's outstanding shares) sold of all his
shares to MCC Financial Corporation ("MCC"), a regional/commuter aircraft
leasing company headquartered in McLean, Virginia, and resigned as a director
of the Company. James Walker, the President of MCC, was appointed to fill
the vacancy on the Board of Directors created by Kazan's resignation.
The Company is continuing to actively pursue financing possibilities to
obtain new capital. Without obtaining new capital, profitability is
dependent principally upon (1) equipment sales margins from new lease
originations, (2) development of new sources of revenue related to the
Company's core business and (3) reductions in operating costs. The Company's
current business plan is designed to maintain profitable operations, focusing
on these activities listed above. No assurance can be given, however, that
the Company will be successful in operating profitably or in obtaining access
to new capital during fiscal year 1995.
DESCRIPTION OF BUSINESS
Leasing Activities
The Company originates two basic types of leases, direct financing leases
("DFLs") and operating leases ("OLs"). Under generally accepted accounting
principles ("GAAP"), the primary distinguishing factor between these two
types of leases is the present value of the rents in relation to the cost of
the leased equipment. In the case of a DFL, the Company is contractually
entitled to recover at least 90% of its original investment in the equipment
from the present value of the initial lease rentals. In the case of an OL,
the Company is contractually entitled to recover less than 90% of its
original investment in the equipment from the present value of the initial
lease rentals. As of May 31, 1994, the Company's net investment in DFLs was
approximately $18 million and its net investment in OLs was approximately $16
million. See Note 1 to Notes to Consolidated Financial Statements for a
detailed discussion of the Company's lease accounting policies.
The Company's lease origination marketing strategy is transaction driven.
Leases are originated for the Company's account, its sponsored and
co-sponsored PIFs and private third party purchasers of equipment arranged by
the Company. With each lease origination opportunity, the Company evaluates
both the prospective lessee and the equipment to be leased. With respect to
each potential lessee, the Company evaluates the lessee's credit worthiness,
as well as the probability that the lessee will renew the lease, upgrade or
add to the equipment on lease, or return the equipment at the end of the
lease. With respect to the equipment, the Company evaluates the remarketing,
upgrade and renewal potential of the equipment as well as its importance to
the lessee's business.
Prior to fiscal year 1991, more than 50% of the equipment leases originated
by the Company consisted of office technology equipment, including data
processing and communications equipment. In recent years, the Company has
de-emphasized computer equipment and diversified its own equipment lease
portfolio (as well as, the equipment portfolio it manages for private
investors and its sponsored and co-sponsored PIFs) to include a wide variety
of high technology equipment as well as transportation equipment, materials
handling equipment, manufacturing equipment, office automation equipment,
retail equipment, medical equipment, mining equipment, industrial equipment
and other equipment that meet the Company's underwriting standards. It is
not the Company's intention to withdraw from the computer lease market. The
Company will continue to originate new computer equipment leases that meet
all of its underwriting standards and fit with its overall lease portfolio
strategy. However, the Company expects to originate a lower percentage of
leases of computer equipment in the future.
The Company leases equipment to lessees in diverse industries throughout the
United States. To minimize credit risk, the Company generally leases
equipment to (1) lessees that have a credit rating of not less than Baa as
determined by Moody's Investor Services, Inc., or comparable credit ratings
as determined by other recognized credit rating services, or (2) companies,
which although not rated by a recognized credit rating service or rated below
Baa, are believed by the Company to be sufficiently creditworthy to satisfy
the financial obligations under the lease. As of May 31, 1994, approximately
93% of the equipment owned by the Company was leased to companies that meet
the above criteria.
The Company finances a significant portion of its equipment purchases with
permanent fixed-rate, non-recourse borrowings secured by a first lien on the
equipment and the related lease rental payments. As an interim step, the
Company finances equipment purchases with the proceeds of borrowings under
its Revolving Credit Facility, pending the sale of the equipment to a private
investor or PIF, or placement of permanent non-recourse debt on equipment
obtained for its own account. On newly originated leases, it is the
Company's policy to recover its entire investment in the leases that it sells
to private equity investors and the PIFs at the time of sale. In the case of
equipment financed with permanent non-recourse debt for the Company's own
account, it is the Company's policy to recover all but its equity investment
in the equipment at the time it closes the financing. The Company finances
its equity investment with borrowings under its Revolving Credit Facility and
recovers the investment, in whole or in part, from renewal rents received
and/or sales proceeds realized from the equipment after repayment in full of
the related permanent non-recourse debt.
Due to low prevailing interest rates, the adverse effect of tax reform on the
availability of private equity markets, downsizing of the sales force during
1991, more stringent lease underwriting standards and the limited funds
available to the Company under its Revolving Credit Facility for new lease
originations, the volume of new lease originations by the Company during
fiscal years 1994, 1993 and 1992 was below that of preceding years. The cost
of all equipment purchased for lease by the Company totalled $95 million, $87
million and $56 million during fiscal years 1994, 1993, and 1992,
respectively. Of these amounts $82 million, $60 million and $53 million,
respectively, were sold to the Company's PIFs.
No payments from any single lessee during fiscal year 1994 accounted for more
than ten percent (10%) of the Company's consolidated revenues. For fiscal
years ended 1994, 1993 and 1992, leasing revenues accounted for 9%, 18%, and
30%, respectively, of the Company's consolidated revenues during such years.
Underwriting Standards
All initial leases are subject to review under the Company's underwriting
standards. Each potential lessee is assigned a credit risk rating of 1 (the
highest rating) through 6 (the lowest rating), based on the application of
specific criteria during the credit review process. The Company originates
leases for its own account that have a credit rating of 1, 2 or 3. The
Company originates leases for its PIFs consistent with each PIF's own lease
origination standards.
The Company's Transaction Review Committee (the "TRC"), which is composed of
members of senior management, (1) reviews and approves all material aspects
of lease transactions, the credit ratings assigned to lessees and certain
pricing and residual value assumptions, (2) advises on lease documentation
requirements and deal structuring guidelines, (3) is responsible for
monitoring asset quality on an on-going basis in order to estimate and assess
the net realizable value at the end of the lease term for the Company's
equipment and for reviewing and approving the quarterly Asset Quality Report
and (4) revises and updates the underwriting standards, when and as
necessary. All transactions over $500,000 and certain extraordinary
transactions must be approved by the TRC. The TRC has delegated approval
authority for smaller dollar transactions to certain senior officers of the
Company. Generally, all transactions over $5,000,000 must also be approved
by the Board of Directors.
Remarketing Activities
Remarketing activities consist of two components that complement lease
origination activities: (1) lease portfolio management (i.e., managing
equipment under lease) and (2) asset management (i.e., managing off-lease
equipment). One of the Company's principal goals is to minimize off-lease
equipment by proactively managing such equipment while it is under lease
(e.g., renewing or extending the lease, or re-leasing, upgrading or adding to
the equipment before the end of the initial lease term), and by selling such
equipment after termination of the lease if it cannot be profitably
re-leased.
The Company attempts to maximize the remarketing proceeds from, and minimize
the warehousing costs for, off-lease equipment by (1) employing qualified and
experienced remarketing personnel, (2) developing equipment remarketing
expertise in order to maximize the profit from sales of off-lease equipment,
(3) minimizing the amount of off-lease equipment stored at independently
operated equipment warehouses and thereby reducing warehousing costs, (4)
leasing and operating its own general equipment warehouse to further reduce
warehousing costs, (5) eliminating scrap inventory from the warehouses, and
(6) conducting on-site equipment inspections. The Company further supports
these activities by carefully monitoring the residual values of its equipment
portfolio and maintaining adequate reserves on its books, when and as needed,
to reflect anticipated future reductions in such values due to obsolescence
and other factors.
Private Investor Programs, Equity Syndications and PIFs
The Company has sponsored or co-sponsored numerous private investment
programs in which third-party investors purchased, directly or indirectly,
ownership interests in leased equipment. Such transactions were generally
tax advantaged sale-leaseback transactions. The Company sold its private
programs directly, and through broker-dealers, to corporate, institutional
and individual investors. The Company has not entered into any such
transactions since fiscal year 1989. The Company generally administers all
aspects of its private investor programs and typically receives fees for its
services, as well as participation interests in the rental income and
residual value of the equipment.
During fiscal year 1993, the Company re-opened its equity syndications
department. This department sells equipment leases, including title to the
underlying equipment, to third party investors. The Company sold
approximately $43 million, $14 million and $7 million of equipment to private
investors during fiscal years 1994, 1993 and 1992, respectively.
A significant portion of the equipment acquired for lease is sold to the
Company's PIFs. Various subsidiaries and affiliates of the Company act as
the general partners or co-general partners of the PIFs. In addition, CAII
contributes cash and/or equipment to each PIF in exchange for a Class B
limited partner interest ("Class B interest"). Public investors purchase
units of Class A limited partnership interest ("Class A units") for cash,
which the PIFs use to purchase equipment on-lease to lessees. The Company
receives (1) fees for performing various services for the PIFs (subject to
certain dollar limits), (2) reimbursement for organizational and offering
expenses incurred in selling the Class A Units (subject to certain dollar
limits), (3) Class B partner cash distributions from each PIF and (4) general
partner cash distributions. CAII's cash return on its Class B interest is
subordinated to the cash returns on the Class A Units.
The Company currently sponsors or co-sponsors six PIFs -- (1) Capital
Preferred Yield Fund, L.P. ("CPYF"), (2) Capital Preferred Yield Fund II,
L.P. ("CPYF II") and (3) Capital Preferred Yield Fund III, L.P. ("CPYF III"),
all three of which are sponsored solely by the Company; (4) PaineWebber
Preferred Yield Fund L.P. ("PWPYF"), co-sponsored by the Company and
PaineWebber Incorporated; (5) NorthStar Income Fund I, L.P. ("NorthStar"),
co-sponsored by the Company and Lehman Brothers Inc.; and (6) Leastec Income
Fund V ("Leastec V"), which the Company acquired from Leastec Corporation at
the time of sale by the Company of its interest in Leastec Corporation back
to its original owners. Only CPYF III is currently offering units for sale
to the public. However, due to the reinvestment feature of each PIF, all of
the PIFs, except Northstar and Leastec V, will acquire additional equipment
from CAII during fiscal year 1995.
The following table summarizes the amount of Class A units sold to the
public, the amount of cash and/or equipment contributed by CAI to each PIF in
exchange for its Class B interest and CAI's maximum future Class B
contributions/obligations for each PIF:
CAI's Class B
Class A Investment through Maximum additional
PIF Units Sold May 31, 1994 Class B Investment
CPYF $ 63.7 million $ 5.5 million None
CPYF II 33.9 million .3 million None
CPYF III .9 million 0.0 million $ 500,000
PWPYF 71.1 million 8.6 million None
Northstar 52.4 million 4.9 million None
Leastec V 50.4 million 2.5 million None
Competition
The Company competes in the leasing marketplace (1) as a lessor, (2) as a
broker of new and used equipment, (3) as a sponsor and co-sponsor of PIFs and
(4) with other leasing companies for permanent non-recourse financing of
lease rents. The Company, as an independent leasing company, competes with a
significant number of other firms in each of these activities. These firms
include (1) captive leasing companies that are subsidiaries, or otherwise
affiliated with, vendors or equipment manufacturers, (2) other independent
leasing companies that are publicly or privately owned, (3) leasing companies
that are subsidiaries of, or otherwise affiliated with, U.S. or foreign
banks, other financial institutions or insurance companies, (4) leasing
companies that are subsidiaries of, or otherwise affiliated with, industrial
or nonfinancial services companies, (5) equipment brokers, (6) investment
banking firms, and (7) other income fund sponsors. Each of these types of
companies operates differently in terms of its financial goals, its sources
of funding and its business strategies.
According to a study just recently concluded by The Monitor, a publication of
one of the leading recruiting firms in the financial services industry, the
Company ranks 65th out of the top 100 leasing companies in the U.S. (based on
1993 net assets). Looking solely at independent leasing companies, the
Company ranks 9th in the U.S. The Company's business represents less than 1%
of the U.S. leasing market.
The Company competes mainly on the basis of its remarketing capability, terms
offered in its leasing transactions, reliability in meeting its commitments
and customer service. The Company's continued ability to compete effectively
may be materially affected by the availability of financing, the terms of
such financing, the marketplace for public income fund investments. The
Company competes with a large number of equipment lessors, many of which have
greater financial resources, greater economies of scale and lower costs of
capital than the Company.
Employees
The Company had 114 employees as of May 31, 1994 versus 116 employees as of
May 31, 1993, none of whom were represented by a labor union. On June 30,
1994 the Company reduced its workforce by 29 employees. The Company believes
that its employee relations are good.
Item 2. Properties
The Company leases office facilities (approximately 43,000 square feet) in
Lakewood, Colorado (a suburb of Denver). These facilities house the
Company's administrative, financing and marketing operations. The Lakewood,
Colorado lease is for a term of 7 years, with 2 years remaining in the term,
and with a base rent, as of May 31, 1994, of approximately $40,000 per month,
plus a pro-rata share of building costs and expenses. The Lakewood, Colorado
facility adequately provides for present and future needs, as currently
planned. In addition, the Company leases a warehouse facility and regional
marketing offices at an aggregate rental of approximately $170,000 per year.
Item 3. Legal Proceedings
The Company is involved in the following pending legal proceedings:
a. CIS Corporation ("CIS") voluntarily filed for protection under Chapter 11
of the bankruptcy laws in 1989. The CIS bankruptcy trustee (the
"Trustee") has asserted, in his First Amended Complaint, claims against
CAII seeking (1) return of $145,000 plus interest in connection with
certain alleged bankruptcy preference payments and (2) approximately $1.1
million for alleged breach of lease claims. CAII, in its Amended Answer
and Counterclaims, (A) denied CIS's allegations and (B) asserted
counterclaims of approximately $1.2 million against CIS for breaches of
leases between CAII, as lessor, and CIS, as lessee. On May 31, 1994,
CAII and CIS agreed to settle the litigation. Pursuant to the settlement
agreement, CAII agreed to pay $220,000 to CIS, the parties agreed to
dismiss their respective claims against each other in the bankruptcy
litigation and the parties agreed to enter into a mutual general release.
CIS agreed to draft the settlement agreement and deliver a copy thereof
to the Company as soon as reasonably possible. The Company has not
received a copy of the draft settlement agreement as of the date hereof.
b. In December 1987, CAII purchased certain equipment (the "Equipment") from
MBank Dallas, N.A.("MBank"), for approximately $30 million and
immediately leased (the "Lease") the Equipment back to MBank. In early
1988, as part of the same transaction, CAII financed approximately $25
million of the purchase price for the Equipment with the proceeds of a
nonrecourse loan (the "Prudential Loan") from The Prudential Insurance
Company ("Prudential"). MBank pledged the Equipment and certain
installment receivables (the "Receivables") as collateral for its Lease
obligations. CAII, in turn, pledged the Lease, the Equipment and the
Receivables as collateral for the Prudential Loan. Texas Commerce Bank,
N.A. ("TCB"), agreed to act as indenture trustee for the Prudential Loan.
In March 1989, the Federal Deposit Insurance Corporation ("FDIC") placed
MBank into receivership. This action and certain other actions of MBank
at or about the same time constituted events of default under the Lease.
In September 1989, FDIC purported to disaffirm the Lease, stopped making
rent payments under the Lease and demanded that TCB return all of the
Receivables to the FDIC. Thereafter, TCB continued to pay the proceeds
from the Receivables to Prudential until all amounts due under the
Prudential Loan (i.e., principal, interest and fees then due and owing)
were paid to Prudential in full in March 1990.
CAII requested that TCB distribute the amounts due and owing to CAII
under the Lease upon payment in full of the Prudential Loan. TCB refused
to do so, contrary to the terms of the Lease, and, as of the date hereof,
is still refusing to do so. Instead, TCB required CAII to enter into an
escrow agreement (the "Escrow Agreement"), whereby TCB continued to hold,
and still holds, the remaining Receivables and proceeds therefrom.
In December 1991, CAII, faced with TCB's continuing refusal to release
its security interest in the equipment, entered into an agreement (the
"Bank One Purchase Agreement") to sell (subject to CAII's obtaining a
release from TCB, as indenture trustee, of its security interest in the
Equipment) the Equipment to BankOne Texas, N.A. ("BankOne"), for $1
million in cash plus an additional $4.75 million payable in sixty monthly
installments, beginning on January 1, 1992. BankOne paid CAII the $1
million and three of the monthly installments.
In January 1992, BankOne filed a complaint in Texas state court against
TCB and Prudential. In March 1992, Prudential and TCB filed
counterclaims against Bank One and third-party claims against CAII and
FDIC. BankOne ceased making installment payments to CAII when it was
sued by Prudential and TCB. In April 1992, the state court case was
removed to the United States District Court for the Northern District of
Texas, Dallas Division (the "District Court"), where the case (the "MBank
Litigation") is currently ongoing.
The parties, CAII, FDIC, Prudential, TCB and BankOne, have filed multiple
claims, crossclaims, counterclaims and third-party claims against each
other in the MBank Litigation. The principle substantive issues in the
MBank Litigation relate to the ownership of the Equipment, the
Receivables and the proceeds therefrom. The claims asserted by CAII
against other parties, and against CAII by other parties, to the MBank
Litigation are summarized briefly below:
Claims Asserted by CAII. CAII is seeking to recover in excess of $10
million of proceeds from the Receivables in accordance with the terms of
the Lease which provided that CAII was entitled to such proceeds upon the
occurrence of an event of default under the Lease. MBank's insolvency
and FDIC's placement of MBank into receivership constituted events of
default under the Lease. In the alternative, CAII is seeking a
declaratory judgment, if CAII does not prevail on its claim to the
proceeds, that it is the owner of the Equipment free and clear of all
liens, which, if it prevailed on this claim, would permit CAII to
complete the sale of the Equipment to BankOne. CAII is also seeking
actual and punitive damages against (1) TCB for breach of its duty to pay
over the amounts due to CAII under the Lease, other breaches by TCB of
its duties to CAII under the indenture and Lease-related documents,
interference with the BankOne Purchase Agreement and other tortious acts
committed by TCB against CAII in connection with the Lease transaction
and (2) Prudential for interference with the BankOne Purchase Agreement
and other tortious acts committed by Prudential against CAII in
connection with the Lease transaction.
Claims Asserted Against CAII. FDIC is seeking to recover all of the
proceeds from the Receivables (in excess of $40 million, including
earnings thereon). CAII has never received any Receivables or any
proceeds from the Receivables. In the alternative, FDIC is seeking a
declaratory judgment, if FDIC does not prevail on its claim to such
proceeds, that it is the owner of the Equipment free and clear of all
liens. FDIC is also seeking actual damages for certain alleged breaches
of the Lease and other Lease-related documents.
Prudential is seeking a declaratory judgment that it is entitled to
retain all of the proceeds from the Receivables previously distributed to
it by TCB or, in the alternative, if it does not prevail on its claim to
the proceeds from the Receivables, that is the owner of the Equipment
free and clear of all liens. Prudential is also seeking actual damages
from CAII for certain alleged breaches of the Prudential Loan documents
and related Lease documents and actual and punitive for certain alleged
misrepresentations that CAII made to Prudential in connection with the
Prudential Loan.
TCB is seeking permission to interplead into the District Court the
proceeds from the Receivables (and accrued interest, thereon) still in
its possession. In addition, TCB is seeking indemnification from CAII
for the legal fees and other costs it has incurred in connection with the
MBank Litigation pursuant to the terms of the Escrow Agreement.
BankOne is seeking a declaratory judgment that TCB's lien against the
Equipment expired when TCB paid the Prudential Loan in full and that
BankOne is the owner of the Equipment free and clear of all liens.
The parties have filed cross summary judgment motions against each other
with respect to their claims to the Equipment, the Receivables and the
proceeds therefrom. The parties have completed discovery and are in the
process of filing their final briefs with the District Court. The
District Court has not ruled on any of these motions as of the date
hereof.
CAII (1) is defending vigorously the claims asserted against it by FDIC,
TCB and Prudential, (2) is asserting vigorously all available
counterclaims and third-party claims against FDIC, TCB and Prudential and
(3) is asserting vigorously all claims it has to the Equipment, the
Receivables and the proceeds therefrom. Although management believes,
based upon the advice of legal counsel, that the ultimate outcome of the
MBank Litigation should not have a material adverse impact on the
Company's financial position and that any amounts owed by CAII to any of
the other parties to the MBank Litigation should be completely, or at
least substantially, offset by amounts owed by those parties to CAII, it
is not possible to predict the ultimate outcome of the MBank Litigation
at this time.
The Company is involved in various legal proceedings ordinary, routine and
incidental to its business. In the opinion of management, none of these
proceedings will have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
three months ended May 31, 1994.
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The Company's common stock is traded on the over the counter market under the
symbol "CAII" and is quoted through the National Market System of the
National Association of Securities Dealers Automated Quotation System.
PART II
The following table sets forth the high and low sales prices of the Company's
common stock for the periods indicated, according to published sources. High
and low sales prices shown reflect inter-dealer quotations without retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.
1995 HIGH LOW
First Quarter
(through July 7, 1994) 15/16 25/32
1994 HIGH LOW
First Quarter 1 5/8 15/16
Second Quarter 1 1/2 11/16
Third Quarter 1 3/8 27/32
Fourth Quarter 15/16 13/16
1993 HIGH LOW
First Quarter 5/8 13/32
Second Quarter 3/4 9/32
Third Quarter 1 1/2
Fourth Quarter 1 13/16 13/16
On July 7, 1994, the date on which trading activity last occurred, the
closing sales price of the Company's stock was $.78125. On July 7, 1994,
there were approximately 270 holders of record of the Company's outstanding
common stock.
No dividends were paid during the periods indicated. The Company does not
anticipate that it will pay cash dividends on its common stock in the
foreseeable future. See Note 9 to Notes to Consolidated Financial Statements
for a discussion of restrictions upon CAII's ability to transfer funds to the
Company in the form of cash dividends, loans or advances that limit the
Company's ability to pay dividends on its outstanding Common Stock.
Item 6. Selected Financial Data
The table on the following page sets forth selected consolidated financial
data for the periods indicated derived from the Company's consolidated
financial statements, which have been restated as noted for the adoption of
SFAS #109, "Accounting for Income Taxes". The data should be read in
conjunction with Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, and the Company's consolidated financial
statements and notes thereto appearing elsewhere herein.
<TABLE>
Income Statement Data
(in thousands, except per share and number of shares data)
Year Ended May 31,
--------------------------------------------------------------
1994 1993 1992 1991 1990
Revenue: (restated) (restated) (restated) (restated)
<S> <C> <C> <C> <C> <C> <C>
Equipment sales $122,469 $ 96,233 $ 78,752 $207,180 $279,084
Leasing 13,368 26,003 45,726 76,745 93,544
Interest 15,027 15,526 26,012 36,322 36,223
Other 4,101 3,638 4,386 2,699 4,902
-------- -------- -------- -------- --------
154,965 141,400 154,876 322,946 413,753
-------- -------- -------- -------- --------
Costs and expenses:
Equipment sales 114,440 85,423 72,737 194,245 262,350
Leasing 5,511 12,148 30,493 51,991 66,059
Operating and other
expenses 12,307 14,060 16,833 25,327 23,477
Provision for losses 1,315 2,070 2,150 10,632 22,069
Interest - non-recourse debt 18,370 22,091 36,820 53,796 55,209
Interest - recourse debt 1,839 3,282 6,140 9,672 11,365
-------- -------- -------- -------- --------
153,782 139,074 165,173 345,663 440,529
-------- -------- -------- -------- --------
Income (loss) before
income taxes 1,183 2,326 (10,297) (22,717) (26,776)
Income tax expense (benefit) 473 930 (4,120) (9,087) 10,710
-------- -------- -------- -------- --------
Net income (loss) $ 710 $ 1,396 $( 6,177) $(13,630) $ (16,066)
======== ======== ======== ======== =========
Earnings (loss) per common and dilutive common equivalent share:
Primary:
Net income (loss) per share $ .07 $ .14 $ ( .70) $ (1.54) $ (1.79)
Fully diluted:
Net income (loss) per share $ .07 $ .13 $ ( .70) $ (1.54) $ (1.79)
Weighted average number of common and dilutive
common equivalent shares outstanding used in
computing earnings per share:
Primary 10,901,000 10,306,000 8,886,000 8,850,000 8,981,000
Fully diluted 10,901,000 10,888,000 8,886,000 8,850,000 8,981,000
</TABLE>
<TABLE>
Balance Sheet Data
May 31,
----------------------------------------------------------------
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Total assets $209,725 $280,635 $392,172 $611,142 $756,421
Revolving Credit Facility 49 21 - - -
Short-term recourse borrowings - - 58,984 80,320 94,900
Term Loan 18,718 37,836 - - -
Short-term non-recourse debt - - - - 20,287
Obligations under capital leases
and deferred gain arising from
sale-leaseback transactions 32,337 42,496 51,618 62,236 70,591
Discounted lease rentals 128,505 168,065 237,538 390,386 455,890
Stockholders' equity 21,099 20,303 18,539 24,651 38,341
</TABLE>
I. Results of Operations
a. Business Restructuring and Impact on Total Assets and Total Revenue
As discussed in Item 1. Business, during fiscal year 1991, the Company
agreed with its Lenders to begin repaying its Debt Facility.
Accordingly, during the last four months of fiscal year 1991 and fiscal
years 1992, 1993 and 1994, the Company used substantially all of its
cash flow after payment of operating expenses to pay down its Debt
Facility. As a result of making these repayments, the Company has not
had the funds necessary to significantly add to its leasing portfolio.
Because a leasing portfolio declines in size as it matures, these
circumstances have resulted in a decline in the Company's leasing
portfolio and related revenue (referred to in this discussion as
"portfolio run-off").
To reverse the effects of portfolio run-off, the Company needs to
obtain additional capital or other sources of lease financing to
finance the equity component of leases until such leases mature. The
ompany is pursuing possibilities to obtain new capital. Without
obtaining new capital, profitability will depend principally upon (1)
equipment sales margins from new lease originations, (2) development of
new sources of revenue related to the Company's core business, and (3)
reductions in operating costs. The Company's current business plan is
focused on these three activities. No assurance can be given, however,
that the Company will be successful in operating profitably or in
obtaining access to new capital during fiscal year 1995.
b. Results of Operations
The Company originates leases for its own account and on behalf of
private investors and its PIFs. The ultimate profitability of the
Company's leasing transactions is dependent, in part, on the general
level of interest rates because leasing is an alternative to financing
equipment purchases with debt. Rental rates tend to rise and fall with
interest rates, although rental rate movements generally lag interest
rate movements. Because of the presently low (by historical standards)
interest rate environment, the number of available transactions which
meet the Company's profitability and credit quality standards has
declined.
Because the Company utilizes non-recourse debt (discounted lease
rentals) to finance its lease transactions, the ultimate profitability
of leasing transactions is also dependent, in part, on the difference
between the interest rate inherent in the lease and the underlying
interest rate paid to the non-recourse lender ("rate spread").
Certain of the Company's competitors have access to lower cost funds
than the Company. As a result, the Company is at a competitive
disadvantage in pricing new leasing transactions because the Company
cannot achieve rate spreads as great as some of its competitors.
During fiscal years 1993 and 1994, the Company's business plan provided
for originating mostly DFLs financed with permanent non-recourse debt
for its own account because such leases report profits (after interest
expense on related non-recourse debt) during the early term of the
leases (as opposed to OLs, which report losses during the early
term of the leases). The presently low interest rate environment has
reduced the availability of high quality DFLs because lessees prefer to
purchase equipment with debt at the currently low interest rates.
Presented below are schedules showing condensed income statement
categories and analyses of changes in those condensed categories
derived from the Consolidated Statements of Operations appearing on
page F-5 of this report on Form 10-K prepared solely to facilitate the
discussion of results of operations (in thousands).
<TABLE>
Condensed Consolidated
Statements of Operations The effect on Statements of Operations The effect on
for the Years net income of for the Years net income of
Ended May 31, changes between Ended May 31, changes between
---------------------------- periods ------------------------- periods
1994 1993 1993 1992
--------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Equipment sales margin $ 8,029 $ 10,810 $ (2,781) $ 10,810 $ 6,015 $ 4,795
Leasing margin (net of
interest expense on
discounted lease rentals) 4,514 7,290 (2,776) 7,290 4,425 2,865
Other income 4,101 3,638 463 3,638 4,386 (748)
Operating and other expenses (12,307) (14,060) 1,753 (14,060) (16,833) 2,773
Provision for losses (1,315) (2,070) 755 (2,070) (2,150) 80
Interest expense on
recourse debt (1,839) (3,282) 1,443 (3,282) (6,140) 2,858
Income taxes<F1> (473) (930) 457 (930) 4,120 (5,050)
--------- -------- --------- -------- -------- ---------
Net income $ 710 $ 1,396 $ (686) $ 1,396 $ (6,177) $ 7,573
========= ======== ========= ======== ======== =========
<F1> Income taxes for the years ended May 31, 1993 and 1992 have been
restated to reflect the adoption of SFAS #109. See Note 11 to Notes
to Consolidated Financial Statements.
</TABLE>
Equipment Sales
Equipment sales revenue (and the related equipment sales margin) consists
of the following (in thousands):
<TABLE>
Year Ended May 31, Increase
-------------------------------------------- (Decrease)
1994 1993 ----------------------
--------------------------------------------
Revenue Margin Revenue Margin Revenue Margin
<S> <C> <C> <C> <C> <C> <C>
Transactions during initial lease term:
Equipment under lease sold to PIFs $ 70,085 $ 1,774 $ 62,252 $ 1,773
Equipment under lease sold to
private investors 43,037 1,257 13,945 777
-------- ------- -------- -------
113,122 3,031 76,197 2,550 $ 36,925 $ 481
-------- ------- -------- -------
Transactions subsequent to initial lease
termination:
Sales of off-lease equipment 4,759 2,021 11,682 3,098
Sales-type leases 2,672 1,061 4,530 1,338
Excess collections (cash collections
in excess of the associated residual
value from equipment under
lease sold to private investors) 1,916 1,916 3,824 3,824
-------- ------- -------- -------
9,347 4,998 20,036 8,260 (10,689) (3,262)
-------- ------- -------- ------- --------- ---------
$122,469 8,029 $ 96,233 10,810 $ 26,236 $ (2,781)
Provision for losses ======== (1,315) ======== (2,070)
Realizations of value in excess of ------- -------
provision for losses $ 6,714 $ 8,740
======= =======
</TABLE>
<TABLE>
Year Ended May 31, Increase
-------------------------------------------- (Decrease)
1993 1992 ----------------------
--------------------------------------------
Revenue Margin Revenue Margin Revenue Margin
<S> <C> <C> <C> <C> <C> <C>
Transactions during initial lease term:
Equipment under lease sold to PIFs $ 62,252 $ 1,773 $ 53,776 $ 1,224
Equipment under lease sold to
private investors 13,945 777 6,747 (102)
-------- ------- -------- -------
76,197 2,550 60,523 1,122 $ 15,674 $ 1,428
-------- ------- -------- -------
Transactions subsequent to initial lease
termination:
Sales of off-lease equipment 11,682 3,098 12,425 1,073
Sales-type leases 4,530 1,338 2,093 109
Excess collections (cash collections
in excess of the associated residual
value from equipment under
lease sold to private investors) 3,824 3,824 3,711 3,711
-------- ------- -------- -------
20,036 8,260 18,229 4,893 1,807 3,367
-------- ------- -------- ------- -------- ---------
$ 96,233 10,810 $ 78,752 6,015 $ 17,481 $ 4,795
Provision for losses ======== (2,070) ======== (2,150)
Realizations of value in excess of ------- -------
provision for losses $ 8,740 $ 3,865
======= =======
</TABLE>
One of the Company's strategies is to increase sales margins from
equipment sold during its initial lease term to offset the decrease in
sales margins from transactions subsequent to initial lease
termination. In the ordinary course of business, the Company will (1)
sell new lease originations to its PIFs (to the extent the PIFs have
funds available for such purpose) or private investors, and (2) sell
seasoned lease transactions (previously originated leases held in the
Company's portfolio) to private investors when the profit is desirable
or to reduce perceived residual exposure. This strategy resulted in
increases in sales margin from transactions during the initial lease
term of $481,000 for fiscal year 1994 and $1,428,000 for fiscal year
1993. The Company expects to continue to sell leased equipment during
the initial lease term during fiscal year 1995. To the extent such
sales involve seasoned lease transactions, portfolio run-off will
accelerate.
The table below demonstrates that the decline in the Company's lease
portfolio during the fiscal year ended May 31, 1994 is attributable
primarily to equipment sales (in thousands):
Discounted lease
Direct finance rentals, net of
leases, operating discounted lease
leases, net and rentals assigned Net
equipment to lenders investment
held for sale arising from in leased
or re-lease equipment sales equipment
As of May 31, 1993 $ 91,284 $ (54,538) $ 36,746
Net change arising
from equity
syndications and
PIF sales (25,479) 16,532 (8,947)
Sale of lease rentals<F1> (5,167) 3,003 (2,164)
Provision for losses (1,315) - (1,315)
Non-recourse debt balloon
pay-off (see page 12) - 2,300 2,300
Change as a result of
portfolio run-off (20,360) 15,791 (4,569)
--------- --------- --------
As of May 31, 1994 $ 38,963 $ (16,912) $ 22,051
========= ========= ========
<F1> The Company recorded a gain of $319,000 on the sale of the
underlying lease rentals.
A significant portion of the Company's net assets consists of aircraft.
To reduce the concentration of aircraft in its portfolio, the Company
sold several aircraft under lease. The following table summarizes the
Company's investment in aircraft as of May 31, 1994 and May 31, 1993
(in thousands):
May 31, May 31,
1994 1993
Leased equipment, net of accumulated
depreciation $ 8,017 $ 23,836
Associated non-recourse debt (3,077) (12,425)
Equipment held for sale or re-lease 5,000 -
-------- --------
9,940 11,411
Residual values and other receivables
arising from equipment under lease
sold to private investors 518 1,008
-------- --------
Net investment in aircraft $ 10,458 $ 12,419
======== ========
Approximately $2.7 million (net of non-recourse debt of $2.3 million)
of the Company's current $10.5 million of net investment in aircraft is
represented by one jet aircraft. The lease on the aircraft expires
December 31, 1996. The Company has a commitment to sell the aircraft
for $5 million which is approximately equal to it's carrying value.
The sale is scheduled to close in September 1994.
Another jet aircraft having a net book value of $5 million was subject
to a lease which expired during fiscal year 1994. The aircraft was
returned to the Company and is included in the balance sheet under the
caption Equipment Held for Sale or Re-Lease. The Company's investment
in such aircraft was subject to non-recourse "balloon" debt of
approximately $2.3 million which was payable in full upon expiration of
the lease. The Company funded such payment with amounts drawn on its
Revolving Credit Facility. The aircraft is presently undergoing
maintenance and refurbishment. Upon completion, the Company intends to
remarket the aircraft through re-lease or sale.
Equipment Sales to PIFs
Equipment sales to PIFs increased during fiscal year 1994 as compared
to fiscal year 1993 and fiscal year 1993 as compared to fiscal year
1992, principally because more leases that satisfied the Company's
underwriting standards were identified, in part as a result of the
opening of new sales offices.
Under applicable regulatory guidelines, the Company is entitled to
receive various fees and distributions in connection with its
activities related to its sponsored PIFs. Acquisition fees payable
upon sale of equipment under lease to a PIF are subject to a
regulatory maximum amount over the term of a PIF. Acquisition fees
earned by the Company from equipment sales to one of its PIFs reached
this maximum during fiscal year 1992 and, during fiscal year 1994, the
maximum was reached for another PIF. These circumstances will have an
impact on reported equipment sales margins in future periods, but are
not expected to impact total PIF-related income (after costs of
equipment sales) in future periods as compared to the related
investment because other allowable fees and distributions are expected
to increase during such periods.
Equipment Sales to Private Investors
The Company re-opened its private investor sales department during
fiscal year 1993 and has hired two experienced private equity
salespersons. As a result, equipment sales to private investors
increased between fiscal years 1992 and 1994. The development of a
customer base of private investors is a principal operating goal for
the Company.
Remarketing Sales
Margins from remarketing sales (i.e., sales occurring after the initial
lease term) are affected by the amount of equipment leases that matures
in a particular quarter. In general, as the size of the Company's
lease portfolio declines, fewer leases mature and less equipment is
available for remarketing each quarter. As a result, remarketing
revenue and the related margin declined during fiscal year 1994 as
compared to fiscal year 1993. Remarketing revenue and margin are
expected to decline further as portfolio runoff continues. The
Company's ability to remarket additional amounts of equipment and
realize a greater amount of remarketing revenue in future periods is
dependent on adding additional leases to its portfolio. Accordingly,
the Company is pursuing financing opportunities to obtain funds to add
leases to its own portfolio.
Revenue and margin from remarketing sales increased in fiscal year
1993, as compared to fiscal year 1992, because of the addition of
remarketing personnel.
Provision for Losses
Residual values are established equal to the estimated value to be
received from the equipment following termination of the lease. In
estimating such values, the Company considers all relevant facts
regarding the equipment and the lessee, including, for example, the
likelihood that the lessee will re-lease the equipment. The Company
performs ongoing quarterly assessments of its assets to identify other
than temporary losses in value.
Provision for losses result from the realization of less than the
carrying value of equipment (which is typically not known until
remarketing subsequent to the initial lease termination has occurred).
The remarketing of equipment for an amount greater than its book value
is reported as equipment sales margin or as leasing margin. As shown
above, realizations from sales exceeded the provision for losses, even
without considering realizations from remarketing activities recorded
as leasing margin (see discussion below).
Leasing Margin
Leasing margin consists of the following (in thousands):
Fiscal Years Ended May 31,
--------------------------------------
1994 1993 1992
Leasing revenue $ 13,368 $ 26,003 $ 45,726
Leasing costs and expenses (5,511) (12,148) (30,493)
Interest expense on related
discounted lease rentals (3,343) (6,565) (10,808)
-------- -------- --------
Leasing margin $ 4,514 $ 7,290 $ 4,425
======== ======== ========
Leasing margin ratio 34% 28% 10%
== == ==
Pro-forma leasing margin
ratio without the impact
of "excess depreciation" 34% 28% 18%
== == ==
The components of leasing margin (i.e., leasing revenue and leasing
costs and expenses) have declined for each of the last two fiscal years
and are expected to decline further, due to portfolio run-off and the
sales of seasoned leases. The leasing margin ratio increased for the
last two fiscal years primarily as a result of remarketing activities,
which include the rental proceeds from renewing, extending or
re-leasing equipment before and after the end of the initial lease
term.
In the first quarter of fiscal year 1991, the Company began recording
depreciation on OLs in excess of the amount of depreciation scheduled
when the leases were originated. Such "excess depreciation" was
recorded due to the anticipated decline in future residual values of
such equipment. Based on the Company's on-going quarterly review
of its lease portfolio, it was determined that "excess depreciation"
charges were no longer needed after May 31, 1992. The Company recorded
"excess depreciation" of $3.8 million during fiscal year 1992.
The decrease in both the net investment in DFLs and leased equipment,
net, reflects portfolio run-off and the sale of seasoned leases. The
Company has made minimal additions to its lease portfolio during fiscal
years 1994, 1993 and 1992, as it has preferred to sell new lease
originations for fee income as discussed above.
Other Income
Except for fiscal year 1992, which included a gain of $1.7 million on
the sale of an investment in Corporate Express, Inc., Other Income
consists primarily of fees and distributions from the PIFs. Such fees
have been increased as PIF assets under management have increased.
Operating and Other Expenses
Operating and other expenses decreased approximately $1.8 million (12%)
for fiscal year 1994, compared to fiscal year 1993. The decrease is
principally due to (1) approximately $0.4 million from reductions in
restructuring costs, related to the Company's Debt Facility, (2)
approximately $0.8 million from compensation expense reductions and (3)
a reduction of approximately $0.6 million in legal fees. The Company
expects to achieve additional reductions in operating and other
expenses during fiscal year 1995. On June 30, 1994, the Company
reduced its workforce by 29 employees.
Operating and other expenses decreased approximately $2.8 million (16%)
for fiscal year 1993, compared to fiscal year 1992. The decrease is
primarily due to personnel reductions, operating efficiencies
attributable to a smaller workforce and reductions in professional fees
and other costs (principally related to the restructuring of the Debt
Facility).
Interest Income and Expense
Interest income on discounted lease rentals arises when equipment
financed with non- recourse debt is sold to investors. The
Consolidated Statements of Operations reflect an equal amount of
interest expense. The decline in interest income and non-recourse
debt interest expense is due to portfolio run-off.
Over the last three fiscal years, the decrease in recourse debt
interest expense reflects the decline in interest rates and the
continuing reduction in the outstanding balance of the Company's debt
facility.
Income Taxes and Restatement
In 1994 the Company adopted Statement of Financial Accounting Standards
No. 109 ("SFAS No. 109"), Accounting for Income Taxes and has applied
the provisions of SFAS No. 109 retroactively to June 1, 1988. Under
the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date. The Company previously accounted for
income taxes under Accounting Principle Board Opinion No. 11,
whereby deferred taxes were provided for revenue and expense items
recognized in different years for financial statement and income tax
purposes.
Income tax expense is provided on income at the appropriate statutory
rates applicable to such earnings. The effective tax rate for fiscal
years 1994, 1993 and 1992 was 40%. This rate does not reflect actual
tax payments by the Company because of net operating loss carryforwards
available to offset taxable income.
II. Liquidity and Capital Resources
The Company's activities are principally funded by non-recourse debt,
its Revolving Credit Facility, rents, proceeds from sales of on-lease
equipment, fees and distributions from its PIFs, and sales or re-leases
of equipment after the expiration of the initial lease terms. As shown
below, the change in the line item, "Net increase (decrease) in cash"
on the Consolidated Statement of Cash Flows should be viewed in the
context of the Company's history of principally funding its operations
from its Debt Facility (in thousands):
1994 1993 1992 1991 1990
Net increase
(decrease) in
cash and cash
equivalents $ (1,138) $ (3,816) $ 3,854 $ (5,528) $(7,842)
Net payments on
recourse
borrowings (19,090) (21,127) (21,336) (14,580) (4,000)
-------- -------- -------- -------- -------
Net increase
(decrease) in
cash and cash
equivalents after
elimination of
recourse debt
activity $ 17,952 $ 17,311 $ 25,190 $ 9,052 $(3,842)
======== ========= ======== ======== =======
The table above demonstrates that the Company has operated on a
positive cash flow basis during fiscal years 1994, 1993, 1992 and 1991.
Substantially all of the net positive cash flow has been used to reduce
recourse debt, and not reinvested in new lease originations, resulting
in a decrease in the Company's leasing portfolio.
Management believes the Company's ability to generate cash from
operations is sufficient to fund operations, particularly when
operations are viewed as including investing and financing activities.
In this context, it should be noted that the Company reduced the
principal balance of its Debt Facility by $19.1 million since May 31,
1993 and improved its recourse debt-to-equity ratio as follows:
As of May 31,
-----------------------
1994 1993
Recourse debt outstanding under
the Debt Facility $ 18,767 $ 37,857
Stockholder's equity $ 21,099 $ 20,303
Recourse debt/stockholder's equity .89 to 1 1.86 to 1
The Company currently utilizes approximately 35 institutional lenders
to permanently finance lease rentals on a non-recourse basis. These
financings are collateralized solely by the leased equipment and
related rentals, and the Company has no recourse liability to these
lenders for repayment of the debt. This complement of lenders meets
the Company's current non-recourse financing needs for leases
originated with investment grade lessees. However, due to external
factors, obtaining permanent non-recourse financing for non-investment
grade lessees is more difficult and expensive.
The offering period for CPYF II ended in April 1994. A total of $34
million of Class A units were sold to the public. In April 1994, the
Company commenced offering units of CPYF III for sale to the public.
Through June 30, 1994, the Company sold a total of $2.9 million of
Class A units of CPYF III. During fiscal year 1995, the Company
anticipates selling up to $30 million of Class A units in CPYF III,
which will represent a principal source of liquidity and acquisition
fee income for the Company. No assurance can be given that the Company
will achieve its target of Class A unit sales of CPYF III in fiscal
year 1995.
As shown in the Consolidated Statements of Cash Flows, the Company
reported cash receipts from the PIFs (net of the Company's funding
obligations with respect to its Class B interests) of approximately
$2.4 million, $3.2 million and $0.5 million during fiscal years 1994,
1993 and 1992. Currently, the Company has substantially funded these
obligations and is receiving cash distributions from the PIFs with
respect to the Class B interests, management fees and other
distributions from the PIFs and, accordingly, the Company is receiving
a net cash inflow from its investment in its PIF's. The Company
currently expects to sell approximately $80 million of equipment to the
PIFs over the next twelve months, approximately $ 30 million of which
will be sold to CPYF III.
Inflation has not had a significant impact upon the operations of the
Company.
III. Business Plan
As previously discussed, during fiscal year 1991, the Company agreed
with its Lenders to begin repaying its Debt Facility. Accordingly,
during the last four months of fiscal year 1991, fiscal years 1992,
1993 and 1994, the Company used substantially all of its cash flow
after payment of operating expenses to pay down its Debt Facility. As
a result of making these repayments, the Company did not have the funds
necessary to significantly add to its leasing portfolio. Because a
leasing portfolio declines in size as it matures, the Company's leasing
portfolio and related revenue have declined since 1991. The Debt
Facility provides a limited amount of funds to the Company to invest in
new leases. However, this level of funds is not sufficient to maintain
the current portfolio and, accordingly, the current level of
remarketing profits may not be achievable in the future. Therefore,
maintaining profitability is dependent principally upon (1) equipment
sales margins from new lease originations, (2) development of new
sources of revenue related to the Company's core business, and (3)
reductions in operating costs.
The Company's business plan is designed to maintain profitable
operations, focusing on the activities listed in the above paragraph.
The amount of longer-term future profits, if any, will largely depend
on the amount of new capital available to the Company. Such capital
may be in a variety of forms including new recourse debt, additional
equity (which) could include a sale of the Company, possibly coupled
with an infusion of new funds into the Company from the purchaser),
securitized financing vehicles or equity provided from private
purchases of equipment originated by the Company or strategic
alliances/combinations with other leasing companies. The Company is
pursuing financing possibilities. No assurance can be given, however,
that the Company will be successful in operating profitably, developing
new sources of revenue or in obtaining access to new financing during
the fiscal year ended May 31, 1994.
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements and Schedules appearing at Page F-1 of
this Report.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers
The information required by this Item is incorporated by reference to the
Company's definitive proxy statement to be filed within 120 days after the
Company's fiscal year end.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the
Company's definitive proxy statement to be filed within 120 days after the
Company's fiscal year end.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the
Company's definitive proxy statement to be filed within 120 days after the
Company's fiscal year end.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
Company's definitive proxy statement to be filed within 120 days after the
Company's fiscal year end.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) and (d) Financial Statements and Schedules
The financial statements and schedules listed on the accompanying Index of
Financial Statements and Schedules (page F-1) are filed as part of this
Annual Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
Included as exhibits are the items listed in the Exhibit Index. The Company
will furnish to its shareholders of record as of the record date for its 1994
Annual Meeting of Stockholders, a copy of any of the exhibits listed below
upon payment of $.25 per page to cover the costs to the Company of furnishing
the exhibits.
Item No. Exhibit Index
3.1 Certificate of Incorporation of Capital Associates, Inc. (the
"Company"), incorporated by reference to Exhibit 3.1 of the
Company's registration statement on Form S-1 (No. 33-9503).
3.2 Bylaws of the Company, incorporated by reference to Exhibit 3.2 of
the Annual Report on Form 10-K for the fiscal year ended May 31,
1991 (the "1991 10-K").
10.1 Amended and Restated Stock Option Plan of the Company incorporated
by reference to Exhibit 10.1 of the Annual Report on Form 10-K for
the fiscal year ended May 31, 1992 (the "1992 10-K").
10.2 Form of Stock Option Agreement between the Company and the
directors of the Company (the "Option Agreement"), incorporated by
reference to Exhibit 19.12 of the Quarterly Report on Form 10-Q for
the quarter ended February 28, 1991 (the "February 1991 10-Q").
10.3(a) Amended and Restated Exhibit A to the Option Agreement between the
Company and James D. Edwards, incorporated by reference to Exhibit
19.1 of the Quarterly Report on Form 10-Q for the quarter ended
August 31, 1991 (the "August 1991 10-Q").
10.3(b) Amended and Restated Exhibit A to the Option Agreement between the
Company and Richard Kazan, incorporated by reference to Exhibit
19.1 of the August 1991 10-Q.
10.3(c) Amended and Restated Exhibit A to the Option Agreement between the
Company and William B. Patton, Jr., incorporated by reference to
Exhibit 19.1 of the August 1991 10-Q.
10.3(d) Amended and Restated Exhibit A to the Option Agreement between the
Company and Peter F. Schabarum, incorporated by reference to
Exhibit 19.1 of the August 1991 10-Q.
10.4 Defined Contribution Plan and Trust, incorporated by reference to
Exhibit 10.2 of the Annual Report on Form 10-K for the fiscal year
ended May 31, 1990 (the "1990 10-K").
10.5(a) Stockholder's Agreement dated October 27, 1982 among the Company,
Richard Kazan, Jack M. Durliat, and Gary M. Jacobs, as amended,
incorporated by reference to exhibit 10.3 to the Company's
registration statement on Form S-1 (No. 33-9503).
10.5(b) Amendment to Stockholder's Agreement dated August 1, 1990,
incorporated by reference to Exhibit 10.3(b) of the 1990 10-K.
10.6 Form of Indemnification Agreement by and between the Company and
its directors, incorporated by reference to Exhibit 10.16 of the
1990 10-K.
10.7 Form of Indemnification Agreement by and between the Company and
its in-house legal counsel, incorporated by reference to Exhibit
10.14 of the 1991 10-K.
10.8(a) Executive Employment Agreement, executed October 25, 1991 and
effective as of September 7, 1991, by and between Dennis J. Lacey,
the Company and Capital Associates International, Inc. ("CAII")
(the "Lacey Employment Agreement"), incorporated by reference to
Exhibit 19.1 of the Quarterly Report on Form 10-Q for the quarter
ended November 30, 1991 (the "November 1991 10-Q").
10.8(b) Amendment No. 1 to the Lacey Employment Agreement dated as of
September 7, 1992, incorporated by reference to Exhibit 19.1 of the
Quarterly Report on Form 10-Q for the fiscal quarter ended November
30, 1992 (the "November 1992 10-Q").
10.8(c) Amendment No. 2 to the Lacey Employment Agreement dated as of April
9, 1993, incorporated by reference to exhibit 10.8(c) to the Annual
Report on Form 10-K for the fiscal year ended May 31, 1993 (the
"1993 10-K").
10.8(d) Form of Amendment No. 3 to the Lacey Employment Agreement dated as
of April 20, 1993, incorporated by reference to exhibit 10.8(d) to
the 1993 10-K.
10.8(e) First Amended and Restated Lacey Employment Agreement dated as of
June 15, 1993, incorporated by reference to exhibit 10.8(c) to the
1993 10-K.
10.9 Letter Agreement regarding employment of Richard H. Robinson, dated
October 9, 1991, by and between Richard H. Robinson and the
Company, as extended by Letter Agreement dated November 23, 1992,
incorporated by reference to Exhibit 19.2 of the November 1992
10-Q.
10.10(a) Crisis Recovery Employee Incentive Bonus plan dated as of December
2, 1991, incorporated by reference to Exhibit 19.3 of the November
1992 10-Q.
10.10(b) Capital Associates, Inc. Incentive Program to Enhance Earnings
Growth dated June 27, 1993, incorporated by reference to exhibit
10.10(b) to the 1993 10-K.
10.11 Agreement dated as of February 2, 1993 by and between the Company
and Stephen P. Kregstein, incorporated by reference to Exhibit 19.1
of the Quarterly Report on Form 10-Q for the Quarter ended February
28, 1993 (the "February 1993 10-Q").
10.12 Form of Amended and Restated Revolving Credit and Term Loan
Agreement dated as of November 30, 1991, effective as of December
16, 1991, by and among CAII, Mellon National Bank, N.A. ("Mellon"),
The Chase Manhattan Bank, N.A., First Bank National Association
(collectively, the "Banks"), Horace Mann Life Insurance Company and
CIG & Co. as nominee for Connecticut General Life Insurance Company
(collectively, the "Noteholders"), as Lenders (the Banks and the
Noteholders are collectively referred to as the "Lenders"), and
Mellon Bank, N.A. (the "Agent"), incorporated by reference to
Exhibit 19.3 of the November 1991 10-Q.
10.13 Form of Restated Revolving Credit Notes dated as of December 16,
1991, by CAII in favor of each of the Banks, incorporated by
reference to Exhibit 19.4 of the November 1991 10-Q.
10.14 Form of Restated Term Loan Notes dated as of December 16, 1991 by
CAII in favor of each of the Lenders, incorporated by reference to
Exhibit 19.5 of the November 1991 10-Q.
10.15 Form of Reaffirmation of Amended Guaranty, Pledge, Security and
Subordination Agreement, dated as of November 30, 1991, by and
among the Lenders, CAII and the Company, incorporated by reference
to Exhibit 19.7 of the November 1991 10-Q.
10.16 Form of Omnibus Amendment to Amended Loan Documents, dated as of
November 30, 1991, by and among the Lenders, CAII and the Company,
incorporated by reference to Exhibit 19.8 of the November 1991
10-Q.
10.17 Form of Continuing Guaranty, Security and Subordination Agreement,
executed in January 1992, effective as of November 30, 1991, by and
among the Lenders, the Agent and each of the following affiliates
of the Company as guarantor, incorporated by reference to Exhibit
19.1 of the February 1992 10-Q:
(a) CAI Equipment Leasing I Corporation;
(b) CAI Equipment Leasing III Corporation;
(c) CAI Leasing Canada, Ltd.;
(d) CAI Partners Management Company;
(e) Capital Equipment Corporation; and
(f) Whitewood Credit Corporation.
10.18 Omnibus Amendment No. 2 to Amended Loan Documents, dated as of
April 15, 1992, by and among CAII, the Company, the Lenders and the
Agent, incorporated by reference to Exhibit 10.40 of the 1992 10-K.
10.19 Waiver Agreement by and among CAII, the Company, the Lenders and
the Agent, incorporated by reference to Exhibit 10.41 to the 1992
10-K.
10.20 Amendment No. 3 to Amended Loan Agreement by and among CAII, the
Company, the Lenders and the Agent, incorporated by reference to
Exhibit 10.42 of the August 1992 10-K.
10.21 Forbearance Agreement dated as of December 1, 1992, by and among
CAII as Borrower, the Company as Guarantor, and CAI Equipment
Leasing I Corp. ("CEL I"), CAI Equipment Leasing III Corp. ("CEL
II"), CAI Leasing Canada, Ltd. ("CAI Canada"), CAI Partners
Management Company ("CPMC"), Capital Equipment Corporation ("CEC")
and Whitewood Credit Corporation ("Whitewood") as subsidiary
Guarantors (the "Subsidiary Guarantors"), and Agent, incorporated
by reference to Exhibit 19.5 of the November 1992 10-Q.
10.22(a) Second Amended and Restated Revolving Credit and Term Loan
Agreement dated as of December 21, 1992, by and among CAII, Agent
and the Lenders, incorporated by reference to Exhibit 19.6 of the
November 1992 10-Q.
10.22(b) Amendment No. 1 to the Second Amended and Restated Revolving Credit
and Term Loan Agreement dated as of April 30, 1993, incorporated by
reference to exhibit 10.22 (b) to the 1993 10-K.
10.23 Second Amendment to Amended Joint Security Agreement dated as of
December 21, 1992 by and among CAII, Agent and the Lenders,
incorporated by reference to Exhibit 19.7 of the November 1992
10-Q.
10.24 First Amendment to Amended Continuing Guaranty, Pledge, Security
and Subordination Agreement and Second Reaffirmation of Guaranty
dated as of December 21, 1992, by and among the Company, Agent and
the Lenders, incorporated by reference to Exhibit 19.8 of the
November 1992 10-Q.
10.25 Form of First Amendment to Continuing Guaranty, Security and
Subordination Agreement and Reaffirmation of Guaranty ("First
Amendment to Subsidiary Guaranty") dated as of December 21, 1992,
by and among Agent, the Lenders and each of CEL I, CEL II and CPMC,
incorporated by reference to Exhibit 19.9 of the November 1992
10-Q.
10.26 Form of First Amendment to Subsidiary Guaranty dated as of December
21, 1992 by and among Agent, the Lenders and each of CAI Canada,
CEC and Whitewood, incorporated by reference to Exhibit 19.10 of
the November 1992 10-Q.
10.27 Second Omnibus Amendment to Amended Loan Documents dated as of
December 21, 1992, by and among CAII, the Company, Agent and the
Lenders, incorporated by reference to Exhibit 19.11 of the November
1992 10-Q.
10.28 Form of Revolving Credit Note dated as of December 21, 1992, by
CAII in favor of each of the Banks, incorporated by reference to
Exhibit 19.12 of the November 1992 10-Q.
10.29 Form of Term Loan Note dated as of December 21, 1992, by CAII in
favor of each of the Lenders, incorporated by reference to Exhibit
19.13 of the November 1992 10-Q.
10.30 Letter Agreement dated as of December 11, 1992 by and between the
Company and Hanifen, Imhoff Inc., incorporated by reference to
Exhibit 19.14 of the November 1992 10-Q.
10.31 Limited Partnership Agreement of Leastec Income Fund V dated as of
October 1, 1987, by and among, CAI Partners Management Company,
Leastec Corporation and the limited partners, (the "Leastec Limited
Partnership Agreement"), incorporated by reference to Exhibit 10.36
of the 1991 10-K.
10.32 Form of Amendment to No. 1 to Leastec Limited Partnership Agreement
dated as of October 21, 1988, incorporated by reference to Exhibit
10.37 of the 1991 10-K.
10.33 Form of Amendment No. 2 to the Leastec Limited Partnership
Agreement dated as of March 31, 1992, incorporated by reference to
Exhibit 10.45 of the 1992 10-K.
10.34(a) Amended and Restated Limited Partnership Agreement of Northstar
Income Fund-I, L.P. dated as of January 6, 1989, by and among,
Capital Partners Management Company, CAI Equipment Leasing I Corp.,
SLH Equipment Leasing Income, Inc. and the Class A Limited Partners
(the "NorthStar Limited Partnership Agreement"), incorporated by
reference to Exhibit 10.38 of the 1991 10-K.
10.34(b) Amendment No. 1 to the NorthStar Limited Partnership Agreement
dated as of January 11, 1989, incorporated by reference to Exhibit
10.38(b) of the 1991 10-K.
10.34(c) Amendment No. 2 to the NorthStar Limited Partnership Agreement
dated as of February 10, 1989, incorporated by reference to Exhibit
10.38(c) of the 1991 10-K.
10.34(d) Amendment No. 3 to the NorthStar Limited Partnership Agreement
dated as of May 8, 1989, incorporated by reference to Exhibit
10.38(d) of the 1991 10-K.
10.34(e) Amendment No. 4 to the NorthStar Limited Partnership Agreement
dated as of May 25, 1989, incorporated by reference to Exhibit
10.38(e) of the 1991 10-K.
10.34(f) Amendment No. 5 to the NorthStar Limited Partnership Agreement
dated as of April 5, 1990, incorporated by reference to Exhibit
10.38(f) of the 1991 10-K.
10.35(a) Limited Partnership Agreement of Capital Preferred Yield Fund dated
as of July 13, 1989, by and among, CAI Partners Management Company,
CAII and the Class A Limited Partners (the "CPYF Limited
Partnership Agreement"), incorporated by reference to Exhibit 10.39
1991 10-K.
10.35(b) Amendment No. 1 to the CPYF Limited Partnership Agreement dated as
of December 31, 1991, incorporated by reference to Exhibit 10.48 of
the 1992 10-K.
10.35(c) Amendment No. 2 to the CPYF Limited Partnership Agreement dated as
of March 31, 1992, incorporated by reference to Exhibit 10.49 of
the 1992 10-K.
10.36(a) Amended and Restated Partnership Agreement of PaineWebber Preferred
Yield Fund L.P. dated as of June 22, 1990, by and among, CAI
Equipment Leasing II Corp., General Equipment Management, Inc.,
Capital Partners Management II Company and the Class A Limited
Partners (the "PWPYF Partnership Agreement"),incorporated by
reference to Exhibit 10.50 of the 1991 10-K.
10.36(b) Form of Amendment No. 7 to the PWPYF Partnership Agreement, dated
as of February 7, 1991 incorporated by reference to exhibit
10.36(h) to the 1993 10-K.
10.37(a) Form of Amended and Restated Agreement of Limited Partnership of
Capital Preferred Yield Fund II by and among CAI Equipment Leasing
III Corporation, CAII and the Class A Limited Partners (the "CPYF
II Partnership Agreement"), incorporated by reference to Exhibit
10.51 of the 1992 10-K.
10.37(b) Amendment No. 1 to the CPYF II Partnership Agreement dated as of
June 12, 1992.
10.38 Purchase Agreement, dated as of November 26, 1991, by and among the
Purchasers named therein, Corporate Express, Inc., the Company and
Whitewood Credit Corporation, incorporated by reference to Exhibit
19.9 of the November 1991 10-Q.
10.39 Form of Settlement Agreement, effective as of December 31, 1991, by
and between CAII and the City of Chicago, incorporated by reference
to Exhibit 19.10 of the November 1991 10-Q.
10.40 Purchase Agreement, dated as of December 30, 1991 by and among
CAII, the Company and Bank One, Texas, N.A., incorporated by
reference to Exhibit 19.11 of the November 1991 10-Q.
10.41 Form of Consulting Agreement, dated as of April 30, 1993 by and
among the Company CAII and William B. Patton, Jr., incorporated by
reference to exhibit 10.41 to the 1993 10-K.
10.42 Amendment to Stockholders' Agreement, dated as of June 1, 1994, by
and between the Company, Durliat, Jacobs and Kazan.
10.43 Confidentiality and Standstill Agreement, dated as of June 1, 1994,
by and between the Company and Kazan.
10.44 Indemnification Agreement, dated as of January 14, 1994, by and
between the Company and Jacobs.
10.45 Form of Stock Option Agreement between the Company and the
directors of the Company (with a grant date of August 27, 1993 for
Kazan, Patton, Edwards and Schabarum and a grant date of January
14, 1994 for Jacobs).
10.46(a) Amendment No. 2 to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, dated as of December 23, 1993, by and
among CAII and the Lenders.
10.46(b) Continuing Guaranty, Security and Subordination Agreement, dated as
of December 23, 1993, by and among CAI Equipment Leasing IV Corp.
and the Lenders.
10.46(c) Second Amendment to Amended Continuing Guaranty, Pledge, Security
and Subordination Agreement and Third Reaffirmation of Guaranty,
dated as of December 23, 1993, by and among the Company and the
Lenders.
10.46(d) Second Amendment to Continuing Guaranty, Security and Subordination
Agreement and Reaffirmation of Guaranty, dated as of December 23,
1993, by and among CAI Partners Management Company and the Lenders.
10.46(e) Second Amendment to Continuing Guaranty, Security and Subordination
Agreement and Reaffirmation of Guaranty, dated as of December 23,
1993, by and among CAI Equipment Leasing I Corp. and the Lenders.
10.46(f) Second Amendment to Continuing Guaranty, Security and Subordination
Agreement and Reaffirmation of Guaranty, dated as of December 23,
1993, by and among CAI Equipment Leasing III Corp. and the Lenders.
10.46(g) Pledge Amendment, dated as of December 23, 1993, executed by CAII,
pledging shares of CAI Lease Securitization I Corp. to the Lenders.
10.47(a) Agreement of Limited Partnership of Capital Preferred Yield Fund -
III, L.P. ("CPYF-III"), dated as of November 2, 1993, by and
between CAI Equipment Leasing IV Corp. as General Partner, and John
F. Olmstead as the original Limited Partner.
10.47(b) Amended and Restated Agreement of Limited Partnership of CPYF III,
dated as of June 14, 1994, by and among CAI Equipment Leasing IV
Corp. as General Partner, CAII as the Class B Limited Partner, John
F. Olmstead as the original Limited Partner, and the Class A
Limited Partners.
11 Statement regarding Computation of Per Share Earnings.
21 List of Subsidiaries.
23 Consent of KPMG Peat Marwick.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on July 14, 1994.
CAPITAL ASSOCIATES, INC.
By: /s/ Anthony M. DiPaolo
-------------------------------
Anthony M. DiPaolo
Senior Vice President and
Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated and on the dates listed.
Signature Title Date
/s/William B. Patton, Jr. Chairman of the Board July 14, 1994
- - --------------------------- and Director
William B. Patton, Jr.
/s/Dennis J. Lacey President, Chief Executive July 14, 1994
- - --------------------------- Officer and Director
Dennis J. Lacey
/s/James D. Walker Director July 14, 1994
- - ---------------------------
James D. Walker
/s/James D. Edwards Director July 14, 1994
- - ---------------------------
James D. Edwards
/s/Peter F. Schabarum Director July 14, 1994
- - ---------------------------
Peter F. Schabarum
/s/Gary M. Jacobs Director July 14, 1994
- - ---------------------------
Gary M. Jacobs
/s/Anthony M. DiPaolo Senior Vice President July 14, 1994
- - --------------------------- and Controller
Anthony M. DiPaolo (Principal Accounting Officer)
/s/John E. Christensen Senior Vice President July 14, 1994
- - --------------------------- Chief Financial Officer
John E. Christensen and Treasurer
(Principal Financial Officer)
INDEX OF FINANCIAL STATEMENTS
AND SCHEDULES
Financial Statements
Independent Auditor's Report F-2
Report of Independent Accountants F-3
Consolidated Balance Sheets as of
May 31, 1994 and 1993 F-4
Consolidated Statements of Operations for
the Years Ended May 31, 1994, 1993 and 1992 F-5
Consolidated Statements of Changes in
Stockholders' Equity for the Years
Ended May 31, 1994, 1993 and 1992 F-6
Consolidated Statements of Cash Flows for
the Years Ended May 31, 1994, 1993 and 1992 F-7
Notes to Consolidated Financial Statements F-8 to F-22
Schedules
Independent Auditor's Report F-23
Report of Independent Accountants F-24
Schedule V - Property, Plant and Equipment for the
Years Ended May 31, 1994, 1993 and 1992 F-25
Schedule VI - Accumulated Depreciation,
Depletion and Amortization of Property,
Plant and Equipment for the Years
Ended May 31, 1994, 1993 and 1992 F-26
Schedule VIII - Valuation and Qualifying
Accounts and Reserves for the Years
Ended May 31, 1994, 1993 and 1992 F-27
Schedule IX - Short-Term Borrowings for the Years
Ended May 31, 1994, 1993 and 1992 F-28
Schedule X - Supplementary Income
Statement Information for the Years
Ended May 31, 1994, 1993 and 1992 F-29
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Directors of
Capital Associates, Inc.:
We have audited the accompanying consolidated balance sheets of Capital
Associates, Inc. and subsidiaries as of May 31, 1994 and 1993 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the years then ended. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Capital
Associates, Inc. and subsidiaries as of May 31, 1994 and 1993 and the results
of their operations and their cash flows for the years then ended May 31,
1994 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 11 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES (SFAS 109), as of June 1, 1993 and
retroactively restated its consolidated financial statements for the years
ended may 31, 1993 and 1992.
We also audited the adjustments described in Note 11 relating to the
Company's adoption of SFAS 109 that were applied to restate the 1992
financial statements. In our opinion, such adjustments are appropriate and
have been properly applied.
KPMG PEAT MARWICK
/s/ KPMG Peat Marwick
- - --------------------------
Denver, Colorado
June 30, 1994
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Capital Associates, Inc.:
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity, and cash flows, before the adjustment
discussed in Note 11, of Capital Associates, Inc. and subsidiaries for the
year ended May 31, 1992. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and their cash
flows of Capital Associates, Inc. and subsidiaries, before the adjustment
discussed in Note 11, for the year ended May 31, 1992 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND
/s/ Coopers & Lybrand
- - --------------------------
Denver, Colorado
September 14, 1992
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
ASSETS
May 31,
-------------------------
1994 1993
(as restated
see Note 11)
Cash, including restricted funds of $1,567
in 1994 and $2,206 in 1993 $ 2,072 $ 3,210
Accounts receivable, net of allowance for
doubtful accounts of $343 in 1994 and
$593 in 1993 1,375 1,715
Income tax refunds receivable 250 1,870
Equipment held for sale or re-lease 5,242 461
Residual values and other receivables arising
from equipment under lease sold to private
investors 5,098 5,071
Net investment in direct finance leases 18,106 51,649
Leased equipment, net 15,615 39,174
Investment in affiliated limited partnerships 12,178 15,200
Other 5,779 6,084
Notes receivable arising from sale-leaseback
transactions 32,417 42,674
Discounted lease rentals assigned to lenders
arising from equipment sale transactions 111,593 113,527
-------- --------
$209,725 $280,635
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Revolving Credit Facility $ 49 $ 21
Accounts payable and other liabilities 8,187 10,414
Term Loan 18,718 37,836
Deferred income taxes 830 1,500
Obligations under capital leases arising
from sale-leaseback transactions 32,337 42,496
Discounted lease rentals 128,505 168,065
-------- --------
188,626 260,332
-------- --------
Commitments and contingencies (Notes 9, 10, 12, 15, and 16)
Stockholders' equity:
Common stock, $.008 par value, 15,000,000
shares authorized, 9,759,000 and 9,686,000
shares issued 60 59
Additional paid-in capital 16,689 16,604
Retained earnings 4,401 3,691
Treasury stock, at cost (51) (51)
-------- --------
Total stockholders' equity 21,099 20,303
-------- --------
$209,725 $280,635
======== ========
The accompanying notes are an integral part
of these consolidated financial statements.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
Year Ended May 31,
----------------------------------------------
1994 1993 1992
(as restated (as restated
see Note 11) see Note 11)
Revenue:
Equipment sales to
affiliated limited
partnerships $ 70,085 $ 62,252 $ 53,776
Other equipment sales 52,384 33,981 24,976
Leasing 13,368 26,003 45,726
Interest 15,027 15,526 26,012
Other 4,101 3,638 4,386
-------- -------- --------
Total revenue 154,965 141,400 154,876
-------- -------- --------
Costs and expenses:
Equipment sales 114,440 85,423 72,737
Leasing 5,511 12,148 30,493
Operating and other expenses 12,307 14,060 16,833
Provision for losses 1,315 2,070 2,150
Interest:
Non-recourse debt 18,370 22,091 36,820
Recourse debt 1,839 3,282 6,140
-------- -------- --------
Total costs and expenses 153,782 139,074 165,173
-------- -------- --------
Net income (loss) before
income taxes 1,183 2,326 (10,297)
Income tax expense (benefit) 473 930 (4,120)
-------- -------- --------
Net income (loss) $ 710 $ 1,396 $ (6,177)
======== ======== ========
Earnings (loss) per common
and dilutive common
equivalent share:
Primary:
Net income (loss) per share $ .07 $ .14 $ ( .70)
======== ======== ========
Fully diluted:
Net income (loss) per share $ .07 $ .13 $ ( .70)
======== ======== ========
Weighted average number of
common and dilutive
common equivalent shares
outstanding used in
computing earnings per share:
Primary 10,901,000 10,306,000 8,886,000
========== ========== =========
Fully diluted 10,901,000 10,888,000 8,886,000
========== ========== =========
The accompanying notes are an integral part
of these consolidated financial statements.
<TABLE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
Common Stock Additional Treasury Stock
-------------------- Paid-in Retained --------------------
Shares Amount Capital Earnings Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1991 (as restated, 9,080,000 $ 54 $ 16,573 $ 8,472 272,500 $(448) $ 24,651
see Note 11)
Sale of common stock under
incentive stock option plan 16,000 - 6 - - - 6
Issuance of shares to
officers - - (147) - (125,000) 206 59
Net loss - - - (6,177) - - (6,177)
--------- ---- -------- -------- -------- ----- --------
Balance at May 31, 1992 (as restated, 9,096,000 54 16,432 2,295 147,500 (242) 18,539
see Note 11)
Sale of common stock under
incentive stock option plan 56,000 1 23 - - - 24
Issuance of shares to
officers 534,000 4 149 - (115,500) 191 344
Net income - - - 1,396 - - 1,396
--------- ---- -------- -------- -------- ----- --------
Balance at May 31, 1993 (as restated, 9,686,000 59 16,604 3,691 32,000 (51) 20,303
see Note 11)
Sale of common stock under
incentive stock option plan 23,000 - 10 - - - 10
Issuance of shares to
officer 50,000 1 56 - - - 57
Income tax benefit from
stock compensation - - 19 - - - 19
Net income - - - 710 - - 710
--------- ---- -------- -------- -------- ----- --------
Balance at May 31, 1994 9,759,000 $ 60 $ 16,689 $ 4,401 32,000 $ (51) $ 21,099
========= ==== ======== ======== ======== ===== ========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended May 31,
-------------------------------------------
1994 1993 1992
(as restated (as restated
see Note 11) see Note 11)
Cash flows from operating
activities:
Net income (loss) $ 710 $ 1,396 $ (6,177)
------- ------- --------
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization 6,613 12,998 31,694
Provision for losses 1,315 2,070 2,150
Deferred income taxes (670) (200) (4,900)
Gain on sale of
equipment held for
investment (3,190) (3,789) (877)
Sales-type lease margin (1,062) (1,338) (109)
Decrease in accounts
receivables 2,131 4,311 7,053
Other (1,709) (70) 497
------- ------- --------
Total adjustments 3,428 13,982 35,508
------- ------- --------
Net cash provided by operating
activities 4,138 15,378 29,331
------- ------- --------
Cash flows from investing
activities:
Recovery of investment in
direct financing leases 13,840 20,129 22,664
Equipment purchased for
leasing (3,446) (19,518) (16,131)
Net receipts from affiliated
public income funds 2,395 3,164 527
Sale of investment in
Corporate Express, Inc. - - 1,770
Proceeds from sales of
equipment 17,824 18,563 23,998
------- ------- --------
Net cash provided by investing
activities 30,613 22,338 32,828
------- ------- --------
Cash flows from financing
activities:
Proceeds from discounting
of lease rentals 4,916 13,697 15,069
Principal payments on
discounted lease rentals (21,725) (34,126) (52,044)
Proceeds from sales of
common stock 10 24 6
Net payments on Revolving
Credit Facility, short-term
recourse borrowings and
Term Loan (19,090) (21,127) (21,336)
------- ------- --------
Net cash used by financing
activities (35,889) (41,532) (58,305)
------- ------- --------
Net increase (decrease) in cash (1,138) (3,816) 3,854
Cash at beginning of year 3,210 7,026 3,172
------- ------- --------
Cash at end of year $ 2,072 $ 3,210 $ 7,026
======== ======= ========
Supplemental schedule of cash
flow information:
Recourse interest paid $ 1,867 $ 3,631 $6,508
Non-recourse interest paid 3,055 6,042 10,408
Income taxes paid 809 1,805 1,193
Income tax refunds received 1,623 70 3,421
Supplemental schedule of non-cash
investing and financing
activities:
Discounted lease rentals
associated with equipment
sold to third-party
investors 36,612 18,007 23,985
Assumption of discounted
lease rentals in lease
acquisitions 15,795 23,171 -
Other receivables relating
to equipment sale
transactions 1,876 49 -
The accompanying notes are an integral part
of these consolidated financial statements.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
General Accounting Principles
Principles of Consolidation
The consolidated financial statements include the accounts of Capital
Associates, Inc. ("CAI") and its subsidiaries (collectively, the
"Company"). Intercompany accounts and transactions are eliminated in
consolidation.
The Company has investments in affiliated public income funds (the
"PIFs", consisting of both general partnership and subordinated
limited partnership interests) and other 50%-or-less owned entities.
Such investments are primarily accounted for using the equity method.
The parent company's assets consist solely of its investments in
subsidiaries and it has no liabilities separate from its subsidiaries.
Income Taxes and Restatement
In 1994 the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes and
has applied the provisions of SFAS No. 109 retroactively to June 1,
1988. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
previously accounted for income taxes under Accounting Principle Board
Opinion No. 11, whereby deferred taxes were provided for revenue and
expense items recognized in different years for financial statement
and income tax purposes.
Equipment Held for Sale or Re-lease
Equipment held for sale or re-lease, recorded at the lower of cost or
market value expected to be realized consists of equipment previously
leased to end users which has been returned to the Company following
lease expiration. The May 31, 1994 carrying value consists primarily
of one jet aircraft.
Income (Loss) per Common and Common Equivalent Share
Income per common and common equivalent share is computed by dividing
net income by the weighted average number of shares of common stock
and common stock equivalents (consisting solely of common stock
options) outstanding during the period.
Loss per common and common equivalent share is computed by dividing
net loss by the weighted average number of shares of common stock
outstanding, as outstanding common options were anti-dilutive.
Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the current year's presentation.
Equipment Leasing and Sales
Lease Accounting - Statement of Financial Accounting Standards No. 13
requires that a lessor account for each lease by either the direct
financing, sales-type or operating lease method. Direct financing and
sales-type leases are defined as those leases which transfer
substantially all of the benefits and risks of ownership of the
equipment to the lessee. The Company currently utilizes the direct
financing or the operating method for substantially all of the
Company's lease originations. The Company currently utilizes the
sales-type and operating lease methods for substantially all leases
after the expiration of the initial lease term. For all types of
leases, the determination of profit considers the estimated value of
the equipment at lease termination, referred to as the residual value.
After the inception of a lease, the Company may engage in financing of
lease receivables on a non-recourse basis and/or equipment sale
transactions to reduce or recover its investment in the equipment.
The Company's accounting methods and their financial reporting effects
are described below:
Lease Inception
Direct Financing Leases ("DFLs") - The cost of equipment is recorded
as net investment in DFLs. Leasing revenue, which is recognized over
the term of the lease, consists of the excess of lease payments plus
the estimated residual value over the equipment's cost. Earned income
is recognized monthly to provide a constant yield and is recorded in
leasing revenue in the accompanying statements of operations. Initial
direct costs ("IDC") are capitalized and amortized over the lease term
in proportion to the recognition of earned income. Residual values
are established at lease inception equal to the estimated value to be
received from the equipment following termination of the initial lease
as determined by the Company. In estimating such values, the Company
considers all relevant information and circumstances regarding the
equipment and the lessee.
Operating Leases ("OLs") - Leasing revenue consists principally of
monthly rentals. The cost of equipment is recorded as leased
equipment and is depreciated on a straight-line basis over the lease
term to an amount equal to the estimated residual value at the lease
termination date. Residual values are established at lease inception
equal to the estimated value to be received from the equipment
following termination of the initial lease (which in certain
circumstances includes anticipated re-lease proceeds) as determined by
the Company. In estimating such values, the Company considers all
relevant information and circumstances regarding the equipment and the
lessee. IDC are capitalized and amortized over the lease term in
proportion to the recognition of rental income. Depreciation expense
and amortization of IDC are recorded as leasing costs in the
accompanying statements of operations. Because revenue, depreciation
expense and the resultant profit margin before interest expense are
recorded on a straight-line basis, and interest expense on discounted
lease rentals is incurred on the interest method, profit is skewed
toward lower returns in the early years of the term of an OL and
higher returns in later years.
Transactions Subsequent to Lease Inception
Non-recourse Discounting of Rentals - The Company may assign the
rentals from leases to financial institutions at fixed interest rates
on a non-recourse basis. In return for such future lease payments,
the Company receives the discounted value of the payments in cash. In
the event of default by a lessee, the financial institution has a
first lien on the underlying leased equipment, with no further
recourse against the Company. Cash proceeds from such financings are
recorded on the balance sheet as discounted lease rentals. As lessees
make payments to financial institutions, leasing revenue and interest
expense are recorded.
Sales to Private Investors of Equipment Under Lease - The Company
sells title to leased equipment that in some cases is subject to
existing non-recourse debt in equipment sale transactions with
third-party investors. In such transactions, the investors obtain
ownership of the equipment as well as rights to equipment rentals
and tax benefits. Upon sale, the Company records equipment sales
revenue equal to the sales price of the equipment which may include a
residual interest retained by the Company (recorded as an asset at
present value using an appropriate interest rate) and records
equipment sales cost equal to the carrying value of the related assets
(including remaining unamortized IDC). Income is recorded on residual
interests retained by the Company after cumulative cash collections on
such residuals exceed the recorded asset amount. Fees for remarketing
equipment associated with such transactions are reflected in
operations as realized.
Other accounts arising from private equity sales include:
Discounted Lease Rentals, etc. - Pursuant to FASB Technical Bulletin
No. 86-2, although private investors and PIFs may acquire the
equipment sold to them by the Company subject to the associated
non-recourse debt, the debt is not removed from the balance sheet
unless such debt has been legally assumed by the third-party
investors. If not legally assumed, a corresponding asset
("discounted lease rentals assigned to lenders arising from
equipment sale transactions") is recorded representing the present
value of the end user rentals receivable relating to such
transactions. Interest income is recorded on the discounted lease
rentals and an equal amount of interest expense on the related
liability is recorded in the accompanying statements of operations.
Sale-Leaseback Transactions - In sale-leaseback transactions, the
Company leases equipment, obtains non-recourse financing on the
equipment, sells the equipment to a third party and leases the
equipment back from the third party. Income in a sale-leaseback
transaction is deferred and principally amortized over the leaseback
term in proportion to the reduction in the leased asset. For
financial reporting purposes, a note receivable from the
third-party, a capital lease obligation equal to the present value
of the leaseback payments and a deferred gain are recorded at the
time of the transaction. Amortization of the deferred gain is
generally recorded as a reduction of leasing costs and expenses in
the accompanying statements of operations unless the estimated
residual value of the underlying equipment has experienced an other
than temporary decline in value, in which case amortization ceases.
The Company has not entered into a sale/leaseback transaction since
fiscal year 1991.
Interest Income - Interest income, as shown on the accompanying
statements of operations, includes interest on discounted lease
rentals and interest on notes receivable arising from sale-leaseback
transactions.
Sales to PIFs - Upon the sale of equipment to its PIFs, the Company
records equipment sales revenue equal to the sales price of the
equipment (including any acquisition fees recorded) and costs of
sales equal to the carrying value of the related assets (including
remaining unamortized IDC). Fees for services the Company performs
for the PIFs are recognized at the time the services are performed.
Transactions Subsequent to Initial Lease Termination
After the initial term of equipment under lease expires, the equipment
is either sold or released. When the equipment is sold, the remaining
net book value of equipment sold is removed and gain or loss recorded.
When the equipment is released, the Company utilizes the sales-type
method or the OL method.
Sales-type Leases
The excess of the present value of future rentals and the present
value of the estimated residual value (collectively, "the net
investment") over the carrying value of the equipment subject to the
sales-type lease is reflected in operations at the inception of the
lease. Thereafter, the net investment is accounted for as a DFL, as
described above.
Allowance for Losses
An allowance for losses is maintained at levels determined by
management to adequately provide for any other than temporary declines
in asset values. In determining losses, economic conditions, the
activity in the used equipment markets, the effect of actions by
equipment manufacturers, the financial condition of lessees, the
expected courses of action by lessees with regard to leased equipment
at termination of the initial lease term, and other factors which
management believes are relevant, are considered. The lease portfolio
is reviewed quarterly to determine the adequacy of the allowance for
losses.
The Company evaluates the realizability of the carrying value of its
investment in its PIFs based upon all estimated future cash flows from
the PIFs. As a result of such analyses, certain distributions may be
accounted for as a recovery of cost instead of income.
2. Residual Values and Other Receivables Arising from Equipment Under Lease
Sold to PrivateInvestors
As of May 31, 1994 and 1993, the equipment types for which the Company
recorded the present value of the estimated residual values and other
receivables arising from private sales of equipment under lease are (in
thousands):
Description 1994 1993
IBM, primarily peripheral computer equipment $ 461 $ 345
Aircraft 518 1,008
Mining and manufacturing 725 648
Grocery store fixtures 1,118 0
Other miscellaneous equipment 812 1,287
-------- -------
Total equipment residuals 3,634 3,288
Notes receivable due directly from investors 1,289 1,440
End user rentals under existing
leases assigned to the Company by investors 175 343
-------- -------
$ 5,098 $ 5,071
======== =======
Residual values and other receivables arising from equipment under lease
sold to private investors are net of an allowance for doubtful accounts
of $6,934,000 and $8,719,000 as of May 31, 1994 and 1993, respectively.
3. Net Investment in DFLs
The components of the net investment in DFLs as of May 31, 1994 and 1993
are (in thousands):
1994 1993
Minimum lease payments receivable $ 18,214 $ 53,325
Estimated residual values 2,256 7,972
IDC 136 390
Less unearned income (2,500) (10,038)
-------- -------
$18,106 $51,649
======== =======
4. Leased Equipment
The Company's investments in equipment on OLs by major classes as of May
31, 1994 and 1993 are (in thousands):
1994 1993
IBM peripheral computer equipment $ 3,427 $ 10,635
IBM processors 3,237 1,840
DEC computer equipment 309 5,353
Other technology and communication equipment 4,168 12,036
Aircraft 9,040 29,835
Other 8,284 10,883
IDC 103 296
-------- --------
28,568 70,878
Less accumulated depreciation (11,212) (27,551)
Less allowance for losses (1,741) (4,153)
-------- --------
$ 15,615 $ 39,174
======== ========
Depreciation on leased equipment was $5,209,000, $11,425,000 and
$28,409,000 for fiscal years 1994, 1993 and 1992, respectively.
The investment in aircraft includes one aircraft for which the Company
has a commitment to sell for $5 million, which is approximately equal to
its carrying value. The sale is scheduled to close in September 1994.
5. Future Minimum Lease Payments
Future minimum lease payments receivable from noncancelable leases on
equipment owned by the Company as of May 31, 1994, are as follows (in
thousands):
Years Ending May 31 DFLs OLs
1995 $ 9,530 $ 3,938
1996 5,520 2,098
1997 2,368 1,255
1998 623 87
1999 143 0
Thereafter 30 0
-------- -------
$ 18,214 $ 7,378
======== =======
6. Notes Receivable and Obligations Under Capital Leases Arising from
Sale-leaseback Transactions
In sale-leaseback transactions, the leaseback payments are generally
equal in amount to the principal and interest payments due under the
note receivable. The notes receivable and obligations under capital
leases arising from sale-leaseback transactions do not represent future
net cash inflows or outflows of the Company.
Aggregate maturities of notes receivable and obligations under capital
leases arising from sale-leaseback transactions are as follows (in
thousands):
Notes
Years Ending May 31 Receivable Obligations
1995 $ 11,380 $ 11,314
1996 12,628 12,603
1997 7,666 7,673
1998 743 747
-------- --------
$ 32,417 $ 32,337
======== ========
Notes receivable and obligations arising from sale-leaseback
transactions bear interest at rates ranging from 10.0% to 11.63%.
7. Concentration of Credit Risk
The Company leases various types of equipment to companies in diverse
industries throughout the United States. To minimize credit risk, the
Company generally leases equipment to (1) companies that have a credit
rating of not less than Baa as determined by Moody's Investor Services,
Inc., or comparable credit ratings as determined by other recognized
credit rating services, or (2) companies, which although not rated by a
recognized credit rating service or rated below Baa, are believed by the
Company to be sufficiently creditworthy to satisfy the financial
obligations under the lease.
At May 31, 1994, equipment on OLs and DFLs owned by the Company was
leased to companies with the following credit ratings:
Percentage of the
net book value of
Credit Rating equipment on lease
Baa (or equivalent) or above 82%
Below Baa (or equivalent) 11
In bankruptcy 7
8. Discounted Lease Rentals
Discounted lease rentals outstanding at May 31, 1994 bear interest at
rates primarily ranging between 7% to 12%. Aggregate maturities of such
non-recourse obligations are (in thousands):
Years Ending May 31:
1995 $ 64,619
1996 32,380
1997 21,745
1998 7,869
1999 1,462
Thereafter 430
--------
$128,505
========
9. Credit Facility
The Company's recourse operating credit facility ("Debt Facility")
consists of two facilities, a revolving credit facility (the "Revolving
Credit Facility") and a term facility (the "Term Loan"). The
availability under the Revolving Credit Facility is equal to the lesser
of (1) $10.75 million or (2) the Borrowing Base Amount (as defined),
reduced by the outstanding indebtedness under the Revolving Credit
Facility at any time and from time to time. As of May 31, 1994, the
Borrowing Base Amount was $4.1 million, and the outstanding
indebtedness under the Revolving Credit Facility was $49,109, leaving
approximately $4.0 million of availability under the Revolving Credit
Facility at May 31, 1994 to fund the Company's working capital needs.
The outstanding principal balance of the Term Loan, as of May 31, 1994,
was $18.7 million. Principal reductions under the Term Loan are
scheduled to occur as follows (in thousands):
Principal Balance on May 31, 1994 $18,718
Twelve Months Ended May 31, 1995 14,665
-------
Principal Balance Remaining on May 31, 1995 $ 4,053
=======
The entire unpaid balance of the Debt Facility will be due and owing on
May 31, 1995, unless the parties agree to renew and extend such
indebtedness. As of May 31, 1994, CAII had prepaid $2.0 million of the
scheduled Term Loan payments, representing approximately 1.4 months of
scheduled payments and no Defaults or Events of Default existed under
the Second Amended Loan Agreement which had not been waived by its
Lenders.
The Revolving Credit Facility bears interest at the Mellon Bank, N.A.'s
("Mellon") Prime Rate, plus 1%, payable monthly, in arrears. On May 31,
1994, Mellon's Prime was 7.25%. The Term Loan bears interest at a fixed
rate of 6.0%, payable monthly, in arrears.
The Debt Facility (1) is collateralized by all of CAII's assets and (2)
is senior, in order of priority, to all of CAII's indebtedness, other
than liens which are senior by operation of law, other liens to which
the Lenders have subordinated their position and non-recourse financing
liens on specific equipment and leases. The Company and certain of the
Company's and CAII's subsidiaries have guaranteed CAII's obligations
under the Second Amended Loan Agreement and have pledged all of their
assets, with limited exceptions, to collateralize their guarantees.
The Second Amended Loan Agreement requires CAII to maintain (1) a ratio
of Total Collateral Amount to Maximum Aggregate Commitment (as defined
in the Second Amended Loan Agreement) of not less than .70:1 through
August 29, 1994 and .80:1 thereafter, (2) consolidated stockholders'
equity of not less than $19 million and (3) a ratio of Eligible
Receivables to the Revolving Credit Loan (as defined in the Second
Amended Loan Agreement) of not less than 1.1:1.0.
As required under the Second Amended Loan Agreement, the Company has
directed lessees under all leases for which permanent non-recourse
financing has not been obtained to remit their rental payments directly
to a cash collateral account. The Company holds separate from the cash
collateral account (into which all Company owned receipts are deposited
and disbursements are made from) certain funds on behalf of certain
third parties. From time to time, the Company makes payments from these
funds to such third parties. In the aggregate, at May 31, 1994, cash
and cash equivalents totalling $1,567,000 were held by the Company on
behalf of third parties. All of these funds are classified as
restricted.
The Second Amended Loan Agreement restricts CAII's ability to pay
dividends, or loan or advance funds, to the Company. The Company has
submitted a business plan to the Lenders and material deviation from
that plan requires the Lenders' consent. The Company is also required
to obtain the Lenders' consent for the disposition of certain assets.
The Term Loan also provides for the payment of additional, contingent
interest at Mellon's Prime Rate, plus 3%, less any interest actually
paid on the Term Loan ("Additional Interest"), upon the earliest to
occur of any one of the following events: (1) a sale by CAII of
substantially all of its assets outside the ordinary course of business,
(2) a merger of the Company or CAII with any person other than the
Company, CAII or one of their subsidiaries, (3) a refinancing of all or
a portion of the indebtedness under the Second Amended Loan Agreement,
(4) a sale by the Company or CAII of 20% or more of its stock or (5) the
filing by or against the Company, CAII or one of their subsidiaries of a
petition for relief under the bankruptcy laws.
10. Related Parties
PIFs:
The Company sponsors or co-sponsors six PIFs that purchase equipment
under lease from the Company. The Company acts as either a general
partner or co-general partner of each PIF for which it receives general
partner distributions as well as fees for managing the day-to-day
activities of each PIF and providing certain other services. As of May
31, 1994, approximately $0.5 million was receivable from the PIFs for
such fees. The Company recognized gain on sales of equipment to the
PIFs of approximately $1.8 million in fiscal year 1994, $1.8 million in
fiscal year 1993, and $1.2 million in fiscal year 1992, and earned fees
and other distributions totalling approximately $3.3 million, $2.9
million and $2.3 million in fiscal years 1994, 1993 and 1992,
respectively.
The Company is required to make subordinated limited partnership
investments in the PIFs. During fiscal years 1994, 1993 and 1992, the
Company made investments in subordinated limited partnership interests
in the PIFs by contributing cash of approximately $0.2 million and $0.1
million in fiscal years 1994 and 1993, respectively, and purchasing and
contributing equipment with a net book value of approximately $3.2
million in fiscal year 1992. The Company has a maximum remaining
obligation to make further cash or equipment contributions not to exceed
approximately $0.5 million for all of the existing PIFs (which relates
solely to CPYF III).
Other Related Party Transactions:
The Company had an approximate 44% interest in an office products and
computer supply company, Corporate Express, Inc. On November 27, 1991,
the Company sold substantially all of its investment in Corporate
Express, Inc. ("CE"), for an aggregate price of approximately $1.7
million. The investment in CE was previously fully reserved for, and
the sale resulted in a gain of $1,744,000, which is included in "Other
Revenue" in the accompanying Consolidated Statements of Operations for
fiscal year 1992.
The Company has entered into a vendor program agreement with a computer
equipment and software vendor. An executive officer of the vendor is a
director of the Company. During fiscal year 1994 the Company purchased
and leased to third parties $206,000 of equipment under this program.
During fiscal year 1994, the Company purchased computer equipment from a
manufacturer having a cost of $427,000. An executive officer of the
manufacturer is a director of the Company.
The Company has entered into a remarketing agreement for certain of its
aircraft with a regional/commuter aircraft leasing company. An
executive officer of that company is a director of the Company. During
fiscal year 1994, the Company paid $106,000 of commissions under this
remarketing agreement.
11. Income Taxes
As discussed in Note 1, the Company adopted SFAS No. 109 effective June
1, 1993, and has applied the provisions of SFAS 109 retroactively to
June 1, 1988. The financial statements for the years ended May 31, 1989
through 1993 have been restated to comply with the provisions of SFAS
No. 109.
The cumulative effect of the change in the method of accounting for
income taxes resulted in a $12,718,000 charge to operations as of June
1, 1988. The effects of the restatement on net income and related per
share amounts for fiscal years 1993 and 1992 are as follows:
1993 1992
As previously reported:
Net income (loss) $1,196,000 $(11,077,000)
Net income (loss) per primary
common share .12 (1.25)
As restated:
Net income (loss) $1,396,000 $ (6,177,000)
Net income (loss) per primary
common share .14 (.70)
Effect of SFAS No. 109:
Change in net income (loss) 200,000 4,900,000
Change in net income (loss)
per primary common share .02 .55
In addition, retained earnings, as of May 31, 1991, have been reduced by
$6,600,000, as a result of the restatement.
The components of the income tax provision (benefit) charged (credited)
to continuing operations were (in thousands):
1994 1993 1992
Current:
Federal $ 1,000 $ 730 $ 400
State and local 143 400 380
-------- ------- -------
1,143 1,130 780
-------- ------- -------
Deferred:
Federal (400) (150) (3,675)
State and local ( 270) (50) (1,225)
-------- ------- -------
(670) (200) (4,900)
-------- ------- -------
Total tax provision $ 473 $ 930 $(4,120)
======== ======= =======
Income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to pretax income from
continuing operations as a result of the following:
1994 1993 1992
Computed "expected" tax expense
(benefit) $ 402 $ 791 $(3,501)
State tax provisions, net of
federal benefits 71 139 (619)
-------- ------- -------
$ 473 $ 930 $(4,120)
======== ======= =======
Income taxes are provided income from continuing operations at the
appropriate federal and state statutory rates applicable to such
earnings. The effective tax rate for the fiscal years ended May 31,
1994 and 1993 was 40%.
Components of income tax expense (benefit) attributable to net income
(loss) before income taxes is as follows (in thousands):
1994 1993 1992
Current
Taxes on net income before
carryforwards $ 8,593 $ 5,190 $ 6,100
Less benefit of loss carryforward
utilized (7,050) (4,060) (5,320)
Less benefit of investment tax
credit carryforward utilized (400) - -
-------- -------- --------
1,143 1,130 780
-------- -------- --------
Deferred
Tax effect of net change in
temporary differences (9,100) (4,260) (10,220)
Utilization of tax net operating
loss carryforward 7,050 4,060 5,320
AMT liability, net of utilization
of investment tax credit
carryforward (1,000) - -
Increase in valuation allowance
for deferred income tax assets 2,380 - -
-------- -------- --------
( 670) (200) 4,900)
-------- -------- --------
Provision for income taxes $ 473 $ 930 $ (4,120)
======== ======== ========
Significant components of the Company's deferred tax liabilities and
assets as of May 31, 1994 and 1993, were as follows (in thousands):
1994 1993
Deferred income tax liabilities:
Direct finance leases accounted for as operating
leases for income tax purposes, and equipment
depreciation for tax purposes in excess of
book depreciation $ 9,300 $18,600
Residual values and other receivables arising
from equipment under lease sold to private
investors 1,400 1,300
-------- -------
Total deferred income tax liabilities 10,700 19,900
-------- -------
Deferred income tax assets:
Receivables realized for books, but not for
income tax reporting purposes 400 1,000
Other assets and liabilities, net 600 100
Net operating loss carryforwards 6,700 13,750
Capital loss carryforwards 350 350
Investment tax credit carryforwards 8,000 8,400
AMT credit carryforwards 2,000 600
-------- -------
Total deferred income tax assets 18,050 24,200
Valuation allowance for deferred income
tax assets (8,180) (5,800)
-------- -------
Net deferred income tax assets 9,870 18,400
-------- -------
Net deferred income tax liability $ 830 $ 1,500
======== =======
The valuation allowance for the Company's deferred tax assets represents
primarily managements estimate of the portion of investment tax credit
carryforwards which will expire prior to utilization.
As of May 31, 1994, the Company has the following income tax carryovers
(in thousands):
Alternative
Regular Minimum Tax
Income Tax (AMT) Years
Reporting Income Tax of
Purposes Reporting Purposes Expiration
Net operating loss $ 16,800 $ 0 2005-2006
Investment tax credit 8,000 8,000 1995-2001
AMT credit against
regular tax 2,000 N/A N/A
12. Common and Preferred Stock
The Company has authority to issue 2,500,000 shares of preferred stock
at $0.008 par value. At May 31, 1994, no shares of preferred stock had
been issued.
Two principal stockholders, who together own approximately 35.5% of the
outstanding shares of the Company are parties to an agreement with the
Company pursuant to which each of them has granted the Company and,
secondarily, the other, a right of first refusal to purchase their
shares of common stock at current market value. Upon the death or
disability of one of them, the Company will be obligated to purchase an
amount of his shares at current market value equal to the greater of $1
million or the amount of insurance proceeds to be received by the
Company in the event of death. The Company is the owner of life
insurance policies providing approximately $3 million of coverage with
respect to each of the principal stockholders.
13. Stock Options
The Company has a stock option plan whereby stock options may be granted
to directors and employees to purchase shares of the Company's common
stock at prices equal to 100% of the estimated fair value at the date of
grant.
Common stock received through the exercise of incentive stock options
which are sold by the optionee within two years of grant or one year of
exercise result in a tax deduction for the Company equivalent to the
taxable gain recognized by the optionee. For financial reporting
purposes, the tax effect of this deduction is accounted for as
additional paid-in capital. Such optionee sales resulted in a tax
benefit to the Company of $19,000 in fiscal year 1994.
The following table summarizes the activity in this plan for the periods
indicated:
Options Exercise Price Options
Outstanding Per Share Exercisable
Outstanding at
May 31, 1991 3,634,000 0.4000 - 5.6250 1,191,000
Exercised (16,000) 0.4000 - 0.5625 =========
Granted 1,821,000 0.0625 - 0.7500
Canceled (2,746,000) 0.3400 - 5.6250
Outstanding at ----------
May 31, 1992 2,693,000 0.0625 - 2.7500 1,112,000
Exercised (56,000) 0.3400 - 0.5625 =========
Granted 160,000 0.4065 - 1.1250
Canceled (446,000) 0.3400 - 2.7500
Outstanding at ----------
May 31, 1993 2,351,000 0.0625 - 1.1250 1,336,000
Exercised (23,000) 0.3400 - 0.5625 =========
Granted 55,000 0.8125 - 1.2188
Canceled (119,000) 0.3400 - 1.1250
Outstanding at ----------
May 31, 1994 2,264,000 0.0625 - 1.2188 1,682,000
========== =========
14. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the years ended May 31, 1994 and
1993 are (in thousands, except per share data):
Income Per
Total Net Common and Common
Fiscal year 1994: Revenue Income Equivalent Share
First quarter $52,342 $ 281 $ .03
Second quarter 39,900 174 .02
Third quarter 22,297 187 .02
Fourth quarter 40,426 68 <F1> .01
Income Per
Total Net Common and Common
Fiscal year 1993: Revenue Income Equivalent Share
First quarter $31,018 $ 386 $ .04
Second quarter 44,102 380 .04
Third quarter 26,663 350 .03
Fourth quarter 39,617 280 .03
<F1> The fiscal fourth quarter results were impacted by a provision for
loss of approximately $180,000, recorded to reflect the impairment in
value of the Company's general partnership interest in Northstar, a
PIF established during fiscal 1988. Northstar is approaching
termination and the range of probable realized asset values has
narrowed, and an impairment in value is now expected.
15. M-Bank Lease and Litigation and CIS Litigation
MBank Lease and Litigation
In 1987, the Company leased equipment ("Equipment") to MBank Dallas,
N.A., an FDIC insured institution ("MBank"). FDIC placed MBank in
receivership in 1989. The Company's carrying value in the Equipment at
May 31, 1994 is $2.3 million. The Company agreed to sell the Equipment
during 1992 to Bank One, Texas, N.A., another financial institution,
that previously bought other MBank assets. The sales contract with Bank
One provided for installment payments of $5.75 million, of which the
Company has collected $1.3 million. Payments under the contract ceased
as a result of litigation related to the Equipment, the lease thereof
(the "Lease") and certain other collateral for the Lease. The
litigation is discussed in detail in the Company's Annual Report on
Form 10-K for fiscal 1994.
At this time, potential outcomes are (i) CAI collects $10 million under
the lease for a gain of $4.6 million (net of income tax), (ii) CAI
collects $4.4 million on the contract for a gain of $1.3 million (net of
income tax), (iii) CAI loses its equity investment in the Equipment and
returns payments received for a loss of $2.2 million (net of income tax)
or (iv) CAI participates in a settlement of the litigation. Certain
other defendants have filed breach of contract and related tort claims
against the Company. The results of these claims will depend on the
final resolution of the parties' respective claims related to the
Equipment, the Lease and the other collateral for the Lease. Based upon
the advice of legal counsel, management believes that the ultimate
outcome of the MBank Litigation will not have a material adverse impact
on the Company's financial position.
CIS Litigation
On May 31, 1994, CAI and CIS agreed to settle their respective claims
against each other in connection with CIS's bankruptcy. Pursuant to
such settlement, CAI has agreed to pay $220,000 to CIS, the parties have
agreed to dismiss their respective claims against each other and the
parties have agreed to enter into a mutual general release. CIS has
agreed to draft the settlement agreement and deliver a copy thereof
to the Company. The Company has not received that copy as of the date
of these financial statements. The Company has accrued the settlement
amount of $220,000 as of May 31, 1994.
16. Commitments
In November, 1989, the Company bought two options (the "Options") to
acquire certain mining equipment (the "Equipment") on lease (the
"Lease") to an end-user (the "End-User") for $760,000. The purchase
price for the Options consisted of two full recourse promissory notes,
one payable to the seller (the "Seller") in July 1996, and the other
payable to the Seller in July 1997 (the "Notes"). Interest on the Notes
accrues at 10% per year as follows (in thousands):
Note A Note B Total
Note payable balance
as of May 31, 1994 $ 598 $ 598 $1,196
Future interest expense
for the year ending
May 31, 1995 63 63 126
1996 69 69 138
1997 77 6 83
1998 7 - 7
------ ------ ------
Balance due at maturity $ 814 $ 736 $1,550
====== ====== ======
The Option purchase agreements provide that the Seller cannot agree to
certain amendments to the Lease without the Company's prior consent.
The Seller and the End-User have agreed to certain amendments to the
Lease. The Company believes that the Notes are no longer enforceable
because of such amendments. The Company has asked the Seller to cancel
the Notes and return them to the Company. The Seller has refused to do
so. The Company will not eliminate the Notes payable and carrying value
of the Equipment until it receives the cancelled Notes back from the
Seller.
The Company leases office space under long-term non-cancelable operating
leases. The leases contain renewal options and provide for annual
escalation for utilities, taxes and service costs. Minimum future
rental payments required by such leases are as follows (in thousands):
Year Ending May 31,
1995 $ 570
1996 486
1997 198
------
$1,254
======
In connection with the lease agreement for the Company's headquarters,
the Company has granted the landlord a lien on all furniture, fixtures,
improvements and personal property of the Company located at the
headquarters facility.
17. Disclosures about Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments was made in accordance with SFAS No. 107. SFAS No. 107
specifically excludes certain items from its disclosure requirements
such as the Company's investment in leased assets. Accordingly, the
aggregate fair value amounts presented are not intended to represent
the underlying value of the net assets of the Company.
The carrying amounts at May 31, 1994 for cash, accounts receivable,
income tax refunds receivable, residual values and other receivables
arising from equipment under lease sold to private investors, the
Revolving Credit Facility, accounts payable and other liabilities and
the Term Loan approximate their fair values due to the short maturity
of these instruments, or because the related interest rates approximate
current market rates.
As of May 31, 1994, discounted lease rentals and discounted lease
rentals assigned to lenders arising from equipment sale transactions of
$128,505,000 and $111,593,000, respectively, have fair values of
$131,653,000 and $114,327,000, respectively. The fair values were
estimated utilizing market rates of comparable debt having similar
maturities and credit quality as of May 31, 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Capital Associates, Inc.:
Under date of June 30, 1994, we reported on the consolidated balance sheets
of Capital Associates, Inc. and subsidiaries as of May 31, 1994 and 1993, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended, as contained in the
Company's annual report on Form 10-K for the year 1994. In connection with
our audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedules as listed in the
accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, the financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Notes 1 and 11 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 109, ACCOUNTING FOR INCOME TAXES, as of June 1, 1993 and retroactively
restated its consolidated financial statements for the years ended May 31,
1993 and 1992.
We also audited the adjustments described in Note 11 relating to the
Company's adoption of SFAS 109 that were applied to restate the 1992
financial statements. In our opinion, such adjustments are appropriate and
have been properly applied.
KPMG PEAT MARWICK
/s/ KPMG Peat Marwick
- - ----------------------------
Denver, Colorado
June 30, 1994
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Capital Associates, Inc.:
Our report on the consolidated financial statements of Capital Associates,
Inc. and subsidiaries is included on page F-3 of the Form 10-K. In
connection with our audit of such financial statements, we have also audited
the related financial statement schedules listed in the index on page F-1 of
this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
before the adjustment discussed in Note 11, present fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND
/s/ Coopers & Lybrand
- - ----------------------------
Denver, Colorado
September 14, 1992
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Balance at Other Balance
Beginning Additions Changes at End of
Classification of Period at Cost Retirements <F2> Period
May 31, 1994:
Equipment under
operating
leases <F1> $ 70,878 $ 85,542 $(40,611) $(87,241) $ 28,568
Furniture and
fixtures 5,045 658 (835) - 4,868
-------- -------- -------- -------- --------
$ 75,923 $ 86,200 $(41,446) $(87,241) $ 33,436
======== ======== ======== ======== ========
May 31, 1993:
Equipment under
operating
leases <F1> $139,924 $ 59,473 $(62,389) $(66,130) $ 70,878
Furniture and
fixtures 4,727 333 (11) (4) 5,045
-------- -------- -------- -------- --------
$144,651 $ 59,806 $(62,400) $(66,134) $ 75,923
======== ======== ======== ======== ========
May 31, 1992:
Equipment under
operating
leases <F1> $257,870 $ 58,186 $(97,259) $(78,873) $139,924
Furniture and
fixtures 4,796 154 (223) - 4,727
-------- -------- -------- -------- --------
$262,666 $ 58,340 $(97,482) $(78,873) $144,651
======== ======== ======== ======== ========
<F1> Represents the net cost to the Company of equipment under operating
leases.
<F2> Primarily represents sales of equipment to third-party investors and
Company sponsored and co-sponsored PIFs.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Additions
Balance at Charged to Other Balance
Beginning Costs and Changes at End of
Classification of Period Expenses Retirements <F1> Period
May 31, 1994:
Equipment under
operating
leases $ 27,551 $ 5,209 $(17,611) $ (3,937) $ 11,212
Furniture and
fixtures 3,151 783 (604) - 3,330
-------- -------- -------- -------- --------
$ 30,702 $ 5,992 $(18,215) $ (3,937) $ 14,542
======== ======== ======== ======== ========
May 31, 1993:
Equipment under
operating
leases $ 67,928 $ 11,425 $(49,681) $ (2,121) $ 27,551
Furniture and
fixtures 2,298 866 (11) (2) 3,151
-------- -------- -------- -------- --------
$ 70,226 $ 12,291 $(49,692) $ (2,123) $ 30,702
======== ======== ======== ======== ========
May 31, 1992:
Equipment under
operating
leases $118,851 $ 28,409 $(73,559) $ (5,773) $ 67,928
Furniture and
fixtures 1,589 811 (102) - 2,298
-------- -------- -------- -------- --------
$120,440 $29,220 $(73,661) $ (5,773) $ 70,226
======== ======== ======== ======== ========
<F1> Primarily represents sales of equipment to third-party investors and
Company sponsored and co-sponsored PIFs.
<TABLE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Balance at Charged to Charged Balance
Beginning Costs and to Other at End
Description of Period Expenses Accounts Deductions<F1> of Period
<S> <C> <C> <C> <C> <C>
Year ended May 31, 1994:
Allowance for doubtful accounts -
- residual values and other receivables arising
from equipment under lease sold to private investors $ 8,719 $ 82 $ - $ (1,867) $ 6,934
- accounts receivable 593 - - (250) 343
- net investment in direct financing leases - - - - -
Allowance for losses
- investment in affiliated public income funds - 130 - (130) -
- leased equipment 4,153 1,103 - (3,515) 1,741
-------- ------- ------ --------- --------
$ 13,465 $ 1,315 $ - $ (5,762) $ 9,018
======== ======= ====== ========= ========
Year ended May 31, 1993:
Allowance for doubtful accounts -
- residual values and other receivables arising
from equipment under lease sold to private investors $ 10,826 $ - $ 13 $ (2,120) $ 8,719
- accounts receivable 1,448 - - (855) 593
- net investment in direct financing leases 2,715 - - (2,715) -
Allowance for losses
- leased equipment 5,846 2,070 - (3,763) 4,153
-------- ------- ------ --------- --------
$ 20,835 $ 2,070 $ 13 $ (9,453) $ 13,465
======== ======= ====== ========= ========
Year ended May 31, 1992:
Allowance for doubtful accounts -
- residual values and other receivables arising
from equipment under lease sold to private investors $ 8,984 $ 2,000 $ - $ (158) $ 10,826
- accounts receivable 3,603 150 - (2,305) 1,448
- net investment in direct financing leases 2,725 - - (10) 2,715
- other assets 1,779 - - (1,779) -
Allowance for losses
- leased equipment 6,793 - 1,923 (2,870) 5,846
-------- ------- ------ --------- --------
$23,884 $ 2,150 $1,923<F2> $ (7,122) $ 20,835
======== ======= ====== ========= ========
<F1> Principally charge-offs of assets against the established allowances.
<F2> Consists of deferred gain arising from sales-leaseback transactions
transferred to allowance for losses as a result of the impairment of
the related leased equipment.
</TABLE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Weighted
Maximum Average Average
Category of Weighted Amount Amount Interest
Aggregate Balance at Average Outstanding Outstanding Rate
Short-Term End of Interest During the During the During the
Borrowings Period<F3> Rate Period Period <F1> Period <F2>
Year ended
May 31, 1994:
Revolving
Credit
Facility $ 49 7.13% $ 5,641 $ 1,690 7.16%
Year ended
May 31, 1993:
Revolving
Credit
Facility $ 21 7.00% $ 5,461 $ 2,088 7.01%
Short-term
borrowings
from
Lenders <F3> $ - - $ 54,884 $ 51,396 7.13%
Year ended
May 31, 1992:
Short-term
borrowings
from Lenders $ 58,984 7.50% $ 80,662 $ 69,697 8.52%
<F1> The average amount outstanding during the period was computed by
dividing the total daily outstanding principal balances by the number
of days.
<F2> The weighted average interest rate during the period was computed by
dividing actual interest expense by the average short-term borrowings
outstanding during the period.
<F3> See also Note 9 to Notes To Consolidated Financial Statements.
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
for the years ended May 31, 1994, 1993 and 1992
(in thousands)
COLUMN A COLUMN B
Charged to Costs
Item and Expenses
Year Ended May 31, 1994:
Depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals $ 621
=======
Year Ended May 31, 1993:
Depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals $ 706
=======
Year Ended May 31, 1992:
Depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals $ 2,474
=======
Exhibit 11
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Year Ended May 31,
------------------------------------------
1994 1993 1992
Shares outstanding at
beginning of period 9,654,000 8,948,000 8,807,000
Shares issued during the
period (weighted average) 58,000 642,000 79,000
Dilutive shares contingently
issuable upon exercise of
options (weighted average) 2,251,000 1,708,000 -
Less shares assumed to have
been purchased for treasury
with assumed proceeds from
exercise of stock options
(weighted average) (1,062,000) (992,000) -
----------- ----------- -----------
Total shares, primary 10,901,000 10,306,000 8,886,000
=========== =========== ===========
Net Income (loss) $ 710,000 $ 1,396,000 $(6,177,000)
=========== =========== ===========
Income (loss) per common and
common equivalent share,
primary $ .07 $ .14 $ ( .70)
=========== =========== ===========
Exhibit 11
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Year Ended May 31,
------------------------------------------
1994 1993 1992
Shares outstanding at
beginning of period 9,654,000 8,948,000 8,807,000
Shares issued during the
period (weighted average) 58,000 642,000 79,000
Dilutive shares contingently
issuable upon exercise of
options (weighted average) 2,251,000 1,708,000 -
Less shares assumed to have
been purchased for treasury
with assumed proceeds from
exercise of stock options (1,062,000) (410,000) -
(weighted average) ----------- ----------- -----------
Total shares, fully diluted 10,901,000 10,888,000 8,886,000
=========== =========== ===========
Net Income (loss) $ 710,000 $1,396,000 $(6,177,000)
=========== =========== ===========
Income (loss) per common
and common equivalent
share, fully diluted $ .07 $ .13 $ ( .70)
=========== =========== ===========
Exhibit 10.42
AMENDMENT TO STOCKHOLDERS' AGREEMENT
This Amendment to Stockholders' Agreement (the "Amendment"), dated
as of June 1, 1994 (the "Effective Date"), is made by and among Capital
Associates, Inc. (the "Company"), Jack Durliat ("Durliat"), Gary Jacobs
("Jacobs") and Richard Kazan ("Kazan"), on behalf of himself and his estate,
any representative, custodian and/or successor in interest. MCC Financial
Corporation ("MCC") is a signatory to this Amendment solely for purposes of
paragraph 8. of this Amendment.
RECITALS
WHEREAS, the Company, Durliat, Jacobs and Kazan are parties to that
certain Stockholders' Agreement, dated as of October 27, 1982, as amended
from time to time (the "Stockholders' Agreement"), a true, correct and
complete copy of which is attached as Exhibit A to this Amendment;
WHEREAS, Kazan desires to sell all of his shares of common stock of
the Company (Kazan's "Shares") to MCC Financial Corporation ("MCC");
WHEREAS, Kazan has requested that the Company, Durliat and Jacobs
waive and release their rights under the Stockholders' Agreement to purchase,
redeem or otherwise acquire his Shares in order to permit him to complete his
sale of his Shares to MCC;
WHEREAS, the Company, Durliat and Jacobs are willing, on the terms
set forth in this Amendment, to waive and release their rights under the
Stockholders' Agreement to purchase, redeem or otherwise acquire the Shares
in order to permit Kazan to complete the sale of his Shares to MCC;
WHEREAS, Kazan has requested permission to withdraw as a party to
the Stockholders' Agreement concurrent with the sale of his Shares to MCC;
WHEREAS, the Company, Durliat and Jacobs are willing, on the terms
set forth in this Amendment, to grant permission to Kazan to withdraw as a
party to the Stockholders' Agreement concurrent with the sale of his Shares
to MCC;
WHEREAS, the Company, Durliat and Jacobs have requested that Kazan
waive and release all of his rights, titles, interests, claims, privileges
and/or benefits under the Stockholders' Agreement concurrent with his
withdrawal as a party thereto;
WHEREAS, Kazan is willing to waive and release all of his rights,
titles, interests, claims, privileges and/or benefits under the Stockholders'
Agreement concurrent with his withdrawal therefrom;
WHEREAS, the Company has requested that Kazan waive and release any
rights he has or may have in and to the keyman life insurance policy
maintained by the Company on Kazan's life (the "Kazan Insurance Policy")
pursuant to the Stockholders' Agreement (including any right he has or may
have to obtain all or any portion of the net cash surrender value of the
Kazan Insurance Policy) concurrent with the sale of his Shares to MCC;
WHEREAS, Kazan is willing to waive and release any rights he has or
may have in and to the Kazan Insurance Policy (including any right he has or
may have to obtain all or any portion of the net cash surrender value of the
Kazan Insurance Policy) concurrent with the sale of his Shares to MCC;
NOW THEREFORE, in consideration of the promises and mutual
covenants hereinafter contained, and for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and the parties
hereto intending to be legally bound hereby, the parties to this Amendment
agree as follows:
1. Each of the Company, Durliat and Jacobs hereby waives and
releases its/his right(s) under the Stockholders' Agreement to purchase,
redeem or otherwise acquire any and all of Kazan's Shares, provided that
Kazan closes the sale of all of his Shares to MCC on or before June 30, 1994.
The waiver and release granted under this paragraph 1. by each of the
Company, Durliat and Jacobs shall expire, by its own terms, at 11:59 p.m.
Denver time on June 30, 1994, if Kazan has not closed the sale of all of his
Shares to MCC by then.
2. Kazan hereby withdraws as a party to the Stockholders'
Agreement (and hereby acknowledges that he has ceased to be a party to the
Stockholders' Agreement), and each of the Company, Durliat and Jacobs hereby
grants its/his permission to Kazan to withdraw as a party to the
Stockholders' Agreement (and hereby acknowledges that Kazan has ceased to be
a party to the Stockholders' Agreement), effective as of the closing of the
sale of all of Kazan's Shares to MCC.
3. Kazan hereby waives and releases any and all of his rights,
titles, interests, claims, privileges or benefits now or hereafter existing
under the Stockholders' Agreement, such waiver and release to be effective as
of the closing of the sale of all of his Shares to MCC.
4. The Company, Durliat and Jacobs hereby waive, and release
Kazan from, any and all of his duties and/or obligations to each of them
under the Stockholders' Agreement, such waiver and release to be effective as
of the closing of the sale of all of Kazan's Shares to MCC.
5. Kazan hereby waives, and releases the Company, Durliat and
Jacobs from, any and all of their duties and/or obligations now or hereafter
existing to him (or to his estate or any representative or custodian) under
the Stockholders' Agreement, such waiver and release to be effective as of
the closing of the sale of all of Kazan's Shares to MCC.
6. Kazan hereby waives and releases any right, title and interest
he has or may have in and to the Kazan Insurance Policy (including any right
he has or may have to obtain all or any portion of the net cash surrender
value of the Kazan Insurance Policy), such waiver and release to be effective
as of the closing of the sale of all of his Shares to MCC.
7. Notwithstanding anything to the contrary in this Amendment or
in the Stockholders' Agreement, Kazan hereby acknowledges and agrees that he
is executing this Amendment for and on behalf of, and intends for this
Amendment to be legally binding upon, himself, and his estate, any
representative or custodian and any successor in interest to him.
8. Notwithstanding anything to the contrary in this Amendment or
in the Stockholders' Agreement, MCC acknowledges that (a) it shall not become
a party to the Stockholders' Agreement by reason of its purchase of Kazan's
Shares and (b) it shall not become a party to the Stockholders' Agreement
except with the prior written consent of Durliat, Jacobs and the Company,
which consent each such party may grant or withhold in its/his sole and
absolute discretion.
9. Except as expressly modified by this Amendment, the
Stockholders' Agreement shall remain in full force and effect according to
the terms and provisions set forth therein.
10. This Amendment may be executed in any number of separate
counterparts, each of which shall be an original, but all of which shall
constitute one and the same agreement. Each of the parties hereto agrees to
be bound by a facsimile copy of such party's signature on this Amendment to
the same extent as if the facsimile were an original. Each of the parties
hereto agrees to accept a facsimile copy of every other party's signature on
this Amendment in lieu of a fully executed original hereof.
11. This Amendment shall be governed by, and construed and
enforced in accordance with, the laws of the State of Colorado, without
regard to the principles thereof regarding conflicts of laws.
12. Wherever possible, each provision of this Amendment shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Amendment shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision of the remaining provisions of this Amendment.
13. This Amendment and the Stockholders' Agreement constitutes and
contains the entire agreement of the parties and supersedes any or all prior
negotiations, correspondence, agreements and understandings between the
parties respecting the subject matter hereof.
14. Each party to this Amendment shall pay its own costs and
expenses, including legal and accounting fees, incurred in connection with
the negotiation of this Amendment and the consummation of the transactions
provided for herein.
15. This Amendment may be modified, amended or supplemented only
by duly authorized and executed written agreements, signed by all of the
parties hereto.
16. This Amendment and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Amendment nor any
of the rights, interests or obligations hereunder shall be assigned by any
party hereto without the prior written consent of the other parties, nor is
this Amendment intended to confer upon any other person, except the parties
hereto, any rights or remedies hereunder.
17. The parties hereto agree that the remedy at law is inadequate,
and that any party hereto shall be entitled to specific performance in
addition to any other remedy he/it may have, in the event of a breach of this
Amendment. Each party hereto waives the defense that there is an adequate
remedy at law in the event of an action for specific performance of any
rights hereunder.
18. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, upon receipt, or
if mailed by registered or certified mail (return receipt requested), postage
prepaid, on the fifth business day after mailing. Notice to any party
hereto, if mailed, shall be to the following addresses (or to any other
address that a party may designate by notice to the other parties hereto):
If to Kazan: Mr. Richard Kazan
705 Via LaCuesta
Palos Verdes Estates, CA 90274
Telecopy: (310) 375-4840
If to Durliat: Mr. Jack Durliat
18 Borealis Way
Castle Rock, CO 80104
Telecopy: (303) 660-8765
If to Jacobs: Mr. Gary Jacobs
5650 East Oxford Avenue
Cherry Hills Village, CO 80111-1023
Telecopy: (303) 373-8485
If to the Company: Capital Associates, Inc.
7175 West Jefferson Avenue
Suite 3000
Lakewood, CO 80235
Telecopy: (303) 980-7065
With a copy to: John L. Ruppert, Esq.
Ballard Spahr Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, CO 80202
Telecopy: (303) 296-3956
19. In the event of a dispute between the parties arising out of
this Amendment, it is further agreed that a court may award to the prevailing
party in such dispute reasonable attorneys' fee in addition to costs of suit
incurred by the prevailing party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed as of the Effective Date.
CAPITAL ASSOCIATES, INC.
By: /s/Dennis Lacey
------------------------
Dennis Lacey
Title: CEO
/s/Jack Durliat
------------------------
Jack Durliat
/s/Gary Jacobs
------------------------
Gary Jacobs
/s/Richard Kazan
------------------------
Richard Kazan
Paragraph 8 hereof is hereby acknowledged, accepted and
agreed to by MCC Financial Corporation.
MCC FINANCIAL CORPORATION
By: /s/ William H. Buckland
------------------------
William H. Buckland
Title: Chairman
Exhibit 10.43
CONFIDENTIALITY AND STANDSTILL AGREEMENT
This Confidentiality and Standstill Agreement (the "Agreement"),
dated as of June 1, 1994 (the "Effective Date"), is made by and between
Capital Associates, Inc. (the "Company") and Richard Kazan ("Kazan").
RECITALS
WHEREAS, Kazan desires to sell all of his shares of common stock of
the Company (Kazan's "Shares") to MCC Financial Corporation ("MCC");
WHEREAS, Kazan has agreed, in connection with the sale of his Shares,
to resign his position as a director of the Company and any subsidiaries and
affiliates of the Company of which he serves as a director;
WHEREAS, Kazan previously served as an officer of the Company;
WHEREAS, Kazan currently serves as a director of the Company and
Capital Associates International, Inc.;
WHEREAS, Kazan, by reason of his position as a director and formerly
an officer of the Company and Capital Associates International, Inc., a
wholly-owned subsidiary of the Company, is in possession of CAI Confidential
Information (as defined below) of, about and/or concerning the Company;
WHEREAS, Kazan has asked the Company to waive certain rights of the
Company under that certain Stockholders' Agreement, dated as of October 27,
1982, as amended from time to time (the "Stockholders' Agreement"), in order
to permit Kazan to complete the sale of his Shares to MCC; and
WHEREAS, the Company is willing to execute that certain Amendment to
Stockholders' Agreement, dated as of June 1, 1994, by and among the Company,
Kazan, Gary Jacobs and Jack Durliat (the "Amendment"), which Amendment grants
the waiver referenced in the immediately preceding WHEREAS clause provided
that (1) Kazan agrees to insure the strictest confidentiality of the CAI
Confidential Information as provided for herein, (2) Kazan agrees not to
purchase, directly or indirectly, for a period of 48 months immediately
following the closing of Kazan's sale of his Shares to MCC, (a) any stock of
the Company (or any successor thereto), (b) any option, warrant or other
right to acquire any stock of the Company (or any successor thereto), (c) any
debt or equity instrument that is convertible into or exchangeable for stock
of the Company (or any successor thereto) or (d) any other similar instrument
or contract right that is the financial equivalent of any right described in
(a), (b) or (c) of this sentence (the rights described in (a), (b), (c) and
(d) of this sentence are collectively referred to herein as "Stock").
NOW THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and the parties hereto
intending to be legally bound hereby, the parties to this Agreement agree as
follows:
1. The term "CAI Confidential Information" shall mean all
non-public information concerning the Company, its subsidiaries and its
affiliates that is in Kazan's possession by reason of his having been a
director and officer of the Company and certain of its subsidiaries and
affiliates, as well as a greater-than-20% shareholder of the Company, that
Kazan knows, reasonably should know or has reason to know is confidential or
proprietary to the Company.
2. Kazan hereby agrees that he will neither disclose to, nor
permit, any person or entity other than officers, directors, or agents of the
Company, its affiliates or its subsidiaries, to view any CAI Confidential
Information or its contents, nor will Kazan disclose any of the terms,
conditions or facts relating to the sale of his Shares to MCC; provided,
however, that the foregoing shall not prohibit Kazan from disclosing any CAI
Confidential Information or any part thereof if such CAI Confidential
Information is or becomes part of the public domain through no breach by
Kazan of this Agreement. Notwithstanding anything in this Agreement to the
contrary, Kazan shall not be liable for (a) any inadvertent or accidental
disclosure of the CAI Confidential Information if Kazan has exercised the
same degree of care as Kazan would take to preserve or safeguard his own
confidential or proprietary information or (b) any disclosure of any CAI
Confidential Information which (i) is within the public domain at the time of
disclosure, (ii) is or becomes publicly available without breach of this
Agreement by Kazan, (iii) is disclosed by Kazan with the written approval of
the Company or (iv) is required to be disclosed by Kazan pursuant to court or
government agency order.
3. The restrictions, conditions, limitations and obligations
imposed on Kazan under paragraph 2. of this Agreement shall be binding on and
enforceable against Kazan for a period of twenty-four (24) months immediately
following the closing of the sale of his Shares to MCC.
4. Kazan hereby agrees that he will not purchase, or otherwise
acquire, directly or indirectly, any Stock for a period of forty-eight (48)
months immediately following the closing of the sale of his Shares to MCC.
5. This Agreement may be executed in any number of separate
counterparts, each of which shall be an original, but all of which shall
constitute one and the same agreement. Each of the parties hereto agrees to
be bound by a facsimile copy of such party's signature on this Agreement to
the same extent as if the facsimile were an original. Each of the parties
hereto agrees to accept a facsimile copy of every other party's signature on
this Agreement in lieu of a fully executed original hereof.
6. This Agreement shall be governed by, and construed and enforced
in accordance with, the laws of the State of Colorado, without regard to the
principles thereof regarding conflicts of laws.
7. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision of the remaining provisions of this Agreement.
8. This Agreement constitutes and contains the entire agreement of
the parties and supersedes any or all prior negotiations, correspondence,
agreements and understandings between the parties respecting the subject
matter hereof.
9. Each party to this Agreement shall pay its own costs and
expenses, including legal and accounting fees, incurred in connection with
the negotiation of this Agreement and the consummation of the transactions
provided for herein.
10. This Agreement may be modified, amended or supplemented only by
duly authorized and executed written agreements, signed by all of the parties
hereto.
11. This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties, nor is this
Agreement intended to confer upon any other person, except the parties
hereto, any rights or remedies hereunder.
12. The parties hereto agree that the remedy at law is inadequate,
and that any party hereto shall be entitled to specific performance in
addition to any other remedy he/it may have, in the event of a breach of this
Agreement. Each party hereto waives the defense that there is an adequate
remedy at law in the event of an action for specific performance of any
rights hereunder.
13. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, upon receipt, or
if mailed by registered or certified mail (return receipt requested), postage
prepaid, on the fifth business day after mailing. Notice to any party
hereto, if mailed, shall be to the following addresses (or to any other
address that a party may designate by notice to the other parties hereto):
If to Kazan: Mr. Richard Kazan
705 Via LaCuesta
Palos Verdes Estates, CA 90274
Telecopy: (310) 375-4840
If to the Company: Capital Associates, Inc.
7175 West Jefferson Avenue
Suite 3000
Lakewood, CO 80235
Telecopy: (303) 980-7065
With a copy to: John L. Ruppert, Esq.
Ballard Spahr Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, CO 80202
Telecopy: (303) 296-3956
14. In the event of a dispute between the parties arising out of
this Agreement, it is further agreed that a court may award to the prevailing
party in such dispute reasonable attorneys' fee in addition to costs of suit
incurred by the prevailing party.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the Effective Date.
CAPITAL ASSOCIATES, INC.
By: /s/Dennis Lacey
-------------------------
Dennis Lacey
Title: CEO
/s/Richard Kazan
-------------------------
Richard Kazan
Exhibit 10.44
INDEMNIFICATION AGREEMENT
This Agreement, made and entered into as of the 14th day of
January, 1994 ("Agreement"), by and between Capital Associates, Inc., a
Delaware corporation (the "Company"), and Gary M. Jacobs ("Director"):
WHEREAS, highly competent persons are becoming more reluctant to
serve publicly-held corporations as directors or in other capacities unless
they are provided with adequate protection through insurance or adequate
indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;
WHEREAS, the current impracticability of obtaining adequate
insurance on an affordable basis and the uncertainties relating to
indemnification have increased the difficulty of attracting and retaining
such persons;
WHEREAS, the Board of Directors of the Company has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection
in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest
extent permitted by applicable law so that they will serve or continue to
serve the Company free from undue concern that they will not be so
indemnified;
WHEREAS, the Company's Board of Directors has determined that it is
in the best interests of the Company to increase the number of members on the
Board by electing Director to the Board;
WHEREAS, Director is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition
that he indemnified as set forth herein;
WHEREAS, Director previously served as a Director of the Company
(referred to herein as Director's "Prior Directorship");
WHEREAS, Director resigned his Prior Directorship effective as of
September 20, 1990;
WHEREAS, the Company and Director entered into an Indemnification
Agreement, dated as of July 31, 1990 (referred to herein as Director's "Prior
Indemnification Agreement");
WHEREAS, the Company's Board of Directors has determined that it is
in the best interests of the Company to adopt certain indemnification
arrangements in addition to the indemnification provisions in the Company's
Articles of Incorporation and By-Laws;
WHEREAS, the Company's Board of Directors intends that the
indemnification rights and benefits afforded to Director hereunder are in
addition to, and not in lieu of or in replacement of or in substitution for,
the indemnification rights and benefits afforded to Director under his Prior
Indemnification Agreement;
WHEREAS, the Directors of the Company intend that this Agreement is
not intended to supersede the Prior Indemnification Agreement and, to the
maximum extent possible, this Agreement and the Prior Indemnification
Agreement (the "Agreements") are intended to be read consistently with each
other;
WHEREAS, the Directors intend that, if the provisions of this
Agreement give Director greater or broader rights than the Prior
Indemnification Agreement or the Prior Indemnification Agreement gives
Director greater or broader rights than this Agreement, then the Agreements
shall not be deemed to be inconsistent or in conflict with each other, and
Director shall have the full benefits of the greater or broader provisions;
and
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Director do hereby covenant and agree as
set forth below.
Section 1. Services by Director. Director agrees to serve as a
director of the Company. Director may at any time and for any reason resign
from such position, and the Company shall have no obligation under this
Agreement to continue Director in such position (in each case subject to any
other contractual obligation or any obligation imposed by operation of law).
Section 2. Indemnification - General. The Company shall
indemnify, and advance Expenses (as hereinafter defined) to, Director (a) as
provided in this Agreement, and (b) to the fullest extent permitted by
applicable law in effect on the date hereof and as amended from time to time.
The rights of Director provided under the preceding sentence shall include,
but shall not be limited to, the rights set forth in the other Sections of
this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right
of the Company. Director shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of his Corporate Status (as
hereinafter defined), he is, or is threatened to be made, a party to any
threatened, pending, or completed Proceeding (as hereinafter defined), other
than a Proceeding by or in the right of the Company. Pursuant to this
Section 3, Director shall be indemnified against all Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such Proceeding or any
claim, issue or matter therein, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal Proceeding, had no reasonable cause
to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Subject
to the condition set forth below in this Section 4, Director shall be
entitled to the rights of indemnification provided in this Section 4 if, by
reason of his Corporate Status, he is, or is threatened to be made, a party
to any threatened, pending or completed Proceeding brought by or in the right
of the Company to procure a judgment in its favor. Pursuant to this Section,
Director shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; provided, however, that, if
applicable law so provides, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in such Proceeding as to which
Director shall have been adjudged to be liable to the Company unless and to
the extent that the Court of Chancery of the State of Delaware, or the court
in which such Proceeding shall have been brought or is pending, shall
determine that such indemnification may be made.
Section 5. Indemnification for Expenses of a Party Who is Wholly
or Partly Successful. Notwithstanding any other provision of this Agreement,
to the extent that Director, is, by reason of his Corporate Status, a party
to and is successful, on the merits or otherwise, in any Proceeding, he shall
be indemnified against all Expenses actually and reasonably incurred by him
or on his behalf in connection therewith. If Director is not wholly
successful in such Proceeding but is successful, on the merits or otherwise,
as to one or more but less than all claims, issues or matters in such
Proceeding, the Company shall indemnify Director against all Expenses
actually and reasonably incurred by him or on his behalf in connection with
each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter
in such a Proceeding by dismissal, with or without prejudice, shall be deemed
to be a wholly successful result as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the extent that
Director is, by reason of his Corporate Status, a witness in any Proceeding
to which Director is not a party, he shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Director in connection with
any Proceeding within ten days after the receipt by the Company of a
statement or statements from Director requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by Director and shall include or be preceded or accompanied
by an undertaking by or on behalf of Director to repay any Expenses advanced
if it shall ultimately be determined that Director is not entitled to be
indemnified against such Expenses.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Director
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Director and
is reasonably necessary to determine whether and to what extent Director is
entitled to indemnification. The Secretary of the Company shall, promptly
upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Director has requested indemnification.
(b) Upon written request by Director for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Director's entitlement thereto
shall be made in the specific case: (i) if a Change in Control (as
hereinafter defined) shall have occurred, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy
of which shall be delivered to Director; or (ii) if a Change of Control shall
not have occurred, (A) by the Board of Directors by a majority vote of a
quorum consisting of Disinterested Directors (as hereinafter defined), or (B)
if a quorum of the Board of Directors consisting of Disinterested Directors
is not obtainable or, even if obtainable, such quorum of Disinterested
Directors so directs, by Independent Counsel in a written opinion to the
Board of Directors, a copy of which shall be delivered to Director, or (C) if
so directed by the Board of Directors, by the stockholders of the Company;
and, if it is so determined that Director is entitled to indemnification,
payment to Director (or on behalf of Director) shall be made within ten (10)
days after such determination. Director shall cooperate with the person,
persons or entity making such determination with respect to Director's
entitlement to indemnification, including providing to such person, persons
or entity upon reasonable advance request any documentation or information
which is not privileged or otherwise protected from disclosure and which is
reasonably available to Director and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Director in so cooperating with the person,
persons or entity making such determination shall be borne by the Company
(irrespective of the determination as to Director's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Director harmless therefrom.
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 8(b)
hereof, the Independent Counsel shall be selected as provided in this Section
8(c). If a Change of Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall
give written notice to Director advising him of the identity of the
Independent Counsel so selected. If a Change of Control shall have occurred,
the Independent Counsel shall be selected by Director (unless Director shall
request that such selection be made by the Board of Directors, in which event
the preceding sentence shall apply), and Director shall give written notice
to the Company advising it of the identity of the Independent Counsel so
selected. In either event, Director or the Company, as the case may be, may,
within 10 days after such written notice of selection shall have been given,
deliver to the Company or to Director, as the case may be, a written
objection to such selection; provided, however, that such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 17 of
this Agreement, and the objection shall set forth with particularity the
factual basis of such assertion. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court
has determined that such objection is without merit. If, within 20 days
after submission by Director of a written request for indemnification
pursuant to Section 8(a) hereof, no Independent Counsel shall have been
selected and not objected to, either the Company or Director may petition the
Court of Chancery of the State of Delaware or other court of competent
jurisdiction for resolution of any objection which shall have been made by
the Company or Director to the other's selection of Independent Counsel
and/or for the appointment as Independent Counsel of a person selected by the
Court or by such other person as the Court shall designate, and the person
with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 8(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting
pursuant to Section 8(b) hereof, and the Company shall pay all reasonable
fees and expenses incident to the procedures of this Section 8(c), regardless
of the manner in which such Independent Counsel was selected or appointed.
Upon the due commencement of any judicial proceeding or arbitration pursuant
to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then
prevailing).
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Director is entitled to indemnification under this Agreement if Director has
submitted a request for indemnification in accordance with Section 8(a) of
this Agreement, and the Company shall have the burden of proof to overcome
that presumption in connection with the making by any person, persons or
entity of any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as otherwise
expressly provided in this Agreement) of itself adversely affect the right of
Director to indemnification or create a presumption that Director did not act
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that Director had reasonable cause to believe that his conduct
was unlawful.
Section 10. Remedies of Director.
(a) In the event that (i) a determination is made pursuant to
Section 8 of this Agreement that Director is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made
pursuant to Section 7 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 8(b)
of this Agreement within 90 days after receipt by the Company of the request
for indemnification, (iv) payment of indemnification is not made pursuant to
Section 5 or 6 of this Agreement within ten (10) days after receipt by the
Company of a written request therefor, or (v) payment of indemnification is
not made within ten (10) days after a determination has been made that
Director is entitled to indemnification, Director shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any
other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Director, at his
option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Director shall commence such proceeding seeking an
adjudication or an award in arbitration within 180 days following the date on
which Director first has the right to commence such proceeding pursuant to
this Section 10(a); provided, however, that the foregoing clause shall not
apply in respect of a proceeding brought by Director to enforce his rights
under Section 5 of this Agreement.
(b) In the event that a determination shall have been made
pursuant to Section 8(b) of this Agreement that Director is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Director shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in
any judicial proceeding or arbitration commenced pursuant to this Section 10
the Company shall have the burden of proving that Director is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to
Section 8(b) of this Agreement that Director is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding
or arbitration commenced pursuant to this Section 10, absent (i) a
misstatement by Director of a material fact, or an omission of a material
fact necessary to make Director's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of
such indemnification under applicable law.
(d) In the event that Director, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Director
shall be entitled to recover from the Company, and shall be indemnified by
the Company against, any and all expenses (of the types described in the
definition of Expenses in Section 17 of this Agreement) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if he prevails therein. If it shall be determined in said judicial
adjudication or arbitration that Director is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by Director in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement
of Expenses as provided by this Agreement shall not be deemed exclusive of
any other rights to which Director may at any time be entitled under
applicable law, the Certificate of Incorporation, the By-Laws, any agreement,
a vote of stockholders, a resolution of directors, Director's Prior
Indemnification Agreement, or otherwise. No amendment, alteration or repeal
of this Agreement or of any provision hereof shall limit or restrict any
right of Director under this Agreement in respect of any action taken or
omitted by such Director in his Corporate Status prior to such amendment,
alteration or repeal.
(b) To the extent that the Company maintains an insurance
policy or policies providing liability insurance for directors of the Company
or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person serves at the request of
the Company, Director shall be covered by such policy or policies in
accordance with its or their terms to the maximum extent of the coverage
maintained for any such director under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all papers required and
take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce
such rights.
(d) The Company shall not be liable under this Agreement to
make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Director has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
Section 12. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the date that
Director shall have ceased to serve as a director, officer, employee, or
agent of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which Director served at the
request of the Company; or (b) the final termination of any Proceeding then
pending in respect of which Director is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Director
pursuant to Section 10 of this Agreement relating thereto. This Agreement
shall be binding upon the Company and its successors and assigns and shall
inure to the benefit of Director and his heirs, executors and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including without limitation, each
portion of any Section of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that is not itself invalid, illegal
or unenforceable) shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall be construed so
as to give effect to the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement
of Expenses. Notwithstanding any other provision of this Agreement, Director
shall not be entitled to indemnification or advancement of Expenses under
this Agreement with respect to any Proceeding brought by Director, or any
claim therein prior to a Change in Control, unless the bringing of such
Proceeding or making of such claim shall have been approved by the Board of
Directors.
Section 15. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and
the same Agreement. Only one such counterpart signed by the party against
whom enforceability is sought needs to be produced to evidence the existence
of this Agreement.
Section 16. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Company occurring after the Effective Date of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or
in response to any similar item on any similar schedule or form) promulgated
under the Securities Exchange Act of 1934 (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided, however,
that, without limitation, such a Change in Control shall be deemed to have
occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 15% or more of the combined voting
power of the Company's then outstanding securities without the prior approval
of at least two-thirds of the members of the Board of Directors in office
immediately prior to such person attaining such percentage interest; (ii)
there occurs a proxy contest, or the Company is a party to a merger,
consolidation, sale of assets, plan of liquidation or other reorganization
not approved by at least two-thirds of the members of the Board of Directors
then in office, as a consequence of which members of the Board of Directors
in office immediately prior to such transaction or event constitute less than
a majority of the Board of Directors thereafter; or (iii) during any period
of two consecutive years, other than as a result of an event described in
clause (a)(ii) of this Section 17, individuals who at the beginning of such
period constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of such period)
cease for any reason to constitute at least a majority of the Board of
Directors.
(b) "Corporate Status" describes the status of a person who
is or was a director of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person is or was serving as a director at the request of the Company.
(c) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Director.
(d) "Effective Date" means January __, 1994.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees,
travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, or being or
preparing to be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent:
(i) the Company or Director in any matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Director in an action to
determine Director's rights under this Agreement.
(g) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing
or any other proceeding, whether civil, criminal, administrative or
investigative, except one (i) initiated by a Director pursuant to Section 10
of this Agreement to enforce his rights under this Agreement, or (ii) pending
on or before the Effective Date.
Section 18. Modification and Waiver. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 19. Notice by Director. Director agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to
any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom
said notice or other communication shall have been directed, or (ii) mailed
by certified or registered mail with postage prepaid, on the third business
day after the date on which it is so mailed:
(a) If to Director, to:
(b) If to the Company to:
Capital Associates, Inc.
7175 W. Jefferson Avenue
Suite 3000
Lakewood, Colorado 80235
with a copy to:
John L. Ruppert, Esq.
Ballard Spahr Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, Colorado 80202
or to such other address as may have been furnished to Director by the
Company or to the Company by Director, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
COMPANY
CAPITAL ASSOCIATES, INC.
By: /s/Dennis Lacey
-------------------------
Dennis Lacey
Title: CEO
DIRECTOR
/s/ Gary M. Jacobs
------------------------------
Exhibit 10.45
FORM OF
Name: (Name of Director)
Grant Date: _______________
STOCK OPTION AGREEMENT
PURSUANT TO THE AMENDED AND RESTATED STOCK OPTION PLAN OF
CAPITAL ASSOCIATES, INC.
The Board of Directors of Capital Associates, Inc. ("CAI" or the
"Company") has determined that you (the "Optionee") are eligible and
deserving of an award under the Amended and Restated Stock Option Plan of
Capital Associates, Inc. (the "Plan"). This Agreement is subject to the
terms of the Plan in all respects, and specific reference shall be made to
the Plan in determining the Optionee's rights and obligations hereunder. If
any provisions of this Agreement and the Plan conflict, the provisions of the
Plan shall control. Capitalized terms, which are used herein and not
otherwise defined, shall have the meanings set forth in the Plan.
This Agreement is made by and between CAI and the Optionee as
follows:
1. Grant of Option. The Optionee is hereby granted, as of the
date of this Agreement, an option to purchase the number of Shares set forth
on Exhibit A hereto. Such Option is not intended to qualify as an Incentive
Stock Option under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code"). The Board of Directors may, from time to time, grant
the Optionee one or more additional Options, each of which will be controlled
by a separate Stock Option Agreement.
2. Exercise Price. The exercise price pursuant to this Option
will be the amount per Share set forth on Exhibit A hereto. The number of
Shares and the exercise price per Share are subject to adjustment as provided
in the Plan.
3. Term. This Option shall have the term, subject to earlier
termination as provided in the Plan, set forth on Exhibit A hereto.
4. Exercise of Option. Subject to the provisions of this Stock
Option Agreement and the Plan, this Option shall vest and become exercisable
according to the schedule set forth on Exhibit A hereto. To the extent
exercisable, this Option may be exercised in whole or in part and from time
to time until fully exercised or until the Option expiration date set forth
on Exhibit A or until this Option terminates under the Plan and this Stock
Option Agreement. In no event, however, shall this Option be exercisable in
whole or in part after the expiration of ten years from the date of grant.
This Option may be exercised only by the Optionee during the
Optionee's lifetime and, thereafter, as provided in the Plan. Neither this
Option nor any portion thereof or interest therein may be sold, pledged,
assigned or transferred in any manner otherwise than by will or by the laws
of descent and distribution, and then only within the limitations set forth
in the Plan.
Exercise of this Option shall not be effective until the Committee
has received written notice of exercise, specifying the number of whole
Shares to be purchased. Such notice shall be accompanied by full payment of
the aggregate purchase price for the number of Shares so purchased in cash,
by cashier's check, certified check, bank draft or money order or, at the
discretion of the Committee, through the delivery of Shares. Thereafter, a
certificate or certificates representing the Shares so purchased shall,
within a reasonable time, be issued in the Optionee's (or other proper
purchasing party's) name and delivered to the Optionee (or other purchaser),
subject to postponement of issuance under Section 9 of the Plan in order to
permit compliance with applicable federal or state securities laws. Upon a
partial exercise of this Option, this Agreement shall be automatically
amended to reduce the number of Shares covered by this Option by the number
of Shares so purchased without the necessity of the execution of a new
agreement or a formal written amendment of this agreement.
5. Certain Taxes. The Optionee authorizes the Company to
withhold, in accordance with applicable law, from any compensation (whether
salary, bonus or otherwise) payable to the Optionee any taxes required to be
withheld by any federal, state or local law or regulation as a result of the
exercise of this Option. In this regard, the Optionee acknowledges and
agrees that the determination by the Committee of the Fair Market Value of
any Shares on the date of exercise of this Option shall be final and
conclusive in all respects.
6. Transfer of Shares. The Optionee agrees that the Shares
acquired upon exercise of this Option shall be acquired for his or her own
account for investment purposes only and not with a view to any distribution
or public offering thereof within the meaning of the Securities Act of 1933
(the "Act") or other applicable securities laws. If the Board so determines,
any stock certificates issued upon exercise of this Option shall bear a
legend to the effect that the Shares have been so acquired. The Company
shall not be required to bear any expenses of compliance with the Act, other
applicable securities laws or the rules and regulations of any national
securities exchange or other regulatory authority in connection with the
registration, qualification or transfer, as the case may be, of this Option
or any Shares acquired upon the exercise thereof. The foregoing restrictions
on the transfer of the Shares shall not apply if (a) the Company shall
have been furnished with a satisfactory opinion of counsel to the effect that
such transfer will be in compliance with the Act and other applicable
securities laws, or (b) the Shares shall have been duly registered in
compliance with the Act and other applicable securities laws.
The Optionee agrees that, upon any sale of Shares acquired pursuant
to exercise of that portion of this Option constituting an Incentive Stock
Option within two years from the date of grant of this Option or within one
year after transfer of such Shares to the Optionee's ownership, then the
Optionee shall immediately notify the Company in writing of such disposition
and the amount realized by the Optionee upon such disposition.
7. Transfer and Repurchase Restrictions. All Shares received
upon exercise of an Option shall be subject to the following restrictions:
(a) Transfer Restrictions. All Shares received upon exercise
of an Option shall be subject to the Share Transfer Restrictions set forth on
Exhibit A hereto.
(b) Repurchase Rights. The Company shall have the right, and
the Optionee hereby acknowledges the right of the Company, to repurchase the
Optionee's Shares upon the termination of the Optionee's relationship as a
director of the Company for any reason (a "Termination"). The Company's
repurchase option shall be exercisable at a price equal to Fair Market Value,
as determined on the date of termination subject to adjustment as described
in "Termination" set forth in Exhibit A hereto. The Optionee shall,
immediately upon the later of (i) receipt of Shares, or (ii) the occurrence
of a Termination, surrender to the Company certificates for all Shares
properly endorsed or with a separate stock power properly executed. The
Company shall have ten (10) days from the date of surrender of the
certificates within which to exercise its option to repurchase such Shares.
The repurchase option shall be exercised by the Company by giving written
notice of exercise to the Optionee within such ten (10) day period. Upon
exercise of its option pursuant to this subparagraph (b), the Company shall
pay in cash the purchase price for the Shares within forty-five (45) days
following the surrender of the stock certificates. The Company shall return
to you that portion of the Shares with respect to which it does not elect to
exercise its repurchase option or as to which the right is forfeited by lapse
of time.
(c) Legends. The Company may legend the stock certificates
evidencing Shares acquired pursuant to the Plan in a manner that is the same
or similar to the following: "The Shares of stock evidenced by this
certificate are subject to certain repurchase restrictions, which are imposed
by that certain instrument entitled Amended and Restated Stock Option Plan of
Capital Associates, Inc. A copy of the Plan is on file at the principal
office of the Company."
8. Acceptance of Stock Option Agreement and the Plan. The
Optionee hereby approves and accepts the terms, conditions, and provisions of
this Stock Option Agreement and the Plan and agrees to be bound hereby and
thereby, and further agrees that his or her executors, administrators, heirs,
successors, and assigns shall be bound hereby and thereby. Without
limitation of the foregoing, the Optionee hereby agrees, individually and for
his or her executors, administrators, heirs, successors, and assigns, that
all decisions or interpretations of the Committee or its duly authorized
representatives with regard to any and all aspects of the Plan and the
administration thereof shall be binding, conclusive, and final.
9. Previously Granted Stock Options and Stock Awards. In
consideration of the grant of this Stock Option, the Optionee hereby agrees
that all stock options, stock awards and all Shares obtained by reason of the
exercise of stock options and stock awards granted to the Optionee by the
Company on or before the date of this Stock Option Agreement shall be
subject, in full, to the limitations and restrictions set forth in Section 7
above.
10. Address for Notices. The parties hereto designate as the
respective addresses for the receipt of any notice under this Stock Option
Agreement or the Plan the addresses set forth below their signatures on this
Stock Option Agreement.
11. Conformity With the Plan. This Stock Option is intended to
conform in all respects with, and is subject to all applicable provisions of,
the Plan, which is incorporated herein by reference. Inconsistencies between
this agreement and the Plan shall be resolved in accordance with the terms of
the Plan. By executing and returning the enclosed copy of this agreement,
you acknowledge your receipt of the Plan and agree to be bound by all of the
terms of the Plan. All definitions stated in the Plan shall apply to this
agreement.
12. Use of Services; Successors. Nothing herein confers any right
or obligation on the Optionee to continue rendering services to the Company
or shall affect in any way the Optionee's right or the right of the Company,
as the case may be, to terminate the Optionee's services at any time.
13. Entire Agreement. This agreement constitutes the entire
understanding between the Optionee and the Company, and supersedes all other
agreements, whether written or oral, with respect to the acquisition by the
Optionee of his/her Stock Option and/or Shares.
Executed as of
CAPITAL ASSOCIATES, INC.: OPTIONEE: (Director's Name)
By: /s/Dennis J. Lacey By:___________________________
--------------------------
Dennis J. Lacey
Title: President, Chief Executive
Officer
Address: 7175 W. Jefferson Ave. Address:
Lakewood, CO 80235
FORM OF
EXHIBIT A
STOCK OPTION AGREEMENT
Dated as of ______________
Name of Optionee: (Director's Name)
Status with the Company: Employee ___
Director X
Other ___
Date of Grant of Option: _______________
Type of Option Granted: Incentive Stock Options: None
Non-qualified Stock Options: All
Options granted hereunder
Number of Shares Covered
by the Option: (a) 15,000 Shares ("Annual Grants");
and
(b) up to an additional 25,000 Shares
for fiscal year 1994 ("Incentive
Grants") on the basis of one Share for
each dollar of consulting or oversight
fees billed to the Company during
fiscal year 1994; the quarterly
retainer shall be included in the
definition of consulting or oversight
fees, but Board meeting fees, and
related out-of-pocket expenses, will
not be included. Incentive Grant
Shares that do not "vest" during any
fiscal year according to the formula
in the preceding sentence shall be
forfeited. The Company shall notify
the Optionee within 60 days after the
end of fiscal year 1994 of the total
number of Option Shares that have
"vested" during fiscal year 1994, and
the Company shall prepare an addendum
to this Exhibit A setting forth such
vested shares. The addendum, after
execution by the Optionee and the
Company, shall become a part of, and
be incorporated into, this Exhibit A,
as amended from time to time.
Option Exercise Per Share: $1.0625 per Share
Term of Option: Ten years from the Grant Date
Vesting Schedule: This Option shall be exercisable as
follows:
- 15,000 Shares pursuant to the Annual Grants for the
first time on or after May 31, 1994, provided that
Optionee is a director on May 31, 1994; and
- up to 25,000 Shares pursuant to the Incentive Grants
for the first time on or after May 31, 1994, provided
that Optionee is a director on May 31, 1994.
Termination: If Optionee ceases to be a director
of the Company, Optionee will
forfeit all unvested options held on
the date of termination (other than
termination by reason of death or
disability) as a director. If
termination of the Optionee's
directorship is for cause, the
Optionee shall forfeit all
unexercised options (whether or not
such options are vested) and the
Company shall have the right to
repurchase all Shares held by the
Optionee upon exercise of stock
options granted under this Agreement
for an amount equal to the exercise
price paid by Optionee for such
Shares.
Share Transfer Restrictions: For as long as Optionee is an
"Affiliate" of the Company, Optionee
is subject to the share transfer
restrictions of Rule 144 under the
Securities Act of 1933. Optionee is
urged to consult his own personal
advisors with respect to the
securities law consequences related
to selling his Shares.
Entire Agreement: This Exhibit A to Stock Option
Agreement, the Stock Option
Agreement to which this Exhibit A is
attached, and any and all addenda
attached hereto, constitute the
entire understanding between the
Optionee and the Company, and
supersede all prior written
agreements and all other oral
agreements with respect to the
acquisition by the Optionee of his
Stock Options and/or Stock Option
Shares.
CAPITAL ASSOCIATES, INC.: OPTIONEE:
By:____________________________ ___________________________
Dennis J. Lacey (Directors's Name)
Title: President and Chief
Executive Officer
Exhibit 10.46(a)
AMENDMENT NO. 2 TO THE SECOND AMENDED AND
RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT
This Amendment No. 2 to the Second Amended and Restated Revolving
Credit and Term Loan Agreement is dated as of December 23, 1993 ("Amendment
No. 2"), and is entered into as of the Effective Date (as defined below) by
and among the parties listed below (hereinafter the "Parties").
Reference is made to that certain (1) Second Amended and Restated
Revolving Credit and Term Loan Agreement (the "Amended Loan Agreement"),
dated as of December 21, 1992, by and among The Chase Manhattan Bank, N.A.,
First Bank National Association, Mellon Bank, N.A., CIG & Co. as nominee for
Connecticut General Life Insurance Company, and Horace Mann Life Insurance
Company (collectively, the "Lenders"), and Mellon Bank, N.A., as Agent under
the Amended Loan Agreement (the "Agent"), and Capital Associates
International, Inc. (the "Borrower"), and (2) Amendment No. 1 to the Second
Amended and Restated Revolving Credit and Term Loan Agreement ("Amendment No.
1"), the effective date of which is April 30, 1993, by and among the Lenders,
the Agent, and the Borrower. The Amended Loan Agreement and Amendment No. 1
thereto are collectively referred to herein as the "Amended Loan Agreement."
Unless otherwise defined herein, capitalized terms shall have the
meanings assigned to them in the Amended Loan Agreement.
RECITALS
WHEREAS, the Parties have previously entered into the Amended Loan
Agreement and the Other Amended Loan Documents; and
WHEREAS, the Parties wish to amend the Amended Loan Agreement
pursuant to this Amendment No. 2, as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and the Parties
hereto intending to be legally bound hereby, the Parties agree as follows:
AGREEMENT
1. Amendment to the "Index of Exhibits" and "Index of Schedules"
to the Amended Loan Agreement". The Parties hereby agree to amend the Index
of Exhibits and the Index of Schedules to the Amended Loan Agreement by
adding the following new exhibits and schedules at the end of the respective
Indices:
Exhibit B-2A - Credit Underwriting Model For Municipal Leases
Exhibit H-1 - Initial Notice of Revolving Credit Advance
Exhibit CC-3 - Certificate of Satisfaction of Release Criteria
(CAEL IV)
Exhibit DD-2 - Updated Business Plan
Exhibit II - CPYF III Summary
Exhibit JJ - Capital Associates, Inc. Incentive Program to
Enhance Earnings Growth
Exhibit KK - Lacey Incentive Program
Exhibit LL - Municipal Lease Agreement
Exhibit MM - Progress Payment Promissory Note
Exhibit NN - Progress Payment Letter
Exhibit OO - Certificate of Satisfaction of Subordination
Criteria (Factoring)
Schedule 4.16-3 - Third New Schedule of Deposit Accounts
2. Amendment to Exhibit EE - Accountant's Statement of Monthly
Fees. The Parties hereby agree to amend Exhibit EE to the Amended Loan
Agreement(Accountant's Statement of Monthly Fees) by deleting the monthly
dollar amounts for the months of January 1994 through and including May 1995,
and replacing such dollar amounts with "$15,000.00" for each of such months.
3. Amendment to Section 1.1 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 1.1 of the Amended Loan Agreement by
(a) adding after the end of the first sentence in the "Master Lease
Agreement" definition the following second sentence "Notwithstanding anything
in this Agreement to the contrary, Borrower may use the Master Lease
Agreement for Vendor Program Leases, rather than the Master Lease Agreement,
for any non-Vendor Program Lease covering Equipment having an aggregate
Equipment cost of no more than Five Hundred Thousand Dollars ($500,000) per
Equipment Schedule, and the Master Lease Agreement for Vendor Program Leases
in such case shall be treated as the Master Lease Agreement for all purposes
of this Agreement.", (b) adding the phrase "(including a Municipal Lease
Agreement)" after the word "agreement" in the definition of "Lease", (c)
adding the phrase ", as amended from time to time" at the end of the
definition of "Schedule of Deposit Accounts, (d) deleting the word "Pledge"
in the definition of "Other Guarantees", and (e) adding the following new
definitions in alphabetical order to Section 1.1:
"Amendment No. 1" shall mean that certain Amendment No.
1 to the Second Amended and Restated Revolving Credit
and Term Loan Agreement, having an effective date of
April 30, 1993, by and among Borrower, Agent, the
Lenders, Parent, Borrower Subsidiaries and Parent
Subsidiaries.
"Amendment No. 2" shall mean that certain Amendment
No. 2 to the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated as of the
Effective Date of Amendment No. 2, by and among
Borrower, Agent, the Lenders, Parent, Borrower
Subsidiaries and Parent Subsidiaries.
"CAEL IV" shall mean CAI Equipment Leasing IV Corp.,
which is the general partner of CPYF III and a wholly-
owned Subsidiary of Parent.
"CAILS I" shall mean CAI Lease Securitization I Corp.,
which will be the issuer in the Lease Securitization
Program and is a wholly-owned Subsidiary of Borrower.
"CPYF III" shall mean Capital Preferred Yield Fund -
III, L.P., a Delaware Limited Partnership.
"CPYF III Summary" shall mean that certain "Capital
Preferred Yield Fund - III, L.P. -- Summary of Program,"a
copy of which is attached to this Agreement as Exhibit II,
which sets forth the terms and conditions of CPYF III.
"Credit Underwriting Model For Municipal Leases" shall mean
Borrower's Credit Underwriting Model for Municipal Leases, a
copy of which is attached to this Agreement as Exhibit B-2A.
The Credit Underwriting Model for Municipal Leases shall not
be amended or modified, except as to ministerial or clerical
matters, without the Agent's and the Lenders' prior written
consent.
"Demand Note" shall mean each of the following:
(a) Parent's own non-interest bearing demand promissory
note, dated November 21, 1991, in a principal amount
equal to the greater of (i) $1,000,000 or (ii) two and
one-half percent (2.5%) of the gross offering proceeds
to be raised by CPYF II, with which Parent has
capitalized CAEL III; and (b) Parent's own non-interest
bearing demand promissory note, dated November 5, 1993,
in a principal amount equal to the greater of (i) One
Million Dollars ($1,000,000) or (ii) two and one-half
percent (2.5%) of the gross offering proceeds to be
raised by CPYF III, with which Parent has capitalized
CAEL IV.
"Demand Note Funding" shall mean any transfer of funds
(A) from Borrower or a Parent Subsidiary to Parent, and
(B) from Parent to CAEL III and/or CAEL IV, for the
purpose of paying a Demand Note, as (1) a dividend of
such funds from Borrower or the Parent Subsidiary to
Parent, (2) a payment of such funds by Parent to CAEL
III and/or CAEL IV on one or both of Parent's Demand
Notes, as the case may be, and (3) a payment of such
funds by CAEL III and/or CAEL IV, as the case may be,
to reduce indebtedness or other obligations incurred by
CAEL III and/or CAEL IV in the ordinary course of their
respective businesses.
"Effective Date of Amendment No. 2" shall mean the
"Effective Date" as set forth below Agent's signature
on Amendment No. 2.
"Employee Incentive Program" shall mean that certain
"Capital Associates, Inc. Incentive Program to Enhance
Earnings Growth" dated as of June 27, 1993, a copy of which
is attached to this Agreement as Exhibit JJ.
"Lacey Incentive Program" shall mean the "Dennis J. Lacey
Incentive Program" the full description of which is set
forth in paragraph 18 of the compensation committee minutes
and approved by resolutions of Parent's board of directors,
copies which are attached to this Agreement as Exhibit KK.
"Lease Securitization Program" shall mean that certain
proposed Lease Securitization Program to involve CAILS
I, as issuer, PaineWebber Incorporated, as investment
banker and broker/dealer, ITT Credit Corp., as the
entity to purchase the B Notes and the entity to
provide the Warehouse Debt Facility to CAILS I,
Borrower, as the entity to be the Lease originator and
servicer, and the Persons to be the purchaser(s) of the
A Notes, whose identity(ies) will be disclosed to Agent
and the Lenders after the Effective Date of Amendment
No. 2 and prior to any funding of the A and B Notes,
the terms and conditions of which shall be set forth in
documents to be approved by Agent and Lenders.
"MBank Recoveries" shall mean all amounts recovered by
Borrower from and after the Effective Date of Amendment
No. 2 by whatever means, in whatever form and from
whatever sources with respect to the Equipment and
Related Lease which are the subject of that certain
litigation entitled "Bank One Texas, N.A., Plaintiff,
vs. The Prudential Insurance Company of America and
Texas Commerce Bank, N.A., Defendants, vs. Federal
Deposit Insurance Corporation and Capital Associates
International, Inc., Third-Party, Defendants," in the
United States District Court for the Northern District
of Texas, Dallas Division, Civil Action No. 3-92CV-
535C.
"Municipal Lease" shall mean an Equipment Schedule or
the equivalent thereof, together with a Municipal Lease
Agreement (or other written agreement which is no less
protective of Borrower's rights, as assignee of the
original lessor, than as set forth in the Municipal
Lease Agreement) with a third party lessee that is a
domestic state, local or other governmental entity or a
fully constituted political subdivision or agency
thereof (a "Municipality"), as lessee, which sets forth
the principal terms and conditions by which Specific
Equipment will be leased by Borrower to a Municipality
and rental payments will be made to Borrower by such
Municipality.
"Municipal Lease Agreement" shall mean the form of
Municipal Lease Agreement to be used by Borrower, as
lessor, and by a Municipality, as lessee, which sets
forth the principal terms and conditions by which
personal property will be leased by Borrower to a
Municipality and rental payments will be made by such
Municipality to Borrower, and in connection with which
one or more Equipment Schedules is executed,
substantially in the form attached to this Agreement as
Exhibit LL, which shall be revised to incorporate the
changes requested in those certain letters from Murphy,
Weir & Butler to Ballard, Spahr, Andrews & Ingersoll
dated December 14, 1993, and December 19, 1993,
respectively, attached as part of Exhibit LL, and such
additional changes as Agent may reasonably request in
writing by January 10, 1994.
"Progress Payments" shall mean advances made by
Borrower, on behalf of a lessee, to a vendor or other
contractor of a portion of the cost of acquiring or
constructing Equipment which the lessee has agreed to
lease from the Borrower (and which is subject to a
Master Lease Agreement executed by the lessee and the
Borrower), which advances are evidenced by (1) one or
more Progress Payment Promissory Notes executed by an
authorized officer of the lessee and (2) a Progress
Payment Letter executed by an authorized officer of the
lessee and the Borrower.
"Progress Payment Promissory Note" shall mean a
Progress Payment Promissory Note substantially in the
form attached as Exhibit MM to this Agreement.
"Progress Payment Letter" shall mean a Progress Payment
Letter substantially in the form attached as Exhibit NN
to this Agreement.
"Service Bureau" shall mean the management information
services provided by Borrower to a third party in
connection with the management by Borrower of such
third party's equipment, leases, other agreements,
account billing and collection and related portfolio
management services.
"Small Dollar Amount Purchase Option Lease" shall mean
any New Qualifying Lease that (a) is an Unfunded Lease,
(b) Borrower intends to hold for its own account, (c)
has a small dollar amount purchase option at the end of
the term of such New Qualifying Lease and (d) is not
otherwise described in Section 2.3(iv), (v) or (vi).
"Updated Business Plan" shall mean the "Capital
Associates, Inc. Updated Revised Business Plan Dated as
of November 30, 1993, revised for the period beginning
September 1, 1993 and ending May 31, 1995, a copy of
which is attached to this Agreement as Exhibit DD-2.
"Warehouse Debt Facility" shall mean (1) that certain
debt facility to be provided by ITT Credit Corp. to
CAILS I in connection with the Lease Securitization
Program, the proceeds of which will be used by CAILS I
solely for the purpose of acquiring Leases and Related
Equipment for the Lease Securitization Program.
In addition, the Parties hereby agree to delete the definitions of "Borrower
Subsidiary," "Master Lease Agreement," "Parent Subsidiary," "Present Value,"
"Public Income Fund" and "Total Collateral Amount" and add the following in
place of the deleted language:
"Borrower Subsidiary" shall mean CAI Leasing Canada, Ltd.,
CAI Partners Management Company, Capital Equipment
Corporation, Whitewood Credit Corporation, and CAILS I.
"Master Lease Agreement" shall mean the form of Master Lease
Agreement presently used by Borrower, executed by Borrower,
as lessor, and by a lessee, which sets forth the principal
terms and conditions by which personal property will be
leased and rental payments will be made, and in connection
with which one or more Equipment Schedules is executed,
substantially in the form attached to this Agreement as
Exhibit D-2 (or, in the case of (1) Vendor Program Leases,
in the form of the Master Lease Agreement for Vendor Program
Leases that was approved by Agent in writing some time after
the Effective Date of Amendment No. 1 and was attached to
this Agreement as Exhibit D-2A, which shall be revised to
incorporate the changes requested pursuant to the letter
from Murphy, Weir & Butler to Ballard, Spahr, Andrews &
Ingersoll dated December 19, 1993, attached as part of
Exhibit LL, and such additional changes as Agent may
reasonably request in writing by January 10, 1994, and (2)
Municipal Leases, in the form of the Municipal Lease
Agreement attached to this Agreement as Exhibit LL, which
shall be revised to incorporate the changes requested in the
letters from Murphy, Weir & Butler to Ballard, Spahr,
Andrews & Ingersoll dated December 14, 1993, and
December 19, 1993, respectively, and such additional changes
as Agent may reasonably request in writing by January 10,
1994). The Master Lease Agreement for Vendor Program Leases
as revised to incorporate the changes requested in the
letter from Murphy, Weir & Butler and by Agent shall be
attached to this Agreement as Exhibit D-2A-1. The Municipal
Lease Agreement as revised to incorporate the changes
requested in the letters from Murphy, Weir & Butler and by
Agent shall be attached to this Agreement as Exhibit LL-1.
"Parent Subsidiary" shall mean CAI Equipment Leasing I
Corp., CAI Equipment Leasing II Corp., CAI Equipment
Leasing III Corp., CAI (Japan), Inc., CAI Securities
Corporation, and CAEL IV.
"Present Value" shall mean a calculation to determine the
net present value of future payments calculated using a
discount factor equal to the greater of (i) the Revolver
Rate or (ii) eight percent (8%).
"Public Income Fund" shall mean any one or more of the
following: Capital Preferred Yield Fund; PaineWebber
Preferred Yield Fund L.P.; Northstar Income Fund-1,
L.P.; Leastec Fund V; CPYF II; CPYF III; and any other
fund approved by the Lenders as set forth in
Section 7.16.
"Total Collateral Amount" shall, at any report date, mean
the sum of the following (which does not necessarily include
every item that comprises the entirety of the Collateral)
after reduction for the amount set forth at such report date
under the line item labeled "Agreed Upon Adjustment" on
page 51 of the Business Plan if the report date is before
the Effective Date of Amendment No. 2, and on pages 47 and
48 of the Updated Business Plan if the report date is after
the Effective Date of Amendment No. 2:
(i) 85% of the Present Value of remaining payments
due under Unfunded Leases;
(ii) 85% of the Present Value of all FASB 13
Residuals;
(iii) 85% of the Present Value of the GAAP book
value of notes receivable arising from Private Equity
Sales;
(iv) 85% of the Present Value of rents for
Unfunded Leases where (x) the Lease has been sold to a
third party and such Lease and rental payments due
thereunder have been assigned to Borrower for security
purposes and (y) the Equipment has been sold to a third
party and a security interest therein has been granted
to and retained by Borrower;
(v) 40% of the Present Value of the Class B
Limited Partnership Interests;
(vi) 60% of the Present Value of Retained
Residuals; and
(vii) 60% of the face amount of all Progress Payment
Notes.
Items (i) and (ii) above shall be calculated after reduction for an amount
equal to the amount by which related vendor payables exceed Borrower's
availability under the Revolving Credit Facility on any reporting date;
provided, however, that if any particular vendor payable from one reporting
date remains unpaid at a subsequent reporting date, the Equipment and Lease
related to that vendor payable shall be excluded from any calculation of the
Total Collateral Amount.
4. Amendment to Section 2.3 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 2.3 of the Amended Loan Agreement by
(a) deleting the word "and" at the end of Section 2.3(v), (b) adding the
words "from and after the Effective Date of Amendment No. 1 and through and
including the day immediately preceding the Effective Date of Amendment No.
2," at the beginning of Section 2.3(v), and (c) adding the following new
Sections 2.3(vii) and (viii):
(vii) from and after the Effective Date of Amendment
No. 2, seventy percent (70%) of the Present Value of
the Eligible Receivables with respect to Small Dollar
Amount Purchase Option Leases, not to exceed the amount
by which Two Million Dollars ($2,000,000) exceeds the
Present Value of Eligible Receivables included in
Section 2.3(v), (a) with lessees who have a credit
quality rating of "1" or "2" under Borrower's Credit
Underwriting Model on the date Borrower includes the
Present Value of the Eligible Receivables with respect
to such Leases in the Borrowing Base Amount (decreasing
to fifty percent (50%) of the Present Value of the
Eligible Receivables with respect to any such Lease if
the lessee's credit quality rating declines to "3" at
any time after the inclusion of the Present Value of
the Eligible Receivables with respect to such Lease in
the Borrowing Base Amount) and (b) with lessees who
have a credit quality rating of "3" under Borrower's
Credit Underwriting Model on the date Borrower includes
the Present Value of the Eligible Receivables with
respect to such Leases in the Borrowing Base Amount;
provided, however, that any such Eligible Receivables
with respect to such Leases with lessees who have a
credit quality rating of "3" on the date Borrower
includes such Leases in the Borrowing Base Amount shall
not be included in the Borrowing Base Amount unless
Borrower has at the date of inclusion of such Eligible
Receivables in the Borrowing Base Amount obtained all
of the following: (1) a Non-Recourse Financing
commitment in writing from a third party for the
rentals under such Lease that requires the third party
to provide Non-Recourse Financing for such rentals, (2)
the Non-Recourse Financing is for cash in an amount
that is not less than ninety percent (90%) of the
Present Value of the unpaid rent payments from such
Lease, and (3) Borrower identifies such third party to
the Agent; and provided, further, that the Eligible
Receivables with respect to Small Dollar Amount
Purchase Option Leases that meet the requirements of
subsections (a) or (b) above may remain in the
Borrowing Base Amount for up to but no longer than
sixty (60) days from the date of (x) origination as to
such Small Dollar Amount Purchase Option Leases that
are Direct Origination Leases and (y) acquisition as to
such Small Dollar Amount Purchase Option Leases that
are Wholesale Origination Leases; and
(viii) from and after the Effective Date of Amendment
No. 2, eighty-five percent (85%) of the Present Value
of the Eligible Receivables with respect to Municipal
Leases, not to exceed Five Hundred Thousand Dollars
($500,000); provided, that the Eligible Receivables
with respect to Municipal Leases may remain in the
Borrowing Base for up to but no longer than ninety (90)
days from the date of origination or acquisition of
such Lease.
5. Amendment to Section 2.4 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 2.4 of the Amended Loan Agreement by
(a) deleting all of the text to Section 2.4 that immediately precedes clause
"(a)," (b) adding in the place of the deleted language the phrase "'Eligible
Lease' at any time shall mean a Lease that satisfies requirements (a) through
(cc) below and a Municipal Lease at any time that satisfies requirement (dd)
below:" and (c) adding the following:
(dd) As to Municipal Leases only, a Municipal Lease
shall be an Eligible Lease if (1) it meets Eligible
Lease requirement 2.4(w), (2) the lessee under such
Municipal Lease has a credit quality rating of BAA or
the equivalent as set forth in Borrower's Credit
Underwriting Model for Municipal Leases, and (3) it
meets all of the other Eligible Lease requirements of
this Section 2.4 except those Eligible Lease
requirements (i) set forth in Sections 2.4(c) and
2.4(aa), (ii) those Eligible Lease requirements that
would be violated by reason of the annual
funding/appropriation clause contained in such
Municipal Lease but only to the extent that any such
violations occur solely as a result of any such annual
funding/appropriation clause, and (iii) that are
expressly waived by Agent and Lenders in writing.
Borrower will not be in default of Section 2.4(f) if it
uses a Municipal Lease Agreement to document the
Municipal Lease (or acquires a Municipal Lease
agreement from a third party which agreement is no less
protective of Borrower's rights than as set forth in
the Municipal Lease Agreement).
6. Amendment to Section 2.6 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 2.6 of the Amended Loan Agreement by
deleting existing Section 2.6 and adding the following in place of the
deleted language:
2.6 Procedures for Receiving Revolving Credit Advances.
(a) Borrower may request up to two Revolving
Credit Advances each day. In the event Borrower
desires Agent to fund any (1) checks presented to Agent
for payment on any Business Day and/or (2) ACH debits
for tax payments required to be paid on such day
(collectively, the "Requested Payments"), unless
otherwise agreed to by Agent, in its sole discretion,
Borrower must request a Revolving Credit Advance to
cover such Requested Payments no later than 12:00 p.m.
Eastern Time (Standard Time or Daylight Savings Time as
then in effect) on such Business Day. Borrower shall
make any such request by delivering to Agent a written
Initial Notice of Revolving Credit Advance in the form
of Exhibit H-1 to this Agreement (signed by Dennis J.
Lacey, John E. Christensen or Martha Argo), by
facsimile at (412) 236-1174, specifying the amount of
such requested Revolving Credit Advance. In the event
Borrower is unable to deliver to Agent a written
Initial Notice of Revolving Credit Advance by
12:00 p.m. Eastern Time (Standard Time or Daylight
Savings Time as then in effect) as required by this
Section 2.6(a), Agent may, in its sole discretion, rely
on a telephone request by either Dennis J. Lacey, John
E. Christensen or Martha Argo; provided, that one of
such persons identifies himself or herself as one of
the authorized signators and verbally makes the
certifications that would ordinarily be included in the
written Initial Notice of Revolving Credit Advance; and
provided, further, that Borrower shall deliver such
written Initial Notice of Revolving Credit Advance to
Agent at the earliest possible time thereafter but in
no event later than 12:00 p.m. Eastern Time (Standard
Time or Daylight Savings Time as then in effect) on the
immediately following Business Day, and failure to
deliver such Initial Notice of Revolving Credit Advance
by such time shall constitute an immediate Event of
Default hereunder. Except as set forth in
Section 2.6(d), and provided that all applicable
conditions set forth in Section 3 have been satisfied,
Agent shall, by the close of business on the date Agent
receives the Initial Notice of Revolving Credit Advance
(or, at Agent's discretion, Borrower's telephone
request if Borrower is unable to deliver the Initial
Notice of Revolving Credit Advance) make the amount of
such requested Revolving Credit Advance available to
the Borrower by depositing the amount of such requested
Revolving Credit Advance into Borrower's disbursement
accounts with Agent to cover the Requested Payments.
(b) In addition, Borrower may request a Revolving
Credit Advance at any time before 3:00 p.m. on any
Business Day for items other than Requested Payments.
Unless otherwise agreed to by Agent, in its sole
discretion, each such Revolving Credit Advance shall be
made on notice, given by Borrower to Agent before
3:00 p.m. Eastern Time (Standard Time or Daylight
Savings Time as then in effect) on the Business Day of
the proposed Revolving Credit Advance. Each such
notice (a "Notice of Revolving Credit Advance") shall
be in writing (signed by Dennis J. Lacey, John E.
Christensen or Martha Argo), or by telephone to
Brigitte Bouchat or such other employee designated for
such purpose by Agent at (412) 234-1055, confirmed in
writing (signed by Dennis J. Lacey, John E. Christensen
or Martha Argo) no later than 3:00 p.m. Eastern Time
(Standard Time or Daylight Savings Time, as then in
effect) by facsimile at (412) 236-1174, in the form of
Exhibit H to the Prior Amended Loan Agreement,
specifying therein the requested date and amount of
such Revolving Credit Advance. In the event Borrower
is unable to deliver to Agent a written Notice of
Revolving Credit Advance as required by this
Section 2.6(b), Agent may, in its sole discretion, rely
on a telephone request by either Dennis J. Lacey, John
E. Christensen or Martha Argo; provided, that one of
such persons identifies himself or herself as one of
the authorized signators, and verbally makes the
certifications that would ordinarily be included in the
written Notice of Revolving Credit Advance; and
provided, further, that Borrower shall deliver such
written Notice of Revolving Credit Advance to Agent at
the earliest possible time thereafter but in no event
later than 12:00 p.m. Eastern Time (Standard Time or
Daylight Savings Time as then in effect) on the
immediately following Business Day and failure to
deliver such Notice of Revolving Credit Advance by such
time shall constitute an immediate Event of Default
hereunder. Except as set forth in Section 2.6(d), and
provided that all applicable conditions set forth in
Section 3 have been satisfied, Agent shall, by the
close of business on the date of the Revolving Credit
Advance requested in the Notice of Revolving Credit
Advance (or, at Agent's discretion, in Borrower's
telephone request if Borrower is unable to deliver the
Notice of Revolving Credit Advance), make the amount of
such Revolving Credit Advance available to the Borrower
in immediately available funds by depositing the amount
of such Revolving Credit Advance into the Borrower's
disbursement accounts with Agent.
(c) If Agent receives one or both of an Initial Notice
of Revolving Credit Advance and a Notice of Revolving Credit
Advance (or, at Agent's discretion, a telephone request if
Borrower is unable to deliver the Initial Notice of
Revolving Credit and/or Notice of Revolving Credit Advance),
on a given day, then Agent shall relay to each Bank after
3:00 p.m. the total amount requested by Borrower on such day
pursuant to the Initial Notice of Revolving Credit Advance
and/or Notice of Revolving Credit Advance (or, at Agent's
discretion, a telephone request if Borrower is unable to
deliver the Initial Notice of Revolving Credit Advance
and/or the Notice of Revolving Credit Advance), as the case
may be. In the event any Bank receives a notice of the
total amount requested for a given day from Agent by
4:00 p.m. in the time zone in which such Bank is located,
such Bank shall deposit its Bank's Bank Share of such
Revolving Credit Advance(s) in immediately available funds
with the Agent at Agent's Borrowing Office on the same day
such notice is received. In the event any Bank receives
such notice from Agent after 4:00 p.m. in the time zone in
which such Bank is located, such Bank shall deposit its
Bank's Bank Share of such Revolving Credit Advance(s) in
immediately available funds with the Agent at Agent's
Borrowing Office on the immediately following Business Day.
Each one of the Banks shall be responsible for its Bank's
Bank Share of any Revolving Credit Advance made by Agent
under and in accordance with this Section 2.6, whether made
pursuant to an Initial Notice of Revolving Credit Advance or
a Notice of Revolving Credit Advance (or, at Agent's
discretion, a telephone request if Borrower is unable to
deliver the Initial Notice of Revolving Credit Advance
and/or the Notice of Revolving Credit Advance).
(d) Unless the Agent shall have received at least
twenty-four (24) hours' prior written notice from any
Bank that such Bank will not deposit with Agent as
required under Section 2.6(c) its Bank's Bank Share of
any Revolving Credit Advance that may be requested by
Borrower after the expiration of such twenty-four (24)
hours, and so long as the Termination Date has not
occurred, the Agent shall assume that such Bank will
make its Bank's Bank Share of any Revolving Credit
Advance available to the Agent on either (i) the date
of any Revolving Credit Advance to the extent Agent has
relayed the total amount of any requests by Borrower
contained in an Initial Notice of Revolving Credit
Advance and/or a Notice of Revolving Credit Advance
(or, at Agent's discretion, a telephone request if
Borrower is unable to deliver the Initial Notice of
Revolving Credit Advance and/or the Notice of Revolving
Credit Advance) on any Business Day to such Bank by the
time set forth in Section 2.6(c), or (ii) the
immediately following Business Day, in accordance with
Section 2.6(c), and the Agent may, in reliance upon
such assumption, make available to the Borrower on any
date such Bank's Bank Share of any Revolving Credit
Advances. If and to the extent such Bank does not make
such Bank's Bank Share available to the Agent by the
time set forth in the immediately preceding sentence
and Agent has advanced funds on behalf of such Bank,
such Bank agrees to pay to the Agent forthwith on
demand such corresponding amount together with interest
thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is
repaid to the Agent, at the rate per annum applicable
to the Loans. Notwithstanding the foregoing, Agent
shall have the right to (i) initiate a lawsuit or take
such other legal action as is permitted under
applicable law against such non-performing Bank as
Agent, in its sole discretion, deems appropriate and
(ii) apply all payments, Receipts and proceeds of
Collateral that would otherwise be made to such non-
performing Bank on account of the Loans, to such non-
performing Bank's unpaid Bank Share of any Revolving
Credit Advances made by Agent on behalf of such Bank,
together with any interest that has accrued thereon.
If such Bank shall repay to the Agent the delinquent
amount, together with interest thereon, such amount so
repaid shall constitute such Bank's Bank Share of such
Revolving Credit Advances for purposes of this
Agreement. Nothing contained in this Section 2.6(d)
shall in any way alter or diminish any right that the
Borrower may have against any such non-performing Bank.
(e) If and to the extent Agent receives twenty-
four (24) hours' written notice from any Bank that such
Bank will not advance its Bank's Bank Share of any one
or more Revolving Credit Advances, neither the Agent
nor any other Lender shall be obligated to fund the
non-performing Bank's Bank Share of any such Revolving
Credit Advance or of the Maximum Revolving Credit
Commitment.
(f) Except as set forth in Section 2.6(d), Agent
shall provide each Bank with its Bank's Bank Share of
any paydown by Borrower under the Revolving Credit
Facility; provided, however, if, after Agent provides
any Bank with such Bank's Bank Share of a paydown, the
amount so paid is either (x) required to be disgorged,
refunded or returned by Agent or (y) the source of such
paydown was a check or other instrument that was
subsequently dishonored or the subject of a stop
payment or similar impediment, each Bank that has
received funds from Agent on account of such paydown
agrees to repay or refund the amount of such paydown to
Agent and, in the event such Bank fails or refuses to
repay or refund such paydown, Agent may, in its sole
discretion, initiate a lawsuit or take such other legal
action as is permitted under applicable law against
such non-performing Bank or apply all payments,
Receipts and proceeds of Collateral that would
otherwise be made to such non-performing Bank on
account of the Loans, to such non-performing Bank's
obligation hereunder to repay or refund the amount of
such paydown, together with any interest that has
accrued thereon. Settlement among the Banks shall
occur on the same Business Day that a paydown or
Revolving Credit Advance is made under this Section 2.6
if time permits the settlement to be concluded on that
day, otherwise settlement among the Banks shall occur
on the next Business Day following a paydown or
Revolving Credit Advance made under this Section 2.6.
No further consent or acknowledgment is required by
Borrower to enable the Banks to implement the
settlements contemplated under this section.
(g) The date and amount of each Revolving Credit
Advance and each Bank's Bank Share of such Revolving
Credit Advance and each payment of principal with
respect thereto shall be recorded on the books and
records of Agent, which books and records shall, absent
obvious facial error, constitute prima facie evidence
of the accuracy of the information therein recorded.
7. Amendment to Section 2.7 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 2.7 of the Amended Loan Agreement by
(1) deleting each "," that appears in the fourth sentence of Section 2.7
before the words "Post-Effective Date Other Re-Lease/Renewals" and
substituting in their place a ";" and by (2) adding the following to the
fourth sentence of Section 2.7 after the words "Post-Effective Date Other
Re-Lease/Renewals":
;Renewals or Re-Leases of Eligible Leases that have
small dollar amount purchase options at the ends of the
terms of such Renewals or Re-Leases; New Qualifying
Leases that have small dollar amount purchase options
at the ends of the terms of such New Qualifying Leases;
Vendor Program Leases; Small Dollar Amount Purchase
Option Leases; and Municipal Leases;
8. Amendment to Section 2.9(b) of the Amended Loan Agreement.
The Parties hereby agree to amend Section 2.9(b) of the Amended Loan
Agreement by deleting the first two paragraphs of such subsection and
inserting the following in place of the deleted language:
(b) Excess Business Plan Proceeds. To the extent
Borrower receives any Excess Business Plan Proceeds
following the Effective Date of this Agreement, Borrower
shall pay such Excess Business Plan Proceeds to the Agent
for application to the Term Loan ratably according to each
Lender's Percentage Share at the times and in the amounts
set forth below. For the period from and after December 1,
1992 through and including the period ending on November 30,
1993, the term "Excess Business Plan Proceeds" shall mean
and include, among other things, proceeds from sales or
realizations in excess of the aggregate of the amounts set
forth on pages 49 and 50 of the Business Plan under the
heading labeled "Other" (excluding the items labeled "PIF
Class B contributions," "PIF O&O costs," "PIF management
fees," "PIF acquisition fees," "PIF GP distributions," "PIF
LP distributions," and "Property and sales tax, net");
provided, that during such period Tax Refund Proceeds shall
not constitute Excess Business Plan Proceeds and Excess
Business Plan Proceeds shall be computed for all purposes
under the Amended Loan Documents without regard to Tax
Refund Proceeds. For the period from and after December 1,
1993 through and including the period ending on November 30,
1994, the term "Excess Business Plan Proceeds" shall mean
and include, among other things, proceeds from sales or
realizations in excess of the aggregate of the amounts set
forth on pages 45 and 46 of the Updated Business Plan under
the heading labeled "Other" (excluding the items labeled
"PIF Class B contributions", "PIF O&O costs," "PIF
management fees," "PIF acquisition fees," "PIF GP
distributions," "PIF LP distributions," "Property and sales
tax, net" and "MBank") provided, that neither Tax Refund
Proceeds nor MBank Recoveries shall constitute Excess
Business Plan Proceeds and Excess Business Plan Proceeds
shall be computed for all purposes under the Amended Loan
Documents without regard to Tax Refund proceeds and MBank
Recoveries. Notwithstanding the foregoing, Borrower
confirms and agrees that all Tax Refund Proceeds and MBank
Recoveries constitute Collateral and shall be immediately
deposited into the Cash Collateral Account to be paid and
applied as set forth in Sections 2.16 and 2.9.
Excess Business Plan Proceeds shall be payable if the
sum of the proceeds with respect to the items comprising
Excess Business Plan Proceeds, in the aggregate, exceeds the
sum of the corresponding items shown on page 49 of the
Business Plan for the period from December 1, 1992 through
November 30, 1993 and on pages 45 and 46 of the Updated
Business Plan for the period from December 1, 1993 through
November 30, 1994, as follows: The amount (if any) of
Excess Business Plan Proceeds for the period from
December 1, 1992 through November 30, 1993, shall be
calculated as of November 30, 1993. The amount of Excess
Business Plan Proceeds for the period from December 1, 1992,
through November 30, 1993, shall be due and payable on or
before January 15, 1994. The amount (if any) of Excess
Business Plan Proceeds for the period from December 1, 1993
through November 30, 1994 shall be calculated as of
November 30, 1994. The amount of Excess Business Plan
Proceeds payable for the period from December 1, 1993
through November 30, 1994, shall be due and payable on or
before January 15, 1995. Notwithstanding anything to the
contrary contained herein, at such time as Borrower
realizes, in the aggregate, an amount equal to the sum of
(1) one hundred percent (100%) of the amounts forecasted on
pages 49 and 50 of the Business Plan to be realized for the
period from December 1, 1992, through November 30, 1993,
plus (2) one hundred percent (100%) of the amounts
forecasted on pages 45 and 46 of the Updated Business Plan
to be realized for the period from December 1, 1993, through
November 30, 1994, for the items that comprise the
categories included in the definition of Excess Business
Plan Proceeds for each such period, Borrower shall
thereafter pay to Agent, monthly, for application to the
Term Loan ratably according to each Lender's Percentage
Share, any additional receipts or realizations by Borrower
upon such items. Any amounts realized by Borrower in excess
of one hundred percent (100%) of the amounts forecasted
under the Business Plan and the Updated Business Plan as
described in the immediately preceding sentence shall be
deemed to be Excess Business Plan Proceeds. Failure to pay
Excess Business Plan Proceeds in the amounts and at the
times required under this Agreement shall constitute an
Event of Default hereunder. Any payment of Excess Business
Plan Proceeds made pursuant to this Section 2.9(b) shall be
in addition to and not in lieu or reduction of the monthly
Scheduled Term Loan Payments set forth in Section 2.9(a)
hereof, and such Excess Business Plan Proceeds payments
shall be applied, first, against the then remaining unpaid
portion of the Balloon, and second, against the scheduled
Term Loan Payments set forth in Section 2.9(a) in inverse
order of maturity.
9. Amendment to Section 2.9(d) of the Amended Loan Agreement.
The Parties hereby agree to amend Section 2.9(d) of the Amended Loan
Agreement by deleting the first sentence of Subsection 2.9(d) and inserting
the following in place of the deleted language:
To the extent Borrower does not purchase Equipment for
sale or lease in the amounts contemplated under the Business
Plan and Updated Business Plan for the period from
December 1, 1992, through February 28, 1995 ("Unused New
Business Component") as measured by the aggregate sum of the
amounts under the item labeled "Vendor payments" on pages 49
and 50 of the Business Plan and on pages 45 and 46 of the
Updated Business Plan, for the period from December 1, 1992,
through February 28, 1995, then Borrower shall pay to Agent
on or before April 15, 1995, for application to the Term
Loan ratably according to each Lender's Percentage Share, an
amount equal to ten percent (10%) of the Unused New Business
Component.
10. Amendment to Section 2.15(b) of the Amended Loan Agreement.
The Parties hereby agree to amend Section 2.15(b) of the Amended Loan
Agreement by deleting existing Section 2.15(b) and inserting the following in
place of the deleted language:
(b) Agent's Administrative Fee. As consideration
for serving as Agent under this Agreement, Borrower agrees
to pay to Agent, for its own account, monthly, in advance,
on the first Business Day of each month through and
including December 1, 1993, an administration fee in the
amount of Fifteen Thousand Dollars ($15,000.00), and from
and after January 1, 1994 through and including May 1, 1995,
an administration fee in the amount of Ten Thousand Dollars
($10,000), (each such payment being an "Administrative
Fee").
11. Amendment to Section 4 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 4 of the Amended Loan Agreement by (1)
adding the following at the end of existing Section 4.16:
Schedule 4.16-3 attached to this Agreement is a Third
New Schedule of Deposit Accounts that supersedes and
replaces the Second New Schedule of Deposit Accounts
(which replaced the Schedule of Deposit Accounts
delivered pursuant to the Schedule of Documents as
updated by Schedule 4.16-1) and accurately lists, as of
the Effective Date of Amendment No. 2, those items
required to be set forth on the Schedule of Deposit
Accounts as specified in this Section 4.16. The Third
New Schedule of Deposit Accounts is true and correct as
of the Effective Date of Amendment No. 2.5.
and (2) by adding the following as new Section 4.47:
4.47 Master Lease Agreement for Vendor Program Leases. The
Master Lease Agreement for Vendor Program Leases is (i) not
different in any material respect from the Master Lease
Agreement, and (ii) no less protective of the rights and
interests of Borrower than the Master Lease Agreement.
12. Amendment to Section 5.1(a) of the Amended Loan Agreement.
The Parties hereby agree to amend Section 5.1(a) of the Amended Loan
Agreement by (1) deleting the phrase "(ii) the day on which Parent's
financial statements are filed with the Securities Exchange Commission" and
inserting in place of the deleted language the phrase "(ii) the date not
later than the fifth (5th) Business Day following the date on which Parent's
financial statements are filed with the Securities and Exchange Commission.",
and (2) by deleting the last sentence of Section 5.1(a) and inserting the
following in place of the deleted language:
The Borrower agrees to provide the certified public
accountant's management letter to the Parent to each of
the Agent, the Lenders and Accountant by the earlier to
occur of (i) the date five (5) Business Days after
delivery of the final, executed original of such letter
by the certified public accountants to the Parent, or
(ii) the date sixty (60) days after the issuance of
Parent's audited financial statements.
13. Amendment to Section 5.3 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 5.3 of the Amended Loan Agreement by
deleting the last sentence of Section 5.3 and inserting the following in
place of the deleted language:
Prior to the Effective Date of Amendment No. 2, all of
the calculations required to be made under this
Agreement based on projections and financial
information set forth in the Business Plan shall be
based on the Business Plan and not on the information
contained in any revised business plan delivered after
the Effective Date and prior to the Effective Date of
Amendment No. 2. Except as otherwise provided in this
Agreement, where this Agreement references specific
pages of the Business Plan (including without
limitation Section 2.9(b) with respect to the
calculation of Excess Business Plan Proceeds, and
Section 2.9(d) with respect to the calculation of the
Unused New Business Component for the period from
December 1, 1992 through November 30, 1993), on and
after the Effective Date of Amendment No. 2, all of the
calculations required to be made under this Agreement
based on projections and financial information set
forth in the Business Plan, shall be based on the
Updated Business Plan, and not on the information
contained in the Business Plan or any revised business
plan delivered after the Effective Date of Amendment
No. 2.
14. Amendment to Section 6.4 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.4 of the Amended Loan Agreement by
deleting existing 6.4 and inserting in place of the deleted language the
following:
6.4 Litigation. Borrower shall notify Agent and Lenders in
writing promptly, but in no event later than three (3)
Business Days, after learning thereof, of any litigation
pending or threatened against Borrower, and of the threat or
institution of any suit or administrative proceeding that
may have a Material Adverse Effect upon Borrower.
15. Amendment to Section 6.5 to the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.5.2 of the Amended Loan Agreement by
adding the word "lender" immediately before the words "loss payee under the
insurance," and after the words "Agent as" in the two places where such
phrases appear in such Section 6.5.2.
16. Amendment to Section 6.10 to the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.10 of the Amended Loan Agreement by
(1) deleting the word "promptly" in Section 6.10(a) and adding in place
thereof the phrase "promptly, but in no event later than five (5) Business
Days", and (2) deleting the word "promptly" in Section 6.10(b) and adding in
place thereof the phrase "promptly, but in no event later than five (5)
Business Days".
17. Amendment to Section 6.12(a) of the Amended Loan Agreement.
The Parties hereby agree to amend Section 6.12(a) of the Amended Loan
Agreement by adding the following at the end of the first sentence of Section
6.12(a) before the ".":
; provided, that after the Effective Date of Amendment No. 2
Borrower shall provide Agent and Agent's counsel with copies
of all Real Property Leases or similar agreements (and all
amendments thereto) entered into by Borrower after the
Effective Date of Amendment No. 2, whether as lessor or
lessee, promptly, but in no event later than the fifth (5th)
Business Day, after the date of execution of such Real
Property Lease or similar agreement by Borrower.
18. Amendment to Section 6.12(a)(iv) of the Amended Loan
Agreement. The Parties hereby agree to amend subpart (iv) of the second
sentence of Section 6.12(a) of the Amended Loan Agreement by deleting the
language in existing subpart (iv) and inserting the following new subpart
(iv) in place of the deleted language:
notify Agent and Agent's counsel in writing at the
earliest possible time, but in no event later than (A)
two (2) Business Days prior to the date Borrower takes
possession of or becomes liable (whichever is earlier)
under any new leased premises or lease with respect to
any Lease entered into before the Effective Date of
Amendment No. 2 and (B) ten (10) Business Days prior to
the date Borrower opens or establishes a new place of
business of any kind in any state and/or Borrower takes
possession of or becomes liable (whichever is earlier)
under any new leased premises or lease to be entered
into by Borrower on or after the Effective Date of
Amendment No. 2, of Borrower's intention to open or
establish a new place of business of any kind in any
state and/or enter into any new lease, including a
lease for premises to be used solely for office space
or a lease for premises where inventory or other
Collateral will or might in the future be kept, stored,
or located;
19. Amendment to Section 6.13 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.13 of the Amended Loan Agreement by
deleting the words "one (1) Business Day" in Section 6.13 and adding in place
thereof the words "three (3) Business Days".
20. Amendment to Section 6.14(b) of the Amended Loan Agreement.
The Parties hereby agree to amend Section 6.14(b) of the Amended Loan
Agreement by deleting the first two sentences of Section 6.14(b) and the
third sentence of Section 6.14(b) up to but not including the phrase
"provided, however," and inserting the following in place of the deleted
language:
Borrower shall at all times (1) through April 29, 1994
maintain a ratio of Total Collateral Amount to Maximum
Aggregate Commitment of not less than .60:1, (2) from
April 30, 1994 through August 29, 1994 maintain a ratio
of Total Collateral Amount to Maximum Aggregate
Commitment of not less than .70:1, and (3) from and
after August 31, 1994 maintain a ratio of Total
Collateral Amount to Maximum Aggregate Commitment of
not less than .80:1. The ratio of Total Collateral
Amount to Maximum Aggregate Commitment shall be
reported monthly by Borrower to Agent as part of the
Monthly Lenders' Report. If, at any time, Borrower
fails to maintain a ratio of Total Collateral Amount to
Maximum Aggregate Commitment of .60:1 through April 29,
1994, .70:1 from April 30, 1994 through August 29,
1994, and .80:1 thereafter, Borrower shall be required
to make a permanent cash paydown of the Term Loan in
the amount necessary to bring the ratio to .60:1,
.70:1, or .80:1, as applicable;
21. Amendment to Section 6.14(c) to the Amended Loan Agreement.
The Parties hereby agree to amend Section 6.14(c) of the Amended Loan
Agreement by deleting existing Section 6.14(c) and inserting the following in
place of the deleted language:
(c) On and after the Effective Date of Amendment
No. 2, the consolidated stockholder's equity for the
Borrower, Parent and the Capital Subsidiaries on a GAAP
basis as reported by the Borrower and Parent shall at
all times not be less than $19,000,000.
22. Amendment to Section 6.15 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.15 of the Amended Loan Agreement by
deleting the words "within one (1) Business Day of" in Section 6.15 and
adding in place thereof the words "promptly upon, but in no event later than
three (3) Business Days after".
23. Amendment to Section 6.38 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.38 of the Amended Loan Agreement by
adding the following new Section 6.38(d):
Borrower hereby agrees that all terms applicable to
Borrower with respect to CPYF II and CAEL III as set
forth in Section 6.38(a), (b) and (c) shall be equally
applicable with respect to CPYF III and CAEL IV,
subject to the substitution of the phrase "Effective
Date of Amendment No. 2" for the phrase November 21,
1991, in Section 6.38(b)(ii) in the case of CPYF III
and CAEL IV.
24. Amendment to Section 6.39 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 6.39 of the Amended Loan Agreement by
deleting existing Section 6.39 and inserting in its place the following:
6.39 New Employees; New Offices. Borrower hereby
agrees to provide Agent and Lenders with (i) prior or
contemporaneous written notice of each new employee
that it intends to hire after April 30, 1993, if such
employee will work from or be located in a place other
than Borrower's main corporate offices in Lakewood,
Colorado; and (ii) at least ten (10) days' prior
written notice of each new sales office, warehouse,
place of business or other business location which it
intends to maintain or operate whether or not it
intends to sign a lease with respect to such premises,
and whether or not Collateral will be kept, stored, or
located at such premises.
25. Amendment to Section 6 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 6 of the Amended Loan Agreement by
adding new Sections 6.41 and 6.42 as follows:
6.41 Small Dollar Amount Purchase Option Leases.
Borrower, Agent and the Lenders hereby agree that
Borrower may originate and/or acquire Small Dollar
Amount Purchase Option Leases for Borrower's account;
provided, however, that Borrower has indicated that it
does not intend the aggregate Present Value of the
Eligible Receivables with respect to all such Leases to
exceed Two Million Dollars ($2,000,000) at any time.
6.42 Municipal Leases. Borrower, Agent and the Lenders
hereby agree that Borrower may originate and/or acquire
Municipal Leases for Borrower's own account; provided,
however, that Borrower has indicated that it does not
intend the aggregate Present Value of the Eligible
Receivables with respect to all such Leases to exceed
Five Hundred Thousand Dollars ($500,000) at any time.
26. Amendment to Section 7.2 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 7.2 of the Amended Loan Agreement by
adding the following at the end of Section 7.2:
; provided, that Borrower may make Progress Payments on
behalf of one or more lessees so long as and only in
the event that (a) the aggregate dollar amount of all
Progress Payments outstanding at any point in time on
behalf of any of Borrower's lessees shall not exceed
Five Hundred Thousand Dollars ($500,000), (b) any
lessee on whose behalf the Borrower makes one or more
Progress Payments has a credit quality rating of "1" or
"2" under Borrower's Credit Underwriting Model, (c)
each Progress Payment is evidenced by a Progress
Payment Promissory Note and a Progress Payment Letter,
which are fully executed by an authorized officer of
the lessee on whose behalf such Progress Payment is
being advanced (d) the Progress Payment Promissory Note
and Progress Payment Letter are delivered to and
received by Fairfield & Woods, P.C. to hold pursuant to
the Amended Agency and Possession Agreement prior to
Borrower's making any such Progress Payment, (e) each
Progress Payment Promissory Note recites that the
obligation to repay the indebtedness under such Note is
unaffected by the vendor's failure or refusal to timely
deliver the Equipment for which such Progress Payment
is advanced, (f) the Progress Payment Letter provides
that the lessee, and not the Borrower, will be
responsible or liable for the balance of the purchase
price of the Equipment under all circumstances,
including, without limitation, if the lessee fails to
accept the Equipment for any reason, (g) the vendor has
confirmed to Borrower in writing that only the Progress
Payments specifically identified in the purchase order
relating to a specific item of Equipment, which
purchase order is in existence before the first
Progress Payment for such specific item of Equipment is
made, will be required for such specific item of
Equipment, and (h) the Progress Payments for any
specific item of Equipment shall not in the aggregate
exceed fifty percent (50%) of the purchase price for
such Equipment. Borrower hereby acknowledges and
agrees that (1) all original, fully executed Progress
Payment Promissory Note(s) and Progress Payment
Letter(s) shall constitute Pledged Collateral for
purposes of the Amended Agency and Possession Agreement
and shall be subject to all of the terms and conditions
of such Amended Agency and Possession Agreement as if
such Progress Payment Promissory Notes and Progress
Payment Letters were Pledged Notes within the meaning
of the Amended Agency and Possession Agreement, and (2)
the Lease that covers the Specific Equipment for which
a Progress Payment is made shall not constitute an
Eligible Lease unless and until it satisfies all of the
requirements of Section 2.3 of this Agreement.
27. Amendment to Section 7.15 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 7.15 of the Amended Loan Agreement by
adding the following at the end of Section 7.15:
; provided, that Borrower may establish a Deposit
Account with respect to each Service Bureau contract
that Borrower and a third party enter into only after
and in the event that Borrower has (a) obtained a
written Service Bureau contract with such third party
that requires the third party to retain Borrower to
provide Service Bureau services, including,
specifically, collection services, to or for the
benefit of such third party, (b) Borrower provides a
copy of such contract to the Agent at least ten (10)
Business Days prior to establishing any such deposit
account, and (c) each such deposit account will hold
only Third Party Funds and no funds of Borrower, other
than (1) fees that are payable to Borrower and (2)
interest payable on the balance in such deposit account
to the extent Borrower is entitled under the Service
Bureau Contract to retain such interest for its own
account; provided, that such fees and interest are
swept promptly when Borrower is entitled to payment of
such fees and interest, but in no event less frequently
than one time each month, and deposited by Borrower
into the Cash Collateral Account to be paid and applied
as set forth in Sections 2.16 and 2.9 of this
Agreement.
28. Amendment to Section 7.17 of the Amended Loan Agreement. The
Parties hereby agree to amend Sections 7.17(i)(x) and (y) of the Amended Loan
Agreement by deleting the existing language for Sections 7.17(i)(x) and (y)
and inserting the following new Sections 7.17(i)(x) and (y) in place of the
deleted language:
(i) such contributions are made under or in accordance
with (x) as to Public Income Funds other than CPYF II
and CPYF III, the agreements that were in effect on
January 31, 1991 between Borrower and such Public
Income Funds, which agreements have not been modified,
extended or renewed, (y) as to CPYF II, the agreements
that were in effect on the Effective Date, which
agreements shall not be modified, extended or renewed,
(y-1) as to CPYF III, the CPYF III Summary and, when
documented, the final agreements regarding CPYF III,
which agreements will be consistent with the Summary of
Terms in all respects, including contributions of
Equipment, and which agreements, after they are
finalized, shall not be modified, extended, or renewed,
or
29. Amendment to Section 7.22 of the Amended Loan Agreement. The
Parties hereto agree to amend Section 7.22 of the Amended Loan Agreement by
adding at the end of such section before the "." the following:
"provided, that during the fiscal years 1994 and 1995, the
following items of cash Compensation shall not be included
in the calculation of such $1,200,000 during such periods:
(a) any and all cash Compensation properly payable by
Borrower under the Employee Incentive Program in an
aggregate amount not to exceed $300,000 during each such
fiscal year, (b) any and all cash Compensation properly
payable to Dennis J. Lacey under the Lacey Incentive
Program, not to exceed $50,000 during each such fiscal year,
and (c) the cash Compensation payable to any person who is
an employee of Borrower and not a senior vice president or
above on the Effective Date of Amendment No. 2 and who is
promoted to the position of senior vice president or above
on or after the Effective Date of Amendment No. 2; provided,
however, that any "Increased Compensation" (as defined in
the immediately following sentence) paid to such employee
following the effective date of such employee's promotion
shall be included in the calculation of the $1,200,000 of
cash Compensation under this Section 7.22. The term
"Increased Compensation" shall mean the amount by which the
cash Compensation paid to an employee during any twelve (12)
month period after the effective date of such employee's
promotion exceeds the cash Compensation paid to such
employee during the twelve (12) months immediately preceding
the effective date of such employee's promotion.
30. Amendment to Section 7.24 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 7.24 of the Amended Loan Agreement by
adding the following after the phrase "on page 53 of the Business Plan" and
before the ";":
prior to the Effective Date of Amendment No. 2, and on
the line titled "Cumulative equity in new business" on
pages 39 and 40 of the Updated Business Plan after the
Effective Date of Amendment No. 2.
31. Amendment to Section 10 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 10 of the Amended Loan Agreement by
adding the following new Section 10.3(b-1) after Section 10.3(b):
As to CPYF III, so long as (a) the final documentation
relating to CPYF III (including the final partnership
and other agreements relating to CPYF III and CAEL IV)
is consistent with the CPYF III Summary and is
consistent in all material respects with the existing
documents and partnership agreements for CPYF II and
(b) the contribution provisions for CPYF III are the
same as set forth in the CPYF III Summary, upon the
request of Borrower, the Agent shall provide a release
of its security interest in Specific Equipment and in
any Related Leases upon the contribution of such
Specific Equipment and Related Leases by Borrower to
CPYF III under the partnership agreement in effect
between Borrower and CPYF III, so long as each of the
following conditions are met: (i) the Class B Limited
Partnership Interests and CAEL IV's general partner's
interest in CPYF III have (A) been hypothecated or
pledged to Agent, for the benefit of Lenders, and such
interests have been and continue to be duly perfected,
and (B) as to CPYF III, the terms, preferences, and
rights to which the holders of each interest were
entitled as of the effective date of the final
partnership agreement and the other agreements relative
to CPYF III have not been modified or amended since
that date, (ii) the value of Borrower's interest in
CPYF III by virtue of the interest Borrower has as a
Class B Limited Partner increases by an amount equal to
or greater than the Release Price set forth in Section
10.2(a)(i)(x) as to an Unfunded Lease and Related
Equipment and the Release Price set forth in Section
10.2(a)(iv)(x) as to a Funded Lease and Related
Equipment, (iii) Borrower's periodic contributions to
CPYF III are in amounts that are generally in
compliance with the requirements of the Public Income
Fund partnership agreement for CPYF III, subject to
minor variations that are corrected at the end of each
calendar quarter, (iv) the amount of Borrower's
contributions with respect to CPYF III does not exceed,
in the aggregate, the amount required under the terms
of the CPYF III partnership agreement (which agreement
shall be consistent with the CPYF III Summary), (v)
fair value is exchanged in each component of a
transaction involving a sale or contribution of
Specific Equipment and Related Leases to CPYF III, (vi)
CPYF III has not changed its capital structure since
the date of the final partnership agreement in a way
that would diminish the rights represented by and
related to Borrower's Class B Limited Partnership
interest and no change shall be made without the
consent of the Agent and the Lenders, (vii) the
aggregate Cost (as defined below) of all Equipment
contributed at any time to CPYF III by Borrower or its
Affiliates does not exceed one percent (1%) of the
aggregate Cost of all equipment owned by such Public
Income Fund, (viii) the aggregate Cost of all Equipment
contributed to CPYF III shall not exceed Five Hundred
Thousand Dollars ($500,000), (ix) simultaneously with
the consummation of each sale and corresponding
contribution of Equipment and Related Leases to
CPYF III, Borrower shall use the cash received by
Borrower to pay down the Revolving Credit Loans,
(x) Borrower shall not contribute Specific Equipment to
CPYF III for less than the Cost of such Equipment,
(xi) a Certificate of Satisfaction of Release Criteria
in the form of Exhibit CC-3 attached to this Agreement,
is signed by the President or Chief Administrative
Accounting Officer of CAEL IV certifying that each of
the requirements above has been met; provided, that in
the event such requirements have not been met any
release of Agent in reliance on such Certificate of
Satisfaction of Release Criteria shall not be
effective. In the event Borrower either (i) modifies,
renews or extends any final agreement concerning CPYF
III, the terms of any such modification, renewal,
extension or new agreement, including the level of
Borrower's contribution, must be acceptable to each of
the Lenders before the Agent shall provide releases for
Specific Equipment and Related Leases that are to be
contributed by Borrower under a modified, renewed,
extended or new agreement with CPYF III. In the event
Agent does provide such consent, the Certificate of
Satisfaction of Release Criteria shall refer to such
modified, renewed, extended or new agreement.
32. Amendment to Section 10.1 for Certain Transactions. The
Parties hereby agree to amend Section 10.1 by adding the following new
Section 10.1-1 as follows:
With respect to a transaction where the Borrower sells
or factors the stream of lease payments relating to either
(x) an Unfunded Lease or (y) a Funded Lease that is to be
refinanced as part of the sale or factoring of the stream of
lease payments relating to such Funded Lease, but the
Borrower retains ownership of the Specific Equipment
relating to such Lease, in the event the purchaser or factor
requires a security interest in the Specific Equipment
relating to such Lease, upon the request of Borrower, the
Agent shall provide a written letter of subordination to
such purchaser or factor who purchases or factors the lease
stream relating to the subject Lease in the ordinary course
of Borrower's business, so long as Agent is in receipt of
the Release Price as set forth in Section 10.2(a)(vi) (such
amount being the "Present Value Test") and the security
interest to be granted to such purchaser or factor in the
Specific Equipment relating to such Lease is limited to such
Specific Equipment and is not cross-collateralized with and
does not extend to any other Equipment relating to any other
Lease, including Specific Equipment relating to another
Lease involved in the same sale or factoring transaction
with the same purchaser or factor. From and after the
Effective Date of Amendment No. 2, each request by Borrower
under this Section 10.1-1 for a subordination of the Agent's
security interest for the benefit of the Lenders in the
Specific Equipment relating to a Lease described in this
Subsection 10.1-1 in connection with a sale or factoring of
the lease stream related to any such Lease, shall be
accompanied by a Certificate of Satisfaction of
Subordination Criteria (Factoring) in the form of Exhibit OO
to this Agreement, signed by an authorized officer of
Borrower attesting to (i) Borrower's proper calculation of
the Present Value Test; (ii) prior delivery to Agent of all
documentation required or contemplated under this Agreement
and the Amended Agency and Possession Agreement as a
condition to the Agent's and the Lenders' subordination of
their security interest in such Equipment, the rents from
which are to be the subject of the sale or factoring
transaction; (iii) the accuracy and completeness of (A) the
documentation maintained by Borrower regarding the subject
transaction and (B) items (i) and (ii) referenced above; and
(iv) compliance with this Section 10.1-1 and
Section 10.2(a)(vi) of this Agreement. In connection with
any sale or factoring by Borrower of the stream of lease
payments under a Lease of Specific Equipment in accordance
with the terms of this Section 10.1-1, the delivery of the
foregoing certificate shall be a condition to the
subordination of the Agent's and the Lenders' security
interest in such Specific Equipment to the lien of the
factor or purchaser in such Specific Equipment. Each
certificate shall have a completed worksheet attached to it
in the form attached to Exhibit OO. For purposes of this
Section 10.1-1 the following officers shall be deemed
authorized to sign the Certificate of Satisfaction of
Subordination Criteria (Factoring): John E. Christensen,
John A. Reed, or any other duly authorized senior officer of
Borrower identified to Agent in writing and certified by
Borrower as authorized to sign such certificate on behalf of
Borrower.
33. Amendment to Sections 10.2(a) for Certain Transactions. The
Parties hereby agree to amend Section 10.2(a) by deleting the entire subpart
(C) in the second sentence of Subsection 10.2(a) and inserting the following
in place of the deleted language:
(C) at the time of the closing of the sale, deposit or
cause to be deposited into the Cash Collateral Account
all cash paid upon the closing of any such sale
(including acquisition fees paid by any Public Income
Fund at the time of such sale) in an amount not less
than the amounts set forth below (each, the "Release
Price").
The Parties hereby agree to further amend Section 10.2(a) by adding a new
Subsection 10.2(a)(vi) as follows:
(vi) With respect to either (x) an Unfunded Lease
or (y) a Funded Lease that is to be refinanced as part
of the sale or factoring of the stream of lease
payments relating to such Funded Lease, in the event
Borrower sells or factors the stream of lease payments
relating to such Lease, but retains ownership of the
Specific Equipment relating to such Lease, ninety
percent (90%) of the Present Value of the unpaid rent
payments that are being sold or factored payable under
such Lease; provided, however, that any hold back
requested by the purchaser or factor shall not be
considered as part of and shall be excluded from the
Release Price for purposes of calculating whether the
Release Price is equal to at least ninety percent (90%)
of the Present Value of the unpaid rents that are being
sold or factored.
34. Amendment to Section 12.8 of the Amended Loan Agreement. The
Parties hereby agree to amend Section 12.8 of the Amended Loan Agreement by
deleting existing Section 12.8 and inserting the following in place of the
deleted language:
12.8 Disgorgement; Revival of Obligations. In the
event that any Receipts or proceeds of Collateral paid or
distributed to or realized by the Agent or the Lenders, or
any other payment made to Agent or Lenders pursuant to the
terms hereof, is based upon a check or other instrument or
wire transfer that is dishonored or reversed, or is required
to be disgorged, returned, repaid, turned over, or refunded
to the Borrower or to any other Person, the Obligations
shall be reinstated, revived, or restored by the amount that
is dishonored or reversed or is required to be disgorged,
returned, repaid, turned over, or refunded, the same as if
such payment, distribution, or realization had never been
made. The Obligations, as reinstated, revived, or restored,
shall continue to be secured by the Agent's and the Lenders'
security interest in the Collateral.
35. Consent Under Sections 7.1, 7.2, 7.6, 7.9 and 7.16 of the
Amended Loan Agreement for Establishment of CPYF III as New Public Income
Fund. Subject to (i) the agreements and representations of Parent and
Borrower as set forth in this Section 35 and Section 31 hereof, (ii) the
accuracy of the CPYF III Summary (as defined in Section 3 above) as a true
and correct summary of the final terms of the arrangements and agreements
with respect to CPYF III, (iii) the hypothecation to Agent and Lenders and
the perfection of the Class B Limited Partnership Interests for CPYF III and
CAEL IV's (as defined in Section 4 above) general partner's interest in CPYF
III, and (iv) receipt by Agent of an Officer's Certificate executed by an
authorized officer of Borrower in the form attached as Exhibit 1 to this
Amendment No. 2., Agent and the Lenders will consent, in accordance with
Borrower's request under Sections 7.1, 7.2, 7.6, 7.9 and 7.16 of the Amended
Loan Agreement, to (a) the formation of CAEL IV, a wholly-owned subsidiary of
Parent, which will serve as the sole general partner of CPYF III, (b) the
issuance by CAEL IV of 1,000 shares of its common stock (representing all of
its issued and outstanding common stock) to Parent in exchange for One
Thousand Dollars ($1,000) and Parent's Non-Negotiable Demand Note (the
"Demand Note"), in the form attached as Exhibit 2 to this Amendment No. 2,
(c) the execution by Parent of the Demand Note, (d) the formation and
operation of CPYF III and CAEL IV on the terms and conditions set forth in
the CPYF III Summary, and (e) the acquisition by Borrower of the Class B
Limited Partner interest in CPYF III (the "Class B Interest"), all in
accordance with the terms of that certain CPYF III Summary. Parent, hereby
acknowledges and agrees that the shares of common stock of CAEL IV owned by
Parent shall, immediately upon their issuance, constitute Pledged Shares,
within the meaning of Section 8 of the Amended Guaranty and the Guaranty
Reaffirmation (the "Parent Guaranty"), shall be delivered immediately upon
issuance to Agent to hold pursuant to the Parent Guaranty, and shall be
subject to all of the terms and conditions of such Parent Guaranty.
Borrower, or where appropriate, Parent, hereby agrees to (i) pledge, and
hereby pledges, its Class B Interest to Agent, for the benefit of Lenders, as
additional Collateral and to execute such documents as requested by Agent and
Lenders, at any time and from time to time, to evidence such pledge, (ii)
cause to be delivered to Agent and Lenders a Continuing Guaranty, Pledge,
Security and Subordination Agreement executed by an authorized representative
of CAEL IV (the "CAEL IV Guaranty"), in form satisfactory to Agent and
Lenders, (iii) cause to be delivered to Agent and Lenders a pledge of and/or
perfect the Agent's and Lenders' security interest in CAEL IV's general
partnership interest to secure CAEL IV's obligations under the CAEL IV
Guaranty, and (iv) cause to be delivered to Agent, as part of the CAEL IV
Guaranty, an assignment of all management fees, servicing fees and other fees
or cash generated from or in connection with the operation, management or
servicing of CPYF III. In addition, Borrower represents to Agent and Lenders
that the terms of the agreements between Borrower and CPYF III are at least
as protective of the Lenders' rights and interests as the agreements between
Borrower and CPYF II. Borrower shall provide all documents relating to CPYF
III and CAEL IV to Agent and Lenders as soon as such documents are available
for review to enable Agent and Lenders to confirm Borrower's compliance with
this Section 35 and Section 31 hereof.
36. Conditional Consent Under Sections 7.1, 7.2, 7.6 and 7.9 of
the Amended Loan Agreement for Establishment of Lease Securitization Program
With CAILS I and Related Warehouse Debt Facility.
36.1 Agent and the Lenders agree to review
documents for the proposed Lease Securitization Program
(as defined in Section 3 above) and Warehouse Debt
Facility (as defined in Section 3 above) as soon as
such documents are available for review, and, subject
to Sections 36.2 and 36.6 of this Amendment No. 2, if
Lenders and Agent believe, in their sole judgment, that
such documents do not adversely affect their Collateral
or the Borrower's ability to repay the Loans, and the
final documents regarding the Lease Securitization
Program and the Warehouse Debt Facility are otherwise
acceptable to Agent and Lenders in their sole
discretion, Agent and Lenders will consent, in
accordance with Borrower's request under Sections 7.1,
7.2, 7.6 and 7.9 of the Amended Loan Agreement, to
(a) additional cash capital contributions by Borrower
to CAILS I (as defined in Section 3 above) beyond the
initial cash capital contribution of $100 referenced in
Section 36.2 hereof of up to One Million Nine Hundred
Ninety Nine Thousand Nine Hundred Dollars ($1,999,900),
(b) CAILS I acting as the issuer of Class A and Class B
Notes pursuant to the Lease Securitization Program,
(c) the Borrower acting as the servicer and the lease
originator under the Lease Securitization Program and
(d) the operation of the Lease Securitization Program.
In addition to the Lease Securitization Summary (as
defined below) Borrower has delivered to Agent and
Lenders on or about November 1, 1993, certain lease
securitization term sheets and projections regarding
the Lease Securitization Program which Borrower
acknowledges form the basis for Borrower's current
financial assumptions regarding the Lease
Securitization Program.
36.2 Subject to (i) the agreements and
representations of Parent and Borrower as set forth in
this Section 36.2, and (ii) the accuracy of the Summary
of Key Terms for Lease Securitization Program and
Warehouse Debt Facility attached hereto as Exhibit 3
(the "Lease Securitization Summary") as a true and
correct summary of the terms of the formation and
initial capitalization of CAILS I with cash of $100,
the Lenders will consent to the (a) formation of
CAILS I and (b) the issuance by CAILS I of 1,000 shares
of its common stock (representing all of its issued and
outstanding common stock) to Borrower in exchange for
an initial capital contribution of $100 in cash;
provided, however, that such consent shall not
constitute consent to any other feature of the Lease
Securitization Program or to the contribution of any
additional cash or other property by Borrower to
CAILS I for any reason, except as otherwise set forth
in Sections 36.1, 36.3, 36.4, 36.5, 36.6, 37 and 38.
As a condition to Agent's and Lenders' consent under
Section 36.1 and this Section 36.2 of this Amendment
No. 2, Borrower agrees to pledge, and hereby pledges,
all of the stock of CAILS I to Agent, for the benefit
of Lenders, as Collateral for the Loans.
36.3 Notwithstanding Section 36.1 of this
Amendment No. 2, so long as the Recourse Provisions (as
that term is defined below) of the final documentation
for the Lease Securitization Program and the Warehouse
Debt Facility are at least as protective of Borrower as
the Recourse Provisions set forth in Exhibit 4 attached
to this Amendment No. 2, Agent and Lenders will consent
to those same aspects of the Recourse Provisions that
are contained in the final documentation for the Lease
Securitization Program and the Warehouse Debt Facility
as part of their consent under Section 36.1 of this
Amendment No. 2 to the final documentation for the
Lease Securitization Program and Warehouse Debt
Facility, subject to the right of the Agent and the
Lenders to review all of the final documentation for
the Lease Securitization Program and Warehouse Debt
Facility and any new Recourse Provisions prior to
determining whether to give the consent requested by
Borrower.
36.4 Borrower shall promptly provide Agent and
Lenders with all documents relating to the Lease
Securitization Program and the Warehouse Debt Facility
to enable Agent and Lenders to review such documents.
36.5 For purposes of this Section 36 of Amendment
No. 2, the term "Recourse Provisions" shall mean those
provisions of the documentation for the Lease
Securitization Program and the Warehouse Debt Facility
that could result in liability by Borrower to any
person in connection with the Lease Securitization
Program or the Warehouse Debt Facility, which
provisions may include, but are not limited to, any
undertakings by Borrower; any warranties,
representations, or commitments given by Borrower; any
guarantees by Borrower; any obligation by Borrower to
advance funds or create a reserve or similar account;
any remedies for breach or default that may affect
Borrower; or the unwind provisions of the Warehouse
Debt Facility. The "Recourse Provisions" are set forth
in Exhibit 4 to this Amendment No. 2.
36.6 In connection with Borrower's establishment
of the Lease Securitization Program, and as a condition
to Agent's and Lenders' consent under Sections 36.1,
36.2 and 36.3 of this Amendment No. 2, Borrower agrees
to (a) assign, and hereby assigns, to the Agent, for
the benefit of Lenders, as Collateral for the Loans,
all fees Borrower receives or is entitled to receive
from CAILS I (including, without implied limitation,
servicing fees, marketing fees, or remarketing fees)
and all other rights to payments from CAILS I
(including, without implied limitation, residual rights
or other rights such as return of capital or dividend
rights, marketing or remarketing rights, rights to
reimbursement, or rights in any reserve account),
whether created under servicing or other agreements
between Borrower and CAILS I or otherwise, and
(b) deliver all original agreements concerning
servicing or other agreements for the payment of fees
or other rights to payment (or evidencing residual
rights or other rights such as return of capital or
dividend rights, marketing or remarketing rights,
rights to reimbursement, or rights in any reserve
account) to Borrower in connection with CAILS I to
Fairfield and Woods P.C. under the Amended Agency and
Possession Agreement.
37. Use of New Business Funds. Borrower agrees that the
organization and origination costs paid or incurred by it in connection with
the creation or establishment of CPYF III, CAEL IV, CAILS I, the Warehouse
Debt Facility and/or the Lease Securitization Program, any costs or expenses
of the "unwind provisions" of the Warehouse Debt Facility, any cash
investment in or capitalization of CAEL IV or CAILS I, any cash deposits or
payments into a reserve account in connection with the Lease Securitization
Program, any cash advances made under or in connection with the Lease
Securitization Program (such as, by way of example, but without limitation,
advances to or for the benefit of the holders of the A and B Notes), any out
of pocket payments incurred by Borrower in connection with the Lease
Securitization Program and/or the Warehouse Debt Facility (such as, by way of
example, but without limitation, any costs of collection with respect to any
lessee's delinquent lease payments, any costs incurred by Borrower in
purchasing any umbrella insurance policies as contemplated under the Lease
Securitization Program and/or the Warehouse Debt Facility, any advances made
by Borrower for taxes or insurance in connection with the Lease
Securitization Program and/or the Warehouse Debt Facility), and/or any equity
contributions (whether cash or equipment) made in connection with CPYF III,
CAEL IV, CAILS I, or the Lease Securitization Program, shall be a use of New
Business Funds under Section 7.24 of the Amended Loan Agreement and the
definition of "New Business Funds" in the Amended Loan Agreement is hereby
amended to include all of the foregoing as part of such definition.
38. Conditional Consent Under Section 7.3 of the Amended Loan
Agreement for Warehouse Debt Facility. Agent and the Lenders agree to review
documents for the proposed Lease Securitization Program and Warehouse Debt
Facility, as soon as such documents are available for review, and, so long as
(i) Lenders and Agent believe, in their sole judgment, that such documents do
not adversely affect their Collateral or the Borrower's ability to repay the
Loans, (ii) the final documents regarding the Warehouse Debt Facility are
otherwise acceptable to Agent and Lenders in their sole discretion, and (iii)
Borrower has satisfied all of the requirements necessary for consent under
Section 36 of this Amendment No. 2, Agent and Lenders will consent, in
accordance with Borrower's request under Section 7.3 of the Amended Loan
Agreement, to (a) CAILS I becoming the borrower under, and obligating itself
to repay, the Warehouse Debt Facility, the proceeds of which are being
provided by ITT Credit Corp. to CAILS I solely to fund the acquisition by
CAILS I of Leases and Related Equipment for the Lease Securitization Program.
39. Delivery of Additional Financing Statements. Borrower shall
deliver to Agent UCC-1 financing statements, signed by an authorized officer
of Borrower, for filing in certain counties and parishes in Georgia and
Louisiana, respectively, where Agent has not previously filed financing
statements, within five (5) Business Days after Agent delivers such financing
statements to Borrower for signature; provided, that it shall be a condition
precedent to the effectiveness of this Amendment No. 2 that Borrower shall
deliver to Agent and Agent shall have received, all such financing statements
that were delivered to Borrower for signature prior to execution of this
Amendment No. 2. Failure to deliver financing statements to Agent as set
forth above shall constitute an Event of Default under the Amended Loan
Agreement.
40. Amendment to Amended Joint Security Agreement and Confirmation
That Collateral Includes Certain Property. The Amended Joint Security
Agreement is hereby amended by adding to Section 5.10.2 of the Amended Joint
Security Agreement the word "lender" immediately before the words "loss payee
under the insurance", and after the words "Agent as" in the two places where
such phrases appear in Section 5.10.2. Borrower hereby acknowledges,
confirms and agrees that the "Collateral" under and as defined in the Amended
Joint Security Agreement includes any property that pursuant to the terms of
the Amended Loan Agreement, this Amendment No. 2 or Amendment No. 1 is, has
been, or will be pledged to Agent, for the benefit of Lenders, or as to which
a security interest is, has been, or will be granted to Agent, for the
benefit of Lenders, including proceeds of any of the foregoing.
41. Amendment to Amended Agency and Possession Agreement. The
Parties agree to amend Section 11.2 of the Amended Agency and Possession
Agreement by deleting the word "and" immediately before subpart (iii),
inserting "; and" immediately after subpart (iii), and adding a new subpart
(iv) as follows:
(iv) all documents, certificates, agreements,
worksheets and schedules required to be delivered to
Agent and/or Lenders under any of the Amended Loan
Documents.
42. Amendment to Amended Loan Documents. The Parties hereto
hereby amend all of the Amended Loan Documents to provide the following rules
of construction for each such Amended Loan Document to the extent not already
provided therein: "The term "including" shall not be limited or exclusive,
unless specifically indicated to the contrary. The word or shall have the
inclusive meaning represented by the phrase and/or."
43. Effect of Amendment No. 2. Except as otherwise expressly
modified (i) herein, (ii) in the Second Amendment to Continuing Guaranty,
Pledge, Security and Subordination Agreement and Third Reaffirmation of
Guaranty executed concurrently herewith by Parent (the "1993 Parent Amendment
and Reaffirmation"), and/or (iii) in each Second Amendment to Continuing
Guaranty, Security and Subordination Agreement and Reaffirmation of Guaranty
executed concurrently herewith by certain of the Capital Subsidiaries (each,
a "1993 Capital Subsidiary Amendment and Reaffirmation"), the Amended Loan
Agreement, the Amended Joint Security Agreement, the Amended Agency and
Possession Agreement, the Amended Guaranty, the Other Guarantees and the
other Amended Loan Documents, shall remain in full force and effect according
to the terms thereof. From and after the Effective Date, this Amendment No.
2 together with (i) any amendments to the Amended Loan Agreement, the Amended
Joint Security Agreement and any of the other Amended Loan Documents set
forth in the Omnibus Amendments, and (ii) the Amended Loan Agreement, the
Amended Joint Security Agreement, the Amended Guaranty, the Other Guarantees
and the other Amended Loan Documents, constitute the Amended Loan Agreement,
the Amended Joint Security Agreement, the Amended Guaranty, the Other
Guarantees and the other Amended Loan Documents, respectively.
44. Counterparts. This Amendment No. 2 may be executed in
counterparts, all of which taken together shall constitute Amendment No. 2.
Signatures may be exchanged by telecopy, with original signatures to follow.
Each Party agrees that it will be bound by its own telecopied signature and
that it accepts the telecopied signatures of the other Parties to this
Amendment No. 2. The original signature pages shall be forwarded to the
Agent and the Agent will provide all Parties with a copy of the entire
Amendment No. 2.
45. Effective Date. Upon execution of this Amendment No. 2 by all
Parties, this Amendment No. 2 shall be deemed effective as of December 23,
1993 (the "Effective Date"), and the Agent shall enter the Effective Date
under its signature after receiving a fully signed copy of this Amendment No.
2.
46. Reaffirmation of Amended Guaranty and Subsidiary Guaranties.
Parent (identified on its signature line to this Amendment No. 2 as
"Guarantor") hereby consents to the terms of this Amendment No. 2, reaffirms
its obligations to Lenders and Agent under the Amended Guaranty and the
Guaranty Reaffirmations, and confirms that the Amended Guaranty and the
Guaranty Reaffirmations remain in full force and effect. Each Capital
Subsidiary hereby consents to the terms of this Amendment No. 2, reaffirms
its obligations to Lenders and Agent under its Other Guarantee and its Other
Guaranty Reaffirmations and confirms that its Other Guarantee and its Other
Guaranty Reaffirmations remain in full force and effect.
47. Entire Agreement. This Amendment No. 2, together with the
1993 Parent Amendment and Reaffirmation, each of the 1993 Capital Subsidiary
Amendment and Reaffirmations, and the other documents executed in connection
with this Amendment No. 2, is the entire agreement between the Parties hereto
with respect to the subject matter hereof and supersedes all prior or
contemporaneous oral or written agreements or discussions. Except as
otherwise expressly modified (i) herein, (ii) in the 1993 Parent Amendment
and Reaffirmation, (iii) in each of the 1993 Capital Subsidiary Amendment and
Reaffirmations, and/or (iv) by the other documents executed in connection
with this Amendment No. 2, the Amended Loan Documents shall remain in full
force and effect in accordance with their respective terms. This Amendment
No. 2, together with the Amended Loan Agreement, the Amended Joint Security
Agreement, the Omnibus Amendments, the 1993 Parent Amendment and
Reaffirmation, and each of the 1993 Capital Subsidiary Amendment and
Reaffirmations, shall constitute the Amended Loan Agreement, the Amended
Joint Security Agreement, the Amended Guaranty and the Other Guarantees,
respectively, which, in turn, are part of the Amended Loan Documents.
48. Headings. The captions and headings used in this Amendment
No. 2 are inserted for convenience or reference only and shall not be used in
construing the provisions hereof.
GUARANTOR BORROWER
CAPITAL ASSOCIATES, INC. CAPITAL ASSOCIATES INTERNATIONAL,
INC.
By: /s/Dennis J. Lacey By: /s/Dennis J. Lacey
-------------------------- -------------------------
Dennis J. Lacey Dennis J. Lacey
Chief Executive Officer, Chief Executive Officer,
President President
OTHER GUARANTORS
CAI EQUIPMENT LEASING I CORP. CAI EQUIPMENT LEASING III CORP.
By: /s/Dennis J. Lacey By: /s/Dennis J. Lacey
-------------------------- -------------------------
Dennis J. Lacey Dennis J. Lacey
Senior Vice President Senior Vice President
CAI EQUIPMENT LEASING IV CORP CAI PARTNERS MANAGEMENT COMPANY
By: /s/Dennis J. Lacey By: /s/Dennis J. Lacey
-------------------------- -------------------------
Dennis J. Lacey Dennis J. Lacey
Senior Vice President Senior Vice President
CAI LEASING CANADA, LTD. WHITEWOOD CREDIT CORPORATION
By: /s/Dennis J. Lacey By: /s/Dennis J. Lacey
-------------------------- -------------------------
Dennis J. Lacey Dennis J. Lacey
Senior Vice President Senior Vice President
CAPITAL EQUIPMENT CORPORATION CAI LEASE SECURITIZATION I CORP.
By: /s/Dennis J. Lacey By: /s/John E. Christensen
-------------------------- -------------------------
Dennis J. Lacey John E. Christensen
Senior Vice President President
AGENT LENDERS
MELLON BANK, N.A. MELLON BANK, N.A.
By: /s/Brigitte R. Bouchat By: /s/Brigitte R. Bouchat
-------------------------- -------------------------
Brigitte R. Bouchat Brigitte R. Bouchat
Its: Vice President Its: Vice President
Effective Date: December 23, 1993 THE CHASE MANHATTAN BANK, N.A.
By: /s/Stanley M. Guralnick
---------------------------
Its: Vice President
FIRST BANK NATIONAL ASSOCIATION
By: /s/Jack L. Quitmeyer
---------------------------
Its: Vice President
HORACE MANN LIFE INSURANCE COMPANY
By: J. P. MORGAN INVESTMENT
MANAGEMENT, INC., as
Investment Manager
By: /s/E. Clifford Cole
---------------------------
Its: Vice President
CIG & CO for
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: /s/James F. Coggins, Jr.
---------------------------
Its: Partner
Exhibit 10.46(b)
CONTINUING GUARANTY,
SECURITY AND SUBORDINATION AGREEMENT
Table of Contents
1. DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Terms Defined in the Loan Agreement . . . . . . . . . 1
1.2 Terms Defined in the Uniform Commercial Code. . . . 2
1.3 Terms Defined in this Agreement. . . . . . . . . . . 2
2. GUARANTY OF OBLIGATIONS.. . . . . . . . . . . . . . . . . . 5
2.1 Continuing Guaranty.. . . . . . . . . . . . . . . . . 5
2.2 Maximum Guaranty Obligations. . . . . . . . . . . . 6
2.3 Guaranty Absolute. . . . . . . . . . . . . . . . . . 6
2.4 Consideration; Reliance by Lenders. . . . . . . . . . 8
2.5 Benefit to Guarantor. . . . . . . . . . . . . 8
2.6 Application of Funds. . . . . . . . . . . . . . . . . 8
2.7 Revival of Obligations. . . . . . . . . . . . . . . 8
3. PAYMENT OF GUARANTY OBLIGATIONS.. . . . . . . . . . . . . . 9
3.1 Demand for Payment. . . . . . . . . . . . . . . . . . 9
3.2 Immediate Recourse Against Guaranty Collateral. . . . 9
4. TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. WAIVERS BY GUARANTOR. . . . . . . . . . . . . . . . . . . . 10
5.1 Primary Obligations.. . . . . . . . . . . . . . . . . 10
5.2 Remedies with Respect to Collateral.. . . . . . . . . 10
5.3 Financial Condition of Borrower.. . . . . . . . . . . 10
5.4 Marshalling.. . . . . . . . . . . . . . . . . . . . . 11
5.5 Waiver of Notice. . . . . . . . . . . . . . . . . . . 11
5.6 Subrogation and Reimbursement.. . . . . . . . . . . . 11
5.7 Limitation on Actions.. . . . . . . . . . . . . . . . 12
5.8 Extensions, Renewals, and Amendments of
Obligations. . . . . . . . . . . . . . . . . . . . . 12
5.9 Business Debt.. . . . . . . . . . . . . . . . . . . . 13
5.10 No Waiver by Conduct.. . . . . . . . . . . . . . . . 13
6. SUBORDINATION.. . . . . . . . . . . . . . . . . . . . . . . 13
6.1 Subordination of Debt.. . . . . . . . . . . . . . . . 13
6.2 Subordination of Security Interest. . . . . . . . . . 13
6.3 No Collection by Guarantor. . . . . . . . . . . . . . 13
6.4 Evidence of Indebtedness; Legend. . . . . . . . . . . 14
6.5 No Sale or Pledge of Subordinated Indebtedness. . . . 14
6.6 Subordination in Bankruptcy.. . . . . . . . . . . . . 14
6.7 Assignment of Subordinated Indebtedness.. . . . . . . 14
6.8 No Modification of Subordinated Indebtedness. . . . . 15
7. SECURITY. . . . . . . . . . . . . . . . . . . . . . . . . . 15
7.1 Grant of Security Interest. . . . . . . . . . . . . . 15
7.2 Subsequently Acquired Property. . . . . . . . . . . . 16
7.3 No Interest in Hazardous Materials. . . . . . . . . . 16
7.4 Security Interests for the Benefit of All Lenders.. . 17
7.5 General Partnership Interest. . . . . . . . . . . . . 17
8.1 Authority; Execution. . . . . . . . . . . . . . . . . 18
8.2 Locations of Offices and Guaranty Collateral. . . . . 18
8.3 Title to Guaranty Collateral. . . . . . . . . . . . . 18
8.4 No Other Liens. . . . . . . . . . . . . . . . . . . . 18
8.5 Perfection and Priority of Security Interest in the
Guaranty Collateral. . . . . . . . . . . . . . . . . 18
8.6 No Further Approvals Required.. . . . . . . . . . . . 18
8.7 Documents Evidencing Subordinated Indebtedness. . . . 19
8.8 Chief Executive Office; Principal Place of
Business.. . . . . . . . . . . . . . . . . . . . . . 19
8.9 Federal Employer Identification Number. . . . . . . . 19
9.1 Performance of Guaranty Obligations.. . . . . . . . . 19
9.2 Payment of Indebtedness to Third Parties. . . . . . . 19
9.3 Payment of Charges and Withholding Taxes. . . . . . . 19
9.4 Maintenance of Records. . . . . . . . . . . . . . . . 20
9.5 Disposition of Guaranty Collateral. . . . . . . . . . 21
9.6 Negative Pledge.. . . . . . . . . . . . . . . . . . . 21
9.7 Discharge of Liens; Defense of Title. . . . . . . . . 21
9.8 Further Assurances with Respect to the Guaranty
Collateral . . . . . . . . . . . . . . . . . . . . . 21
9.9 Insurance.. . . . . . . . . . . . . . . . . . . . . . 21
9.10 Damage or Destruction. . . . . . . . . . . . . . . . 22
9.11 Adverse Changes. . . . . . . . . . . . . . . . . . . 22
9.12 Right of Inspection. . . . . . . . . . . . . . . . . 23
9.13 Maintenance of Guaranty Collateral.. . . . . . . . . 23
9.14 Financial Reporting. . . . . . . . . . . . . . . . . 23
9.16 Name Changes; Corporate Structure; Location. . . . . 24
9.17 Use of Other Names.. . . . . . . . . . . . . . . . . 24
9.18 Compliance with Laws.. . . . . . . . . . . . . . . . 24
9.19 Limitation on Modification of Accounts.. . . . . . . 24
9.20 Financing Statements; Perfection.. . . . . . . . . . 24
9.21 Acquisition of Aircraft, Rolling Stock or
Certificated Vehicles. . . . . . . . . . . . . . . . 25
9.22 Delivery of Notes, Documents, Chattel Paper and
Certificated Securities. . . . . . . . . . . . . . . 25
10. RIGHTS AND POWERS OF AGENT.. . . . . . . . . . . . . . . . 25
10.1 Appointment and Powers.. . . . . . . . . . . . . . . 25
10.2 Ratification.. . . . . . . . . . . . . . . . . . . . 27
10.3 Lenders' Rights; Limitations on Agent's and
Lenders' Obligations.. . . . . . . . . . . . . . . . 27
10.4 Collection of Receivables. . . . . . . . . . . . . . 28
10.5 Verification of Guaranty Collateral. . . . . . . . . 28
10.6 Performance by Agent of Guarantors' Obligation.. . . 28
11. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . 29
11.1 Events of Default. . . . . . . . . . . . . . . . . . 29
12. RIGHTS AND REMEDIES UPON DEFAULT.. . . . . . . . . . . . . 30
12.1 Rights Under the Amended Loan Documents. . . . . . . 30
12.2 Rights Under Uniform Commercial Code.. . . . . . . . 31
12.3 Possession of Guaranty Collateral. . . . . . . . . . 31
12.4 Disposition of Guaranty Collateral.. . . . . . . . . 31
12.5 Notice of Sale.. . . . . . . . . . . . . . . . . . . 32
12.6 Collection of Accounts and General Intangibles.. . . 32
12.7 Proceeds from Disposition of Guaranty Collateral.. . 32
12.8 Grant of License to Use Patent and Trademark
Guaranty Collateral. . . . . . . . . . . . . . . . . 33
12.9 Limitation on Agent's Duty in Respect of Guaranty
Collateral.. . . . . . . . . . . . . . . . . . . . . 33
12.10 Remedies Cumulative.. . . . . . . . . . . . . . . . 34
12.11 Communication with Customers. . . . . . . . . . . . 34
12.12 No Interference.. . . . . . . . . . . . . . . . . . 34
12.13 Rights Solely to Protect Security.. . . . . . . . . 34
13. AGENT'S DUTIES AND ROLE. . . . . . . . . . . . . . . . . . 34
13.1 Powers.. . . . . . . . . . . . . . . . . . . . . . . 34
13.2 Delegation of Duties.. . . . . . . . . . . . . . . . 35
13.3 Agent in its Capacity as a Lender. . . . . . . . . . 35
13.4 Actions in Discretion of Agent; Instructions from
the Lenders. . . . . . . . . . . . . . . . . . . . . 35
13.5 Exculpatory Provisions.. . . . . . . . . . . . . . . 35
13.6 Reimbursement and Indemnification. . . . . . . . . . 36
13.7 Reliance by Agent. . . . . . . . . . . . . . . . . . 36
13.8 Resignation of Agent.. . . . . . . . . . . . . . . . 37
13.9 Exercise of Powers by Agent. . . . . . . . . . . . . 37
14. MISCELLANEOUS PROVISIONS.. . . . . . . . . . . . . . . . . 37
14.1 Indemnification. . . . . . . . . . . . . . . . . . . 37
14.2 No Waiver; Cumulative Remedies.. . . . . . . . . . . 37
14.3 Notices. . . . . . . . . . . . . . . . . . . . . . . 38
14.4 Survival.. . . . . . . . . . . . . . . . . . . . . . 41
14.5 Fees and Expenses. . . . . . . . . . . . . . . . . . 41
14.6 Conflict of Terms. . . . . . . . . . . . . . . . . . 42
14.7 Severability.. . . . . . . . . . . . . . . . . . . . 42
14.8 Successors and Assigns.. . . . . . . . . . . . . . . 42
14.9 Further Assurances.. . . . . . . . . . . . . . . . . 43
14.10 Miscellaneous Waivers.. . . . . . . . . . . . . . . 43
14.11 Limitation by Law.. . . . . . . . . . . . . . . . . 43
14.12 Section Titles. . . . . . . . . . . . . . . . . . . 44
14.13 Integration; No Other Agreements. . . . . . . . . . 44
14.14 Governing Law; Consent to Jurisdiction and
Venue . . . . . . . . . . . . . . . . . . . . . . . 44
14.15 MUTUAL WAIVER OF JURY TRIAL.. . . . . . . . . . . . 44
14.16 Counterparts. . . . . . . . . . . . . . . . . . . . 45
CONTINUING GUARANTY,
SECURITY AND SUBORDINATION AGREEMENT
This Continuing Guaranty, Security and Subordination Agreement
("Agreement") is made as of December 23, 1993, by and among CAI Equipment
Leasing IV Corp. ("Guarantor"), a Colorado corporation, and Mellon Bank,
N.A., The Chase Manhattan Bank, N.A., First Bank National Association, Horace
Mann Life Insurance Company, and CIG & Co., as nominee for Connecticut
General Life Insurance Company (collectively, the "Lenders"), and Mellon
Bank, N.A., in its capacity as agent for the Lenders ("Agent"), with
reference to the following facts:
R E C I T A L S
A. Agent and the Lenders have entered into a Second Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of December 21,
1992, with Capital Associates International, Inc. ("Borrower"), as amended by
Amendment No. 1 to the Second Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of the "Effective Date" as defined therein and by
Amendment No. 2 to the Second Amended and Restated Revolving Credit and Term
Loan Agreement, dated as of the "Effective Date" as defined therein (the
"Amendment No. 2") pursuant to which the Lenders have agreed to make, and
have in fact made, certain loans, extensions of credit and other financial
accommodations available to Borrower.
B. Guarantor is a wholly-owned subsidiary of Capital Associates, Inc.
C. Guarantor has agreed to deliver this Agreement to Agent and Lenders
in connection with the Lenders' and Agent's agreement to enter into Amendment
No. 2 and in consideration of the substantial benefits Guarantor will be
receiving from the loans and other financial accommodations of Lenders to
Borrower.
A G R E E M E N T
NOW, THEREFORE, in order to induce Agent and the Lenders to
continue to make advances and other financial accommodations to or for the
benefit of Borrower, and intending to be legally bound hereby, Guarantor,
Lenders and Agent hereby agree as follows:
1. DEFINED TERMS.
1.1 Terms Defined in the Loan Agreement. Unless otherwise defined
herein, or unless the context clearly requires otherwise, all terms defined
in the Amended and Restated Loan Agreement (as defined below) and used in
this Agreement shall have the meanings set forth in the Amended and Restated
Loan Agreement.
1.2 Terms Defined in the Uniform Commercial Code. Unless otherwise
defined herein, or unless the context clearly requires otherwise, all terms
defined in the UCC (as defined below) shall have the meanings provided
therein.
1.3 Terms Defined in this Agreement. As used in this Agreement, the
following terms shall have the meanings set forth below:
(A) "Adjusted Indebtedness" means the present value,
as of the date hereof, of Guarantor's known probable
liabilities, whether matured or unmatured, liquidated or
unliquidated, absolute, fixed or contingent, but excluding
any liabilities under this Agreement. Contingent or
unliquidated liabilities shall be valued as of the date
hereof at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount
which could reasonably be expected to become an actual
matured liability.
(B) "Adjusted Net Worth" means the excess of (i) the
Fair Saleable Value of Guarantor's assets (excluding only
the Demand Note) on the date hereof, over (ii) the amount of
Adjusted Indebtedness of Guarantor on the date hereof.
(C) "Agent" means Mellon Bank, N.A. in its capacity as
agent for the Lenders.
(D) "Agreement" means this Continuing Guaranty,
Security and Subordination 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.
(E) "Allowed Encumbrances" means the following
encumbrances: (i) liens for Federal, state, county, city,
municipal, local, or other governmental taxes at the time
due and payable by Guarantor to the governmental entities
responsible for collecting such taxes, and all levies,
assessments, charges, liens, claims or encumbrances arising
in connection with the claims for such taxes, upon or
relating to the Guaranty Collateral, to the extent that such
taxes are (a) not yet due and payable, (b) have not been due
and payable for more than thirty (30) days, or (c) are being
contested in good faith (subject to the provisions of
Section 9.3, below); and (ii) presently existing and
hereafter created Liens in favor of Agent.
(F) "Amended and Restated Intercreditor Agreement"
means that certain Second Amended and Restated Intercreditor
Agreement dated as of December 21, 1992, among Mellon Bank,
N.A., The Chase Manhattan Bank, N.A., First Bank National
Association, Horace Mann Life Insurance Company, and CIG &
Co., as nominee for Connecticut General Life Insurance
Company, including all amendments, modifications and
supplements thereto, and any appendices, exhibits or
schedules to any of the foregoing, and shall refer to such
Amended and Restated Intercreditor Agreement as the same may
be in effect at the time such reference becomes operative.
(G) "Amended and Restated Loan Agreement" means that
certain Second Amended and Restated Revolving Credit and
Term Loan Agreement dated as of December 21, 1992, as
amended by Amendment No. 1 to the Amended and Restated
Revolving Credit and Term Loan Agreement dated as of the
"Effective Date" as defined therein, and by Amendment No. 2
to the Amended and Restated Revolving Credit and Term Loan
Agreement dated as of the "Effective Date" as defined
therein, and including all other amendments, modifications
and supplements thereto, and any appendices, exhibits, or
schedules to any of the foregoing, and shall refer to the
Amended and Restated Loan Agreement as the same may be in
effect at the time such reference becomes operative.
(H) "Amendment No. 2" means that certain Amendment
No. 2 to the Second Amended and Restated Revolving Credit
and Term Loan Agreement dated as of the "Effective Date," as
defined therein, by and among Borrower, Lenders and Agent.
(I) "Benefit Amount" means the net value of any
benefits received or to be received by Guarantor from
advances or other extensions of credit under the Amended and
Restated Loan Agreement. Such benefits shall include,
without implied limitation, (1) the benefits of funds
constituting proceeds of loans advanced to or for the
benefit of Guarantor by the Lenders or Borrower,
(2) benefits from the businesses conducted by Borrower and
the other subsidiaries and affiliates of Borrower because
of, among other things, their combined ability to bargain
with other persons, including without limitation their
ability to receive the benefits of the credit facilities on
favorable terms granted by the Amended and Restated Loan
Agreement, which would not have been available to Guarantor
alone.
(J) "Borrower" means Capital Associates International,
Inc., a Colorado corporation.
(K) "Collateral" means all of Borrower's now existing
or hereafter arising interest in any and all personal
property which is or shall become security for Borrower's
Obligations to Agent and the Lenders, including, without
limitation, all Collateral and Pledged Property under and as
defined in the Amended Joint Security Agreement.
(L) "Demand Note" means that certain non-negotiable
demand note executed by Capital Associates, Inc. in favor of
Guarantor, a copy of which is attached hereto as Exhibit A.
(M) "Fair Saleable Value" of any assets means the
amount which may be realized, as of the date hereof within a
reasonable time, either through collection of such assets or
sale of such assets at the regular market value,
understanding "regular market value" to mean the amount
which could be obtained for the assets in question within
such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary
selling conditions.
(N) "Guarantor" means CAI Equipment Leasing IV Corp.,
a Colorado corporation.
(O) "Guaranty Collateral" means any and all of
Guarantor's interest in the personal property which is or
shall become security for the Guaranty Obligations,
including, without limitation, the property described in
Section 7.1 of this Agreement and the Pledged Guaranty
Collateral described in Section 7.5 of this Agreement, but
not including the Demand Note.
(P) "Guaranty Obligations" means all obligations and
agreements of and covenants to be performed by Guarantor
under this Agreement, including, without limitation, all of
Guarantor's obligations under Section 2.1 of this Agreement.
(Q) "Hazardous Materials" shall have the meaning set
forth in Section 7.3 of this Agreement.
(R) "Lender" or "Lenders" means each of Mellon Bank,
N.A., The Chase Manhattan Bank, N.A., First Bank National
Association, Horace Mann Life Insurance Company, CIG & Co.,
as nominee for Connecticut General Life Insurance Company,
individually and collectively, and, if at any time any such
Lender shall be replaced in whole or in part, such
replacement as may be designated by such Lender.
(S) "Parent" means Capital Associates, Inc., a
Delaware corporation.
(T) "Partnership" shall have the meaning assigned to
it in Section 7.5.
(U) "Partnership Interest" shall have the meaning
assigned to it in Section 7.5.
(V) "Pledged Guaranty Collateral" shall have the
meaning assigned to it in Section 7.5.
(W) "Proceeds" shall have the meaning assigned to it
in Section 7.5.
(X) "Schedule of Collateral Locations" means the
Schedule of Collateral Locations attached hereto as
Exhibit B, listing the locations of all of the Guaranty
Collateral.
(Y) "Subordinated Indebtedness" shall have the meaning
set forth in Section 6.1.
(Z) "UCC" means the Uniform Commercial Code as the
same may, from time to time, be in effect in the
Commonwealth of Pennsylvania; provided, however, in the
event that, by reason of mandatory provisions of law, any or
all of the attachment, perfection or priority of Agent's
security interest in any Guaranty Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction
other than the Commonwealth of Pennsylvania, 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.
(AA) "Withholding Charges" shall have the meaning set
forth in Section 9.3 of this Agreement.
2. GUARANTY OF OBLIGATIONS.
2.1 Continuing Guaranty. Subject to the provisions of Section 2.2,
below, Guarantor hereby unconditionally and irrevocably guarantees to Agent
and the Lenders, as primary obligor and not as a surety, (i) the punctual
payment and performance of all now existing or hereafter arising Obligations
of Borrower to Agent and/or to the Lenders (whether at their stated
maturities, upon acceleration, or otherwise); (ii) the punctual payment and
performance by any other now existing or hereafter arising guarantor of the
Obligations; and (iii) the prompt payment of any and all reasonable expenses,
including reasonable attorneys', accountants', appraisers', and other
professional fees and expenses incidental to collection of the Guaranty
Obligations and/or the enforcement of Agent's and Lender's security interest
in the Guaranty Collateral. Guarantor also agrees to pay any amount
recovered by Borrower or by any trustee, receiver, liquidator, sequestrator,
custodian, or similar officer appointed for Borrower under the Federal
Bankruptcy Code or any other state or Federal statute relating to bankruptcy,
insolvency, receiverships, assignments for the benefit of creditors, or other
debtor relief statutes, from Agent or the Lenders through the exercise of any
avoidance power under such statute or any other law relating to preferences,
fraudulent conveyances, or other avoidable transfers, together with interest
on such amount at the rate specified in the Amended and Restated Loan
Agreement from the date of such recovery. Guarantor acknowledges that this
is a continuing guaranty agreement and Guarantor expressly promises to pay
each and every existing and future extension or renewal of credit by Agent
and/or the Lenders to Borrower. Guarantor shall be liable for the Guaranty
Obligations regardless of whether the Obligations may, in successive
transactions, be paid, repaid, advanced, readvanced, or renewed from time to
time.
2.2 Maximum Guaranty Obligations. Notwithstanding any term or
provision hereof to the contrary, the maximum liability of Guarantor to Agent
and the Lenders under this Agreement shall not exceed the lesser of (a)
Guarantor's Adjusted Net Worth, or (b) Guarantor's Benefit Amount.
2.3 Guaranty Absolute. This is a guaranty of payment and not merely of
collection. Guarantor guarantees that the Guaranty Obligations will be paid
strictly in accordance with the terms of this Agreement. Guarantor agrees
that its liability hereunder shall be the immediate, direct, and primary
obligation of Guarantor and shall not be subject to any condition precedent,
nor shall the Guaranty Obligations be contingent upon Agent's exercise or
enforcement of any remedy it may have with respect to Borrower, the
Collateral, any Guaranty Collateral, or any other guaranty or security with
respect to the Obligations. Without limiting the generality of the
foregoing, the Guaranty Obligations shall remain in full force and effect
without regard to and shall not be impaired, affected by, or deemed to be
satisfied by, nor shall Guarantor or the Guaranty Collateral be exonerated,
discharged, or released by, any of the following events:
(A) Agent's or Lender's exercise or enforcement of or
failure to exercise or enforce, or the impairment or
suspension of, any rights or remedies against Borrower or
the Collateral or any other guarantor of the Obligations, or
any action or inaction of Agent or Lender to perfect or
enforce any security interest in the Collateral or the
Guaranty Collateral;
(B) Insolvency, bankruptcy, reorganization,
arrangement, adjustment, composition, assignment for the
benefit of creditors, liquidation, winding up, dissolution
of Borrower or any other guarantor of the Obligations; or
any discharge of Borrower by operation of law, regardless of
the intervention or omission of Agent or the Lenders; or the
removal of Borrower or any other guarantor from any state
leaving no property therein from which the Obligations might
be satisfied;
(C) Any limitation, discharge, cessation, or partial
satisfaction of the liability of Borrower, or of any other
guarantor of the Obligations, whether due to any statute,
regulation, or rule of law, or otherwise (except payment and
performance in full of the Obligations), or any invalidity,
voidability, unenforceability in whole or in part of the
documents or instruments evidencing the Obligations or any
other guaranty of the Obligations;
(D) Any merger, acquisition, consolidation, or change
in structure of Borrower, Guarantor, or any other guarantor
of the Obligations; or any sale, lease, transfer, or other
disposition of any or all of the assets or shares of
Borrower, Guarantor, or any other guarantor of the
Obligations;
(E) Any assignment or other transfer, in whole or in
part, of Agent's or of any Lender's interest in the
Obligations, the Collateral, the Guaranty Obligations, or
the Guaranty Collateral;
(F) Any claim, counterclaim, setoff, or defense, other
than that of prior performance, which Borrower or any other
guarantor of the Obligations may have or assert, including,
but not limited to, any defense of incapacity, disability,
or lack of corporate or other authority to execute any
documents relating to the Obligations, the Collateral, or
any other guaranty of the Obligations;
(G) Any cancellation, renunciation or surrender of any
debt instrument evidencing the Obligations (other than in
connection with the payment and performance in full of the
Obligations);
(H) Agent's or any Lender's exercise or failure or
delay in commencing or prosecuting legal proceedings to
collect the Obligations or in exercising any power, right,
or remedy with respect to the Obligations or the Collateral,
including but not limited to Agent's or any Lender's
compromise, release, settlement, or waiver with or of
Borrower, any other person, the Collateral or the Guaranty
Collateral;
(I) Agent's or any Lender's vote, claim, distribution,
election, acceptance, action, or inaction in any bankruptcy
or reorganization case related to the Obligations, the
Collateral, the Guaranty Obligations, the Guaranty
Collateral or any other guaranty of the Obligations;
(J) Any impairment of any Collateral or Guaranty
Collateral or invalidity of or failure to perfect Agent's or
any Lender's security interest in any Collateral, Guaranty
Collateral, or any Lien or security interest held for any
other guaranty of the Obligations.
2.4 Consideration; Reliance by Lenders. Guarantor is entering this
Agreement for the purpose of inducing Agent and the Lenders to enter into
Amendment No. 2, to grant Borrower's request that Agent and Lenders consent
to the formation of Guarantor, to extend credit to Borrower, and to make
other concessions to Borrower, which Amendment No. 2, consideration for
Borrower's request, credit and other concessions will inure to the benefit of
Guarantor and are necessary for the continued operations of Guarantor.
Guarantor hereby acknowledges and agrees that any and all financial and other
accommodations extended by Agent and the Lenders to Borrower, giving rise to
the Obligations, were agreed to by Agent and the Lenders and extended by
Agent and the Lenders to Borrower for Borrower's account and for the benefit
of Guarantor in reliance upon this Agreement.
2.5 Benefit to Guarantor. Guarantor acknowledges that it will enjoy
significant benefits from the businesses conducted by Borrower because of,
among other things, their combined ability to bargain with other persons,
including, without limitation, their ability to receive the benefits of the
credit facilities on favorable terms granted by the Amended and Restated Loan
Agreement, which would not have been available to Guarantor alone. Agent has
advised Guarantor that Agent and the Lenders would not be willing to enter
into Amendment No. 2, to grant Borrower's request that Agent and Lenders
consent to the formation of Guarantor, and to permit the credit facilities
extended under the Amended and Restated Loan Agreement to be made available
to Guarantor pursuant to the terms of the Amended and Restated Loan Agreement
unless Guarantor guarantees the payment of the Obligations in accordance with
the terms hereof and Guarantor has determined that it is in its best
interests to induce Lender to extend credit pursuant to the Amended and
Restated Loan Agreement so that Guarantor can obtain credit on favorable
terms (i) because of the desirability to Guarantor of the credit facilities
available under the Amended and Restated Loan Agreement, (ii) because
Guarantor will engage in transactions jointly with Borrower and other
guarantors of the Obligations and (iii) because Guarantor may require and
obtain, from time to time, access to funds under the Amended and Restated
Loan Agreement which will be used towards meeting the working capital
requirements of, or repaying indebtedness of, Guarantor.
2.6 Application of Funds. Guarantor acknowledges and agrees that upon
Guarantor's payment to Agent on behalf of the Lenders of all or part of the
Guaranty Obligations after demand therefore, Agent may apply such payment to
any portion of the Obligations as Agent and the Lenders in their sole
discretion may choose.
2.7 Revival of Obligations. If Agent and/or the Lenders receive, from
any source, payment, in whole or in part, of the Obligations or the Guaranty
Obligations, and if any portion of the payment or any portion of Agent's
and/or any Lender's interest in any Collateral or Guaranty Collateral is
(before or after demand is made hereunder and regardless of whether payment
has been made hereunder) declared invalid, set aside, disgorged, returned,
refunded, or avoided, or is subject to any setoff or counterclaim, due to any
cause of action asserted by Borrower or Borrower's creditors or trustee in
bankruptcy, or by Guarantor or Guarantor's creditors or trustee in
bankruptcy, including but not limited to any setoff or counterclaim for
preference, fraudulent conveyance, breach of contract, or tort, then to the
extent of that portion of the payment or Agent's or any Lender's interest in
the Collateral or Guaranty Collateral, the Obligations shall be revived and
the Guaranty Obligations continued in effect without reduction or discharge
for that payment or portion of the Collateral or Guaranty Collateral. The
entry of any final judgment or order by a court of competent jurisdiction
against Agent or the Lenders, or Agent's good faith settlement with any party
(including a determination to comply with a demand made by any party) which
has the effect of invalidating or setting aside any interest in the
Collateral, or requiring Agent or the Lenders to refund, disgorge, restore or
return any such payment or any of the Collateral shall be binding on
Guarantor.
3. PAYMENT OF GUARANTY OBLIGATIONS.
3.1 Demand for Payment. If at any time and for any reason (i) Borrower
fails to pay Agent or the Lenders any Obligation, as and when due under the
Amended Loan Documents, (ii) any other guarantor of the Obligations fails to
pay or perform as and when due under its guaranty of the Obligations, (iii)
Guarantor or any other guarantor of the Obligations attempts to revoke or
terminate its guaranty of the Obligations, (iv) there is commenced by or
against Borrower, Guarantor, or any other guarantor of the Obligations any
insolvency or reorganization case or any such person fails generally to pay
their respective debts as they fall due or suffers a material adverse change
in their business operations or financial condition or (v) Agent or the
Lenders declare that an Event of Default exists under any of the Amended Loan
Documents, Agent may deliver to Guarantor a demand for payment under this
Agreement. Said demand shall be in writing and shall state the approximate
dollar amount of the Obligations on the date of said demand. Guarantor shall
pay to Agent the amount set forth in the demand within five (5) calendar days
after such demand is made.
3.2 Immediate Recourse Against Guaranty Collateral. In the event
Guarantor fails or refuses to pay the Guaranty Obligations by the fifth (5th)
calendar day following Agent's demand therefore, Agent may, in addition to
any other rights and remedies Agent and/or the Lenders have against Guarantor
under this Agreement or applicable law, immediately exercise all rights and
remedies against the Guaranty Collateral that Agent has under this Agreement
and under applicable law, all of which shall be cumulative and non-exclusive.
Guarantor specifically agrees that at any time on or after the date demand is
made under this Agreement, Agent may simultaneously give notices with respect
to public or private sales or other dispositions of the Collateral and/or the
Guaranty Collateral.
4. TERM.
This is a continuing guaranty and shall remain in effect so long as any
portion of the Obligations (including, without limitation, those Obligations
that are created or that arise after the date of this Agreement) remains
unpaid or unperformed.
5. WAIVERS BY GUARANTOR.
5.1 Primary Obligations. The Guaranty Obligations are primary
obligations of Guarantor and are independent of and different from the
Obligations of Borrower to Agent and the Lenders. Guarantor expressly waives
the right to require Agent and/or the Lenders to first pursue or exhaust its
or their remedies against Borrower, the Collateral, the Guaranty Collateral,
or any other security or guaranty which may be held for the Obligations or
the Guaranty Obligations, or to apply any such security or guaranty to the
Obligations or the Guaranty Obligations, before seeking from Guarantor
payment in full of the Guaranty Obligations or proceeding against the
Guaranty Collateral. Guarantor shall remain liable for the Guaranty
Obligations notwithstanding any judgment Agent and/or the Lenders may obtain
against Borrower, or any modification, extension, or renewal with respect
thereto.
5.2 Remedies with Respect to Collateral. Guarantor waives any right to
require Agent and/or any Lender to proceed according to any particular method
of foreclosure or realization upon the Collateral as to direct the order or
manner of foreclosure. Agent and/or the Lenders may, pursuant to applicable
law and the terms of the Amended Loan Documents, enforce the security
interest in all or any portion of the Collateral by means of one or more
public or private sales, as it and/or they may elect, and may exercise
whatever rights and remedies it and/or they may have with respect to said
Collateral, all without affecting the liability of Guarantor hereunder,
notwithstanding the effect of such action upon Guarantor's rights of
subrogation, reimbursement, or indemnity, if any, against any Borrower or any
other person.
5.3 Financial Condition of Borrower. Guarantor has entered into this
Agreement based solely on its independent investigation of the financial
condition of Borrower, and Guarantor assumes full responsibility for
obtaining any further information. Guarantor represents that it is now and,
during the term of this Agreement, will be fully aware of the financial
condition of Borrower. Guarantor hereby waives any duty on the part of Agent
or the Lenders, and agrees that it is not relying upon nor expecting Agent or
the Lenders, to disclose to Guarantor any fact known or hereafter discovered
by Agent or the Lenders relating to the operation or condition of Borrower,
or relating to the existence, liability, or financial condition of any other
guarantor of the Obligations, notwithstanding any effect such fact may have
upon Guarantor's risk hereunder or Guarantor's right to contribution,
subrogation, reimbursement, or indemnity. Guarantor knowingly accepts the
full range of risk encompassed in a contract of continuing guaranty, which
risk includes but is not limited to the possibility that Borrower may incur
Obligations to Agent after the financial condition of Borrower or its ability
to pay its debts as they mature has deteriorated.
5.4 Marshalling. Agent and the Lenders shall not be under any
obligation to marshall any assets in favor of Guarantor or in payment of any
or all of the Obligations or Guaranty Obligations, to proceed first against
or exhaust any remedy against Borrower or any property of any Borrower or
against any Collateral, to proceed first against any Guaranty Collateral, or
to pursue any other remedy in Agent's or the Lenders' power which Guarantor
may or may not be able to pursue itself and which may lighten Guarantor's
burden, any right to which Guarantor hereby expressly waives. Guarantor
waives any right to compel application of the Collateral or the Guaranty
Collateral to satisfaction of the Obligations or the Guaranty Obligations.
5.5 Waiver of Notice. Guarantor hereby waives: (i) presentment,
demand, and protest, and notice of presentment, dishonor, or protest, with
respect to any instruments or documents relating to the Amended Loan
Documents, or the Obligations; (ii) notice of any extension, modification,
renewal, or amendment of any of the terms of the Amended and Restated Loan
Agreement, any other Amended Loan Document or any other document or agreement
relating to the Obligations or any other guaranty of the Obligations; (iii)
notice of the occurrence of any Event of Default with respect to the
Obligations or the Collateral; and (iv) notice of any exercise or nonexercise
by Agent or the Lenders of any right, power, or remedy with respect to the
Obligations, the Collateral, or the Guaranty Obligations.
5.6 Subrogation and Reimbursement. Guarantor hereby irrevocably waives
any and all rights it may have at any time (whether arising directly or
indirectly, by operation of law or contract) to assert any claim against
Borrower on account of payments made under this Agreement, including without
limitation, any and all rights of subrogation, reimbursement, exoneration,
contribution or indemnity. Guarantor further hereby irrevocably waives any
recourse against, right to or benefit of any Collateral, any other guaranty,
or any security interest or Lien held therefor. The guaranty provided under
this Agreement and Guarantor's payment obligations hereunder shall continue
to be effective or shall be reinstated, as the case may be, if at any time
payment of any of the Obligations is rescinded or must otherwise be restored
or returned by the Lenders or the Agent, all as though such payment has not
been made. The Lenders' and the Agent's good faith determination as to
whether a payment must be restored or returned shall be binding on the
Guarantor.
5.7 Limitation on Actions. The Guaranty Obligations are independent of
and different from Borrower's obligations with respect to the Obligations. A
separate action or actions may be brought and prosecuted by Agent and/or the
Lenders against Guarantor and recourse may be had against the Guaranty
Collateral whether or not an action is brought against Borrower and whether
or not Borrower or any other guarantor is joined in any such action or
actions. Without limiting the generality of the foregoing, Guarantor
expressly waives the benefit of any statute of limitation affecting the
Obligations and expressly agrees that the running of a period of limitation
on, or Agent's and/or the Lenders' delay or omission in, any action by Agent
and/or the Lenders against Borrower or for the foreclosure of any Lien or the
enforcement of any security interest in the Collateral shall not exonerate or
affect Guarantor's obligation to pay and perform the Guaranty Obligations,
notwithstanding the effect of the running of any such period of limitation
upon Guarantor's rights of subrogation, reimbursement, or indemnity against
Borrower, or any other person.
5.8 Extensions, Renewals, and Amendments of Obligations.
(A) Guarantor acknowledges it has been provided with
copies of, and has had an opportunity to review the Amended
and Restated Loan Agreement and the other Amended Loan
Documents and agrees that Guarantor undertakes all the risks
encompassed in such documents as they may be now or
hereafter agreed upon by Agent and/or the Lenders and
Borrower.
(B) Agent and/or the Lenders may, in such manner and
upon such terms and at such time as it and/or they choose,
and with or without notice to Guarantor, (i) alter,
compromise, defer, forebear, extend, renew, modify, amend,
accelerate, or change the time or manner of payment of the
Obligations, (ii) increase or decrease the rate of interest
or other charges with respect to the Obligations, and
(iii) release, add, or subordinate any guarantor or endorser
of Collateral or additional or substituted security for the
Obligations, notwithstanding the effect thereof on any of
Guarantor's rights or interests.
(C) Guarantor agrees that its Guaranty Obligations
shall not be discharged or exonerated due to, and Guarantor
hereby waives and excuses notice of, any amendment,
modification, renewal or extension of the Amended and
Restated Loan Agreement or of any of the other Amended Loan
Documents or any agreements relating to the Obligations or
the Collateral between Agent or the Lenders and Borrower.
5.9 Business Debt. Guarantor agrees that any claim of Agent and/or the
Lenders against Guarantor arising out of this Agreement arises out of the
conduct by Guarantor of its trade or business.
5.10 No Waiver by Conduct. No postponement or delay by Agent or the
Lenders in the enforcement of any right or remedy hereunder shall constitute
a waiver thereof.
6. SUBORDINATION.
6.1 Subordination of Debt. Guarantor hereby agrees that all obligations
and all indebtedness of the Borrower to Guarantor, including any and all
present and future indebtedness regardless of its nature or manner of
origination now or hereafter to become due and owing by the Borrower to
Guarantor (collectively, the "Subordinated Indebtedness"), are hereby
unconditionally and forever subordinated and postponed and shall be inferior,
in all respects, to the Obligations.
6.2 Subordination of Security Interest. Guarantor hereby agrees that
any now existing or hereafter arising Lien against or security interest in
any of the assets of Borrower, or any of the assets of any other guarantor of
the Obligations, in favor of Guarantor, whether created by contract,
assignment, subrogation, reimbursement, indemnity, operation of law,
principles of equity or otherwise, shall be junior and inferior to, and is
hereby subordinated in priority to any now existing or hereafter arising Lien
or security interest in favor of Agent and/or Lenders in and against the
Collateral, regardless of the time, manner or order of creation, attachment
or perfection of the respective Liens or security interests.
6.3 No Collection by Guarantor. Guarantor shall not assert, collect, or
enforce any of the Subordinated Indebtedness or take collateral or other
security to secure payment of the Subordinated Indebtedness unless and until
the Obligations have been paid and satisfied, in full. Guarantor shall not
demand payment of, accelerate the maturity of, or declare a default or event
of default under the Subordinated Indebtedness unless and until the
Obligations have been paid and satisfied, in full. Guarantor shall not cause
or permit Borrower to make or give, and Guarantor shall not receive or
accept, payment in any form (direct or indirect, including without implied
limitation, by transfer to an Affiliate or Subsidiary of Borrower or
Guarantor) on account of the Subordinated Indebtedness, make any transfers in
respect of the Subordinated Indebtedness without the express written consent
of Agent (which consent may be withheld for any reason in Agent's sole
discretion), or give any collateral or other security for the Subordinated
Indebtedness. Any payment, transfer, or collateral security so made or given
by Borrower and received or accepted by Guarantor, without the express prior
written consent of Agent shall be held in trust by Guarantor for Agent and
the Lenders and Guarantor shall immediately turn over, in kind, any such
payment to Agent for application in reduction of, or (in the case of property
other than cash), as security for the Obligations.
6.4 Evidence of Indebtedness; Legend. In the event that all or any
portion of the Subordinated Indebtedness is evidenced or represented by any
promissory note or other instrument, Guarantor shall cause each such
instrument to be conspicuously marked as follows: "This instrument is
subject to the terms of a Continuing Guaranty, Security and Subordination
Agreement, dated as of December 23, 1993, in favor of Mellon Bank, as agent,
and the Lenders (as defined therein) as the same may be modified, amended, or
supplemented from time to time." Notwithstanding any contrary statement
contained in the within instrument, no payment on account of the principal or
interest thereof shall become due or be paid except in accordance with the
terms of that agreement." Guarantor shall promptly deliver to Agent true and
correct copies of all instruments evidencing the Subordinated Indebtedness.
6.5 No Sale or Pledge of Subordinated Indebtedness. Unless and until
the Obligations have been paid and satisfied, in full, Guarantor shall not
sell, transfer, convey, assign, mortgage, pledge, encumber, hypothecate or
otherwise dispose of all or any portion of the Subordinated Indebtedness.
6.6 Subordination in Bankruptcy. Guarantor hereby agrees that in the
event of any proceeding in bankruptcy, reorganization, receivership,
liquidation or dissolution or other proceeding at law or in equity relating
to Borrower or Borrower's property, or any distribution of Borrower's assets,
Agent and the Lenders shall be first entitled to receive payment in full of
the Obligations, including without implied limitation, principal, interest,
fees, and expenses, before Guarantor shall be entitled to receive any payment
on account of the Subordinated Indebtedness. Agent and the Lenders shall be
entitled to receive for application, so far as necessary to satisfy the
Obligations, any payment or distribution of any kind or character whether in
cash, property, or securities, that may be payable or deliverable in respect
of the Subordinated Indebtedness. Agent, on behalf of the Lenders, may, in
its sole discretion, enforce the subordination provisions of this Agreement
by exercising any right to vote that Guarantor may have in any such
proceeding and by filing any claim or proof of claim that Guarantor would be
entitled to file in its own name. Guarantor agrees not to file a claim or
propose a plan or reorganization in any such proceeding without the prior
written consent of Agent.
6.7 Assignment of Subordinated Indebtedness. This Agreement shall
constitute an irrevocable assignment to Agent and the Lenders of the
Subordinated Indebtedness together with all of the rights of Guarantor to a
distribution of the Borrower's assets on account of the Subordinated
Indebtedness. Guarantor shall deliver to Agent the original of any document
or instrument evidencing any part of the Subordinated Indebtedness. Agent is
hereby authorized and empowered, in its own name, in the name of the Lenders
or in the name of Guarantor, to execute and file proofs of claim and
documents and take any other action Agent may deem reasonable, convenient,
necessary, or advisable at such time to protect completely the interest of
the Lenders and the Agent in the Subordinated Indebtedness and to enforce the
provisions of this Agreement. Without limiting the generality of the
foregoing, upon the occurrence of an Event of Default, Agent may, at its
option, take any action it deems necessary or appropriate to collect the
Subordinated Indebtedness, and may apply any sums so collected to the
Obligations. Guarantor shall not commence, prosecute, or participate in any
administrative, legal, or equitable action or proceeding against Borrower
that might adversely affect Agent, the Lenders or their interests.
6.8 No Modification of Subordinated Indebtedness. Unless and until the
Obligations have been paid and satisfied, in full, Guarantor shall not
permit, agree or consent to any changes or modifications to the terms of the
Subordinated Indebtedness without the prior written consent of Agent.
7. SECURITY.
7.1 Grant of Security Interest. To secure the prompt payment and
performance of the Guaranty Obligations, and subject to the provisions of
Section 7.3, below, Guarantor hereby grants to Agent, for the benefit of the
Lenders, a continuing Lien upon and security interest in all of the following
property, whether now existing or hereafter created or acquired, and wherever
located (collectively, the "Guaranty Collateral"):
(A) all equipment and fixtures;
(B) all inventory (including, without limitation, property owned
by Guarantor and leased to its customers, property sold by Guarantor subject
to a retained purchase money security interest in favor of Guarantor,
property held by Guarantor in its stock of "off-lease" property, and returned
or repossessed property);
(C) all accounts, contract rights, general intangibles, documents,
leases, chattel paper, instruments, notes, drafts, letters or advices of
credit, securities, lease rentals, receivables, and other amounts owing to
Guarantor, whether or not they arise or are acquired in Guarantor's ordinary
course of business;
(D) all proceeds of the foregoing (including, without limitation,
insurance policies and proceeds);
(E) all guaranties, claims, rights, remedies and privileges
relating to any of the foregoing; and
(F) all securities and general intangibles (including, without
limitation, all general partnership interests, limited partnership interests,
uncertificated securities, interests in any business or venture of any kind
or nature, and all rights to receive payments, distributions, fees or other
compensation from or on account of any of the foregoing), and all proceeds of
any of the foregoing.
The Guaranty Collateral described above includes, without
limitation, (1) all Pledged Guaranty Collateral, and (2) all management fees,
servicing fees and other fees and/or cash generated from or in connection
with the operation, management or servicing of the Partnership.
The foregoing grant of security interest expressly does not include
the Demand Note.
7.2 Subsequently Acquired Property. Any replacements, renewals, or
additional personal property hereafter acquired by Guarantor shall
immediately become subject to all of the provisions of this Agreement,
including, without limitation, the provisions of Sections 9.20, 9.21 and
9.22, below.
7.3 No Interest in Hazardous Materials. Notwithstanding any provision
of this Agreement or any provision of any of the other Amended Loan
Documents, Guarantor does not grant, and Agent has not taken, a Lien against
or security interest in any Hazardous Materials (as defined below) that
Guarantor may now or hereafter own, possess, manage or control.
As used in this Agreement, the term "Hazardous Materials" means any
substance, material or waste which is regulated by any local or regional
government authority, any state, or the United States Government, including
any material or substance which is (i) defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste,"
"restricted hazardous waste" or similar designation under any provision of
any state or local law, ordinance or regulation, (ii) petroleum, (iii)
asbestos, (iv) designated as a "hazardous substance" pursuant to Section 311
of the Clean Water Act, 33 U.S.C. 1251 et seq. (33 U.S.C. 1321) or listed
pursuant to Section 307 of the Clean Water Act (33 U.S.C. 1317), (v) defined
as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation
and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903), or (vi) defined as
a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601 et
seq. (42 U.S.C. 9601).
7.4 Security Interests for the Benefit of All Lenders. The security
interests and Liens in the Guaranty Collateral that are granted and created
in favor of Agent under this Agreement shall be held and administered by
Agent for the benefit of each of the Lenders, in accordance with the Amended
and Restated Intercreditor Agreement.
7.5 General Partnership Interest.
(A) Pledge of Partnership Interest. To further secure the prompt
payment and performance of the Guaranty Obligations, Guarantor hereby pledges
to Agent and grants to Agent, for the benefit of the Lenders, a first
priority security interest in the Guarantor's general partnership interest
(the "Partnership Interest") in Capital Preferred Yield Fund - III, L.P., a
Delaware Limited Partnership (the "Partnership"), and in all certificates,
distributions, cash, instruments, securities, fees, rights to payment,
accounts, general intangibles and other property or proceeds from time to
time received, receivable, or otherwise distributed in respect of or in
exchange for any or all of the Partnership Interest (the "Pledged Guaranty
Collateral").
(B) Delivery of Pledged Guaranty Collateral. Guarantor shall
promptly instruct the Partnership to note on its books and records the pledge
of the Partnership Interest to Agent. With respect to all certificates,
distributions, cash, instruments, securities, fees, rights to payment,
accounts, general intangibles and other property or proceeds from time to
time received, receivable, or otherwise distributed in respect of or in
exchange for any or all of Guarantor's Pledged Guaranty Collateral
(collectively, "Proceeds"), Guarantor shall either (1) hold such Proceeds in
trust for the Lenders or (2) pay such Proceeds to Agent for application
against the Revolving Credit Facility in accordance with Section 6.37 of the
Amended and Restated Loan Agreement.
(C) Guarantor's Rights with Respect to Pledged Guaranty
Collateral. So long as no Event of Default has occurred and is continuing,
Guarantor shall have all ownership rights with respect to the Pledged
Guaranty Collateral or any part thereof for all purposes not inconsistent
with the provisions of this Agreement and the Amended and Restated Loan
Agreement; provided, however, that no action shall be taken by Guarantor
which would have the effect of impairing the position or interest of Agent in
respect of the Pledged Guaranty Collateral. Upon the occurrence and during
the continuation of an Event of Default, Agent shall thereafter be entitled,
at Agent's option, to exercise all ownership rights pertaining to the Pledged
Guaranty Collateral.
8. REPRESENTATIONS AND WARRANTIES. Guarantor hereby warrants and represents
to Agent and the Lenders that:
8.1 Authority; Execution. Guarantor has the right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement, and any other agreements, documents or instruments executed in
connection herewith or therewith. Guarantor's execution and performance of
this Agreement will not constitute, cause or result in any breach or
violation of Guarantor's Articles of Incorporation, Bylaws, any contract or
other agreement to which Guarantor is a party, or applicable law. Upon
execution, this Agreement will constitute a valid, binding obligation of
Guarantor to Agent and the Lenders that is enforceable according to its terms
and no further consent, ratification or approval is required for this
Agreement to be effective.
8.2 Locations of Offices and Guaranty Collateral. Guarantor's chief
executive office, principal place of business, corporate offices, all
warehouses and the locations of all of its records concerning the Guaranty
Collateral, and other residence or places of business of Guarantor, are set
forth fully and accurately on the Schedule of Collateral Locations.
8.3 Title to Guaranty Collateral. Guarantor is the sole owner of each
item of the Guaranty Collateral and has good and marketable title to the
Guaranty Collateral free and clear of any and all claims, assessments,
encumbrances, Liens, and security interests of any kind or nature, except for
the Liens and security interests of Agent and the other Allowed Encumbrances.
8.4 No Other Liens. No security agreement, chattel mortgage, other
security or Lien instrument, financing statement or continuation statement
covering all or any part of the Guaranty Collateral is on file or of record
in any public office, except such as may have been filed by Guarantor in
favor of Agent pursuant to the Amended Loan Documents, this Agreement or any
other agreement between Guarantor and the Lenders, or such as relate to other
Allowed Encumbrances.
8.5 Perfection and Priority of Security Interest in the Guaranty
Collateral. The security interest granted to the Agent in the Guaranty
Collateral under this Agreement is a duly perfected, non-voidable security
interest in favor of Agent, for the benefit of the Lenders, and is senior in
priority to all other Liens against and security interests in all or any part
of the Guaranty Collateral.
8.6 No Further Approvals Required. No consent, approval, authorization
or other order of any Person and no consent, authorization, approval, or
other action by, and no notice to or filing with, any governmental authority
or regulatory body is required to be made or obtained by Guarantor for the
execution, delivery, or performance of this Agreement by Guarantor.
8.7 Documents Evidencing Subordinated Indebtedness. Guarantor has
delivered to Agent the original of all notes or other instruments evidencing
the Subordinated Indebtedness in accordance with Section 6.7 and has properly
legended all such notes and other instruments in accordance with Section 6.4.
8.8 Chief Executive Office; Principal Place of Business. Guarantor
hereby warrants and represents to Agent and the Lenders that Guarantor's
Chief Executive Office is located at 7175 West Jefferson Avenue, Suite 3000,
Lakewood, Colorado, 80235 and that its principal place of business is located
at 7175 West Jefferson Avenue, Suite 3000, Lakewood, Colorado, 80235.
Guarantor shall give Agent prior written notice of any change in either of
the foregoing.
8.9 Federal Employer Identification Number. Guarantor's federal
employer identification number is _____________.
9. COVENANTS.
Guarantor hereby covenants and agrees with Agent and the Lenders that,
until the Guaranty Obligations are paid and satisfied, in full:
9.1 Performance of Guaranty Obligations. Guarantor will pay and
perform all of the Guaranty Obligations according to their terms.
9.2 Payment of Indebtedness to Third Parties. Guarantor will (i) pay
and discharge, or cause to be paid and discharged, all its Indebtedness,
including the Guaranty Obligations, as and when due and payable, and (ii) to
pay and discharge, or cause to be paid and discharged promptly before any
thereof shall become in default, all Charges, taxes or other assessments that
are imposed on it, its income and profits, or any of its property (real,
personal or mixed) whether payable on account of the restructuring
transactions contemplated by the Amended and Restated Loan Agreement and the
other Amended Loan Documents, the execution, delivery, or performance of this
Agreement, the creation of any of the Guaranty Obligations, by reason of any
existing or hereafter enacted Federal, state or other regulation or statute,
or otherwise, and all lawful claims for material amounts due in respect of
labor, materials, supplies and services or otherwise.
9.3 Payment of Charges and Withholding Taxes. Except as provided
below, Guarantor shall pay promptly when due all withholding taxes, whether
relating to payment of employee wages or otherwise (collectively, the
"Withholding Charges"). Guarantor shall indemnify Agent and the Lenders and
shall hold Agent and the Lenders harmless from and against liability in
connection with any and all Charges and Withholding Charges (including any
amount that may be asserted under Sections 3505 and 6672 of the Internal
Revenue Code and comparable provisions under state or local law). In the
event that Guarantor fails to pay any such Charges or Withholding Charges or
fails to obtain promptly the discharge of such Charges or Withholding
Charges, Guarantor shall so advise Agent in writing and, whether or not
Guarantor so advises Agent, Agent may, in its sole discretion, without
waiving or releasing any obligation of Guarantor or any Default or Event of
Default, make such payment, or any part thereof, or obtain such discharge and
take any other action with respect thereto, that Agent deems advisable. All
amounts so paid by Agent and any related expenses, including reasonable
attorneys' fees, court costs and other charges, shall be payable, upon
demand, by Guarantor to Agent and shall be additional Guaranty Obligations
secured by the Guaranty Collateral. Except as provided below, Guarantor may
in good faith contest, by proper legal actions or proceedings, the validity
or amount of any such Charges, Withholding Charges or other claims described
in subsection (ii), above, provided that at the time of commencement of any
such action or proceeding and during the pendency thereof, adequate reserves
with respect thereto are maintained on the books of Guarantor, in accordance
with GAAP. If during the pendency of such contest the appropriate taxing
authority asserts liability against Agent or against any of the Lenders in
relation to the disputed Charge or Withholding Charge, then Guarantor shall,
if so required by Agent, immediately pay the disputed liability, and
thereafter shall only contest such Charge or Withholding Charge through an
alternative method. Notwithstanding anything to the contrary contained in
this Section 9.3, Guarantor shall have the right to pay such Charges,
Withholding Charges or claims described in subsection (ii), above, and
thereafter in good faith contest, by proper legal actions or proceedings, the
validity or amount of such Charges, Withholding Charges or claims.
9.4 Maintenance of Records. Guarantor shall keep and maintain, at its
own cost and expense, satisfactory and complete records of the Guaranty
Collateral, including a record of any and all payments received and any and
all credits granted with respect to the Guaranty Collateral and all other
dealings with the Guaranty Collateral. Guarantor shall mark its books and
records pertaining to the Guaranty Collateral to evidence this Agreement and
the security interests hereunder. All chattel paper, including all master
leases and all equipment schedules (if any), shall be marked with the
following legend: "This writing and the obligations evidenced or secured
hereby are subject to the security interest of Mellon Bank, N.A., as Agent,
for the benefit of certain lenders." For Agent's further security, Guarantor
agrees that Agent shall have a special property interest in all of such
Guarantor's books and records pertaining to the Guaranty Collateral and, upon
the occurrence and during the continuation of any Event of Default, Guarantor
shall deliver and turn over any such books and records to Agent or to its
representatives at any time on demand of Agent.
9.5 Disposition of Guaranty Collateral. Guarantor shall not lease any
of the Guaranty Collateral, other than in the ordinary course of Guarantor's
business. Guarantor shall not sell, transfer, exchange assign, or otherwise
dispose of any of the Guaranty Collateral, or any rights related thereto,
other than in the ordinary course of Guarantor's business, without Agent's
prior written consent.
9.6 Negative Pledge. Except for the Allowed Encumbrances, Guarantor
shall not (i) encumber, pledge, mortgage, hypothecate, or grant, create or
permit to attach or exist any Lien against or security interest in any of the
Guaranty Collateral; (ii) borrow against the Guaranty Collateral from any
person, firm or corporation other than the Lenders; (iii) permit any levy,
garnishment or attachment to be made against any of the Guaranty Collateral;
or (iv) permit any financing statement to be filed with respect to any of the
Guaranty Collateral other than financing statements in favor of Agent.
9.7 Discharge of Liens; Defense of Title. Guarantor shall immediately
pay and cause the discharge of any Charges, Liens, taxes or assessments which
may be levied upon the Guaranty Collateral. Guarantor shall not create,
permit or suffer to exist, and shall defend the Guaranty Collateral against
and take such other action as is necessary to remove, any Charge, Lien,
security interest, tax, levy or assessment on or against any of the Guaranty
Collateral, except for the Allowed Encumbrances. Guarantor shall further
indemnify Agent and the Lenders and defend the right, title and interest of
Agent and the Lenders(including the security interests of Agent) in and to
any of such Guarantor's rights in and to the Guaranty Collateral and in and
to the proceeds thereof against the claims and demands of all persons or
entities whomsoever. Guarantor shall maintain and preserve Agent's Liens or
and security interests in the Guaranty Collateral until such Liens and
security interests are realized in accordance with the terms of this
Agreement or until all of the Guaranty Obligations are paid and satisfied in
full.
9.8 Further Assurances with Respect to the Guaranty Collateral.
Guarantor will, at Guarantor's expense, promptly execute, acknowledge, and
deliver all such instruments and take all such action as Agent from time to
time may request in order to ensure to Agent the benefits, priorities and due
perfection of the Liens upon and security interests in and to the Guaranty
Collateral intended to be created by this Agreement.
9.9 Insurance. Guarantor shall maintain insurance policies, with
financially sound and reputable companies, insuring (i) to the extent not
covered under insurance policies procured by lessees under Leases with
Guarantor, its inventory, fixtures, equipment and other tangible properties
against loss by fire, explosion, theft and such other casualties as are
usually insured against by companies engaged in a similar business, and (ii)
Guarantor against liability for personal injury and property damage relating
to such inventory, fixtures, and equipment. Such policies are to be in such
amounts and against at least such risk as are usually insured against in the
same general area by companies engaged in a similar business, and in any
event in an amount sufficient to preclude Guarantor from being deemed a
co-insurer, and Guarantor shall obtain, at its expense, a lender's loss
payable endorsement (form 438 BFU or equivalent) to each such policy for the
benefit of Agent and Lenders. If Guarantor's interest in any of the Guaranty
Collateral is covered under insurance procured by lessees under any Lease
with Guarantor, Guarantor shall (i) cause such lessee to add Agent as an
additional insured and loss payee under each such policy to the extent such
Lease in an Unfunded lease, and (ii) obtain a lender's loss payable
endorsement (form 438 BFU) in favor of Guarantor which Guarantor shall assign
to Agent for the benefit of the Lenders. Guarantor shall deliver to Agent,
(a) within 30 days of acquiring any tangible assets, and thereafter as often
as Agent may reasonably request, a report of a reputable insurance broker
satisfactory to Agent with respect to the insurance on its inventory,
fixtures, equipment and other tangible properties and (b) within 30 days of
entering into any lease of inventory, equipment or other tangible assets, and
thereafter as often as Agent may reasonably request, a report or certificate
from the insurance companies of each of its lessees with respect to such
lessee's insurance on equipment or other assets leased to such lessee. All
insurance with respect to the inventory, fixtures and equipment shall (A)
contain a clause which provides that Agent's interest under the policy shall
not be invalidated by any act or omission to act of, or any breach of
warranty by, Guarantor, or by any change in the title, ownership, or
possession of the insured property, or by the use of the property for
purposes more hazardous than is permitted in the policy and (B) provide that
no cancellation, reduction in amount or change in coverage thereof shall be
effective until at least ten (10) days after receipt by Agent of written
notice thereof. All such policies of insurance shall be satisfactory to
Agent as to form, amount and insurer. Guarantor hereby assigns to Agent all
of its right, title and interest in and to any insurance policies insuring
the Guaranty Collateral, including all rights to receive the proceeds of
insurance, and directs all insurers to pay all such proceeds directly to
Agent and authorizes Agent to endorse Guarantor's name on any instrument for
such payment.
9.10 Damage or Destruction. Guarantor will notify Agent of any
destruction of or any substantial damage to any of the Guaranty Collateral.
9.11 Adverse Changes. Guarantor shall promptly notify Agent in writing
of any event or condition that has a Material Adverse Effect on Guarantor's
financial condition, the value of the Guaranty Collateral, or the rights or
remedies of Agent and/or the Lenders in relation to any Guaranty Collateral.
9.12 Right of Inspection. Upon a written request by Agent to Guarantor,
Guarantor shall provide Agent, Lenders and Accountant with full and complete
access to all books, records, financial statements and documents requested by
Agent, Lenders and/or Accountant (including the books, records, financial
statements, and documents of Guarantor's Affiliates, Subsidiaries, and Public
Income Funds) to enable Accountant to (i) continue to review Guarantor's
business and financial condition, (ii) to monitor the Lenders' and the
Agent's Guaranty Collateral, and (iii) to monitor Guarantor's compliance with
its Business Plan and with the reporting requirements set forth herein.
Agent, Accountant and Lenders, and any of their officers, employees and/or
agents shall have the right, exercisable as frequently as Agent, Accountant
and Lenders determine to be appropriate, during normal business hours (or at
such other times as may reasonably be requested by Agent, Lenders or
Accountant), to inspect the properties and facilities of Guarantor and to
inspect, audit and make extracts from all of Guarantor's records, financial
statements, files and books of account as set forth above. Guarantor shall
deliver any document or instrument reasonably necessary for Agent, Lenders or
Accountant, as any of them may request, to obtain records from any service
bureau maintaining records for Guarantor, and shall maintain duplicate
records or supporting documentation on media, including computer tapes and
discs owned by Guarantor or any Subsidiaries. Guarantor shall instruct its
banking and other financial institutions to make available to Agent and the
Lenders such information and records as Agent or Lenders may reasonably
request.
9.13 Maintenance of Guaranty Collateral. Guarantor shall keep and
maintain, and with respect to any Guaranty Collateral leased by Guarantor to
a lessee, cause such lessee to keep and maintain, the Guaranty Collateral in
good operating condition sufficient for the continuation of the business
conducted by Guarantor, and Guarantor shall provide or arrange for all
maintenance and service and all repairs necessary for such purpose.
9.14 Financial Reporting. Guarantor will promptly furnish to each of
Agent, the Lenders and Accountant such financial information and reports, as
Agent may request from time to time, in form and detail satisfactory to
Agent, including, without limitation, financial statements, copies of
Federal, state, local and foreign tax returns, and such other information
respecting the Guaranty Collateral, and Guarantor's business, financial
condition, or prospects as Agent, Lenders or Accountant may, from time to
time, request.
9.15 Material Adverse Change. As soon as practicable, but in any event
within one (1) Business Day after Guarantor becomes aware of the existence of
any Default or Event of Default, or any development or other information
which is likely to have a Material Adverse Effect (as defined in the Amended
and Restated Loan Agreement) upon Guarantor, telephonic or facsimile notice
specifying the nature of such Default or Event of Default or development or
information, including the anticipated effect thereof, which notice shall be
promptly confirmed in writing within five (5) days.
9.16 Name Changes; Corporate Structure; Location. Guarantor shall not
change its corporate name, trade name, corporate structure or form of
business organization without Agent's prior written consent. Guarantor will
not change its chief executive office, principal place of business, corporate
offices, or warehouses or remove such records without giving at least thirty
(30) days prior written notice thereof to Agent, and unless it has taken such
action as is necessary to cause the security interest of Agent in the
Guaranty Collateral to continue to be perfected to Agent's sole satisfaction.
9.17 Use of Other Names. Guarantor shall not conduct business, invoice
a lessee or other account debtor or maintain its records in any name other
than its own proper corporate name.
9.18 Compliance with Laws. Guarantor shall comply with all Federal,
state, and local laws and regulations, orders, decrees and directions of any
governmental authority applicable to the Guaranty Collateral or any part
thereof, or to the operation of such Guarantor's business, including those
relating to licensing and regulation of such Guarantor's business, ERISA,
those regarding the collection, payment and deposit of sales, employees'
income, unemployment and social security taxes, and those relating to
environmental matters.
9.19 Limitation on Modification of Accounts. Upon the occurrence and
during the continuation of any Event of Default, such Guarantor shall not,
without Agent's prior written consent, (i) grant any extension of the time of
payment of any account, chattel paper, promissory note, instruments or
amounts due under any contract or general intangibles; (ii) compromise or
settle any of the foregoing for less than the full amount thereof; (iii)
release, in whole or in part, any person or entity liable for the payment
thereof; or (iv) allow any credit or discount whatsoever thereon other than
trade discounts granted in the ordinary course of Guarantor's business.
9.20 Financing Statements; Perfection. Guarantor, and where appropriate
Guarantor's Subsidiaries and Affiliates, shall (i) execute and deliver to the
Agent, for filing in all locations and jurisdictions requested by the Agent,
UCC-1 Financing Statements covering all of the Guaranty Collateral granted by
Guarantor, or Guarantor's Subsidiaries or Affiliates, to Agent under any of
the Amended Loan Documents, including without implied limitation, this
Agreement, (ii) promptly deliver to the Agent or its designee the original
promissory notes executed in connection with or arising from sale leaseback
transactions and/or sales of equipment by the Guarantor, together with all
corresponding documents including leases and security agreements, and (iii)
take such other and further actions as the Agent may request, including the
execution of necessary documentation, to protect, preserve or perfect the
security interest and Lien of the Agent in the Guaranty Collateral.
9.21 Acquisition of Aircraft, Rolling Stock or Certificated Vehicles.
Guarantor shall notify Agent, in writing, at least thirty (30) days prior to
each acquisition or intended acquisition of any aircraft or rolling stock and
at least fifteen (15) days prior to each acquisition or intended acquisition
of any certificated vehicles. In connection with any such acquisition,
Guarantor shall deliver such documents (including, without limitations, any
registration certificates or certificates of title) and execute such
additional security agreements, financing statements, or other instruments or
agreements as Agent, in its sole discretion, may require in order to
evidence, perfect or protect Agent's security interest in such aircraft,
rolling stock or certificated vehicles.
9.22 Delivery of Notes, Documents, Chattel Paper and Certificated
Securities. Guarantor shall deliver to Agent or its designee all now
existing or hereafter created or arising promissory notes, instruments
(except for the Demand Note and except for checks which are deposited in the
ordinary course of Guarantor's business), documents, chattel paper (including
all master leases and all equipment schedules, if any) and certificated
securities promptly upon the execution of this Agreement or Guarantor's
receipt of any such item, as the case may be, and shall execute such
additional security agreements, financing statements, or other instruments or
agreements as Agent, in its sole discretion, may require in order to
evidence, perfect or protect Agent's security interest in such notes,
documents, chattel paper or certificated securities.
10. RIGHTS AND POWERS OF AGENT.
10.1 Appointment and Powers. Guarantor hereby 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 Guarantor and in the name of
Guarantor or in its own name, from time to time in Agent's discretion, for
the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement. Without limiting the generality of the foregoing, Guarantor
hereby specifically grants to Agent the power and right to do any of the
following on behalf of Guarantor, all in the name of Guarantor, in the name
of Agent or the Lenders or otherwise, following the occurrence of an Event of
Default:
(A) Take possession of, endorse and receive payment of
any checks, drafts, notes, acceptances, or other instruments
for the payment of monies due under any Guaranty Collateral;
(B) Continue or obtain any insurance required pursuant
to the terms of the Amended and Restated Loan Agreement or
this Agreement, and pay all or any part of the premiums
therefor and the costs thereof;
(C) Receive payment of any and all monies, claims, and
other amounts due or to become due at any time arising out
of or in respect of any Guaranty Collateral;
(D) Pay or discharge any charges, taxes, Liens,
security interest, or other encumbrances levied or placed on
or threatened against the Guaranty Collateral;
(E) Defend any suit, action or proceeding brought
against Guarantor with respect to any Guaranty Collateral if
Guarantor does not defend such suit, action or proceeding or
if Agent believes that Guarantor is not pursuing such
defense in a manner that will maximize the recovery with
respect to such Guaranty Collateral;
(F) Do, at Guarantor's expense, all acts and things
which Agent may deem necessary or advisable to preserve,
perfect and continue in effect Agent's security interests
and Liens in the Guaranty Collateral, including, without
limitation, the signing of financing, continuation or other
similar statements and notices on behalf of Guarantor.
(G) Direct any party liable for any payment under or
in respect of any of the Guaranty Collateral to make payment
of any and all monies due or to become due thereunder,
directly to Agent or as Agent may direct;
(H) Ask, demand, collect, receive and give
acquittances and receipts for any and all money due or to
become due under any Guaranty Collateral, and take ownership
and control of any and all lockboxes and other depository
accounts under Guarantor's control by written notice to any
bank or other institution maintaining such lockboxes or
other depository accounts;
(I) File any claim or take or commence any other
action or proceeding in any court of law or equity or
otherwise, as deemed appropriate by Agent for the purpose of
collecting any and all monies due under any Guaranty
Collateral whenever payable;
(J) Sign and endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications, and
notices in connection with accounts and other documents
constituting or related to the Guaranty Collateral;
(K) Settle, compromise or adjust any claim, suit,
action, or proceeding, as deemed appropriate by Agent for
the purpose of collecting any and all monies due under any
Guaranty Collateral, including, without limitation, any such
claims or actions relating to any policy of insurance, and
in connection therewith, give such discharges or releases as
Agent may deem appropriate;
(L) Commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect the Guaranty Collateral or any part
thereof and to enforce any other right in respect of any
Guaranty Collateral;
(M) License (or, to the extent permitted by an
applicable license, sublicense) whether general, specific or
otherwise, and whether on an exclusive or non-exclusive
basis, any patent, trademark or copyright throughout the
world for such term or terms, on such conditions and in such
manner as Agent may, in its sole discretion, determine; and
(N) Sell, transfer, pledge, repair, make any agreement
with respect to, or otherwise deal with any of the Guaranty
Collateral as fully and completely as though Agent were the
absolute owner thereof for all purposes, and to do, at
Agent's option and Guarantor's expense, at any time, or from
time to time, all acts and things which Agent reasonably
deems necessary or advisable to perfect, preserve, or
realize upon the Guaranty Collateral and Agent's security
interest therein in order to effect the intent of this
Agreement, all as fully and effectively as Guarantor might
do.
10.2 Ratification. Guarantor hereby ratifies, to the extent permitted
by law, all that Agent may lawfully do or cause to be done by virtue of the
provisions of Section 10.1. The power of attorney granted pursuant to this
Part 10 is a power coupled with an interest and shall be irrevocable until
the Guaranty Obligations are paid or otherwise satisfied in full.
10.3 Lenders' Rights; Limitations on Agent's and Lenders' Obligations.
Neither Agent nor any of the Lenders shall have any obligation or liability
under any contract, license, permit, or agreement with or in favor of
Guarantor by reason of or arising out of this Agreement or the granting to
Agent of a security interest therein or the receipt by Agent or any of the
Lenders of any payment relating to any such agreement pursuant hereto, nor
shall Agent or any of the Lenders be required or obligated in any manner to
perform or fulfill any of the obligations of Guarantor under or pursuant to
any such agreement, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any such agreement, or to present or file
any claim, or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
10.4 Collection of Receivables. Agent and the Lenders hereby authorize
Guarantor to collect its accounts, receivables, leases, chattel paper,
general intangibles and other rights to payment, provided that such
collection is performed in a prudent and businesslike manner, provided,
however, that upon the occurrence and during the continuation of any Event of
Default, Agent may, at its option and in its sole discretion and without
notice to Guarantor, limit or terminate said authority at any time. If an
Event of Default has occurred and is continuing, upon Agent's request,
Guarantor shall promptly deliver to Agent all original and other documents
evidencing, and relating to any such accounts, receivables, general
intangibles or other rights to payment, including, without limitation, all
original leases, purchase orders, acceptance certificates, invoices and
shipping receipts. Prior to the occurrence of an Event of Default, Guarantor
shall deliver photocopies of any and all such documents as Agent may request.
10.5 Verification of Guaranty Collateral. Agent shall have the right to
make test verifications of the accounts and physical verifications and
appraisals of the inventory and other Guaranty Collateral in any manner and
through any medium that it considers advisable. Guarantor agrees to execute
and deliver any instruments or other documents, take all such action and
furnish all such assistance and information as Agent may require in order to
effectuate the purposes of this Section 10.5.
10.6 Performance by Agent of Guarantors' Obligation. If Guarantor fails
to perform or comply with any covenant or other provision of this Agreement
or of any other Amended Loan Document, Agent may itself perform or comply, or
otherwise cause performance of or compliance with such covenant or provision,
and Guarantor shall reimburse Agent for the reasonable expenses, including
attorneys' fees, incurred in connection with such performance or compliance,
together with interest thereon at the rate then in effect under the Amended
and Restated Loan Agreement. Payments of all reimbursable expenses shall be
due and payable not later than thirty (30) days immediately after the date
Agent delivers to Guarantor a written statement for such reimbursable
expenses. Prior to the occurrence of an Event of Default, Agent shall give
Guarantor written notice of any action taken under this Section 10.6 promptly
after Agent takes any such action. Following the occurrence of an Event of
Default, Agent may take any action permitted under this Section 10.6 without
notice to Guarantor.
11. EVENTS OF DEFAULT.
11.1 Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default under this Agreement:
(A) Guarantor fails to pay the Guaranty Obligations,
in full, within five (5) days after Agent makes demand
pursuant to Section 3.1.
(B) Guarantor breaches or fails to fully perform any
promise, covenant, agreement or undertaking under this
Agreement, or any warranty, representation, financial
statement, or affirmation set forth herein or given in
connection herewith (whether prior to or after the date
hereof) proves to be false or misleading when made or given.
(C) Guarantor fails to perform any other Guaranty
Obligation as and when required under this Agreement.
(D) The occurrence of any breach of or default or
Event of Default under the Amended and Restated Loan
Agreement or any other Amended Loan Document.
(E) A default or event of default shall occur under
any other agreement, document, or instrument to which
Guarantor is a party or by which Guarantor or its property
is bound, and such default (i) involves the failure to make
any payment (whether of principal, interest or otherwise)
due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in respect of any
Indebtedness of Guarantor resulting from any borrowings,
loans, advances or the granting of credit, or otherwise, or
(ii) causes such Indebtedness or a portion thereof to become
due prior to its stated maturity or prior to its regularly
scheduled dates of payment.
(F) Any representation or warranty made herein, in any
Amended Loan Document, in any written statement pursuant
thereto or hereto, or in any other report, financial
statement, certificate or schedule made or delivered to
Agent or Lenders by Guarantor shall be untrue or incorrect
in any material respect, as of the date when made or given.
(G) Any assets of Guarantor having an aggregate book
value in excess of $100,000.00 shall be attached, seized,
levied upon or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of
Guarantor and shall remain unstayed or undismissed for sixty
(60) consecutive days; or any Person other than Guarantor
shall apply for the appointment of a receiver, trustee or
custodian for any of the assets of Guarantor, and such
application or proceeding shall remain unstayed or
undismissed for sixty (60) consecutive days; or Guarantor
shall have concealed, removed or permitted to be concealed
or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its property or the incurring
of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law.
(H) A case or proceeding shall have been commenced
against Guarantor in a court having competent jurisdiction
seeking a decree or order in respect of Guarantor (i) under
the Bankruptcy Code or any other applicable Federal, state
or foreign bankruptcy or other similar law, (ii) appointing
a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of Guarantor or of any
substantial part of its properties, or (iii) ordering the
winding-up or liquidation of the affairs of Guarantor, and
such case or proceeding shall remain undismissed or unstayed
for sixty (60) consecutive days or such court shall enter a
decree or order granting the relief sought in such case or
proceeding.
(I) Guarantor shall (i) file a petition seeking relief
under the Bankruptcy Code, or any other applicable Federal,
state or foreign bankruptcy or other similar law,
(ii) consent to the institution of proceedings thereunder or
to the filing of any such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of
Guarantor or of any substantial part of its properties,
(iii) fail generally to pay its debts as such debts become
due, or (iv) take any corporate or other action in
furtherance of any such action.
(J) Final judgment or judgments for the payment of
money in excess of $100,000.00 in the aggregate shall be
rendered against Guarantor and the same shall not be
(i) fully covered by insurance, or (ii) vacated, stayed,
bonded, paid or discharged within thirty (30) days and at
all times thereafter.
(K) Any other event shall have occurred which has had
a Material Adverse Effect on Guarantor.
12. RIGHTS AND REMEDIES UPON DEFAULT.
12.1 Rights Under the Amended Loan Documents. In addition to all of its
other rights and remedies under this Agreement, Agent shall have all of the
rights and remedies set forth in the Amended and Restated Loan Agreement, the
other Amended Loan Documents, and any other agreement with Guarantor.
12.2 Rights Under Uniform Commercial Code. In addition to all of its
other rights and remedies under this Agreement, the Amended and Restated Loan
Agreement, the other Amended Loan Documents, and any other agreement with
Guarantor, Agent shall have all of the rights and remedies of a secured party
under the UCC.
12.3 Possession of Guaranty Collateral. Upon the occurrence of an Event
of Default, Agent shall have the right: (i) to enter upon the premises of
Guarantor or any other place or places where Guaranty Collateral is located
and kept (subject to the rights of lessees under Leases), through self-help
and without judicial process, without first obtaining a final judgment or
giving Guarantor notice and opportunity for a hearing on the validity of
Agent's claim and without any obligation to pay rent; (ii) to prepare,
assemble, or process Guaranty Collateral for sale, lease, or other
disposition; (iii) to remove Guaranty Collateral to the premises of Agent or
any agent of Agent, for such time as Agent may desire, in order to collect or
dispose of Guaranty Collateral; (iv) render all or any portion of the
Guaranty Collateral unusable in accordance with Section 9-503 of the UCC; and
(v) to require Guarantor to assemble Guaranty Collateral and make it
available to Agent at places which Agent shall reasonably select, whether at
Guarantor's premises or elsewhere. Until Agent is able to effect a sale,
lease, or other disposition of Guaranty Collateral, Agent shall have the
right to use or operate Guaranty Collateral, or any part thereof, to the
extent that it deems appropriate for the purpose of preserving Guaranty
Collateral or its value or for any other purpose deemed appropriate by Agent.
Agent shall have no obligation to Guarantor to maintain or preserve the
rights of Guarantor as against third parties with respect to Guaranty
Collateral while Guaranty Collateral is in the possession of Agent. Agent
may, if it so elects, seek the appointment of a receiver or keeper to take
possession of Guaranty Collateral and to enforce any of Agent's or any of the
Lender's remedies with respect to such appointment without prior notice or
hearing. Agent shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, as provided in Section
13.8 hereof. To the maximum extent permitted by applicable law, Guarantor
waives all claims, damages, and demands against Agent arising out of the
repossession, retention or sale of the Guaranty Collateral.
12.4 Disposition of Guaranty Collateral. Upon the occurrence of and
Event of Default, Agent shall have the right to sell or otherwise dispose of
all or any Guaranty Collateral, at public or private sale or sales, with such
notice as may be required by law, in lots or in bulk, for cash or on credit,
all as Agent, in its sole discretion, may deem advisable. Such sales may be
adjourned and continued from time to time with or without notice. Agent
reserves the right to reject any and all bids at any public sale which, in
its discretion, it shall deem inadequate. Agent shall have the right to
conduct such sales on Guarantor's premises or elsewhere and shall have the
right to use Guarantor's premises without charge for such sales for such time
or times as Agent deems necessary or advisable. Agent may purchase all or
any part of the Guaranty Collateral at public sale or, if permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set
off the amount of such price against the Guaranty Obligations.
12.5 Notice of Sale. Guarantor agrees that five (5) days prior notice
by Agent of the time and place of any public sale or of the time after which
a private sale may take place or any other disposition of Guaranty Collateral
is commercially reasonable notification of such matters.
12.6 Collection of Accounts and General Intangibles. Upon the
occurrence and during the continuation of any Event of Default, Agent may at
any time revoke Guarantor's right to collect receivables under Section 10.4,
and notify some or all of Guarantor's lessees, account debtors, obligors
under any instrument, document, contract, agreement or general intangible, or
any other person or entity that owes any obligation to Guarantor of any kind
or nature, that Guarantor's right, title and interest with respect to any
such obligation has been assigned to Agent and that payments shall be made
directly to Agent. Upon Agent's request, Guarantor shall so notify any such
persons or entities on behalf of and for the benefit of Agent and the
Lenders. Whether or not an Event of Default has occurred, Agent may, in its
own name or in the name of Guarantor, communicate in writing with any such
person or entity to verify, to Agent's satisfaction, the existence, amount
and terms of any such obligations. Upon the occurrence and during the
continuation of an Event of Default, Agent may, at its sole discretion, take
over ownership and control of lockboxes or other depository accounts in the
control of Guarantor by giving written notice to the banks or other
institutions maintaining such lockboxes or other depository accounts to
convert such lockboxes or other depository accounts to Agent's name.
12.7 Proceeds from Disposition of Guaranty Collateral. The proceeds of
any sale, disposition or other realization upon all or any part of the
Guaranty Collateral shall be distributed by Agent, upon receipt, in the
following manner:
(a) First, to Agent and each of the Lenders in an
amount sufficient to pay in full the reasonable expenses of
Agent and each of the Lenders in connection with such sale,
disposition or other realization, including all expenses,
liabilities and advances incurred or made by Agent and/or
the Lenders in connection therewith, including reasonable
attorneys' fees;
(b) Second, to the Lenders, in accordance with their
respective interests as set forth in the Amended and
Restated Intercreditor Agreement, in an amount equal to the
then due and unpaid accrued interest, fees and prepayment
premiums, if any, on the Guaranty Obligations;
(c) Third, to the Lenders, in accordance with their
respective interests as set forth in the Amended and
Restated Intercreditor Agreement, in an amount equal to the
then unpaid principal of the Guaranty Obligations;
(d) Fourth, to the Lenders, in accordance with their
respective interests as set forth in the Amended and
Restated Intercreditor Agreement, in an amount equal to any
other Guaranty Obligations which are then unpaid;
(e) Fifth, to the holder of any subordinate security
interest in an amount equal to the outstanding obligations
secured thereby; and
(f) Finally, upon payment in full of all of the
foregoing, to Guarantor or its representatives or as a court
of competent jurisdiction may direct.
Guarantor shall remain liable for any deficiency if the proceeds of any sale
or disposition of the Guaranty Collateral are insufficient to pay all amounts
to which Agent and the Lenders are entitled, Guarantor also being liable for
any attorneys' fees or other professional fees and expenses incurred by Agent
or the Lenders to collect such deficiency.
12.8 Grant of License to Use Patent and Trademark Guaranty Collateral.
For the purpose of enabling Agent to exercise rights and remedies under this
Agreement, Guarantor hereby grants to Agent, for the benefit of the Lenders,
an irrevocable, non-exclusive license (exercisable upon the occurrence and
during the continuation of an Event of Default, and without payment of
royalty or other compensation to Guarantor) to use, license or sublicense any
patent, trademark, trade secret, or copyright now owned or hereafter acquired
by Guarantor, and wherever the same may be located, and including in such
license reasonable access to all media in which any of the licensed items may
be recorded or stored and to all computer and automatic machinery software
and programs used for the compilation or printout thereof.
12.9 Limitation on Agent's Duty in Respect of Guaranty Collateral.
Agent shall use reasonable care with respect to the Guaranty Collateral in
its possession or under its control. Agent shall not have any other duty as
to any Guaranty Collateral in its possession or control or in the possession
or control of any agent or nominee of Agent, or any income thereon or as to
the preservation of rights against prior parties or any other rights
pertaining thereto.
12.10 Remedies Cumulative. All rights and remedies of Agent arising
under this Agreement, the Amended and Restated Loan Agreement, the other
Amended Loan Documents, and any other agreement with Guarantor or by
operation of law shall be cumulative and non-exclusive, to the fullest extent
permitted by law.
12.11 Communication with Customers. Guarantor hereby authorizes Agent,
Accountant, and their respective representatives upon the occurrence and
during the continuation of any Event of Default, to (i) communicate in its
own name with any party to any lease, contract or other agreement with regard
to the assignment of the right, title and interest of Guarantor in and under
such agreements and other matters relating thereto and (ii) execute, in
connection with the sale provided for in Part 12 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to
the Guaranty Collateral.
12.12 No Interference. Guarantor agrees that it shall not interfere
with or hinder in any way Agent's right and ability under the terms of this
Agreement, the Amended and Restated Loan Agreement, any other Amended Loan
Document, or applicable law to perfect its Liens and security interests in
any item of Guaranty Collateral, to enforce its Liens and security interests
in any part of the Guaranty Collateral, and to realize upon the Guaranty
Collateral.
12.13 Rights Solely to Protect Security. The powers conferred on Agent
hereunder are solely to protect Agent's interests in the Guaranty Collateral
and shall not impose any duty upon it to exercise any such powers. Agent and
the Lenders shall be accountable only for amounts that they actually receive
as a result of the exercise of such powers and neither Agent, the Lenders nor
any of their respective officers, directors, employees, agents or
representatives shall be responsible to Guarantor for any act or failure to
act, except for acts constituting gross negligence or willful misconduct.
13. AGENT'S DUTIES AND ROLE
13.1 Powers. Each Lender hereby irrevocably appoints and authorizes
Mellon Bank, N.A. to act as its agent under this Agreement and the other
Amended Loan Documents. Agent shall have and may exercise such powers under
this Agreement and the other Amended Loan Documents as are specifically
delegated to Agent by the terms hereof and thereof, together with such powers
as are reasonably incidental thereto. Agent shall have no duties or
responsibilities except those expressly set forth in the applicable Amended
Loan Documents and shall not by reason of the Amended Loan Documents have a
fiduciary relationship with any Lender. Each Lender hereby accepts and
agrees to all of the terms and conditions of the Amended Loan Documents.
13.2 Delegation of Duties. Agent may perform any of its duties under
the Loan Documents by or through agents or employees and shall be entitled to
advice of counsel concerning all matters pertaining to its duties hereunder.
13.3 Agent in its Capacity as a Lender. With respect to Loans made by
it, Agent shall have the same rights and powers under this Agreement and the
other Amended Loan Documents as any Lender and may exercise the same as
though it were not Agent, and the terms "Lender" or "Lenders" shall, unless
the context otherwise indicates, include Agent in its capacity as a Lender
hereunder.
13.4 Actions in Discretion of Agent; Instructions from the Lenders.
Agent agrees, upon the written request or instructions of all the Lenders, to
take any action of the type specified as being within Agent's rights, powers,
or discretion herein. In the absence of a request or instructions by all the
Lenders, Agent shall have authority, in its sole discretion, to take or not
to take any such action, unless an Amended Loan Document specifically
requires the consent of all the Lenders. Any action taken pursuant to such
request or instructions or discretion shall be binding on all the Lenders and
on all holders of the Revolving Credit Notes and Term Loan Notes. No Lender
shall have any right of action whatsoever against Agent as a result of Agent
acting or refraining from acting hereunder or under the other Amended Loan
Documents in accordance with the request or instructions of all Lenders, or
in the absence of such request or instructions, in the absolute discretion of
Agent, subject to the provisions of Section 13.6.
13.5 Exculpatory Provisions. Neither Agent nor any of its directors,
officers, agents, attorneys or employees shall be liable to any Lender for
any action taken or omitted to be taken by it or them under this Agreement or
in connection herewith except for its or their own willful misconduct or
gross negligence. Without limitation on the generality of the foregoing,
Agent: (i) shall not be responsible to Lenders for any recitals, statements,
warranties or representations under this Agreement or any agreement or
document relative hereto or for the financial conditions of the Guarantor,
(ii) shall not be responsible for the authenticity, accuracy, completeness,
value, validity, effectiveness, due execution, legality, genuineness,
enforceability or sufficiency of this Agreement or any other agreements or
any assignments certificates, requests, financial statements, projections,
notices, schedules or opinions of counsel executed and delivered pursuant
hereto, (iii) shall not be bound to ascertain or inquire as to the
performance or observance of any of the terms, covenants or conditions of
this Agreement on the part of the Guarantor or of any of the terms of any
agreement by any party hereto and shall have no duty to inspect the property
(including the books and records) of the Guarantor, (iv) shall incur no
liability under or in respect of this Agreement or Guaranty Collateral by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, cable or telex) believed by Agent to be genuine
and signed or sent by the property party, shall not be under any obligation
to any of the Lenders to ascertain or to inquire as to the existence of any
default or Event of Default, (v) may consult with legal counsel (including
counsel for the Guarantor), independent public accountants and other experts
selected by Agent and shall not be liable for any action taken or omitted to
be taken in good faith in accordance with the advice of such counsel,
accountants or experts.
13.6 Reimbursement and Indemnification. Each Lender agrees to reimburse
and indemnify Agent (to the extent not reimbursed by the Guarantor), in
proportion to its Percentage Share of the then existing Maximum Aggregate
Commitment, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind or nature whatsoever that may be imposed on,
incurred by, or asserted against Agent, in its capacity as such, in any way
relating to or arising out of this Agreement or any action taken or omitted
by Agent hereunder, provided, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgment, suits, costs, expenses, or disbursements (i) if the same results
from Agent's gross negligence or willful misconduct, or (ii) if such Lender
was not given notice of the subject claim and the opportunity to participate
in the defense thereof, at its own expense, or (iii) if the same results from
a compromise or settlement agreement entered into without the consent of such
Lender. Without limitation of the foregoing, each Lender agrees to reimburse
Agent promptly upon demand for its Percentage Share of any out-of-pocket
expenses (including counsel fees) incurred by Agent in connection with the
preparation, execution, administration or enforcement of, or the preservation
of any rights under, this Agreement to the extent that Agent is not
reimbursed for such expenses by the Guarantor. The reimbursement and
indemnity obligation of each Lender shall survive the termination of this
Agreement.
13.7 Reliance by Agent. Agent shall be entitled to rely upon any
writing, telegram, telex, or teletype message, resolution, notice, consent,
certificate, letter, cablegram, statement, or order or other document or
conversation by telephone or otherwise believed by it to be genuine and
correct and to have been signed, sent, or made by the proper Person, and upon
opinions of counsel and other professional advisers selected by Agent. Agent
shall be fully justified in failing or refusing to take any action under this
Agreement unless it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense that may be incurred by it
by reason of taking or continuing to take any such action. Notwithstanding
the foregoing, in determining whether each Lender consents to any action,
Agent, in its sole discretion, shall be entitled to rely upon written notice
from each Lender or upon telephonic notice from each Lender, which telephonic
notice shall be confirmed by such Lender by facsimile transmission on the
same day such telephonic notice is given. Any Lender that fails to
communicate its consent to any action which, under this Agreement, requires
the consent of Lenders, shall be deemed to have consented to such action.
13.8 Resignation of Agent. Agent may resign as agent at any time in
accordance with the provisions of Section 11.9 of the Amended and Restated
Loan Agreement.
13.9 Exercise of Powers by Agent. Each of the Lenders hereby
acknowledges and agrees that only Agent shall have the right, power and
ability to exercise and enforce the rights and remedies of the Lenders under
this Agreement, including, without limitation, the rights and remedies set
forth in Part 12 hereof, subject to and in accordance with the terms of the
Amended and Restated Intercreditor Agreement.
14. MISCELLANEOUS PROVISIONS.
14.1 Indemnification. In any suit, proceeding or action brought by
Agent relating to any account, chattel paper, lease, contract, general
intangible, instrument or document for any sum owing thereunder, or to
enforce any provision of any of the foregoing, Guarantor shall save,
indemnify and hold Agent harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder arising out of a
breach by Guarantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to, or in favor of,
such obligor or its successors from Guarantor, and all such obligations of
Guarantor shall be and remain enforceable against, and only against,
Guarantor and shall not be enforceable against Agent or the Lenders.
Guarantor further agrees to pay, and to hold Agent harmless from and against
any and all liabilities with respect to or resulting from any delay in
paying, any and all excise, sales or other similar taxes which may be payable
or determined to be payable with respect to any of the Guaranty Collateral,
in connection with any of the transactions contemplated by this Agreement or,
in the enforcement of Agent's or Lender's rights and remedies under this
Agreement or applicable law.
14.2 No Waiver; Cumulative Remedies. Agent shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder, and no waiver by Agent shall be valid unless in writing, signed
against Agent, and then only to the extent therein set forth. A waiver by
Agent of any right or remedy hereunder on any one occasion shall not be
construed as a bar to any right or remedy which Agent would otherwise have
had on any future occasion. No failure to exercise nor any delay in
exercising on the part of Agent, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise
of any right, power or privilege hereunder preclude any other or future
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law. None of the terms or provisions of this Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly
executed by Agent and Guarantor.
14.3 Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
any of the parties by another, or whenever any of the parties desires to give
or serve upon another any communication with respect to this Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered (i) in person
with receipt acknowledged, (ii) by facsimile transmission, with receipt
electronically confirmed during normal business hours of recipient, and that
is confirmed by sending, no later than one (1) Business Day following such
transmission, a copy of such facsimile, by registered or certified mail,
return receipt requested, postage prepaid, or (iii) by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
(A) If to Agent, at
Mellon Bank, N.A.
One Mellon Bank Center, Room 4835
Pittsburgh, PA 15258-0001
Attention: Ms. Brigitte Bouchat
Facsimile: (412) 236-1174
Telephone: (412) 234-1055
with a copy to
Murphy, Weir & Butler
101 California Street, 39th Floor
San Francisco, CA 94111
Attention: William P. Weintraub, Esq.
Facsimile: (415) 421-7879
Telephone: (415) 398-4700
(B) If to Lenders, at
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attention: Ms. Brigitte Bouchat
Facsimile: (412) 236-1174
Telephone: (412) 234-1055
with a copy to
Murphy, Weir & Butler
101 California Street, 39th Floor
San Francisco, CA 94111
Attention: William P. Weintraub, Esq.
Facsimile: (415) 421-7879
Telephone: (415) 398-4700
First Bank National Association
First Bank Place
Minneapolis, MN 55480
Attention: Mr. Jack Quitmeyer
Facsimile: (612) 343-1514
Telephone: (612) 370-5426
with a copy to
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, MN 55402
Attention: Diane Malfeld, Esq.
Facsimile: (612) 340-2778
Telephone: (612) 340-2778
The Chase Manhattan Bank, N.A.
Special Loan Administration
1 Chase Plaza, 15th Floor
New York, NY 10081
Attention: Mr. Stanley M. Guralnick
Facsimile: (212) 422-6249
Telephone: (212) 552-7588
Horace Mann Insurance Company
c/o J.P. Morgan Investment Management, Inc.
522 Fifth Avenue, 6th Floor
New York, NY 10036
Attention: Hamilton Hadden, III
Facsimile: (212) 575-0392
Telephone: (212) 837-2317
If by Courier or Overnight Mail:
CIG & Co.
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Bloomfield, Connecticut 06002
Attention: Private Securities Division
If by U.S. Mail or Facsimile:
CIG & Co.
c/o Cigna Investments, Inc.
Hartford, CT 06152
Attention: Private Securities Division
Facsimile: (203) 726-5460
Telephone: (203) 726-6000
with a copy to
Day, Berry & Howard
Cityplace
Hartford, CT 06103
Attention: Thomas R. Wildman, Esq.
Facsimile: (203) 275-0343
Telephone: (203) 275-0114
(C) If to Guarantor, at
CAI Equipment Leasing IV Corp.
7175 West Jefferson Avenue
Suite 3000
Lakewood, CO 80235
Attention: Mr. John F. Olmstead
Facsimile: (303) 980-5362
Telephone: (303) 980-1000
with a copy to
Ballard, Spahr, Andrews & Ingersoll
1225 17th Street, Suite 2300
Denver, CO 80202
Attention: John L. Ruppert, Esq.
Facsimile: (303) 296-3956
Telephone: (303) 292-2400
or at such other address or facsimile transmission number 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
sent by facsimile with receipt electronically confirmed during normal
business hours of recipient, or three (3) Business Days after deposit 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 above to receive copies shall in no way adversely affect
the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
14.4 Survival. The representations and warranties of Guarantor in this
Agreement shall survive the execution, delivery and acceptance hereof by the
parties hereto and the closing of the transactions described herein or
related hereto.
14.5 Fees and Expenses. If, at any time or times, regardless of the
existence of a default or an Event of Default, Agent or any of the Lenders
shall employ counsel or other professional advisors for advice or other
representation or shall incur reasonable legal, appraisal, accounting,
consulting or other costs and expenses in connection with:
(A) any amendment, modification or waiver of, or consent with
respect to this Agreement;
(B) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, Guarantor, Borrower or any other
Person) in any way relating to this Agreement, the Guaranty Collateral, or
any other agreements to be executed or delivered in connection herewith,
including any litigation, contest, dispute, suit, case, proceeding or action,
and any appeal or review thereof, in connection with a case commenced by or
against Guarantor under the Bankruptcy Code or any other applicable federal,
state, or foreign bankruptcy or other similar law;
(C) any attempt to enforce any rights of Agent or any Lender
against Guarantor under this Agreement; and/or
(D) any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of the Guaranty Collateral; then, and in any
such event, the reasonable fees of such attorneys and other professional
advisors arising from such services, including those of any appellate
proceedings, and all reasonable expenses, costs, charges and other fees
incurred by such counsel or other professionals in any way or respect arising
in connection with or relating to any of the events or actions described in
this Section 14.5 shall be payable, on demand, by Guarantor to Agent and
shall be additional Guaranty Obligations. Without limiting the generality of
the foregoing, such reasonable expenses, costs, charges and fees may include:
attorneys' fees, paralegal fees, costs and expenses; accountants' fees, costs
and expenses; appraisers' fees, costs and expenses; consultants' fees, costs
and expenses, (including, fees incurred to locate, hire and to retain such
consultants); court costs and expenses; photocopying and duplicating
expenses; court reporter fees, costs and expenses; long distance telephone
charges; air express charges; telegram charges; secretarial overtime charges;
and expenses for travel, lodging and food paid or incurred in connection with
the performance of such legal or other professional services. Without
limiting the generality of the foregoing, in the event Agent or the Lenders
pay any amount with respect to a third party's Lien or claim of Lien against
Guaranty Collateral in order to protect Agent's or Guarantor's interest in
such Guaranty Collateral, the amount paid may, at Agent's discretion, be
included in the Guaranty Obligations. Guarantor acknowledges that Accountant
will be providing ongoing services to the Agent and Lenders throughout the
term of this Agreement, including the monitoring and auditing of Guaranty
Collateral and the various reports and financial information delivered by
Guarantor to the Agent and Lenders pursuant to the terms of this Agreement,
and Guarantor consents to such ongoing services. In that regard, Guarantor
shall have the right to attempt to negotiate fee arrangements with the Agent
and Accountant with respect to particular future services to be provided by
Accountant; provided, that if Guarantor cannot reach an agreement with the
Agent and Accountant with respect thereto, Guarantor shall pay to the Agent
all fees and costs incurred by the Agent and the Lenders in connection with
the services provided by Accountant. Payments of all fees and reimbursable
expenses shall be due not later than thirty (30) days immediately after the
date after Agent delivers to Guarantor a written statement for such fees or
such reimbursable expenses, as the case may be.
14.6 Conflict of Terms. If any provision contained in this Agreement is
in conflict with, or inconsistent with any provision in the Amended and
Restated Loan Agreement, the provision contained in the Amended and Restated
Loan Agreement shall govern and control, and this Agreement shall be deemed
reformed accordingly. If the provisions of one agreement give the Agent
and/or the Lenders greater or broader rights than the provisions of the other
agreement, these provisions shall not be deemed to be inconsistent or in
conflict, and Agent and the Lenders shall have the full benefit of the
greater or broader provisions.
14.7 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in a manner as to be effective and valid under
applicable law. If any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such provision and the remaining provisions
of this Agreement shall remain unaffected and in full force and effect, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
14.8 Successors and Assigns. This Agreement and all obligations of
Guarantor hereunder shall be binding upon the successors and assigns of
Guarantor (which successors and assigns shall include a trustee in bankruptcy
for Guarantor), and shall, together with the rights and remedies of Agent and
the Lenders hereunder, inure to the benefit of Agent and the Lenders, all
future holders of the Guaranty Obligations and their respective successors
and assigns. No sales of participations, other sales, assignments, transfers
or other dispositions of any agreement governing or instrument evidencing the
Guaranty Obligations or any portion thereof or interest therein shall in any
manner affect the security interest granted to Agent hereunder.
14.9 Further Assurances. At any time and from time to time, upon the
written request of Agent, and at the sole expense of Guarantor, Guarantor
shall promptly and duly execute and deliver any and all such further
instruments and documents and take such further action as Agent may
reasonably deem desirable to obtain the full benefits of this Agreement and
of the rights and powers herein granted, including (i) using its best efforts
to secure all consents and approvals necessary or appropriate for the
assignment to Agent of any license, contract or other legal or equitable
right held by Guarantor or in which Guarantor has any rights not heretofore
assigned, (ii) filing any financing or continuation statements under the UCC
with respect to the Liens and security interests granted hereunder or under
any other Loan Document, (iii) transferring Guaranty Collateral to Agent's
possession (if such Guaranty Collateral consists of chattel paper or if a
security interest in such Guaranty Collateral can be perfected only by
possession, or, if requested by Agent), (iv) placing the interest of Agent as
lienholder on the certificate of title of any vehicle owned by Guarantor, and
(v) using its best efforts to obtain agreements from landlords and mortgagees
acceptable to Agent in form and substance. Guarantor also hereby authorizes
Agent to file any such financing or continuation statement without the
signature of Guarantor to the extent permitted by applicable law. In
addition, Guarantor agrees that a photographic or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof. If any amount payable under or in
connection with any of the Guaranty Collateral is or shall become evidenced
by any instrument, such instrument, other than checks received in the
ordinary course of business, shall be duly endorsed in a manner satisfactory
to Agent and delivered to Agent immediately upon Guarantor's receipt thereof.
14.10 Miscellaneous Waivers. Except as otherwise specifically provided
herein, Guarantor hereby waives presentment, demand, protest or any notice
(to the maximum extent permitted by applicable law) of any kind in connection
with this Agreement or any Guaranty Collateral.
14.11 Limitation by Law. All rights, remedies and powers provided in
this Agreement may be exercised only to the extent that the exercise thereof
does not violate any applicable provision of law, and all the provisions of
this Agreement are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited to the extent
necessary so that they shall not render this Agreement invalid,
unenforceable, in whole or in part, or not entitled to be recorded,
registered, or filed under the provisions of any applicable law.
14.12 Section Titles. The section titles contained in this Pledge and
Security Agreement are and shall be without substantive meaning or content of
any kind whatsoever and are not a part of the agreement between the parties
hereto.
14.13 Integration; No Other Agreements. This Agreement sets forth the
entire agreement between and among Guarantor, Agent and the Lenders with
respect to the subject matter hereof. Without limiting the generality of the
foregoing, this Agreement supersedes all prior discussions, correspondence,
agreements in principle, term sheets and other oral or written communications
between any of the parties hereto, including, without limitation, the
Existing Guaranties and the Existing Subordination Agreement. Guarantor
hereby acknowledges that, in entering into this Agreement, Guarantor is not
relying on any promise, statement, representation, or understanding that is
not expressly set forth in this Agreement.
14.14 Governing Law; Consent to Jurisdiction and Venue. Except as
otherwise expressly provided in any of the Amended Loan Documents, in all
respects, including all matters of construction, validity and performance,
this Agreement and the other Amended Loan Documents, and the Obligations
arising hereunder and thereunder, shall be governed by, and construed and
enforced in accordance with, the laws of the Commonwealth of Pennsylvania
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. Guarantor, AGENT AND LENDERS CONSENT TO
PERSONAL JURISDICTION, WAIVE ANY OBJECTION AS TO JURISDICTION OR VENUE, AND
AGREE NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE, IN
THE COUNTY OF ALLEGHENY, COMMONWEALTH OF PENNSYLVANIA. Service of process on
Guarantor, Agent or any Lender in any action arising out of or relating to
any of the Amended Loan Documents shall be effective if mailed to such party
at the address listed in Section 14.3 of this Agreement. Nothing herein
shall preclude Agent, any Lender, or Guarantor from bringing suit or taking
other legal action in any other jurisdiction.
14.15 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES
WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION
RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT
TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT, THE AMENDED
AND RESTATED LOAN AGREEMENT OR ANY OF THE OTHER AMENDED LOAN DOCUMENTS.
14.16 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which shall be an original, but all of which
shall constitute one and the same agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer on the
date first set forth above.
GUARANTOR: AGENT:
CAI EQUIPMENT LEASING IV CORP. MELLON BANK, N.A.
By: /s/John F. Olmstead By: /s/Brigitte R. Bouchat
---------------------------- -------------------------
- - --
John F. Olmstead Brigitte R. Bouchat
Its: President Its: Vice President
LENDERS:
MELLON BANK, N.A. HORACE MANN LIFE INSURANCE
COMPANY
By J.P. Morgan Investment
Management Inc., as
Investment Manager
By: /s/Brigitte R. Bouchat By: /s/E. Clifford Cole
---------------------------- ---------------------------
Brigitte R. Bouchat E. Clifford Cole
Its: Vice President Its: Vice President
THE CHASE MANHATTAN BANK, N.A. CIG & CO., as Nominee for
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: /s/Stanley M. Guralnick By: /s/James F. Coggins, Jr.
---------------------------- ---------------------------
Its: Vice President Its: Partner
FIRST BANK NATIONAL ASSOCIATION
By: /s/Jack L. Quitmeyer
----------------------------
Its: Vice President
Exhibit 10.46(c)
SECOND AMENDMENT TO AMENDED CONTINUING
GUARANTY, PLEDGE, SECURITY AND SUBORDINATION
AGREEMENT AND THIRD REAFFIRMATION OF GUARANTY
This Second Amendment to Amended Continuing Guaranty, Pledge, Security
and Subordination Agreement and Third Reaffirmation of Guaranty (this "Amendment
and Reaffirmation"), is made as of December 23, 1993, by Capital Associates,
Inc., a Delaware corporation ("Guarantor"), in favor of Mellon Bank, N.A., The
Chase Manhattan Bank, N.A., First Bank National Association, Horace Mann Life
Insurance Company and CIG & Co. as nominee for Connecticut General Life
Insurance Company (collectively, the "Lenders"), and Mellon Bank, N.A., in its
capacity as agent for the Lenders ("Agent"), with reference to the following
facts:
R E C I T A L S
A. Guarantor has previously executed an Amended Continuing Guaranty,
Pledge, Security and Subordination Agreement, dated as of March 22, 1991, in
favor of Agent and Lenders, as reaffirmed by a Reaffirmation of Amended
Guaranty, Pledge, Security and Subordination Agreement, dated as of November 30,
1991 and as reaffirmed and modified by a First Amendment to Amended Continuing
Guaranty, Pledge, Security and Subordination Agreement and Second Reaffirmation
of Guaranty, dated as of December 21, 1992 (collectively, the "Guaranty"),
pursuant to which Guarantor unconditionally guaranteed the payment and
performance of the obligations and indebtedness of Capital Associates
International, Inc. ("Borrower") to Agent and the Lenders.
B. Agent and the Lenders have entered into a Second Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of December 21,
1992, with Borrower, as amended by Amendment No. 1 to the Second Amended and
Restated Revolving Credit and Term Loan Agreement, dated as of April 30, 1993
("Amendment No. 1"), and as further amended by Amendment No. 2 to the Second
Amended and Restated Revolving Credit and Term Loan Agreement, dated as of
December 23, 1993 as defined therein ("Amendment No. 2") (collectively, the
"Amended Loan Agreement"), pursuant to which the Lenders agreed to make, and
have in fact made, certain loans, extensions of credit and other financial
accommodations available to Borrower.
C. It is an express condition precedent to the effectiveness of
Amendment No. 2 that Guarantor execute and deliver this Amendment and
Reaffirmation.
D. Guarantor has determined that it will derive substantial direct
and indirect economic benefit from the continued financing available to Borrower
under the Amended Loan Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and intending to be legally bound hereby, Guarantor stipulates and
agrees as follows:
I. AMENDMENTS TO GUARANTY.
A. Definition of Collateral. The definition of "Collateral" is hereby
amended by adding the following before the "." at the end of such definition:
"as the same may be modified, amended or supplemented from time to time."
B. Evidence of Indebtedness; Legend. Section 6.4 of the Guaranty is
hereby amended by deleting the period and the quotation mark at the end of the
first sentence thereof, and adding to the end of such first sentence the
following text:
"; or, with respect to each such instrument executed on, as of, or
after December 23, 1993, "This instrument is subject to the terms of
an Amended Continuing Guaranty, Pledge, Security and Subordination
Agreement, dated as of March 22, 1991, in favor of Mellon Bank, as
agent for itself and certain other lenders, as modified, amended or
supplemented from time to time."
C. Amendment to Covenant Regarding Financial Condition. The Guaranty is
hereby amended by deleting the text set forth in Section II.5 of the First
Amendment to Guaranty and by adding the following financial covenant as a new
Section 10.23 to the Guaranty:
"10.23 Financial Covenant Regarding Stockholder Equity. From and
after December 23, 1993, and continuing until all of the
Obligations of Borrower to Agent and the Lenders have been paid and
satisfied in full, the consolidated stockholder's equity for the
Borrower, Guarantor and the Capital Subsidiaries on a GAAP basis as
reported by the Borrower and Guarantor shall not be less than
$19,000,000."
Guarantor hereby acknowledges and reaffirms its agreement that its failure to
comply with the foregoing financial covenant shall constitute an Event of
Default under the Guaranty, entitling Agent and the Lenders to demand and
enforce immediate payment of the Guaranty Obligations.
D. Pledge Agreement. The Pledge Amendment attached hereto is hereby made
a part of the Guaranty.
II. REAFFIRMATION AND CONSENT; MISCELLANEOUS PROVISIONS.
A. Reaffirmation of Guaranty. Guarantor hereby (i) ratifies and reaffirms
all provisions, terms, covenants, and conditions set forth in the Guaranty, as
of the date hereof, as amended by this Amendment and Reaffirmation; and (ii)
agrees that the Guaranty as so amended constitutes a valid, binding obligation
of Guarantor to Agent and the Lenders, for which there is no offset,
counterclaim, dispute or defense of any kind or nature.
B. Consent to Modification of Amended Loan Agreement. Guarantor hereby
(i) acknowledges receipt of a copy of Amendment No. 2; (ii) consents to
Amendment No. 2 and all of its terms; and (iii) agrees that Borrower's
obligations to Agent and the Lenders under the Amended Loan Agreement, and the
other Amended Loan Documents (as defined in the Amended Loan Agreement) are
subject to the Guaranty, as amended by this Amendment and Reaffirmation.
Guarantor further acknowledges and agrees that the Guaranty, as amended by this
Amendment and Reaffirmation, shall remain in full force and effect,
notwithstanding the execution and performance of Amendment No. 2.
C. No Changes to Schedules. Guarantor hereby warrants and represents to
Lenders that the Schedule of Collateral Locations, the Schedule of Securities
and the Schedule of Allowed Encumbrances are complete and correct as of the date
hereof.
D. Entire Agreement. This Amendment and Reaffirmation, together with the
Guaranty, Amendment No. 1 and Amendment No. 2, constitutes the entire agreement
between Guarantor, on the one hand, and Agent and Lenders, on the other hand,
with respect to the subject matter hereof, and supersedes all prior discussions,
correspondence, agreements in principle, or other oral or written communications
between any of the parties hereto.
E. Counterparts. This Amendment and Reaffirmation may be executed in any
number of separate counterparts, each of which shall be an original, but all of
which shall constitute one in the same agreement. Each of the parties hereto
agrees to be bound by a facsimile copy of such party's signature on this
Amendment and Reaffirmation to the same extent as if the facsimile were an
original. Each of the parties hereto agrees to accept a facsimile copy of every
other party's signature on this Amendment and Reaffirmation in lieu of a fully
executed original hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment and Reaffirmation to be executed and delivered by its duly authorized
officer as of the date set forth above.
"Guarantor"
CAPITAL ASSOCIATES, INC.
By: /s/Dennis Lacey
-----------------------
Dennis Lacey
Its: President and CEO
"Agent"
MELLON BANK, N.A.
By: /s/Brigitte R. Bouchat
---------------------------
Brigitte R. Bouchat
Its: Vice President
"Lenders"
MELLON BANK, N.A. HORACE MANN LIFE INSURANCE COMPANY
By: J.P. Morgan Investment
Management Inc.,
as Investment Manager
By: /s/Brigitte R. Bouchat By: /s/E. Clifford Cole
------------------------ ------------------------
Brigitte R. Bouchat E. Clifford Cole
Its: Vice President Its: Vice President
THE CHASE MANHATTAN BANK, N.A. CIG & CO., as nominee for
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/Stanley M. Guralnick By: /s/James F. Coggins, Jr.
------------------------- --------------------------
Stanley M. Guralnick James F. Coggins, Jr.
Its: Vice President Its: Partner
FIRST BANK NATIONAL ASSOCIATION
By: /s/Jack L. Quitmeyer
-------------------------
Jack L. Quitmeyer
Its: Vice President
Exhibit 10.46(d)
SECOND AMENDMENT TO CONTINUING GUARANTY, SECURITY AND
SUBORDINATION AGREEMENT AND REAFFIRMATION OF GUARANTY
This Second Amendment to Continuing Guaranty, Security and
Subordination Agreement and Reaffirmation of Guaranty (this "Amendment and
Reaffirmation") is made as of December 23, 1993, by and among CAI Equipment
Leasing I Corp. ("Guarantor"), a Colorado corporation, and Mellon Bank, N.A.,
The Chase Manhattan Bank, N.A., First Bank National Association, Horace Mann
Life Insurance Company, and CIG & Co., as nominee for Connecticut General
Life Insurance Company (collectively, the "Lenders"), and Mellon Bank, N.A.,
in its capacity as agent for the Lenders ("Agent"), with reference to the
following facts:
R E C I T A L S
A. Guarantor has previously executed a Continuing Guaranty,
Security and Subordination Agreement, dated as of November 30, 1991, in favor
of Agent and Lenders as reaffirmed and modified by a First Amendment to
Continuing Guaranty, Security and Subordination Agreement and Reaffirmation
of Guaranty dated as of December 21, 1992, and as reaffirmed by Amendment No.
1 to the Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of April 30, 1993 ("Amendment No. 1") (collectively, the
"Guaranty"), pursuant to which Guarantor unconditionally guaranteed, subject
to a maximum liability as set forth in the Guaranty, the payment and
performance of all obligations of Capital Associates International, Inc.
("Borrower") to Agent and the Lenders, including, without implied limitation,
all of Borrower's obligations under that certain Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated as of December 21, 1992,
among Borrower, Lenders and Agent, as amended by Amendment No. 1
(collectively, the "Amended and Restated Loan Agreement").
B. Borrower has requested that Agent and Lenders make certain
other modifications and amendments to the Amended and Restated Loan Agreement
pursuant to the terms of that certain Amendment No. 2 to the Second Amended
and Restated Revolving Credit and Term Loan Agreement, dated as of December
23, 1993 ("Amendment No. 2") among Borrower, Lenders and Agent. Agent and
Lenders are willing to do so provided that, among other things, Guarantor
enters into this Amendment and Reaffirmation.
A G R E E M E N T
NOW, THEREFORE, in order to induce Agent and the Lenders to
continue to make advances and other financial accommodations to or for the
benefit of Borrower, and intending to be legally bound hereby, Guarantor,
Lenders and Agent hereby agree as follows:
I. CORRECTIONS AND CLARIFYING AMENDMENT TO GUARANTY.
1. Amendment to Recital C. Recital C of the Guaranty is hereby
corrected by deleting the word "Borrower" therein and adding the following
text in its place: "Borrower's parent, Capital Associates, Inc."
2. Amendment to Section 5.6. Section 5.6 of the Guaranty is hereby
corrected by deleting the word "Guaranty" in the fifth line thereof and
adding the word "Agreement" in its place.
3. Amendment to Section 7.5(A). Section 7.5(A) of the Guaranty is
hereby corrected by deleting the reference therein to "Capital Preferred
Yield Fund" and adding "Northstar Income Fund - I, L.P." in its place.
4. Amendment to Section 7.1. Section 7.1 of the Guaranty in hereby
amended by adding, immediately after Section 7.1(F) the following paragraph:
"The Guaranty Collateral described above includes, without
limitation, (1) all Pledged Guaranty Collateral (as defined in
Section 7.5 of this Agreement), and (2) all management fees,
servicing fees and other fees and/or cash generated from or in
connection with the operation, management or servicing of the
Partnership (as defined in Section 7.5 of this Agreement)."
The existing provisions of Section 7.1 shall remain in full force and effect,
without waiver or modification. Guarantor acknowledges and agrees that
Guarantor's prior grant of a security interest to Agent includes the items
described in the foregoing additional text, and that such additional text is
intended only to clarify the scope of the security interest previously
granted to Agent.
II. REAFFIRMATION, CONSENT AND MISCELLANEOUS.
1. Reaffirmation of Guaranty. Guarantor hereby (i) ratifies and
reaffirms all provisions, terms, covenants, and waivers set forth in the
Guaranty, as of the date hereof, as amended by this Amendment and
Reaffirmation, and (ii) agrees that the Guaranty as so amended constitutes a
valid, binding obligation of Guarantor to Agent and Lenders, for which there
is no offset, counterclaim, dispute or defense of any kind or nature.
2. Consent to Modification of Amended and Restated Agreement.
Guarantor hereby (i) acknowledges receipt of a copy of Amendment No. 2; (ii)
consents to Amendment No. 2 and all of its terms; and (iii) agrees that
Borrower's obligations to Agent and Lenders under the Amended and Restated
Loan Agreement (as amended by Amendment No. 2) and the other Amended Loan
Documents (as such term is therein defined), are subject to the Guaranty,
as amended by this Amendment and Reaffirmation. Guarantor further
acknowledges and agrees that the Guaranty, as amended by this Amendment and
Reaffirmation, shall remain in full force and effect, notwithstanding the
execution and performance of Amendment No. 2.
3. No Changes to Schedules. Guarantor hereby warrants and represents
to Lenders that the Schedule of Collateral Locations is complete and correct
as of the date hereof.
5. Counterparts. This Amendment and Reaffirmation may be executed in
any number of separate counterparts, each of which shall be an original, but
all of which shall constitute one in the same agreement. Each of the parties
hereto agrees to be bound by a facsimile copy of such party's signature on
this Amendment and Reaffirmation to the same extent as if the facsimile were
an original. Each of the parties hereto agrees to accept a facsimile copy of
every other party's signature on this Amendment in lieu of a fully executed
original hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment and Reaffirmation to be executed and delivered by its duly
authorized officer as of the date set forth above.
"Guarantor"
CAI EQUIPMENT LEASING I CORP.
By: /s/John F. Olmstead
-------------------------
John F. Olmstead
Its: President
[Signatures Continued]
"Agent"
MELLON BANK, N.A.
By: /s/Brigitte R. Bouchat
-----------------------------
Brigitte R. Bouchat
Its: Vice President
"Lenders"
MELLON BANK, N.A. HORACE MANN LIFE INSURANCE COMPANY
By: J.P. Morgan Investment
Management Inc.,
as Investment Manager
By: /s/Brigitte R. Bouchat By: /s/E. Clifford Cole
------------------------- --------------------------
Brigitte R. Bouchat E. Clifford Cole
Its: Vice President Its: Vice President
THE CHASE MANHATTAN BANK, N.A. CIG & CO., as nominee for
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/Stanley M. Guralnick By: /s/James F. Coggins, Jr.
-------------------------- ---------------------------
Stanley M. Guralnick James F. Coggins, Jr.
Its: Vice President Its: Partner
FIRST BANK NATIONAL ASSOCIATION
By: /s/Jack L. Quitmeyer
----------------------------
Jack L. Quitmeyer
Its: Vice President
Exhibit 10.46(e)
SECOND AMENDMENT TO CONTINUING GUARANTY, SECURITY AND
SUBORDINATION AGREEMENT AND REAFFIRMATION OF GUARANTY
This Second Amendment to Continuing Guaranty, Security and
Subordination Agreement and Reaffirmation of Guaranty (this "Amendment and
Reaffirmation") is made as of December 23, 1993, by and among CAI Equipment
Leasing III Corp. ("Guarantor"), a Colorado corporation, and Mellon Bank,
N.A., The Chase Manhattan Bank, N.A., First Bank National Association, Horace
Mann Life Insurance Company, and CIG & Co., as nominee for Connecticut
General Life Insurance Company (collectively, the "Lenders"), and Mellon
Bank, N.A., in its capacity as agent for the Lenders ("Agent"), with
reference to the following facts:
R E C I T A L S
A. Guarantor has previously executed a Continuing Guaranty,
Security and Subordination Agreement, dated as of November 30, 1991, in favor
of Agent and Lenders as reaffirmed and modified by a First Amendment to
Continuing Guaranty, Security and Subordination Agreement and Reaffirmation
of Guaranty dated as of December 21, 1992, and as reaffirmed by Amendment No.
1 to the Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of April 30, 1993 ("Amendment No. 1") (collectively, the
"Guaranty"), pursuant to which Guarantor unconditionally guaranteed, subject
to a maximum liability as set forth in the Guaranty, the payment and
performance of all obligations of Capital Associates International, Inc.
("Borrower") to Agent and the Lenders, including, without implied limitation,
all of Borrower's obligations under that certain Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated as of December 21, 1992,
among Borrower, Lenders and Agent, as amended by Amendment No. 1
(collectively, the "Amended and Restated Loan Agreement").
B. Borrower has requested that Agent and Lenders make certain
other modifications and amendments to the Amended and Restated Loan Agreement
pursuant to the terms of that certain Amendment No. 2 to the Second Amended
and Restated Revolving Credit and Term Loan Agreement, dated as of December
23, 1993 ("Amendment No. 2") among Borrower, Lenders and Agent. Agent and
Lenders are willing to do so provided that, among other things, Guarantor
enters into this Amendment and Reaffirmation.
A G R E E M E N T
NOW, THEREFORE, in order to induce Agent and the Lenders to
continue to make advances and other financial accommodations to or for the
benefit of Borrower, and intending to be legally bound hereby, Guarantor,
Lenders and Agent hereby agree as follows:
I. CORRECTIONS AND CLARIFYING AMENDMENT TO GUARANTY.
1. Amendment to Recital C. Recital C of the Guaranty is hereby
corrected by deleting the word "Borrower" therein and adding the following
text in its place: "Borrower's parent, Capital Associates, Inc."
2. Amendment to Section 5.6. Section 5.6 of the Guaranty is hereby
corrected by deleting the word "Guaranty" in the fifth line thereof and
adding the word "Agreement" in its place.
3. Amendment to Section 7.5(A). Section 7.5(A) of the Guaranty is
hereby corrected by deleting the reference therein to "Capital Preferred
Yield Fund" and adding "Capital Preferred Yield Fund II, L.P." in its place.
4. Amendment to Section 7.1. Section 7.1 of the Guaranty in hereby
amended by adding, immediately after Section 7.1(F) the following paragraph:
"The Guaranty Collateral described above includes, without
limitation, (1) all Pledged Guaranty Collateral (as defined in
Section 7.5 of this Agreement), and (2) all management fees,
servicing fees and other fees and/or cash generated from or in
connection with the operation, management or servicing of the
Partnership (as defined in Section 7.5 of this Agreement)."
The existing provisions of Section 7.1 shall remain in full force and effect,
without waiver or modification. Guarantor acknowledges and agrees that
Guarantor's prior grant of a security interest to Agent includes the items
described in the foregoing additional text, and that such additional text is
intended only to clarify the scope of the security interest previously
granted to Agent.
II. REAFFIRMATION, CONSENT AND MISCELLANEOUS.
1. Reaffirmation of Guaranty. Guarantor hereby (i) ratifies and
reaffirms all provisions, terms, covenants, and waivers set forth in the
Guaranty, as of the date hereof, as amended by this Amendment and
Reaffirmation, and (ii) agrees that the Guaranty as so amended constitutes a
valid, binding obligation of Guarantor to Agent and Lenders, for which there
is no offset, counterclaim, dispute or defense of any kind or nature.
2. Consent to Modification of Amended and Restated Agreement.
Guarantor hereby (i) acknowledges receipt of a copy of Amendment No. 2; (ii)
consents to Amendment No. 2 and all of its terms; and (iii) agrees that
Borrower's obligations to Agent and Lenders under the Amended and Restated
Loan Agreement (as amended by Amendment No. 2) and the other Amended Loan
Documents (as such term is therein defined), are subject to the Guaranty,
as amended by this Amendment and Reaffirmation. Guarantor further
acknowledges and agrees that the Guaranty, as amended by this Amendment and
Reaffirmation, shall remain in full force and effect, notwithstanding the
execution and performance of Amendment No. 2.
3. No Changes to Schedules. Guarantor hereby warrants and represents
to Lenders that the Schedule of Collateral Locations is complete and correct
as of the date hereof.
4. Counterparts. This Amendment and Reaffirmation may be executed in
any number of separate counterparts, each of which shall be an original, but
all of which shall constitute one in the same agreement. Each of the parties
hereto agrees to be bound by a facsimile copy of such party's signature on
this Amendment and Reaffirmation to the same extent as if the facsimile were
an original. Each of the parties hereto agrees to accept a facsimile copy of
every other party's signature on this Amendment in lieu of a fully executed
original hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment and Reaffirmation to be executed and delivered by its duly
authorized officer as of the date set forth above.
"Guarantor"
CAI EQUIPMENT LEASING III CORP.
By: /s/John F. Olmstead
-------------------------
John F. Olmstead
Its: President
"Agent"
MELLON BANK, N.A.
By: /s/Brigitte R. Bouchat
-----------------------------
Brigitte R. Bouchat
Its: Vice President
"Lenders"
MELLON BANK, N.A. HORACE MANN LIFE INSURANCE COMPANY
By: J.P. Morgan Investment
Management Inc.,
as Investment Manager
By: /s/Brigitte R. Bouchat By: /s/E. Clifford Cole
----------------------- ----------------------
Brigitte R. Bouchat E. Clifford Cole
Its: Vice President Its: Vice President
THE CHASE MANHATTAN BANK, N.A. CIG & CO., as nominee for
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/Stanley M. Guralnick By: /s/James F. Coggins, Jr.
------------------------- ------------------------------
Stanley M. Guralnick James F. Coggins, Jr.
Its: Vice President Its: Partner
FIRST BANK NATIONAL ASSOCIATION
By: /s/Jack L. Quitmeyer
----------------------------
Jack L. Quitmeyer
Its: Vice President
Exhibit 10.46(f)
SECOND AMENDMENT TO CONTINUING GUARANTY, SECURITY AND
SUBORDINATION AGREEMENT AND REAFFIRMATION OF GUARANTY
This Second Amendment to Continuing Guaranty, Security and
Subordination Agreement and Reaffirmation of Guaranty (this "Amendment and
Reaffirmation") is made as of December 23, 1993, by and among CAI Partners
Management Company ("Guarantor"), a Colorado corporation, and Mellon Bank,
N.A., The Chase Manhattan Bank, N.A., First Bank National Association, Horace
Mann Life Insurance Company, and CIG & Co., as nominee for Connecticut
General Life Insurance Company (collectively, the "Lenders"), and Mellon
Bank, N.A., in its capacity as agent for the Lenders ("Agent"), with
reference to the following facts:
R E C I T A L S
A. Guarantor has previously executed a Continuing Guaranty,
Security and Subordination Agreement, dated as of November 30, 1991, in favor
of Agent and Lenders as reaffirmed and modified by a First Amendment to
Continuing Guaranty, Security and Subordination Agreement and Reaffirmation
of Guaranty dated as of December 21, 1992, and as reaffirmed by Amendment No.
1 to the Second Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of April 30, 1993 ("Amendment No. 1") (collectively, the
"Guaranty"), pursuant to which Guarantor unconditionally guaranteed, subject
to a maximum liability as set forth in the Guaranty, the payment and
performance of all obligations of Capital Associates International, Inc.
("Borrower") to Agent and the Lenders, including, without implied limitation,
all of Borrower's obligations under that certain Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated as of December 21, 1992,
among Borrower, Lenders and Agent, as amended by Amendment No. 1
(collectively, the "Amended and Restated Loan Agreement").
B. Borrower has requested that Agent and Lenders make certain
other modifications and amendments to the Amended and Restated Loan Agreement
pursuant to the terms of that certain Amendment No. 2 to the Second Amended
and Restated Revolving Credit and Term Loan Agreement, dated as of December
23, 1993 ("Amendment No. 2") among Borrower, Lenders and Agent. Agent and
Lenders are willing to do so provided that, among other things, Guarantor
enters into this Amendment and Reaffirmation.
A G R E E M E N T
NOW, THEREFORE, in order to induce Agent and the Lenders to
continue to make advances and other financial accommodations to or for the
benefit of Borrower, and intending to be legally bound hereby, Guarantor,
Lenders and Agent hereby agree as follows:
I. CORRECTION AND CLARIFYING AMENDMENT TO GUARANTY.
1. Amendment to Section 5.6. Section 5.6 of the Guaranty is hereby
corrected by deleting the word "Guaranty" in the fifth line thereof and
adding the word "Agreement" in its place.
2. Amendment to Section 7.1. Section 7.1 of the Guaranty in hereby
amended by adding, immediately after Section 7.1(F) the following paragraph:
"The Guaranty Collateral described above includes, without
limitation, (1) all Pledged Guaranty Collateral (as defined in
Section 7.5 of this Agreement), and (2) all management fees,
servicing fees and other fees and/or cash generated from or in
connection with the operation, management or servicing of the
Partnership (as defined in Section 7.5 of this Agreement)."
The existing provisions of Section 7.1 shall remain in full force and effect,
without waiver or modification. Guarantor acknowledges and agrees that
Guarantor's prior grant of a security interest to Agent includes the items
described in the foregoing additional text, and that such additional text is
intended only to clarify the scope of the security interest previously
granted to Agent.
II. REAFFIRMATION, CONSENT AND MISCELLANEOUS.
1. Reaffirmation of Guaranty. Guarantor hereby (i) ratifies and
reaffirms all provisions, terms, covenants, and waivers set forth in the
Guaranty, as of the date hereof, as amended by this Amendment and
Reaffirmation, and (ii) agrees that the Guaranty as so amended constitutes a
valid, binding obligation of Guarantor to Agent and Lenders, for which there
is no offset, counterclaim, dispute or defense of any kind or
nature.
2. Consent to Modification of Amended and Restated Agreement.
Guarantor hereby (i) acknowledges receipt of a copy of Amendment No. 2; (ii)
consents to Amendment No. 2 and all of its terms; and (iii) agrees that
Borrower's obligations to Agent and Lenders under the Amended and Restated
Loan Agreement (as amended by Amendment No. 2) and the other Amended Loan
Documents (as such term is therein defined), are subject to the Guaranty, as
amended by this Amendment and Reaffirmation. Guarantor further acknowledges
and agrees that the Guaranty, as amended by this Amendment and Reaffirmation,
shall remain in full force and effect, notwithstanding the execution and
performance of Amendment No. 2.
3. No Changes to Schedules. Guarantor hereby warrants and represents
to Lenders that the Schedule of Collateral Locations is complete and correct
as of the date hereof.
5. Counterparts. This Amendment and Reaffirmation may be executed in
any number of separate counterparts, each of which shall be an original, but
all of which shall constitute one in the same agreement. Each of the parties
hereto agrees to be bound by a facsimile copy of such party's signature on
this Amendment and Reaffirmation to the same extent as if the facsimile were
an original. Each of the parties hereto agrees to accept a facsimile copy of
every other party's signature on this Amendment in lieu of a fully executed
original hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment and Reaffirmation to be executed and delivered by its duly
authorized officer as of the date set forth above.
"Guarantor"
CAI PARTNERS MANAGEMENT COMPANY
By: /s/John F. Olmstead
--------------------
John F. Olmstead
Its: President
"Agent"
MELLON BANK, N.A.
By: /s/Brigitte R. Bouchat
--------------------------
Brigitte R. Bouchat
Its: Vice President
"Lenders"
MELLON BANK, N.A. HORACE MANN LIFE INSURANCE COMPANY
By: J.P. Morgan Investment
Management Inc.,
as Investment Manager
By: /s/Brigitte R. Bouchat By: /s/E. Clifford Cole
----------------------- -------------------------
Brigitte R. Bouchat E. Clifford Cole
Its: Vice President Its: Vice President
THE CHASE MANHATTAN BANK, N.A. CIG & CO., as nominee for
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
By: /s/Stanley M. Guralnick By: /s/James F. Coggins, Jr.
------------------------- -----------------------------
Stanley M. Guralnick James F. Coggins, Jr.
Its: Vice President Its: Partner
FIRST BANK NATIONAL ASSOCIATION
By: /s/Jack L. Quitmeyer
--------------------------
Jack L. Quitmeyer
Its: Vice President
Exhibit 10.46(g)
PLEDGE AMENDMENT
This Pledge Amendment, dated as of December 23, 1993, is delivered
pursuant to Section 5.9 of the Amended Joint Security Agreement, dated as of
March 22, 1991, as amended, by and among Capital Associates International,
Inc., Mellon Bank, N.A., as agent and for itself, The Chase Manhattan Bank,
N.A., First National Bank Association, Horace Mann Life Insurance Company,
and Cig & Co., as nominee for Connecticut General Life Insurance Company (the
"Amended Joint Security Agreement"). All capitalized terms used in this
Pledge Agreement and not otherwise defined herein shall have the respective
meanings assigned to such terms in the Amended Joint Security Agreement. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Amended Joint Security Agreement and that the Pledged Shares listed on this
Pledge Amendment shall be and become a part of the Pledged Property and shall
secure all Secured Obligations. The undersigned hereby represents and
warrants that it is reviewed the Amended Joint Security Agreement and the
Amended Loan Agreement ant that it understands and agrees to be bound by all
of the terms thereof.
CAPITAL ASSOCIATES INTERNATIONAL, INC.
By: /s/Dennis Lacey
-----------------------------------
Dennis Lacey
Title: President and Chief Executive
Officer
Class of Certificate Number of
Issuer Stock No(s) Shares
CAI Lease Common 2 1,000
Securitization I Corp.
Exhibit 10.47(a)
CAPITAL PREFERRED YIELD FUND - III, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement of Limited Partnership of Capital Preferred Yield
Fund - III, L.P. (the "Partnership") is made as of November 2, 1993, by and
between CAI Equipment Leasing IV Corp., a Colorado corporation, as the
general partner (the "General Partner"), and John F. Olmstead, as the
original limited partner (the "Original Limited Partner").
Capitalized terms used in this Agreement have the meanings set
forth in Article II.
Witnesseth:
WHEREAS, the General Partner has executed a Certificate of Limited
Partnership, dated as of November 2, 1993, establishing the Partnership under
and pursuant to the Delaware Revised Uniform Limited Partnership Act, as
amended (the "Delaware Act"); and
WHEREAS, the parties hereto desire to enter into this Agreement of
Limited Partnership for the purpose of forming the Partnership,
NOW, THEREFORE, in consideration of the premises and mutual
covenants and agreements hereinafter set forth, the parties hereto, intending
to be legally bound, hereby agree as follows.
ARTICLE I
THE PARTNERSHIP
Section 1.1 Formation. The parties hereto hereby form a limited
partnership pursuant to the Delaware Act.
Section 1.2 General Partner. The name and mailing address of
the General Partner is as follows:
CAI Equipment Leasing IV Corp.
7175 West Jefferson Avenue
Suite 3000
Lakewood, Colorado 80235
Section 1.3 Original Limited Partner. The name and address of
the Original Limited Partner is John F. Olmstead, 7175 West Jefferson Avenue,
Suite 3000, Lakewood, Colorado 80235.
Section 1.4 Name. The name of the Partnership is Capital
Preferred Yield Fund - III, L.P. The Partnership may conduct business under
this name and such variations of this name as the General Partner deems
appropriate to comply with the laws of the other jurisdictions in which the
Partnership does business.
Section 1.5 Place of Business. The location of the principal
place of business of the Partnership shall be 7175 West Jefferson Avenue,
Suite 3000, Lakewood, Colorado 80235, or such other place as may be selected
from time to time by the General Partner. The registered agent of the
Partnership is The Corporation Trust Company, and the Partnership's
registered office in Delaware is located at 1209 Orange Street, Corporation
Trust Center, Wilmington, Delaware 19801, in the County of New Castle,
Delaware.
Section 1.6 Business Purposes. The principal purpose and
character of the Partnership is to engage in the business of acquiring and
leasing equipment as a lessor and reinvesting certain of the proceeds
thereof. The Partnership is authorized to engage in any and all acts
necessary, advisable or incidental to the carrying out of the obligations
attendant to the conduct of its business, and may engage in any business or
activity that may lawfully be conducted by limited partnerships organized
under the Delaware Act.
Section 1.7 Additional General Partners; Additional Limited
Partners. Additional General Partners and/or Additional Limited Partners may
be admitted to the Partnership with the written consent of the General
Partner and the Original Limited Partner.
Section 1.8 Power-of-Attorney. Each Partner, by his execution
hereof, irrevocably constitutes and appoints the General Partner as his true
and lawful attorney and agent, with full power of substitution, to act in his
name, place and stead in connection with, and to execute, sign, acknowledge,
swear to, deliver, file and record in the appropriate public offices, as
necessary, (i) all certificates or other instruments, including a certificate
of limited partnership to be filed with the Secretary of State of the
State of Delaware, and amendments thereto that the General Partner deems
appropriate to qualify or cause the Partnership to exist in the jurisdictions
in which the Partnership conducts business; (ii) all instruments and
amendments thereto that the General Partner deems appropriate to reflect any
change or modification of this Agreement or the admission or addition of
Partners in accordance with the terms of this Agreement; (iii) all
conveyances and other instruments that the General Partner deems appropriate
to evidence and reflect any sales or transfers by, or the dissolution and
termination of, the Partnership in accordance with this Agreement; (iv) all
consents to transfers of Partnership interests, to the admission or addition
of Partners or to the withdrawal or reduction of any Partner's invested
capital in accordance with this Agreement; and (v) all other filings with
agencies of the federal government, or any state or local government, that
the General Partner considers necessary or desirable to carry out the
purposes of this Agreement and the business of the Partnership.
ARTICLE II
DEFINITIONS
As used in this Agreement, the capitalized terms set forth below
have the following meanings:
"Bankruptcy" or "Bankrupt" means, as to any person (i) the filing
of a petition for relief as to any such person as debtor or bankrupt under
the Bankruptcy Code of 1978 or like provision of law (except if such petition
is contested by such person and has been dismissed within 120 days); (ii)
insolvency of such person as finally determined by a court proceeding; (iii)
filing by such person of a petition or application to accomplish the same or
for the appointment of a receiver or a trustee for such person or a
substantial part of his assets; or (iv) commencement of any proceedings
relating to such person under any other reorganization, arrangement,
insolvency, adjustment of debt or liquidation law of any jurisdiction,
whether now in existence or hereafter in effect, either by such person or by
another, provided that if such proceeding is commenced by another, such
person indicates his approval of such proceeding, consents thereto or
acquiesces therein, or such proceeding is contested by such person and has
not been finally dismissed within 120 days.
"Capital Account" means an account established for each Partner
that shall be generally increased by the amount of such Partner's Capital
Contribution to the Partnership, increased by the share of income, profit and
gain allocated to such Partner, and generally decreased by (a) all
distributions of cash and the fair market value of property distributed to
such Partner, and (b) the amount of all expenses, losses and deductions
charged to such Partner. Notwithstanding any provision herein, each
Partner's Capital Account shall be created and maintained in accordance with
the accounting principles as set forth in the Code and the Treasury
Regulations thereunder.
"Capital Contribution" means the sum of any Partner's contribution
to the capital of the Partnership paid in accordance with Article III of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of prior or succeeding law.
"General Partner" means CAI Equipment Leasing IV Corp. and any
Person who, at the time of reference thereto, has been admitted as a
successor or additional general partner of the Partnership pursuant to this
Agreement.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the rights and obligations of
such Partner under this Agreement. Whenever a reference is made in this
Agreement to a particular percentage of the Interest of the Partners, it
refers to the Partners' interest in the profits, losses and distributions of
the Partnership as reflected in their individual Sharing Ratios.
"Limited Partner" means any Person who may be admitted into the
Partnership as a limited partner from time to time, including the Original
Limited Partner, in such Person's capacity as a limited partner of the
Partnership.
"Partners" means the General Partner and the Limited Partners.
"Partnership" means the limited partnership formed in accordance
with this Agreement, as such limited partnership may from time to time be
constituted.
"Person" means any individual, partnership, corporation, trust or
other entity.
"Sharing Ratio" means, with respect to the General Partner, 83.3%
and, with respect to the Original Limited Partner, 16.7%, or such different
Sharing Ratios as may be determined by the consent of all Partners from time
to time.
"Treasury Regulations" means final or temporary regulations issued
by the U.S. Treasury Department pursuant to the Code.
ARTICLE III
CAPITAL CONTRIBUTIONS
Section 3.1 Capital Contributions. The Partners hereby agree to
make the following cash contributions to the Partnership's capital:
Amount
General Partner:
CAI Equipment Leasing IV Corp. $100.00
Original Limited Partner:
John F. Olmstead $ 20.00
ARTICLE IV
ALLOCATIONS OF PROFITS AND LOSSES;
CASH DISTRIBUTIONS
Section 4.1 Allocations of Partnership Profits and Losses. All
profits and losses of the Partnership shall be allocated to the Partners in
accordance with their Sharing Ratios.
Section 4.2 Cash Distribution. All cash receipts, less such
amounts that the General Partner may determine are necessary to retain to pay
Partnership expenses, shall be distributed by the General Partners to the
Partners in accordance with their Sharing Ratios. Such distributions shall
be made at such times, and to such extent, as the General Partner shall in
its sole discretion determine.
Section 4.3 Reimbursement of Costs. The Partnership shall
reimburse the General Partner for all costs incurred by the General Partner
on behalf of the Partnership or that are properly allocable by the General
Partner to the Partnership's operations.
Section 4.4 Adjustment to Capital Accounts. All allocations of
Partnership profit and loss (as provided in Section 4.1 hereof), all cash
distributions (as provided in Section 4.2 hereof) and all other allocations
of tax items shall be reflected by an appropriate adjustment to the Partners'
Capital Accounts in accordance with tax accounting principles.
ARTICLE V
RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTNERS
Section 5.1 Power of General Partner. Subject to the
limitations of this Agreement, the General Partner shall have full, exclusive
and complete discretion to manage and control the business of the Partnership
to the best of its ability and to use its best efforts to carry out the
purposes of the Partnership. The General Partner shall, except as otherwise
provided in this Agreement, have all the rights and powers and shall be
subject to all the restrictions and liabilities of a partner in a partnership
without limited partners. The General Partner shall have full power and
authority to execute and deliver in the name of and on behalf of the
Partnership such documents or instruments as the General Partner deems
appropriate for the conduct of Partnership business. No person, firm or
corporation dealing with the Partnership shall be required to inquire into
the authority of the General Partner to take any action or make any decision.
Section 5.2 Records. In order to conduct properly the business
of the Partnership, and in order to keep the Partners properly informed, the
General Partner shall maintain in good order such records and files as are
required by the Delaware Act, including appropriate books and records
reflecting the Partnership's income and expenses and each Partner's
participation therein. The books, accounts, files and other records of the
Partnership shall be available for inspection and audit by any Partner or his
duly authorized representative (at the expense of such Partner) during
regular business hours at the principal office of the Partnership.
Section 5.3 No Withdrawal of the General Partner. The General
Partner may not withdraw from the Partnership.
ARTICLE VI
ACCOUNTING, BOOKS AND TAX MATTERS
Section 6.1 Fiscal Year. The General Partner shall select the
fiscal year of the Partnership as it determines is in the Partnership's best
interest. The books of the Partnership shall be kept in accordance with
customary accounting practices on the cash receipts and disbursements method
or the accrual method as determined by the General Partner.
Section 6.2 Tax Reporting. The General Partner shall cause the
Partnership to elect such taxable year as it determines to be in the
Partnership's best interest and shall timely file all Partnership income tax
returns required to be filed by the jurisdictions in which the Partnership
conducts business or derives income.
ARTICLE VII
TRANSFERABILITY OF PARTNERS' INTERESTS
Section 7.1 Transfers. Except as otherwise provided in this
Section 7.1, a Limited Partner may transfer a part or all of his Interest
hereunder only with the written consent of the General Partner, which consent
may be freely withheld. This provision does not apply to, and no conditions
are placed upon, any assignment of an Interest of a Limited Partner to an
assignee who is already a Limited Partner. In addition, nothing in this
Section 7.1 is intended in any way to restrict any transfer by operation of
law.
Section 7.2 Substituted Partners. To become a substituted
Partner, a purchaser, assignee, heir or transferee of an interest in the
Partnership must (i) obtain the written consent of the General Partner, which
consent may be freely withheld, and (ii) satisfy all requirements of the
Delaware Act. Upon becoming a substituted Partner, each transferee shall
assume all the obligations of, and shall attain the status of, his transferor
and shall in all respects be a Partner under and pursuant to this Agreement.
ARTICLE VIII
DISSOLUTION OF PARTNERSHIP
Section 8.1 Events of Dissolution. The Partnership shall be
dissolved and its affairs wound up upon the happening of the first to occur
of the following:
(a) December 31, 2005;
(b) At a time specified in the written consents of all the
Partners;
(c) The dissolution, Bankruptcy or insolvency of a
General Partner, or upon the occurrence of such other event that causes a
General Partner to cease to be a General Partner as provided in the Delaware
Act, unless the remaining General Partners (or in the case of a General
Partner who is at that time the sole General Partner, all of the remaining
Partners) agree in writing to continue the business of the Partnership
within 90 days of the occurrence of such event; or
(d) Any event causing the dissolution of the Partnership under
the Delaware Act.
Section 8.2 Successor General Partner. If, in the event of the
dissolution, Bankruptcy or insolvency of a General Partner who is at that
time the sole General Partner, all of the remaining Partners agree in writing
to continue the business of the Partnership in accordance with Section 8.1(c)
hereof, they shall appoint a successor General Partner. The successor
General Partner shall acquire the interest of the former General Partner at a
price equal to the fair market value of such General Partner's Interest in
the Partnership (less any damage resulting to the Partnership) as determined
by an independent appraiser, as of the date of such event specified in
Section 8.1(c) hereof. All amounts to be paid to the former General Partner
shall be in full satisfaction of the former General Partner's Interest in the
Partnership.
Section 8.3 Liquidating Trustee. Upon dissolution of the
Partnership, unless as a result of the dissolution, Bankruptcy or insolvency
of a General Partner who is at that time the sole General Partner, the
General Partner shall appoint a Liquidating Trustee. Upon dissolution of the
Partnership as a result of the dissolution, Bankruptcy or insolvency of a
General Partner who is at the time the sole General Partner, a majority in
Interest of the Limited Partners shall appoint the Liquidating Trustee.
Section 8.4 Liquidation. As soon as possible after dissolution
of the Partnership, the Liquidating Trustee shall wind up the Partnership's
business and affairs as follows:
(a) The Liquidating Trustee shall furnish or obtain an
accounting with respect to all Partnership accounts and the Capital Account
of each Partner and with respect to the Partnership's assets and liabilities
and its operations from the date of the last previous audit of the
Partnership to the date of dissolution.
(b) The Liquidating Trustee shall:
(i) liquidate all Partnership assets that, in its sole
discretion, it determines may be sold for such
assets' fair market value or where it determines
such liquidation is otherwise in the best interests
of the Partners;
(ii) pay all of the Partnership's debts, liabilities and
obligations to its creditors, including Partners who
are creditors, that are not dischargeable from
property distributed pursuant to subsection (d)
below; and
(iii) pay all expenses incurred in connection with the
termination, liquidation and dissolution of the
Partnership and distribution of its assets as herein
provided.
(c) After payment of the foregoing, all remaining assets of
the Partnership shall be distributed to the Partners, first, in proportion to
and to the extent of any positive balances in the Partners' Capital Accounts
until such accounts are reduced to zero, and then assets shall be distributed
in accordance with the Partners' respective Sharing Ratios.
(d) If the Liquidating Trustee determines that it is in the
best interest of the Partners to distribute certain Partnership assets in
kind, such assets shall be distributed subject to such liens,encumbrances,
restrictions, contracts, obligations, commitments or undertakings as existed
with respect to such asset prior to the dissolution of the Partnership,
including all revenue interests set forth herein.
(e) Upon dissolution and termination of the Partnership, the
General Partner shall contribute to the Partnership an amount equal to the
lesser of (i) the deficit balances in its capital accounts; or (ii) the
excess of 1.01% of the total Capital Contributions of the Limited Partners
over the Capital Contributions previously made by the General Partner.
ARTICLE IX
NOTICES
All notices hereunder shall be sent by certified or registered mail
addressed, if to the Partnership, to the principal place of business as set
forth in Section 1.5 hereof, if to the General Partner, to the addresses set
forth in Section 1.2 hereof and if to the Limited Partners, to the addresses
set forth for each of them in Section 1.3 hereof. Such addresses may be
changed by the parties to be notified by giving notice to the General Partner
as provided in this Article IX. All notices hereunder shall be effective and
deemed received on the earlier of (a) the date set forth on the receipt of
registered or certified mail, or (b) seven days after the notice is placed in
the United States mail, properly addressed, with postage prepaid.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Embodiment of Understanding. This Agreement
supersedes any and all prior negotiations and oral understandings or
agreements as to the affairs of the Partnership and the conduct of its
business and constitutes the entire agreement of the Partners with respect to
the subject matter of this Agreement. The captions appearing at the
beginning of the various Articles and Sections of this Agreement are for the
convenience of the parties only, are not to be deemed a complete description
of the contents of such Articles or Sections and are not a part of this
Agreement or the understandings among the
parties.
Section 10.2 Amendment. No amendment, change or alteration of
this Agreement shall be binding upon any Partner, unless it is in writing and
signed by all the Partners.
Section 10.3 Multiple Counterparts. This Agreement may be
executed in multiple counterparts, each of which shall be considered an
original and all of which shall constitute one and the same instrument. The
General Partner is not required to deliver a copy of the Certificate of
Limited Partnership, or any Certificate of Amendment thereto, to the
Partners.
Section 10.4 Applicable Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware.
Section 10.5 Successors and Assigns. This Agreement and all of
the terms, provisions and economic benefits hereof shall be binding upon and
shall inure to the benefit of the Partners and their respective heirs,
executors, administrators, trustees, successors and permitted assigns.
Section 10.6 Severability. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not of
itself invalidate or render unenforceable such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
GENERAL PARTNERS:
CAI EQUIPMENT LEASING IV CORP.
By: /s/John F. Olmstead
--------------------------
John F. Olmstead,
Its: President
ORIGINAL LIMITED PARTNER:
/s/John F. Olmstead
-------------------------------
John F. Olmstead
Exhibit 10.47(b)
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL PREFERRED YIELD FUND - III, L.P.
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO
CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM. . . . 16
SECTION 2.1 Continuation of Partnership. . . . . . . . 16
SECTION 2.2 Name, Principal Office and Name and Address
of Registered Agent for Service of Process 17
SECTION 2.3 Purpose. . . . . . . . . . . . . . . . . . 17
SECTION 2.4 Term . . . . . . . . . . . . . . . . . . . 17
ARTICLE THREE
PARTNERS AND CAPITAL . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.1 General Partner. . . . . . . . . . . . . . 17
SECTION 3.2 Original Limited Partner . . . . . . . . . 17
SECTION 3.3 Class B Limited Partner. . . . . . . . . . 18
SECTION 3.4 Class A Limited Partners . . . . . . . . . 18
SECTION 3.5 Partnership Capital. . . . . . . . . . . . 20
SECTION 3.6 Capital Accounts . . . . . . . . . . . . . 20
SECTION 3.7 Loans By Partners. . . . . . . . . . . . . 22
SECTION 3.8 Return of Capital. . . . . . . . . . . . . 22
SECTION 3.9 Liability of Limited Partners. . . . . . . 22
SECTION 3.10 Investment in Equipment. . . . . . . . . . 23
ARTICLE FOUR
DISTRIBUTIONS AND ALLOCATIONS. . . . . . . . . . . . . . . . . 23
SECTION 4.1 Distributions. . . . . . . . . . . . . . . 23
SECTION 4.2 Allocations of Profits and Losses. . . . . 27
SECTION 4.3 Special Allocations. . . . . . . . . . . . 30
SECTION 4.4 Tax Allocations. . . . . . . . . . . . . . 32
SECTION 4.5 Curative Allocations; Uniformity of
Units. . . . . . . . . . . . . . . . . . . 33
SECTION 4.6 Changes in Units or Partnership
Interests. . . . . . . . . . . . . . . . . 33
ARTICLE FIVE
RIGHTS, OBLIGATIONS AND POWERS OF GENERAL PARTNER. . . . . . . 34
SECTION 5.1 Multiple General Partners. . . . . . . . . 34
SECTION 5.2 Management of Partnership. . . . . . . . . 34
SECTION 5.3 Authority of General Partner . . . . . . . 37
SECTION 5.4 Authority of General Partner and Its
Affiliates to Deal With Partnership. . . . 41
SECTION 5.5 Limitations and Restrictions on Exercise
of Powers of General Partner . . . . . . . 44
SECTION 5.6 Duties and Obligations of General
Partner. . . . . . . . . . . . . . . . . . 47
SECTION 5.7 Other Activities . . . . . . . . . . . . . 49
SECTION 5.8 Limitation on Liability of General
Partner and Affiliates; Indemnification. . 49
SECTION 5.9 Tax Status of Partnership. . . . . . . . . 51
ARTICLE SIX
CHANGES IN GENERAL PARTNER . . . . . . . . . . . . . . . . . . 52
SECTION 6.1 Certain Withdrawals of General Partner . . 52
SECTION 6.2 Admission of Additional or Successor
General Partner. . . . . . . . . . . . . . 53
SECTION 6.3 Consent of Class A Limited Partners to
Admission of Additional or Successor
General Partner. . . . . . . . . . . . . . 53
SECTION 6.4 Effect of Voluntary Withdrawal of
General Partner or Removal of General
Partner by Class A Limited Partners. . . . 54
ARTICLE SEVEN
ASSIGNMENT OF PARTNERSHIP INTERESTS OF LIMITED PARTNERS. . . . 56
SECTION 7.1 Assignment . . . . . . . . . . . . . . . . 56
SECTION 7.2 Withdrawal of Limited Partners . . . . . . 56
SECTION 7.3 Assignment of Partnership Interests. . . . 56
SECTION 7.4 Distributions. . . . . . . . . . . . . . . 57
SECTION 7.5 Restrictions on Assignment . . . . . . . . 57
SECTION 7.6 Redemption of Partnership Units. . . . . . 58
ARTICLE EIGHT
ADMISSION OF LIMITED PARTNERS AND SUBSTITUTED
LIMITED PARTNERS. . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.1 Admission of Limited Partners. . . . . . . 60
SECTION 8.2 Admission of Substituted Limited
Partners . . . . . . . . . . . . . . . . . 60
ARTICLE NINE
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP . . . . . . . . . . 61
SECTION 9.1 Events Causing Dissolution . . . . . . . . 61
SECTION 9.2 Continuation of Business of Partnership
After Dissolution. . . . . . . . . . . . . 62
SECTION 9.3 Liquidation. . . . . . . . . . . . . . . . 63
SECTION 9.4 Cancellation of Certificate of Limited
Partnership. . . . . . . . . . . . . . . . 65
SECTION 9.5 Reasonable Time for Winding Up . . . . . . 65
SECTION 9.6 Return of Capital. . . . . . . . . . . . . 66
SECTION 9.7 No Capital Account Restoration . . . . . . 66
ARTICLE TEN
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS. . . . . 66
SECTION 10.1 Books and Records. . . . . . . . . . . . . 66
SECTION 10.2 Accounting Method. . . . . . . . . . . . . 67
SECTION 10.3 Bank Accounts. . . . . . . . . . . . . . . 67
SECTION 10.4 Reports. . . . . . . . . . . . . . . . . . 68
SECTION 10.5 Designation, Duties and Expenses of Tax
Matters Partner. . . . . . . . . . . . . . 70
SECTION 10.6 Authority of Tax Matters Partner . . . . . 71
ARTICLE ELEVEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS. . . . 72
SECTION 11.1 Meetings . . . . . . . . . . . . . . . . . 72
SECTION 11.2 Voting Rights of Limited Partners. . . . . 73
SECTION 11.3 Management of the Partnership. . . . . . . 74
SECTION 11.4 Other Activities . . . . . . . . . . . . . 75
ARTICLE TWELVE
NON-FOREIGN STATUS . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 12.1 Certification of Non-Foreign Status. . . . 75
SECTION 12.2 Withholding on Certain Amounts
Attributable to Interests of Non-
Resident Alien Partners. . . . . . . . . . 75
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . 76
SECTION 13.1 Appointment of General Partner As
Attorney-In-Fact . . . . . . . . . . . . . 76
SECTION 13.2 Signatures; Amendments . . . . . . . . . . 77
SECTION 13.3 Ownership By Limited Partners of General
Partner or Its Affiliates. . . . . . . . . 79
SECTION 13.4 Notices. . . . . . . . . . . . . . . . . . 79
SECTION 13.5 Binding Provisions . . . . . . . . . . . . 79
SECTION 13.6 Applicable Law . . . . . . . . . . . . . . 79
SECTION 13.7 Counterparts . . . . . . . . . . . . . . . 79
SECTION 13.8 Separability of Provisions . . . . . . . . 80
SECTION 13.9 Captions . . . . . . . . . . . . . . . . . 80
SECTION 13.10 Partnership Property; No Partition . . . . 80
SECTION 13.11 No Benefit to Third Parties. . . . . . . . 80
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CAPITAL PREFERRED YIELD FUND - III, L.P.
This Amended and Restated Agreement of Limited Partnership of
Capital Preferred Yield Fund - III, L.P. (the "Partnership") is made as of
June 14, 1994 by and among CAI Equipment Leasing IV Corp., a Colorado
corporation (the "General Partner"), as the General Partner, Capital
Associates International, Inc., a Colorado corporation (the "Class B Limited
Partner"), as the Class B Limited Partner, John F. Olmstead (the "Original
Limited Partner"), as the original Limited Partner, and those Persons
admitted to the Partnership from time to time as Class A Limited Partners
(the "Class A Limited Partners").
Recitals
A. The General Partner executed a Certificate of Limited Partnership,
dated as of November 2, 1993, establishing the Partnership pursuant to the
Delaware Act (as defined below) and the General Partner and the Original
Limited Partner entered into an Agreement of Limited Partnership, dated as of
November 2, 1993, setting forth certain of the terms and conditions of their
agreements and understandings regarding the Partnership.
B. The parties hereto desire to enter into this Amended and Restated
Agreement of Limited Partnership to provide for the: (i) continuation of the
Partnership; (ii) admission of Class A Limited Partners and the Class B
Limited Partner; (iii) withdrawal of John F. Olmstead as the Original Limited
Partner; and (iv) terms and conditions for the operation of the Partnership.
Agreement
In consideration of the premises and mutual covenants and
agreements set forth below, the parties hereto, intending to be legally
bound, hereby agree as follows:
ARTICLE ONE
DEFINITIONS
Defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified below. Certain additional
defined terms are set forth elsewhere in this Agreement. Unless the context
requires otherwise, the singular includes the plural and the masculine gender
includes the feminine and neuter, and vice versa, and "Article" and "Section"
references are references to the Articles and Sections of this Agreement.
"Accountants" means KPMG Peat Marwick, or such other nationally
recognized firm of independent public accountants as may be engaged from time
to time by the General Partner on behalf of the Partnership.
"Acquisition Expenses" means expenses including but not limited to
legal fees and expenses, travel and communications expenses, costs of
appraisals, accounting fees and expenses and miscellaneous expenses relating
to selection and acquisition of Equipment for the Partnership, whether or not
acquired.
"Acquisition Fees" means the total of all fees and commissions paid
by any party in connection with the initial purchase or manufacture of
Equipment acquired by the Partnership, including without limitation the
Origination Fee and the Evaluation Fee, any commission, selection fee,
construction supervision fee, financing fee, non-recurring management fee or
any fee of a similar nature, however designated.
"Adjusted Capital Account Deficit" means, with respect to any
Capital Account as of the end of any Year, the amount by which the balance in
such Capital Account is less than zero. For this purpose, a Partner's
Capital Account balance shall be: (i) reduced for any items described in
Treas. Reg. 1.704-1(b)(2)(ii)(d)(4), (5) and (6) (as adjusted by Temp. Reg.
1.704-1T(b)(4)(iv)-(e)(3)); (ii) increased for any amount such Partner is
unconditionally obligated to contribute to the Partnership no later than the
earlier of (A) the end of the Year in which his Units, Class B Interest or
General Partner Partnership Interest are liquidated (as defined in Treas.
Reg. 1.704-1(b)(2)(ii)(g)) or (B) 90 days after such liquidation; and (iii)
increased for any amount such Partner is treated as being obligated to
contribute to the Partnership pursuant to Treas. Reg. 1.704-1(b)(2)(ii)(c)
(relating to partner liabilities to a partnership) or Temp. Reg.
1.704-1T(b)(4)(iv) (relating to Minimum Gain).
"Adjusted Capital Contribution" mean, as of the date of
determination, a Partner's Capital Contribution, reduced to not less than
zero by: (i) any return of Capital Contributions pursuant to Section 3.8;
and (ii) cash distributions from Cash From Operations and Cash From Sales
received by the Partnership during the period subsequent to the Termination
Date and actually paid to Partners after the Termination Date in excess of
the Preferred Return. A Partner's Adjusted Capital Contribution for the
purpose of computing Payout shall not be reduced by any cash distributions
made between the Closing Date and the Termination Date.
"Affiliate" means, when used with reference to a specified Person:
(i) any Person that directly or indirectly controls, is controlled by or is
under common control with the specified Person; (ii) any Person that is an
officer, director or trustee of or partner in, or serves in a similar
capacity with respect to, the specified Person or with respect to which the
specified Person serves in a similar capacity; and (iii) any Person that
directly or indirectly is the beneficial owner of or controls 10.0% or more
of any class of equity securities of, or otherwise has a substantial
beneficial interest in, the specified Person or of which the specified Person
is directly or indirectly the owner of or controls 10.0% or more of any class
of equity securities or in which the specified Person otherwise has a
substantial beneficial interest.
"Agreement" means this Agreement of Limited Partnership, as it may
be amended, supplemented or restated from time to time.
"Assign" or "Assignment" means, with respect to any Partnership
Interest or any part thereof, to offer, sell, assign, transfer, give or
otherwise dispose of, whether voluntarily or by operation of law, except
that, in the case of a bona fide pledge or other hypothecation, no Assignment
shall be deemed to have occurred unless and until the secured party has
exercised his right of foreclosure with respect thereto.
"Assignee" means a Person to whom an interest in any Partnership
Interest has been Assigned in a manner permitted under this Agreement.
"Bankruptcy" or "Bankrupt" as to any Person means the: (i) filing
of a petition for relief as to such Person as debtor or bankrupt under the
Bankruptcy Code of 1978 or like provision of law (except if such petition is
contested by such Person and has been finally dismissed within 120 days);
(ii) insolvency of such Person as finally determined by a court proceeding;
(iii) filing by such Person of a petition or application for a determination
of insolvency or for the appointment of a receiver or a trustee for such
Person or a substantial part of his assets; or (iv) commencement of any
proceedings relating to such Person under any other reorganization,
arrangement, insolvency, adjustment-of-debt or liquidation law of any
jurisdiction, whether now in existence or hereinafter in effect, either by
such Person or by another, provided that if such proceeding is commenced by
another, such Person indicates his approval of such proceeding, consents
thereto or acquiesces therein or such proceeding is contested by such Person
and has not been finally dismissed within 120 days.
"Book Value" means, with respect to any Partnership property, the
Partnership's adjusted basis for federal income tax purposes, adjusted from
time to time to reflect the adjustments required or permitted by Treas. Reg.
1.704-1(b)(2)(iv)(d)-(g).
"CAI" means Capital Associates, Inc., the parent corporation of the
General Partner and the Class B Limited Partner.
"Capital Account" means the capital account maintained for each
Partner pursuant to Section 3.6.
"Capital Contribution" means the amount of investment in the
Partnership whether in cash, cash equivalents or other property that a
Partner contributes to the Partnership, minus any amounts returned pursuant
to Section 3.8. In the case of Units, the term "Capital Contribution" shall
always mean $100 per Unit, minus any amounts returned pursuant to Section
3.8.
"Cash From Operations" means the cash funds provided from the
Partnership's operations, without deduction for depreciation, but after
deducting cash funds used to pay all other expenses, debt payments, amounts
placed in Reserves (net of any amounts released from Reserves because the
need for such Reserves has ceased), capital improvements, replacements and
liabilities (other than cash funds withdrawn from Reserves), including
without limitation all fees, reimbursements and other expenses paid to the
General Partner, its Affiliates or any other Person. "Cash From Operations"
does not include Cash From Sales.
"Cash From Sales" means the cash received by the Partnership as a
result of a Sale or refinancing, reduced by: (i) all debts and liabilities
of the Partnership required to be paid as a result of the Sale, whether or
not then payable (including any liabilities on an item of Equipment sold that
are not assumed by the buyer and any remarketing fees required to be paid to
Persons who are not Affiliates of the General Partner) and (ii) any amounts
set aside as Reserves to the extent deemed reasonable by the General Partner.
If the Partnership takes back a promissory note or other evidence of
indebtedness in connection with any Sale, the amount of such obligations
shall not be included in Cash From Sales and all payments subsequently
received in cash by the Partnership with respect to such note or other
evidence of indebtedness shall be included in Cash From Sales only upon
receipt, irrespective of the treatment of such payments by the Partnership
for tax or accounting purposes. If the Partnership has the right to retain
insurance proceeds in connection with the damage or loss of Equipment, such
proceeds shall be treated as Cash From Sales.
"Certificate" means the certificate of limited partnership for the
Partnership, as amended, restated or otherwise modified from time to time.
"Class A Limited Partners" means those Limited Partners designated
as Class A Limited Partners from time to time on the books and records of the
Partnership (in their capacities as Limited Partners).
"Class B Interest" means the Partnership Interest received by the
Class B Limited Partner in exchange for its Capital Contribution.
"Class B Limited Partner(s)" means initially Capital Associates
International, Inc. and any successor Class B Limited Partner(s) designated
as such on the books and records of the Partnership.
"Class B Majority" means Class B Limited Partners who (in their
capacities as Class B Limited Partners), at any time, have aggregate Adjusted
Capital Contributions representing more than 50.0% of the total aggregate
Adjusted Capital Contributions of all Class B Limited Partners (in their
capacities as Class B Limited Partners) at such time.
"Class B Subordinated Distributions" means cash distributions
payable to the Class B Limited Partner(s) out of Distributable Cash in an
annualized, subordinated amount equal to 10.5% for the two-year period
beginning with the date of the Prospectus, provided that after the
termination of such period the General Partner, at its sole discretion, may
reset such percentage to 11.0% for the succeeding two-year period, and/or may
reset such percentage to 12.0% for the remaining term of the Partnership
after the date four years from the date of the Prospectus of the Class B
Limited Partner's Capital Contributions.
"Closing" means the sale of Units in an amount equal to at least
the Minimum Offering and the delivery of subscribed funds held in escrow by
the Escrow Agent to the Partnership.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, and any successor law.
"Commission" means the Securities and Exchange Commission.
"Consent" means, as the context may require, the: (i) consent
given by a vote at a meeting called and held in accordance with the
provisions of Section 11.1; (ii) prior written consent of a Person to do the
act or thing for which the consent is solicited; or (iii) act of granting
such consent.
"Controlling Person" means any person, regardless of title, who:
(i) performs executive or senior management functions for the General Partner
or its Affiliates similar to those of executive management or senior
management; (ii) is a director of the General Partner or its Affiliates;
(iii) holds a 5.0% or more equity interest in the General Partner or its
Affiliates; or (iv) has the power to direct or cause the direction of a
General Partner or Affiliates through ownership of voting securities, by
contract or otherwise.
"Cost" means the reasonable, necessary and actual expenses incurred
by the General Partner or its Affiliates, as determined in accordance with
generally accepted accounting principles, in holding title to Equipment on a
temporary or interim basis.
"Dealer-Manager" means CAI Securities Corporation, a California
corporation, and any successor entity.
"Dealer-Manager Agreement" means the Dealer-Manager Agreement among
the Partnership, the General Partner and the Dealer-Manager.
"Dealer-Manager Fee" means the fee payable to the Dealer-Manager by
the Partnership pursuant to Section 5.4(a)(i)(B).
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del. C. 17-101, et seq., as amended and in effect from
time to time, and any successor to such Act.
"Distributable Cash" means Cash From Operations and Cash From Sales
available to the Partnership during the Period for which distributions to
Partners by the Partnership are to be made.
"Due Diligence Reimbursement" means the bona fide due diligence
fees and expenses payable by the Partnership to Selling Dealers, in an amount
equal to the lesser of: (i) 0.5% of Gross Offering Proceeds; (ii) the
maximum amount allowable under the NASD Rules of Fair Practice.
"Equipment" means any new, used or reconditioned equipment and
related tangible property acquired by the Partnership and any equity interest
of the Partnership therein, whether directly or indirectly through a nominee,
joint venture or otherwise.
"Equipment Purchase Price" means the price paid upon the purchase
or sale of a particular item of Equipment, including the amount of
Acquisition Fees and all liens and mortgages on the Equipment, but excluding
points and prepaid interest.
"Equipment Sale Commission" means the brokerage fee paid for
services rendered in connection with the purchase or sale of Equipment which
is reasonable, customary and competitive in light of the size, type and
location of the Equipment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agent" means Bank One, Denver, N.A., a national banking
association (or another banking institution named by the General Partner in
the event Bank One, Denver, N.A. is unable to serve as escrow agent).
"Evaluation Fee" means the fee paid by the Partnership to the
General Partner pursuant to Section 5.4(a)(iii)(B).
"Fees" means all amounts payable by the Partnership to the General
Partner or its Affiliates in connection with the operations of the
Partnership, including the Evaluation Fee, the Origination Fee, O&O Expenses
Reimbursement, Sales Commissions and Management Fee.
"First Basic Rent Date" means, with respect to any Lease, the date
upon which the first periodic rent payment is due, following installation of
all of the Equipment under the Lease.
"First Cash Distributions" means cash distributions, payable to the
Class A Limited Partners out of Distributable Cash in an annualized,
cumulative preferred amount equal to 10.5% for the two-year period beginning
with the date of the Prospectus, provided that after the termination of such
period the General Partner, at its sole discretion, may reset such percentage
to 11.0% for the succeeding two-year period, and/or may reset such percentage
to 12.0% for the remaining term of the Partnership after the date four years
from the date of the Prospectus (based upon a year of 360 days with 12 months
of 30 days each), of the Class A Limited Partners' Capital Contributions.
"Front-End Fees" means the fees and expenses paid by any party for
any services rendered during the Partnership's organizational or acquisition
phases, including without limitation Leasing Fees, Acquisition Expenses,
Acquisition Fees and Organizational and Offering Expenses, including Sales
Commissions, Dealer-Manager Fees, O&O Expenses Reimbursement, Due Diligence
Reimbursement and any other similar fees, however designated (including fees
paid with respect to Equipment purchased with Reinvested Proceeds).
Front-End Fees shall not include any Acquisition Fees or Acquisition Expenses
paid by a manufacturer or vendor of Equipment to any of its employees or
contractors unless such Persons are Affiliates of the Sponsor.
"Full Payout Lease" means a Lease under which the non-cancelable
rental payments due during the initial term of the Lease are sufficient to
permit the Partnership to recover the Equipment Purchase Price of the
Equipment leased thereby.
"General Partner" means CAI Equipment Leasing IV Corp. and any
additional or successor general partner admitted to the Partnership pursuant
to Article Six.
"Gross Offering Proceeds" means the aggregate Capital Contributions
of all Class A Limited Partners admitted to the Partnership.
"Gross Rentals" means the gross dollar amount received by the
Partnership as rental payments for the use of any Equipment subject to a
Lease.
"Health Emergency" means a situation in which a Class A Limited
Partner or his or her spouse or child dies or is confined to a hospital for a
period of 90 or more consecutive days, or to a nursing home or other
long-term care facility for a period of 30 or more consecutive days.
"Initial Lease" means the first Lease to which an item of Equipment
is subject immediately following the acquisition of such Equipment by the
Partnership, including Equipment purchased with Net Offering Proceeds as well
as Reinvested Proceeds. The term "Initial Lease" includes the Lease to which
an item of Equipment is subject on the date the Partnership acquires such
item of Equipment.
"Investment in Equipment" means the amount of Gross Offering
Proceeds actually paid or allocated to the purchase, manufacture or
renovation of Equipment acquired by the Partnership, including the purchase
of Equipment, Reserves allocable thereto (except that Reserves in excess of
3.0% shall not be included) and other cash payments such as interest and
taxes but excluding Front-End Fees.
"IRA" means an Individual Retirement Account.
"IRS" means the Internal Revenue Service.
"Lease" means a Full Payout Lease or an Operating Lease, and
includes all Initial Leases and Subsequent Leases, as well as an executed
binding lease agreement pursuant to which either the Partnership or the
General Partner or any of its Affiliates is the lessor, regardless of whether
the lease term has commenced as of the subject date or is to commence in the
future, which agreement is assignable by the General Partner or such
Affiliate to the Partnership, provided, however, that such agreement shall be
held by the General Partner or Affiliate on a temporary or interim basis,
generally not longer than six months after the acquisition of the Equipment
subject to the agreement by the General Partner or Affiliate.
"Leasing Fee" means the total of all fees and commissions paid by
any party in connection with the initial lease of Equipment acquired by the
Partnership.
"Lessee" means the lessee under a Lease.
"Limited Partner" means any Class A Limited Partner or the Class B
Limited Partner.
"Liquidation Period" means the period beginning on the first day
after the end of the Reinvestment Period, and ending on the date on which the
Partnership is finally liquidated.
"Liquidation Proceeds" means all cash (from whatever source)
available for distribution to the Partners upon liquidation of the
Partnership.
"Majority Interest" means the holders of more than 50.0% of the
aggregate outstanding Units; provided, however, that, in the case of any
matter to be voted on in which the General Partner or its Affiliates has an
interest, the Units held by the General Partner and its Affiliates shall not
be treated as outstanding for this purpose.
"Management of Equipment" means providing the personnel and
services necessary to the leasing activities of the Partnership, including
but not limited to, leasing and re-leasing of Partnership Equipment,
arranging for necessary maintenance and repair of the Equipment, collecting
revenues, paying operating expenses, determining that the Equipment is used
in accordance with all operative contractual arrangements and providing
clerical and bookkeeping services necessary to the operation of the
Partnership Equipment pursuant to Section 5.2.
"Management Fee" means the fee payable to the General Partner
pursuant to Section 5.4(a)(iv).
"Maximum Offering" means the sale of 500,000 Units by the
Partnership.
"Minimum Gain" means the Partnership minimum gain determined
pursuant to Temp. Reg. 1.704-1T(b)(4)(iv).
"Minimum Offering" means the sale of 12,000 Units by the
Partnership.
"NASAA Guidelines" means the Statement of Policy Regarding
Equipment Programs adopted on November 20, 1986, effective January 1, 1987,
as amended on April 22, 1988 and October 24, 1991, by the North American
Securities Administrators Association, Inc.
"Net Capital Contributions" means the Capital Contributions of the
Class A Limited Partners, reduced by the Sales Commissions, Dealer-Manager
Fee and O&O Expenses Reimbursement allocated to the Limited Partners under
Section 4.3(f) (excluding any of these items that are amortizable under Code
Section 709).
"Net Offering Proceeds" means the Gross Offering Proceeds minus
Sales Commissions, Dealer-Manager Fee, O&O Expenses Reimbursement and initial
Reserves in the amount of 1.0% of Gross Offering Proceeds.
"Notice" means a writing containing the information required by
this Agreement to be communicated to any Person, personally delivered to such
Person, sent by courier service and receipted for or sent by registered or
certified mail, postage prepaid, to such Person at the last known address of
such Person.
"170% Recovery" means the time at which the cumulative amount of
Distributable Cash distributed to the Limited Partners (as a class) (taking
into account all prior and concurrent distributions of Distributable Cash to
the Limited Partners (as a class) under Section 4.1(a)(i) and (ii)) equals
170% of the Capital Contributions of the Limited Partners (as a class).
"O&O Expenses Reimbursement" means a non-accountable payment by the
Partnership to the General Partner pursuant to Section 5.4(a)(ii).
"Offering" means the offering of Units contemplated by this
Agreement.
"Operating Lease" means a Lease under which the non-cancelable
rental payments due during the initial term of the Lease are not sufficient
to permit the Partnership to recover the Equipment Purchase Price of the
Equipment leased thereby.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership) acceptable to the General Partner.
"Organizational and Offering Expenses" means expenses incurred in
connection with preparing the Partnership for registration and subsequently
offering and distributing it to the public, including sales commissions paid
to broker-dealers in connection with the distribution of Units and all
advertising expenses except advertising expenses related to the leasing of
the Partnership's Equipment.
"Origination Fee" means the fee paid by the Partnership to the
General Partner pursuant to Section 5.4(a)(iii)(A).
"Partner" means a General Partner or a Limited Partner.
"Partnership Interest" means the interest of a Partner in the
Partnership, whether held by such Partner or an immediate or subsequent
Assignee thereof, including without limitation such Partner's right to: (i)
receive a distributive share of the Profits or Losses and distributions of
cash and/or other Partnership property; (ii) receive a distributive share of
the Partnership's assets; and (iii) if a General Partner, participate in the
management of the business and affairs of the Partnership.
"Payout" means the time(s) when the aggregate amount of
distributions actually paid to the Limited Partners (as a class) from
Distributable Cash and Liquidation Proceeds, if any, during the period
subsequent to the Termination Date (taking into account all prior and
concurrent distributions of Distributable Cash to the Limited Partners (as a
class) under Section 4.1(a)(i) and (ii) received from the Partnership during
the period subsequent to the Termination Date and excluding allocations for
bookkeeping purposes not actually paid) equals the amount of the Limited
Partners' aggregate Capital Contributions plus their Preferred Return as of
the date of determination.
"Period" means a time period less than or equal to a Quarter.
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other legal entity.
"Preferred Return" means a 10.0% annual, cumulative return,
compounded daily (from whatever sources), on the Limited Partners' Adjusted
Capital Contributions, calculated from the Termination Date.
"Profits" or "Losses" means profits or losses, as the case may be,
of the Partnership as determined for federal income tax purposes, and items
of income, gain, loss, deduction or credit entering into the computation
thereof; provided that if, in keeping with the provisions of Treas. Reg.
1.704-1(b) and Temp. Reg. 1.704-1T(b)(4)(iv), any asset of the Partnership is
accounted for on the Partnership books and in the Capital Accounts of the
Partners at an amount other than its adjusted basis for tax purposes, then,
for purposes of accounting for such items on the Partnership books and in the
Capital Accounts of the Partners, items of income, gain, loss, deduction or
credit shall be calculated based upon the carrying value of the asset on the
Partnership books; and provided further that, in determining Profits or
Losses for any Year, any items of income, gain, loss or deduction specially
allocated under any of the provisions of Sections 4.4 and 4.6 for such Year
shall not be taken into account.
"Program" means a limited or general partnership, joint venture,
unincorporated association or similar organization, other than a corporation,
formed and operated for the primary purpose of investment in and the
operation of or gain from an interest in equipment.
"Prospectus" means the prospectus on file with the Commission at
the time the registration statement on Form S-1 (File No. 33-71646) becomes
effective (including alternative versions of the prospectus prepared for and
disseminated in different jurisdictions in order to accommodate state
securities considerations). If the prospectus filed on behalf of the
Partnership pursuant to Rule 424 of the rules and regulations of the
Commission under the Securities Act differs from the prospectus on file at
the time the registration statement becomes effective, or if the prospectus
is thereafter amended or supplemented pursuant to such Rule 424, the term
"Prospectus" shall refer to the Prospectus filed pursuant to such Rule 424
from and after the date on which it shall have been so filed or mailed to the
Commission for filing.
"Qualified Plan" means any qualified pension, profit-sharing or
stock bonus plan.
"Quarter" means the three-calendar-month period commencing on the
first day of each Year (or such shorter period ending on the last day of the
Year), and each additional three-calendar-month period included within each
Year (or such shorter period ending on the last day of a Year).
"Record Date" means the date established by the General Partner for
determining the identity of: (i) Class A Limited Partners entitled to
receive notice of or vote at any meeting of Class A Limited Partners or
entitled to vote by ballot or give approval of Partnership action in writing
without a meeting; or (ii) Partners entitled to receive any notice, report or
distribution of Liquidation Proceeds or, with respect to distributions of
Distributable Cash, the first business day in New York, New York after the
end of the Period with respect to which such distributions shall be made.
"Record Holder" means the Limited Partner or Assignee in whose name
a Unit or the Class B Interest, as the case may be, or interest therein is
registered on the books of the Partnership, as of the close of business on a
Record Date.
"Reimbursable Organizational and Offering Expenses" means those
expenses incurred in connection with or related to the formation and
qualification of the Partnership or a nominee thereof, the registration and
qualification of the Units under applicable federal and state laws and the
marketing, distribution, sale and processing of the Units, including without
limitation the following: (i) legal fees and disbursements and accounting
costs for the Partnership, the General Partner and the Dealer-Manager,
printing costs and the costs of delivering, mailing or shipping Prospectuses
(including any amendments or supplements thereto) and related sales material;
(ii) the costs of preparing, printing, filing and delivering a registration
statement with respect to the Units (including any amendments or supplements
thereto), a "Blue Sky Survey" and all underwriting and sales agreements;
(iii) the cost of preparing and printing this Agreement, other solicitation
material and related documents and the cost of filing and recording such
certificates or other documents as are necessary to comply with the laws of
the State of Delaware for the formation of a limited partnership and
thereafter for the continued good standing of a limited partnership; (iv) the
cost of any escrow arrangements, including any compensation to the Escrow
Agent; and (v) filing fees payable to the Commission, to state securities
commissions and to the National Association of Securities Dealers, Inc., but
excluding Front-End Fees.
"Reinvested Proceeds" means any Distributable Cash remaining after
First Cash Distributions and Class B Subordinated Distributions and required
distributions to the General Partner, pursuant to Section 4.1, and used to
purchase Equipment during the Reinvestment Period.
"Reinvested Profits" means Profits, if any, for each Year (or
Period) in excess of the aggregate Profits described in Section 4.2(a)(i) and
(ii).
"Reinvestment Period" means the period from the Closing Date until
the end of the Quarter during which the date that is six years from the
Closing Date occurs.
"Removal Effective Date" means the effective date of removal of a
General Partner as provided herein or as otherwise agreed between the removed
General Partner and any successor General Partner(s).
"Reserves" means amounts allocated to reserves maintained for
working capital of the Partnership and contingencies, as provided in Section
5.2(d).
"Residual Value" means the net amount realized upon the Sale of
Equipment.
"Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation either directly or indirectly of the Partnership
and the issuance of securities of a Roll-Up Entity. Such term does not
include:
(a) a transaction involving Partnership securities
that have been for at least 12 months listed on a national
securities exchange or traded through the National
Association of Securities Dealers Automated Quotation
National Market System; or
(b) a transaction involving the conversion to
corporate, trust or association form of only the Partnership
if, as a consequence of the transaction, there will be no
significant adverse change in any of the following:
(i) Limited Partner voting rights;
(ii) the term of existence of the Partnership;
(iii) General Partner compensation; or
(iv) the Partnership's investment objectives.
"Roll-Up Entity" means the partnership, corporation, trust, or
other entity that would be created or would survive after the successful
completion of a proposed Roll-Up transaction.
"Sale" means the sale, exchange, involuntary conversion, casualty
(other than a casualty followed by refurbishing or replacement), condemnation
or other disposition of assets by the Partnership.
"Sales Commission" means the fee payable to the unaffiliated
broker-dealers selling the Units by the Partnership pursuant to Section
5.4(a)(i)(A).
"Schedule A" means the schedule of the General and Class B Limited
Partners' names and addresses.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any Person who shall manage
or participate in the management of the Partnership, and any Affiliate of any
such Person. Sponsor does not include a Person whose only relation with the
Partnership is that of an independent equipment manager and whose only
compensation is as such. Sponsor does not include wholly independent third
parties such as attorneys, accountants and broker-dealers whose only
compensation is for professional services rendered in connection with the
offering of Partnership interests.
"Subscription Agreement" means the Subscription Agreement included
as Exhibit C to the Prospectus.
"Subsequent Lease" means any Lease that commences after the
termination, or constitutes an extension, renewal or re-lease, of an Initial
Lease.
"Tax Counsel" means Ballard Spahr Andrews & Ingersoll, or other
recognized tax counsel engaged by the General Partner.
"Tax Distributions" means amounts distributed to the Partners to
provide Partners with amounts to pay federal income taxes (assuming such
Partners are taxed in the 31.0% bracket) with respect to gains from Sales,
but only to the extent that such taxes exceed the amounts distributed
pursuant to Section 4.1(a)(i)(A) and (B).
"Temp. Reg." means temporary regulations issued by the U.S.
Treasury Department pursuant to the Code, including any subsequent amendments
thereto, or any regulations subsequently issued in lieu thereof.
"Termination Date" means the earliest of: (i) the date on which
the Maximum Offering has been sold; (ii) the date 12 months from the date of
the Prospectus if the Minimum Offering has not been sold; (iii) the date 24
months from the date of the Prospectus; and (iv) the date of the termination
of the Offering by the General Partner.
"Treas. Reg." means final regulations issued by the U.S. Treasury
Department pursuant to the Code, including any subsequent amendments thereto,
or any regulations subsequently issued in lieu thereof.
"Triple Net Lease" means a Lease under which the Lessee assumes
responsibility for, and bears the cost of, insurance, taxes, maintenance,
repair and operation of the leased asset and under which the non-cancelable
rental payments pursuant to such Lease are net to the Partnership.
"Unit" means a unit of limited partnership interest in the
Partnership held by a Class A Limited Partner, representing an initial
Capital Contribution of $100.
"Unrecovered Capital Contribution" means, with respect to a Unit,
the excess of (i) the Net Capital Contribution allocable to the Unit over
(ii) the distributions from any source paid by the Partnership with respect
to such Unit.
"Upgrade" means Equipment that is designed to be added or connected
to existing Equipment in order to enhance the function and performance of
such Equipment.
"Voluntary Withdrawal" means the withdrawal of the General Partner
pursuant to subsections (1), (6), (7), (8), (9) or (10) of Section 17-402 of
the Delaware Act.
"Withdrawal" means those events of withdrawal provided for by
Section 17-402 of the Delaware Act, except for subsections (4) and (5) of
Section 17-402 of the Delaware Act.
"Year" means the Partnership's annual accounting period for
financial accounting and federal income tax purposes, which ends on December
31.
ARTICLE TWO
CONTINUATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
SECTION 2.1 Continuation of Partnership.
The parties hereto hereby enter into and continue the Partnership
pursuant to the provisions of the Delaware Act, and such other provisions of
applicable law as shall pertain to limited partnerships organized pursuant to
the Delaware Act.
SECTION 2.2 Name, Principal Office and Name and Address of
Registered Agent for Service of Process.
The Partnership shall continue to be conducted under the name
"Capital Preferred Yield Fund - III, L.P." The principal place of business
and office of the Partnership shall be 7175 West Jefferson Avenue, Suite
3000, Lakewood, Colorado 80235. The registered office of the Partnership in
the State of Delaware shall be 1209 Orange Street, Corporation Trust Center,
Wilmington, Delaware 19801. The registered agent of the Partnership for
service of process at such address shall be The Corporation Trust Company.
SECTION 2.3 Purpose.
The Partnership is organized for the object and purpose of: (i)
acquiring, upgrading, purchasing, exchanging, leasing, assigning, owning,
modifying, financing, borrowing, maintaining, operating, improving, selling,
creating security interests in, pledging, reinvesting in, transferring or
otherwise disposing of Equipment and other personal property of all kinds, in
any part of the world; and (ii) establishing, acquiring, conducting and
carrying on any business or businesses suitable, necessary, useful or
convenient in connection therewith.
SECTION 2.4 Term.
The Partnership shall continue in full force and effect until
December 31, 2005, unless dissolved prior thereto pursuant to this Agreement
or by law.
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.1 General Partner.
The address of the General Partner is 7175 West Jefferson Avenue,
Suite 3000, Lakewood, Colorado 80235. Its Capital Contribution from time to
time shall be the amount reflected in the books and records of the
Partnership. The General Partner shall not be required to make any
additional Capital Contributions to the Partnership, other than as provided
in Section 9.3.
SECTION 3.2 Original Limited Partner.
By his execution hereof, the Original Limited Partner hereby
withdraws as the Original Limited Partner and the parties hereto agree to the
return to him of his Capital Contribution.
SECTION 3.3 Class B Limited Partner.
The address of the Class B Limited Partner is 7175 West Jefferson
Avenue, Suite 3000, Lakewood, Colorado 80235. The Class B Limited Partner
agrees to contribute, from time to time on or immediately after each date on
which the Partnership acquires Equipment, cash as its Capital Contributions
to the Partnership in an aggregate amount equal to $10,000 for every
$1,000,000 in Gross Offering Proceeds received by the Partnership as of that
date; provided that, as of the Termination Date, the aggregate amount of the
cash shall equal 1.0% of Gross Offering Proceeds as of the Termination Date.
The Class B Limited Partner's Capital Contribution from time to time shall be
the amount reflected in the books and records of the Partnership. The Class
B Limited Partner shall not be required to make any other Capital
Contributions to the Partnership. The Class B Limited Partner shall not
purchase any Units.
SECTION 3.4 Class A Limited Partners.
(a) The General Partner is authorized to admit Class A Limited
Partners to the Partnership from time to time by selling not more than the
Maximum Offering, provided that no Class A Limited Partners shall be admitted
to the Partnership until acceptable subscriptions for the Minimum Offering
have been received.
(b) The minimum investment of each Class A Limited Partner shall
be 25 Units (10 Units for IRAs and Qualified Plans) representing a Capital
Contribution of $2,500 ($1,000 for IRAs and Qualified Plans). Such Capital
Contribution shall be made in full in cash. Aggregate purchases of Units by
the General Partner, the Dealer-Manager, their respective Affiliates and
employees of any of them must be less than 5.0% of total Units sold.
(c) The names and addresses of the Class A Limited
Partners admitted as provided herein, and their Capital Contributions from
time to time, shall be as reflected in the books and records of the
Partnership. The Partnership shall not be required to recognize any Class A
Limited Partner as a nominee, agent or representative of any beneficial
owner, but shall treat all Class A Limited Partners as the beneficial owners
of their respective Units.
(d) The offering of Units for sale shall terminate on the
Termination Date.
(e) All funds in respect of Units for which subscriptions have
been received prior to the Closing Date shall be deposited in an
interest-bearing escrow account with the Escrow Agent. Subscriptions for
Units shall be accepted or rejected by the General Partner within 30 days
after their receipt. The General Partner retains the unconditional right to
refuse to accept any subscriber as a Class A Limited Partner, in which event
the funds delivered by such subscriber shall be promptly returned to the
subscriber without deduction. Upon receipt of subscriptions acceptable to
the General Partner for not less than the Minimum Offering prior to the
Termination Date and the determination of the General Partner to proceed to
Closing, the Closing Date shall be set by the General Partner, and the Escrow
Agent shall release such subscription funds to the Partnership at the
Closing. Before commencing business, the Partnership shall have received
gross proceeds from the offering of not less than $1,000,000 after payment of
all Organizational and Offering Expenses. Any interest earned on monies paid
by each subscriber during the period that such monies are held in escrow
prior to the Closing shall be paid to each such subscriber following release
of subscription funds. If the Escrow Agent does not receive acceptable
subscriptions for at least the Minimum Offering on or before the Termination
Date, the Escrow Agent shall return all monies deposited by subscribers,
together with any interest earned thereon. Subject to Section 3.4(b), the
General Partner and its Affiliates shall have the right to subscribe for
Units for their own accounts, but any such subscriptions shall not be
included for purposes of determining whether the Minimum Offering has been
achieved.
After the Closing Date, additional subscribers whose subscriptions
are acceptable to the General Partner shall be admitted to the Partnership as
Class A Limited Partners at such times as the General Partner shall
determine.
(f) To accomplish the purpose of this Section 3.4, the General
Partner is hereby authorized to do all things necessary to admit such Class A
Limited Partners, including without limitation registering the Units under
the Securities Act, qualifying the Units for sale with state securities
regulatory authorities or perfecting exemptions from qualification and
entering into underwriting or selling arrangements with the Dealer-Manager
for the solicitation of the Units, upon such terms and conditions as the
General Partner may deem advisable.
(g) Each subscriber whose subscription is acceptable to the
General Partner as contemplated by Section 3.4(e) shall become a Class A
Limited Partner as of the Closing Date or, in the case of subscriptions
accepted after the Closing Date, such later date as the General Partner shall
determine. Any subscriber shall be admitted to the Partnership within 15
days after release of his funds from escrow to the Partnership. Any Partner
whose subscription is accepted by the General Partner after the Closing Date
shall be admitted to the Partnership not later than the last day of the
calendar month following the date their subscription was accepted by the
General Partner.
SECTION 3.5 Partnership Capital.
(a) No Partner shall be paid interest on any Capital
Contribution.
(b) Except as otherwise provided in this Agreement, the
Partnership shall not redeem or repurchase any Unit, no Partner shall have
the right to withdraw, or receive any return of, his Capital Contribution and
no Capital Contribution may be returned in the form of property other than
cash.
(c) No Class A Limited Partner shall have priority over any other
Class A Limited Partner, either as to the return of his Capital Contribution
or as to Profits or Losses or distributions, except as otherwise specifically
provided herein.
(d) The General Partner shall have no personal liability for the
repayment of the Capital Contribution of any Limited Partner.
(e) A creditor who makes a nonrecourse loan to the Partnership
shall not have or acquire at any time, solely as a result of making the loan,
any direct or indirect interest in the profits, capital or property of the
Partnership, other than as a creditor or secured creditor, as the case may
be.
SECTION 3.6 Capital Accounts.
(a) The Partnership shall maintain a separate Capital Account for
each Partner according to the rules of Treas. Reg. 1.704-1(b)(2)(iv). For
this purpose, the Partnership shall, upon the occurrence of the events
specified in Treas. Reg. 1.704-1(b)(2)(iv)(d) and (f), increase or decrease
the Capital Accounts in accordance with the rules of such regulation and
Treas. Reg. 1.704-1(b)(2)(iv)(g) to reflect a revaluation of Partnership
property; provided, however, that the admission of an additional subscriber
to the Partnership as a Class A Limited Partner in accordance with Section
3.4(e) shall not be treated, for purposes of this Agreement, as an event
specified in Treas. Reg. 1.704-1(b)(2)(iv)(d) or (f).
(b) For purposes of computing the amount of any item of
Partnership income, gain, loss or deduction to be allocated pursuant to
Article Four, the determination, recognition and classification of any such
item shall be the same as its determination, recognition and classification
for federal income tax purposes (including any method of depreciation, cost
recovery or amortization used for this purpose); provided that:
(i) the computation of all items of income, gain,
loss and deduction shall include those items described in
Code 705(a)(1)(B) or Treas. Reg. 1.704-1(b)(2)(iv)(i),
without regard to the fact that such items are not
includable in gross income or are not deductible for federal
income tax purposes;
(ii) if the Book Value of any Partnership property
is adjusted pursuant to Treas. Reg. 1.704-1(b)(2)(iv)(d),
(e) or (f), the amount of such adjustment shall be taken
into account as gain or loss from the disposition of such
property;
(iii) items of income, gain, loss or deduction
attributable to the disposition of Partnership property
having a Book Value that differs from its adjusted basis for
tax purposes shall be computed by reference to the
property's Book Value in accordance with Treas. Reg. 1.704-
1(b)(2)(iv)(g);
(iv) items of depreciation, amortization and other
cost recovery deductions with respect to Partnership
property having a Book Value that differs from its adjusted
basis for federal income tax purposes shall be computed by
reference to the property's Book Value in accordance with
Treas. Reg. 1.704-1(b)(2)(iv)(g); and
(v) to the extent an adjustment to the adjusted
tax basis of any Partnership asset pursuant to Code
732(d), 734(b) or 743(b) is required, pursuant to Treas.
Reg. 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases such basis).
(c) Profit or Loss shall be charged or credited to the Capital
Accounts in accordance with the manner in which such items are allocated
pursuant to Article Four, taking into account the special allocations of
Sections 4.4 and 4.6.
(d) Upon the transfer of all or any portion of a Unit, Class B
Interest or a General Partner Partnership Interest, the portion of the
Capital Account of the transferor that is attributable to the transferred
Unit, Class B Interest or General Partner Partnership Interest shall carry
over to the transferee. However, if the transfer causes a termination of the
Partnership under Code 708(b)(1)(B), the Capital Account that carries over to
the transferee shall be adjusted in accordance with the constructive
liquidation and reconstitution rules under Treas. Reg. 1.708-1.
SECTION 3.7 Loans By Partners.
Loans by Partners to the Partnership shall not be considered
Capital Contributions. If any Partner advances funds to the Partnership in
excess of his Capital Contribution, such advances shall not increase the
Capital Account balance of such Partner. The amount of any such advances
shall be a debt of the Partnership to such Partner and shall be payable or
collectible only out of Partnership assets in accordance with the terms and
conditions upon which such advances are made.
SECTION 3.8 Return of Capital.
Without any deductions for sales commissions and other Front-End
Fees payable to any Person, any portion of the Class A Limited Partners'
Capital Contributions received by the Partnership within 12 months after the
date of the Prospectus (except for any amounts set aside for Reserves) and
not invested in or committed to the purchase of Equipment within 24 months
after the date of the Prospectus, and any portion of the Class A Limited
Partners' Capital Contributions received by the Partnership after 12 months
after the date of the Prospectus and not invested in or committed to the
purchase of Equipment within 12 months after the Termination Date, shall be
distributed pro rata to all Class A Limited Partners (in proportion to their
Capital Contributions) as a return of capital. Any funds with respect to
which the Partnership has executed, within the applicable period described in
the preceding sentence, a written agreement in principle, commitment letter,
letter of intent or understanding, option agreement or other similar
understanding or contract contemplating the acquisition by the Partnership of
Equipment, shall be deemed committed to investment on that date for purposes
hereof but shall subsequently be required to be returned to the Class A
Limited Partners if the investment of such funds is not consummated or the
contingent payments are not made.
SECTION 3.9 Liability of Limited Partners.
The liability of each Limited Partner for the losses, debts,
liabilities and obligations of the Partnership shall, so long as such Limited
Partner complies with the provisions of Section 11.3, be limited to his
Capital Contribution and his share of the assets and any undistributed
Profits of the Partnership. No Limited Partner shall be required to lend
funds to the Partnership or, after his Capital Contribution has been
paid, make any further capital or other contribution to the Partnership. It
is the intent of the Partners that no distribution (or any part of any
distribution) made to any Limited Partner pursuant to Article Four shall be
deemed, for the purposes of the Delaware Act only, a return or withdrawal of
capital, even if such distribution represents, in full or in part, an
allocation of depreciation or any other non-cash item accounted for as a loss
or deduction from or offset to the Partnership's income, and that no Limited
Partner shall be obligated to pay any such amount to or for the account of
the Partnership or any creditor of the Partnership. If any court of
competent jurisdiction holds, however, that, notwithstanding the provisions
of this Agreement, any Limited Partner is obligated to make any such payment,
such obligation shall be the obligation of such Limited Partner and not of
the General Partner.
SECTION 3.10 Investment in Equipment.
The General Partner shall cause Investment in Equipment to be at
least an amount that is the greater of (a) 80.0% of Gross Offering Proceeds
reduced by .0625% for each 1.0% of indebtedness encumbering Partnership
Equipment, or (b) 75.0% of Gross Offering Proceeds. The percentage of
indebtedness encumbering Partnership Equipment shall be calculated by
dividing the amount of indebtedness by the aggregate Equipment Purchase Price
of Partnership Equipment, excluding any Front-End Fees. The amount of
indebtedness encumbering Partnership Equipment shall be calculated as of the
date on which the level of Investment in Equipment is being tested, after
giving effect to any transaction occurring on such date that would affect the
level of Investment in Equipment. To the extent that such limitation is not
otherwise satisfied, any Acquisition Fees payable or paid to the General
Partner by the Partnership shall be reduced or refunded by the General
Partner to the Partnership to the extent necessary to comply with such
limitation. Any such refund shall bear interest calculated at a rate of 1.0%
per month if such refund is not made within 30 days after the end of any
calendar quarter in which the Partnership's Investment in Equipment fails to
satisfy such minimum investment.
ARTICLE FOUR
DISTRIBUTIONS AND ALLOCATIONS
SECTION 4.1 Distributions.
(a) Distributable Cash. Distributable Cash for each Period shall
be distributed to the Partners on the Payment Date (see Section 4.1(f) below)
in the order and priority set forth in Section 4.1(a)(i), (ii) and (iii).
(i) During the Reinvestment Period. During the
Reinvestment Period, Distributable Cash shall be distributed
or reinvested (as the case may be) in the following order
and priority:
(A) First, 1.0% to the General Partner and
99.0% to the Class A Limited Partners (as a class), on
a pari passu basis, until such time as the Class A
Limited Partners (as a class) receive an amount of
Distributable Cash equal to the First Cash
Distributions;
(B) Second, any remaining Distributable Cash
(after taking into account distributions described in
Section 4.1(a)(i)(A)) 1.0% to the General Partner and
99.0% to the Class B Limited Partners (as a class), on
a pari passu basis, until such time as the Class B
Limited Partners (as a class) receive an amount of
Distributable Cash equal to the Class B Subordinated
Distributions; and
(C) Third, all remaining Distributable Cash
(after taking into account distributions described in
Section 4.1(a)(i)(A) and (B)) shall be treated as
Reinvested Proceeds reinvested according to the
reinvestment guidelines set forth in Section 5.2(h).
Notwithstanding the foregoing, during the
Reinvestment Period, Distributable Cash, in excess of
amounts distributed pursuant to Section 4.1(a)(i)(A) and
(B), shall be distributed to the Partners as Tax
Distributions, if necessary to provide funds for payment of
income taxes on the sale of Equipment. Tax Distributions
shall be distributed 1.0% to the General Partner and 99.0%
to the Limited Partners (as a class), on a pari passu basis.
(ii) After the Reinvestment Period and Prior to
Achievement of Payout and 170% Recovery. After the
Reinvestment Period and until achievement by the Limited
Partners of Payout and 170% Recovery, Distributable Cash for
each Period shall be distributed in the following order and
priority:
(A) First, 1.0% to the General Partner and
99.0% to the Class A Limited Partners (as a class), on
a pari passu basis, until such time as the Class A
Limited Partners (as a class) receive an amount of
Distributable Cash equal to the First Cash
Distributions;
(B) Second, any remaining Distributable Cash
(after taking into account distributions described in
Section 4.1 (a)(ii)(A)) 1.0% to the General Partner and
99.0% to the Class B Limited Partners (as a class), on
a pari passu basis, until such time as the Class B
Limited Partners (as a class) receive an amount of
Distributable Cash equal to the Class B Subordinated
Distributions;
(C) Third, any remaining Distributable Cash
(after taking into account distributions described in
Section 4.1(a)(ii)(A) and (B)) 1.0% to the General
Partner and 99.0% to the Class A Limited Partners (as a
class), on a pari passu basis, until such time as the
Class A Limited Partners (as a class) achieve Payout;
(D) Fourth, any remaining Distributable Cash
(after taking into account distributions described in
Section 4.1(a)(ii)(A)-(C)) 1.0% to the General Partner
and 99.0% to the Class B Limited Partners (as a class),
on a pari passu basis, until such time as the Class B
Limited Partners (as a class) achieve Payout; and
(E) Fifth, any remaining Distributable Cash
(after taking into account distributions described in
Section 4.1(a)(ii)(A)-(D)) 1.0% to the General Partner
and 99.0% to the Limited Partners (as a class), on a
pari passu basis, until such time as the Limited
Partners (as a class) achieve 170% Recovery.
(iii) After the Reinvestment Period and After
Achievement of Payout and 170% Recovery. After the
Reinvestment Period and after achievement by the Limited
Partners of Payout and 170% Recovery, Distributable Cash for
each Period shall be distributed 10.0% to the General
Partners (as a class) and 90.0% to the Limited Partners (as
a class), on a pari passu basis.
Notwithstanding anything in Section 4.1(a)(ii) or
(iii) to the contrary, after the Reinvestment Period,
Distributable Cash available for distribution to the
Partners (after taking into account distributions described
in Section 4.1(a)(ii)(A) and (B)), shall be distributed to
the Partners, on a pari passu basis, to the extent of and in
proportion to the aggregate amount of Reinvested Profits
previously allocated to the General Partner and the Limited
Partners (as a class) pursuant to Section 4.2(a). All
distributions under this paragraph shall be applied toward
the distributions of Distributable Cash under Section
4.1(a)(ii)(C)-(E) and 4.1(a)(iii).
(b) Liquidation Proceeds. Liquidation Proceeds shall be
distributed to the Partners, on a pari passu basis, in proportion to the
positive balances in their Capital Accounts at the time of such distribution
as provided in Section 9.3(b).
(c) Sharing of Distributions to Partners.
(i) General Partners. All distributions of
Distributable Cash to the General Partners (as a class)
shall be shared by the General Partners, on a pari passu
basis, in proportion to their respective percentage General
Partner Partnership Interests as of the Record Date for the
distribution.
(ii) Class A Limited Partners. All distributions
of Distributable Cash to the Class A Limited Partners (as a
class) shall be shared by the Class A Limited Partners, on a
pari passu basis, in proportion to their respective holdings
of Units as of the Record Date for the distribution;
however, notwithstanding the foregoing, Distributable Cash
relating to Periods during which one or more Class A Limited
Partners are admitted to the Partnership shall be shared by
the Limited Partners pro rata based on the number of days
during such Period that each Class A Limited Partner is a
Partner of the Partnership and on the number of Units that
each Class A Limited Partner holds during such Period.
(iii) Class B Limited Partners. All distributions
of Distributable Cash to the Class B Limited Partners (as a
class) shall be shared by the Class B Limited Partners, on a
pari passu basis, in proportion to their respective
percentage Class B Interests as of the Record Date for the
distribution.
(iv) Limited Partners. All distributions of
Distributable Cash to the Limited Partners (as a class)
shall be shared 99.0% by the Class A Limited Partners (as a
class) and 1.0% by Class B Limited Partners (as a class), on
a pari passu basis.
(d) Determination of Distributees. All distributions pursuant to
Section 4.1 shall be made to the Persons shown on the Partnership's books and
records as Partners as of the Record Date for the distribution.
(e) Withholding. The General Partner may withhold from
distributions to any Partner any amount required to be withheld pursuant to
the Code or any other law, rule or regulation. Any amount so withheld shall
be treated as a distribution to the affected Partner.
(f) Payment Dates. Distributable Cash for each Period shall be
distributed not later than 30 days after the end of each such Period.
SECTION 4.2 Allocations of Profits and Losses.
(a) Profits. After first giving effect to the allocations, if
any, pursuant to Sections 4.3, 4.4 and 4.5, Profits for any Year shall be
allocated in the following order and priority:
(i) First, Profit shall be allocated to the
Partners in proportion to, and to the extent of, Losses
allocated to the Partners pursuant to Section 4.2(b) for all
prior Years, in reverse chronological order and priority (as
set forth in Section 4.2(b)). To the extent any allocations
of Losses are offset pursuant to this Section 4.2(a)(i),
such Losses shall be disregarded for purposes of computing
subsequent allocations as described in this Section
4.2(a)(i);
(ii) Second, any remaining Profit (after taking
into account allocations described in Section 4.2(a)(i))
1.0% to the General Partner and 99.0% to the Class A Limited
Partners (as a class), on a pari passu basis, until such
time as the General Partner and the Class A Limited Partners
(as a class) are allocated an amount of Profit for the Year
equal (when added to the Profit allocated to the General
Partner and the Class A Limited Partners (as a class) under
this Section 4.2(a)(ii) for all prior Years) to the
aggregate distributions of Distributable Cash made to them
under Section 4.1(a)(i)(A) and (a)(ii)(A) for the Year and
all prior Years;
(iii) Third, any remaining Profit (after taking
into account allocations described in Section 4.2(a)(i) and
(ii)) 1.0% to the General Partner and 99.0% to the Class B
Limited Partners (as a class), on a pari passu basis, until
such time as the General Partner and the Class B Limited
Partners (as a class) are allocated an amount of Profit for
the Year equal (when added to the Profit allocated to the
General Partner and Class B Limited Partners (as a class)
under this Section 4.2(a)(iii) for all prior Years) to the
aggregate distributions of Distributable Cash made to them
under Section 4.1(a)(i)(B) and (a)(ii)(B) for the Year and
all prior Years;
(iv) Fourth, any remaining Profit (after taking
into account allocations described in Section 4.2(a)(i)-
(iii)) 1.0% to the General Partner and 99.0% to the Class A
Limited Partners (as a class), on a pari passu basis, until
such time as the General Partner and the Class A Limited
Partners (as a class) are allocated an amount of Profit for
the Year equal (when added to the Profit allocated to the
General Partner and the Class A Limited Partners (as a
class) under this Section 4.2(a)(iv) for all prior Years) to
the aggregate distributions of Distributable Cash made to
them under Section 4.1(a)(ii)(C) for the Year and all prior
Years;
(v) Fifth, any remaining Profit (after taking
into account allocations described in Section 4.2(a)(i)-
(iv)) 1.0% to the General Partner and 99.0% to the Class B
Limited Partners (as a class), on a pari passu basis, until
such time as the General Partner and the Class B Limited
Partners (as a class) are allocated an amount of Profit for
the Year equal (when added to the Profit allocated to the
General Partner and the Class B Limited Partners (as a
class) under this Section 4.2(a)(v) for all prior Years) to
the aggregate distributions of Distributable Cash made to
them under Section 4.1(a)(ii)(D) for the Year and all prior
Years;
(vi) Sixth, any remaining Profit (after taking into
account allocations described in Section 4.2(a)(i)-(v)) 1.0%
to the General Partner and 99.0% to the Limited Partners (as
a class), on a pari passu basis, until such time as the
General Partner and the Limited Partners (as a class) are
allocated an amount of Profit for the Year equal (when added
to the Profit allocated to the General Partner and the
Limited Partners (as a class) under this Section 4.2(a)(vi)
for all prior Years) to the aggregate distributions of
Distributable Cash made to them under Section 4.1(a)(ii)(E)
for the Year and all prior Years; and
(vii) Seventh, any remaining Profit (after taking
into account allocations described in Section 4.2(a)(i)-
(vi)) 10.0% to the General Partner and 90.0% to the Limited
Partners (as a class).
Reinvested Profits shall be allocated in the same manner
described in Section 4.2(a)(iv)-(vii) as if the Reinvested Proceeds to which
such Reinvested Profits relate had actually been distributed to the Partners,
in such Year, as Distributable Cash in accordance with Section
4.1(a)(ii)(C)-(E) and Section 4.1(a)(iii). All allocations under this
paragraph shall be applied toward the allocations of Profit under Section
4.2(a)(iv)-(vii).
All allocations of Profit for each Year shall be made after
giving effect to all distributions of Distributable Cash made on or before
the date of such allocations.
All Profits relating to transactions resulting in Liquidation
Proceeds shall be allocated in the manner set forth in this Section 4.2(a) as
if the Liquidation Proceeds relating thereto constituted Distributable Cash
and had been previously distributed in the same manner described in Section
4.1(a)(ii) and (iii) as Distributable Cash.
(b) Losses. After giving effect to the allocations, if any,
described in Sections 4.3, 4.4 and 4.5, Losses for any Year shall be
allocated in the following order and priority:
(i) First, to the Partners in proportion to, and
to the extent of, any Profits allocated as described in
Section 4.2(a)(ii) for the Year and all prior Years, in
reverse chronological order and priority (as set forth in
Section 4.2(a)(ii)-(vii)). To the extent any allocations of
Profits are offset as described in this Section 4.2(b)(i),
such Profits shall be disregarded for purposes of computing
subsequent allocations as described in this Section
4.2(b)(i); and
(ii) Second, 1.0% to the General Partner and 99.0%
to the Limited Partners (as a class), on a pari passu basis.
(c) Sharing of Allocations to Partners.
(i) General Partners. All allocations of Profit
and Loss (including allocations under Sections 4.3, 4.4, 4.5
and 4.6) to the General Partners (as a class) shall be
shared by the General Partners, on a pari passu basis, in
proportion to their respective percentage General Partner
Partnership Interests as of the date of such allocations.
(ii) Class A Limited Partners. All allocations of
Profit and Loss (including allocations under Sections 4.3,
4.4, 4.5 and 4.6) to the Class A Limited Partners (as a
class) shall be shared by the Class A Limited Partners, on a
pari passu basis, in proportion to their respective holdings
of Units as of the date of such allocations; however,
notwithstanding the foregoing, Profit or Loss relating to
Periods during which one or more Class A Limited Partners
are admitted to the Partnership shall be shared by the
Limited Partners pro rata based on the number of days during
such Period that each Class A Limited Partner is a Partner
of the Partnership and on the number of Units that each
Class A Limited Partner holds during such Period.
(iii) Class B Limited Partners. All allocations of
Profit and Loss (including allocations under Sections 4.3,
4.4, 4.5 and 4.6) to the Class B Limited Partners (as a
class) shall be shared by the Class B Limited Partners, on a
pari passu basis, in proportion to their respective
percentage Class B Interests as of the date of such
allocations.
(iv) Limited Partners. All allocations of Profit
and Loss (including allocations under Sections 4.3, 4.4, 4.5
and 4.6) to the Limited Partners (as a class) shall be
shared 99.0% by the Class A Limited Partners (as a class)
and 1.0% by the Class B Limited Partners (as a class), on a
pari passu basis.
SECTION 4.3 Special Allocations.
(a) The interest of the General Partner in each material item of
Partnership income, gain, loss, deduction or credit shall in the aggregate be
equal to at least 1.0% of each such item at all times during the existence of
the Partnership. In determining the General Partner's interest in such
items, any Units owned by the General Partner or its Affiliates shall not be
taken into account.
(b) Losses allocated pursuant to Section 4.2(b) to any Partner for
any Year shall not exceed the maximum amount of Losses that can be so
allocated without causing or increasing an Adjusted Capital Account Deficit
with respect to such Partner as of the end of such Year. To the extent that
Losses allocated to a Limited Partner pursuant to Section 4.2(b) would, but
for this Section 4.3(b), exceed the limitation of the preceding sentence,
such Losses shall be allocated first to other Partners in proportion to, and
to the extent of, their positive Capital Account balances (computed with the
adjustments taken into account in determining a Partner's Adjusted Capital
Account Deficit, but disregarding the General Partner's obligation to make
contributions to the Partnership upon liquidation), and then to the General
Partner. The General Partner shall have the authority to allocate items of
income and gain for subsequent Years so as to offset, as quickly as possible,
any allocation of Losses under this Section 4.3(b).
(c) If there is a net decrease in the Partnership's Minimum Gain
for a Year, each Partner shall be allocated, before any other allocation of
Partnership items is made pursuant to this Agreement, items of Partnership
income and gain for the Year (and, if necessary, subsequent Years) in
proportion to, and to the extent of, an amount equal to the greater of:
(i) The portion of such Partner's share (as
determined under Temp. Reg. 1.704-1T(b)(4)(iv)(f)) of
the net decrease in Minimum Gain during such Year that
is allocable to the disposition of Partnership property
subject to one or more nonrecourse liabilities of the
Partnership; or
(ii) The Adjusted Capital Account Deficit of such
Partner at the end of such Year (determined before any
allocation of Partnership income, gain, loss, deduction
or Code 705(a)(2)(B) expenditure for such Year).
The character of any items of Partnership income and gain allocated
pursuant to this Section 4.3(c) shall be determined by Temp. Reg.
1.704-1T(b)(4)(iv)(e). This Section 4.3(c) is intended to comply with the
Minimum Gain chargeback rules of Temp. Reg. 1.704-1T(b)(4)(iv)(e) and shall
be interpreted consistently therewith.
(d) If, despite the limitation set forth in Section 4.3(b), any
Partner has an Adjusted Capital Account Deficit as of the end of any Year,
computed after the application of Section 4.3(c) but before the application
of any other provision of this Article Four, then items of Partnership income
and gain for such Year shall be allocated to all such Partners in proportion
to, and to the extent of, such Adjusted Capital Account Deficits. This
provision is intended to comply with the "qualified income offset" rules of
Treas. Reg. 1.704-1(b)(2)(ii)(d). The General Partner shall have the
authority to allocate items of deduction and loss for subsequent Years so as
to offset, as quickly as possible, any prior allocation of income and/or gain
under this Section 4.3(d).
(e) If, and to the extent that, any Partner is deemed to recognize
any item of income, gain, loss or deduction as a result of any transaction
between such Partner and the Partnership pursuant to Code 1272-1274, 7872,
483, 482 or any similar provision now or hereafter in effect, any
corresponding item of income, gain, loss or deduction recognized by the
Partnership shall be allocated to the Partner who was charged with such item.
(f) The Dealer-Manager Fees, Sales Commissions and O&O Expenses
Reimbursement (except to the extent amortizable under Code 709) shall,
immediately upon their payment by the Partnership, be allocated 1.0% to the
General Partner and 99.0% to the Class A Limited Partners (as a class), on a
pari passu basis. Items of income and gain for subsequent Years shall be
allocated to the General Partner equal to the aggregate allocations to it
under this Section 4.3(f), so as to offset, as quickly as possible, the
allocations to the General Partner under this Section 4.3(f). Reimbursable
Organizational and Offering Expenses in excess of the O&O Expenses
Reimbursement shall, as such costs are amortized or deducted by the
Partnership in accordance with the Code (or, if not amortizable or
deductible, then immediately upon their payment on behalf of the
Partnership), be allocated 100.0% to the General Partner.
(g) All items of cost recovery or depreciation deduction with
respect to the Equipment ("Depreciation") and all items of loss resulting
from Sales ("Loss On Sale") shall be allocated, on a pari passu basis, 1.0%
to the General Partner, and 99.0% to the Limited Partners (as a class), until
such time as the cumulative amount of Depreciation and Loss On Sale allocated
under this Section 4.3(g) to the Limited Partners equals their aggregate Net
Capital Contributions. Items of gain from Sales for subsequent Years shall
be allocated to the General Partner in an amount equal to the Depreciation
and Loss On Sale allocated to the General Partner pursuant to this Section
4.3(g), so as to offset, as quickly as possible, the allocations to the
General Partner under this Section 4.3(g).
(h) Notwithstanding anything in this Agreement to the contrary,
and before any other allocation is made under Section 4.2, this Section 4.3,
or Sections 4.4 and 4.5, items of income and gain for the current Year (or
Period) shall be allocated, as quickly as possible, to the General Partner to
the extent of any deficit balance existing in the General Partner's Capital
Account as of the closing of the immediately preceding Year, in order to
restore the balance in the General Partner's Capital Account to zero.
SECTION 4.4 Tax Allocations.
(a) Except as otherwise provided in this Section 4.4, items of
Partnership taxable income, gain, loss and deduction shall be determined in
accordance with Code 703, and the Partners' distributive shares of such items
for purposes of Code 702 shall be determined according to their respective
shares of profits or Losses to which such items relate in accordance with
Code 704 and the Treasury Regulations thereunder.
(b) Items of Partnership taxable income, gain, loss and deduction
with respect to any property contributed to the capital of the Partnership
shall be allocated among the Partners in accordance with Code 704(c), so as
to take account of any variation between the adjusted basis of such property
to the Partnership for federal income tax purposes and its Book Value.
(c) If the Book Value of any Partnership asset is adjusted
pursuant to Section 3.6, subsequent allocations of items of taxable income,
gain, loss and deduction with respect to such asset shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Book Value in the same manner as under Code 704(c).
(d) Allocations of tax credits, tax credit recapture and any items
related thereto shall be allocated to the Partners according to their
interests in such items as determined by the General Partner taking into
account the principles of Treas. Reg. 1.704-1(b)(4)(ii).
(e) Allocations pursuant to this Section 4.4 are solely for
purposes of federal, state and local taxes and shall not affect, or in any
way be taken into account in computing, any Partner's Capital Account or
share of Profits, Losses, distributions or other Partnership items pursuant
to any provision of this Agreement.
(f) For purposes of determining the Partners' shares of
nonrecourse liabilities of the Partnership, the interest of the General
Partner in Profits and the interest of the Limited Partners (as a class) in
Profits shall be determined by the application of their respective fractional
shares of Distributable Cash distributed to them during the Year.
SECTION 4.5 Curative Allocations; Uniformity of Units.
If the General Partner determines, after consultation with Tax
Counsel, that the allocation of any item of Partnership income, gain, loss,
deduction or credit is not specified in this Article Four (an "unallocated
item"), or that the allocation of any item of Partnership income, gain, loss,
deduction or credit hereunder is clearly inconsistent with the Partners'
economic interests in the Partnership (determined by reference to the
general principles of Temp. Reg. 1.704-1T(b)(4)(iv), Treas. Reg. 1.704-1(b)
and the factors set forth in Treas. Reg. 1.704-1(b)(3)(ii)) (a "misallocated
item"), then the General Partner may allocate such unallocated items, or
reallocate such misallocated items, to reflect such economic interests. In
addition, the General Partner is authorized to allocate specially items of
income or gain to the extent necessary to achieve and maintain the financial
uniformity of the Units for purposes of determining Payout for the Class A
Limited Partners.
SECTION 4.6 Changes in Units or Partnership Interests.
(a) Except as otherwise provided in Section 4.6(b), the
Partnership shall use a semi-monthly convention to determine the Class A
Limited Partners' respective interests in Profits, Losses, other specially
allocated items and distributions of Distributable Cash hereunder in any Year
in which additional Class A Limited Partners are admitted to the Partnership.
Under the convention, a Class A Limited Partner entering the Partnership on
or before the 15th day of the month shall be treated as having entered on the
first day of the month, and a Class A Limited Partner entering the
Partnership after the 15th, and on or before the last day of the month, shall
be treated as having entered on the first day of the next month.
(b) Class A Limited Partners who acquire Units during any month,
other than from the Partnership, shall be treated as entering the Partnership
on the first day of the next month for purposes of determining the interest
of such Class A Limited Partners in Profits, Losses and other specially
allocated items hereunder, and distributions of Distributable Cash.
(c) A Class A Limited Partner whose Units are repurchased by the
Partnership pursuant to Section 7.6 shall, for purposes of the foregoing
allocation provisions, be treated as having reduced or eliminated his Units
as of the first day of the month immediately following the effective date of
the repurchase.
(d) Notwithstanding the provisions of paragraphs (a) and (b)
above, the General Partner may choose to treat Class A Limited Partners as
being admitted to the Partnership on the day they acquire Units for purposes
of determining the interest of such Class A Limited Partners in Profits,
Losses and other specifically allocated items hereunder and in distributions
of Distributable Cash hereunder.
ARTICLE FIVE
RIGHTS, OBLIGATIONS AND POWERS OF GENERAL PARTNER
SECTION 5.1 Multiple General Partners. If, at any time during the term of
the Partnership, there is more than one General Partner, all rights,
obligations and powers of the General Partner under this Agreement shall be
shared among the then-existing General Partners as they may agree.
SECTION 5.2 Management of Partnership.
(a) The General Partner, within the authority granted to it under
this Agreement, shall have full, complete and exclusive right, power,
authority and discretion to manage and control the business of the
Partnership. In so doing, the General Partner shall take all actions and do
all things necessary or appropriate to effectuate the purposes of the
Partnership and to protect the interests of the Limited Partners. The
General Partner shall devote such time as is necessary to the affairs of the
Partnership and shall receive no compensation from the Partnership, other
than as expressly provided in this Agreement. The General Partner shall,
except as otherwise provided in this Agreement, have all the rights and
powers and shall be subject to all the restrictions and liabilities of a
partner in a partnership without limited partners.
(b) All decisions made by the General Partner on behalf of the
Partnership, pursuant to the authority granted in this Agreement and in the
Delaware Act, shall be binding upon the Partnership.
(c) No Limited Partner (except one who may also be a General
Partner, and then only in his capacity as General Partner) shall participate
in or have any control over Partnership business or shall have any authority
or right to act for or bind the Partnership.
(d) The General Partner shall, after the release of subscriptions
for Units pursuant to Section 3.4(e), establish initial Reserves out of
Capital Contributions in an amount equal to 1.0% of the Gross Offering
Proceeds. Reserves shall be varied from time to time by the General Partner
to such levels as the General Partner deems necessary and appropriate to
serve the best interests of the Partnership, but in no case less than 1.0% of
the Gross Offering Proceeds. The General Partner shall have the authority to
pay Partnership operating expenses from such Reserves.
(e) All of the Partnership's expenses shall be billed directly to
and paid by the Partnership; provided that the General Partner hereby agrees
to pay any and all Reimbursable Organizational and Offering Expenses,
including any amounts in excess of the O&O Expenses Reimbursement. The
General Partner and its Affiliates shall be reimbursed for the actual cost to
the General Partner and its Affiliates of services, goods and materials used
for and by the Partnership and obtained from entities unaffiliated with the
General Partner for use by the Partnership. The General Partner and its
Affiliates shall be reimbursed for the administrative services provided by
them necessary to the prudent operation of the Partnership; provided that
such reimbursement shall be at the lower of the General Partner's and
Affiliates' actual cost or the amount the Partnership would be required to
pay to independent parties for comparable administrative services in the same
geographic location.
(f) The General Partner and its Affiliates shall not be reimbursed
by the Partnership for the following expenses:
(i) Services for which the General Partner or its
Affiliates are entitled to compensation in the form of a separate fee;
(ii) Rent or depreciation, utilities, capital
equipment, other administrative items and salaries, fringe
benefits, travel expenses or other administrative items
incurred by or allocated to any Controlling Person of the
General Partner or its Affiliates;
(iii) Reimbursable Organizational and Offering
Expenses in excess of the O&O Expenses Reimbursement; and
(iv) Any expenses that are unrelated to the
business of the Partnership.
(g) Subject to Section 5.2(e) and (f), the Partnership shall pay
all expenses of the Partnership and all expenses of the General Partner and
its Affiliates relating to the Partnership (none of which shall be deducted
from compensation and fees to which the General Partner or its Affiliates are
entitled as set forth in Section 5.4(a)), including without limitation: (i)
all costs of borrowed money, taxes and assessments on Partnership property
and other taxes applicable to the Partnership; (ii) legal, appraisal, audit,
accounting, brokerage and other third party fees, including permitted
Acquisition Expenses; (iii) printing and other expenses and taxes incurred in
connection with the issuance, distribution, transfer and recording of
documents evidencing ownership of an interest in the Partnership or in
connection with the business of the Partnership; (iv) fees and expenses paid
to independent contractors, bankers, brokers, servicers, leasing agents and
consultants; (v) expenses payable to unaffiliated third parties in connection
with the disposition, replacement, alteration, repair, re-leasing,
refinancing and operation of Equipment (including the costs and expenses of
insurance premiums, brokerage and leasing commissions and maintenance of such
property); (vi) costs of insurance as required in connection with the
business of the Partnership; (vii) expenses of revising or amending this
Agreement or converting, modifying or terminating the Partnership; (viii)
expenses in connection with distributions made by the Partnership to, and
communications and bookkeeping and clerical work necessary in maintaining
relations with, Limited Partners, including the costs of printing and mailing
to such persons certificates for Units and reports of meetings of the
Partnership, and expenses of preparation of proxy statements and
solicitations of proxies in connection therewith; (ix) expenses in connection
with preparing and mailing reports necessary or appropriate to be furnished
to Limited Partners for tax reporting or other purposes; (x) costs in
connection with reports on the operations and activities of the Partnership;
(xi) costs of preparation and dissemination of informational material
relating to potential sale, refinancing, leasing or disposition of Equipment;
(xii) costs and expenses incurred in qualifying the Partnership to do
business in any jurisdiction, including fees and expenses of any resident
agent appointed by the Partnership; and (xiii) costs incurred in connection
with any litigation or regulatory proceedings in which the Partnership is
involved.
(h) During the Reinvestment Period, the General Partner shall
reinvest all Distributable Cash available, after the distributions provided
for in Section 4.1(a)(i), in Equipment, unless it determines that such
reinvestment is not in the best interests of the Partnership. After the
Reinvestment Period, the General Partner may reinvest such amount of
Distributable Cash that is available, after the distributions provided for in
Section 4.1(a)(ii)(A) and (B) and before any distributions described in
Section 4.1(a)(iii), as it determines to be reasonable in Equipment that it
made commitments to purchase on behalf of the Partnership during the
Reinvestment Period.
SECTION 5.3 Authority of General Partner.
(a) The General Partner, in the name and on behalf of the
Partnership, is hereby specifically authorized, without limitation, to:
(i) acquire, hold, re-lease, finance and
refinance, upgrade, sell, exchange or otherwise dispose of
Equipment (except as limited by Section 5.5), provided that
the General Partner and its Affiliates shall give the
Partnership a right of first refusal with respect to all
Upgrades leased by any of them with respect to Equipment
owned by the Partnership and, provided, further, that
Equipment that is used by a Lessee outside of the United
States of America, Canada or Mexico shall, in the aggregate,
have a total Equipment Purchase Price of less than 10.0% of
the aggregate Equipment Purchase Price of all of the
Partnership's Equipment at the time of the purchase of any
Equipment to be used by the Lessee outside of said three
countries;
(ii) maintain and operate the Equipment so as to
comply with the provisions of any Lease or any indebtedness
secured by the Equipment or by any receivable;
(iii) ensure the proper application of revenues of
the Partnership;
(iv) maintain proper books of account for the
Partnership and prepare all reports of operations and tax
returns that are to be furnished to the Partners and
Assignees pursuant to this Agreement or that are required by
taxing bodies or other governmental agencies;
(v) maintain or cause to be maintained, to the
extent deemed necessary by the General Partner, adequate
insurance with respect to general liability of the
Partnership and with respect to the Equipment and any other
insurable assets of the Partnership pursuant to policies of
insurance in form and coverage customary to property similar
to the Equipment and such other insurable assets;
(vi) supervise the offer and sale of Units;
(vii) designate depositories of the Partnership's
funds, and the terms and conditions of such deposits and
drawings thereon;
(viii) invest Net Offering Proceeds and, during the
Reinvestment Period, reinvest Cash From Operations and Cash
From Sales, pursuant to the policies and objectives set
forth in the Prospectus;
(ix) hold all or any portion of the Equipment and
other assets of the Partnership in the name of one or more
trustees, nominees or other agents of or for the Partnership
for the purpose of facilitating transactions involving those
assets or permitting those assets or the owner of those
assets to be registered as required by any applicable law,
statute or regulation;
(x) establish and maintain sufficient Reserves
for such purposes and in such amounts as the General Partner
deems appropriate from time to time and to increase, reduce
or eliminate Reserves as it deems appropriate from time to
time, subject to the minimum Reserve requirements set forth
in Section 5.2(d);
(xi) determine the appropriate accounting method
or methods to be used by the Partnership;
(xii) execute and file with any state tax
authority, if necessary or appropriate to comply with or
minimize withholding obligations under the law of any state,
a statement on behalf of the Partners acknowledging and
confirming their obligations to file tax returns with such
state;
(xiii) determine the timing and amount of
distributions to the Partners;
(xiv) amend this Agreement to reflect the addition
or substitution of Partners or the reduction of Capital
Contributions or Adjusted Capital Contributions without
action by the Limited Partners;
(xv) make any expenditures, borrow money as
provided in Section 5.3(a)(xxv), guarantee or assume or
contract for indebtedness and other liabilities, issue
evidences of indebtedness and secure the same by mortgage,
deed of trust or other lien or encumbrance, and incur any
obligations it deems necessary for the conduct of the
activities of the Partnership;
(xvi) subject to Section 5.5(a)(vi) and (a)(xxii),
acquire, dispose of (including through an installment sale
or other owner-financed sale), mortgage, pledge, encumber,
hypothecate or exchange any or all of the assets of the
Partnership and merge the Partnership with or into another
entity in accordance with the requirements of the Delaware
Act and any other applicable law;
(xvii) use the assets of the Partnership (including
without limitation cash on hand) for any purpose and on any
terms that are consistent with the investment objectives and
policies of the Partnership, including without limitation to
repay obligations of the Partnership incurred by borrowing
as provided in Section 5.3(a)(xxv);
(xviii) negotiate, execute and perform any contracts,
conveyances or other instruments (e.g., notes, evidences of
indebtedness, agreements, assignments, deeds, Leases, loan
agreements, mortgages, security instruments, etc.) that are
useful or necessary to the conduct of Partnership operations
and that are consistent with the investment objectives and
policies of the Partnership;
(xix) select and dismiss employees, appraisers,
attorneys, accountants, consultants and contractors, appoint
agents to provide administrative and reporting services to
the Partnership and determine their compensation and other
terms of employment or hiring;
(xx) control any matters affecting the rights and
obligations of the Partnership, including the conduct of
litigation and the incurring of legal fees and expenses and
the settlement of claims and litigation;
(xxi) bring and defend actions at law or in equity
and indemnify any Person against liabilities and
contingencies to the extent permitted by law and by this
Agreement;
(xxii) make or revoke tax elections on behalf of the
Partnership, including without limitation the elections
provided by Code 754;
(xxiii) engage in any kind of activity and perform
and carry out contracts of any kind necessary to carry out
the activities authorized in the preceding clauses of this
subsection;
(xxiv) prepare and file "group" or "composite" state
income tax returns on behalf of non-resident investors in
states where the Partnership conducts business; and
(xxv) borrow cash as it deems appropriate for the
business of the Partnership, including, but not limited to,
nonrecourse loans secured by items of Equipment and the
refinancing of Equipment, whether or not such Equipment
secures prior borrowings, provided that such borrowings
shall not, in the aggregate, exceed 50.0% of the aggregate
Equipment Purchase Price (excluding the amount of any
Acquisition Fees included therein) of Equipment purchased by
the Partnership as of the date of the borrowing.
(b) Any Person dealing with the Partnership may rely
upon a certificate signed by the General Partner as to:
(i) the identity of any Partner;
(ii) the existence or non-existence of any fact or
facts that constitute a condition precedent to acts by the
General Partner or are in any other manner germane to the
affairs of the Partnership;
(iii) the Persons who are authorized to execute and
deliver any instrument or document of or on behalf of the
Partnership; or
(iv) any act or failure to act by the Partnership
or as to any other matter whatsoever involving the
Partnership or any Partner.
(c) Except as otherwise provided under this Agreement or by law,
the General Partner may delegate all or any of its duties under this
Agreement to any of its own officers, employees and agents and in furtherance
of such delegation may elect, employ, contract or deal with any Person
(including any Affiliate of the General Partner), provided that any fees
payable in connection with any such delegation shall be paid by the General
Partner.
(d) Subject to the restriction provided in Section 5.5(a)(xxii),
if, as a result of either existing or subsequently enacted federal tax
legislation, Treasury Regulations or other IRS pronouncements, the
Partnership is or would become taxable as a corporation, or if the General
Partner determines that there is a material risk of such a result, the
General Partner, with the Consent of a Majority Interest, may take any and
all such actions it deems necessary or appropriate to prevent such result.
Such actions may include without limitation amending this Agreement or
reorganizing the Partnership into some other form of association such as a
corporation or a business trust. The General Partner shall effectuate any
such amendment or reorganization so that, to the extent possible and legally
permissible under the circumstances, the respective interests of the Partners
in the assets and income of the Partnership (or successor entity) immediately
following such qualification, amendment or reorganization are substantially
equivalent to such interests immediately prior thereto.
SECTION 5.4 Authority of General Partner and Its
Affiliates to Deal With Partnership.
(a) Without limiting the other powers set forth herein, the
General Partner, in the name and on behalf of the Partnership, is expressly
authorized to:
(i) pay to the Dealer-Manager (A) Sales
Commissions in an amount equal to 8.0% of the Gross Offering
Proceeds, which shall be reallowed to broker-dealers who
make sales of Units to Class A Limited Partners, as set
forth in the Dealer-Manager Agreement, and (B) the Dealer-
Manager Fee in an amount equal to 2.0% of the Gross Offering
Proceeds, as set forth in the Dealer-Manager Agreement;
(ii) pay to itself the O&O Expenses Reimbursement
in an amount equal to 4.0% of Gross Offering Proceeds;
(iii) subject to the limitations of Section 3.10
hereof, pay to itself (A) the Origination Fee for arranging
the acquisition of the Equipment and the negotiation of the
Lease, if originated by the General Partner or its
Affiliates, or the review and any necessary modification of
the Lease if the Lease is originated by an unaffiliated
party in an amount equal to 1.5% of the Equipment Purchase
Price (excluding the amount of any Acquisition Fees included
therein); and (B) the Evaluation Fee for services rendered
in connection with evaluating the suitability of the
Equipment and the credit worthiness of the Lessee and
negotiation of nonrecourse loans, or the assignment of
existing nonrecourse loans, secured by the Equipment in an
amount equal to 2.0% of the Equipment Purchase Price
(excluding the amount of any Acquisition Fees included
therein); provided, however, that if the Partnership, or the
General Partner or its Affiliates, in connection with the
purchase of any Equipment pays any fees or reimburses any
fees to unaffiliated finders and brokers, such fees shall be
deducted from the Origination Fee otherwise payable to the
General Partner in connection with the Equipment acquired
through the efforts of such finders and brokers until such
Origination Fee is reduced to zero, but the Partnership must
bear the cost of the third-party Acquisition Fee to the
extent that it exceeds the Origination Fee otherwise payable
to the General Partner; provided, further, however that in
no case shall any Acquisition Fees of any type be paid by
the Partnership with respect to the purchase of Equipment by
the Partnership, directly, with the funds contributed to the
Partnership by the Class B Limited Partner;
(iv) pay to itself the Management Fee, monthly in
arrears, equal to 2.0% of monthly Gross Rentals paid
pursuant to all Leases, as compensation for services
actually rendered in connection with the management of the
Partnership's Equipment; provided if for any month the
Class A Limited Partners do not receive the First Cash
Distributions in full, then the General Partner shall
subordinate and defer its receipt of Management Fees for
such month, without any interest, until the receipt by the
Class A Limited Partners of all accrued but previously
unpaid and current installments of First Cash Distributions,
provided, further, that any fees paid by the Partnership to
third parties for equipment management shall be deducted
from the General Partner's Management Fee;
(v) reimburse itself, as provided in Section
5.2(e) and (g);
(vi) pay interest on funds borrowed from the
General Partner or any of its Affiliates, on terms
consistent with Section 5.5(d); and
(vii) pay the Equipment Purchase Price on any item
of Equipment to an Affiliate of the General Partner.
(b) Other than as specifically authorized in this Article Five,
the General Partner is prohibited from entering into any agreements,
contracts or arrangements on behalf of the Partnership with itself or any
Affiliate. In addition, any agreements, contracts or arrangements
specifically authorized in this Article Five shall be subject to the
following prohibitions:
(i) neither the General Partner nor any Affiliate
shall be given an exclusive right to sell or exclusive
employment to sell any Equipment for the Partnership;
(ii) the Sponsor shall not be paid, directly or
indirectly, a commission or fee (except as permitted under
Section IV of the NASAA Guidelines or the provisions of this
Agreement) in connection with the distribution or
reinvestment of Cash From Operations and Cash From Sales or
the proceeds of the resale, exchange or refinancing of the
Program Equipment; and
(iii) neither the General Partner nor any Affiliate
shall receive any rebates or give-ups or, nor by the making
of any reciprocal business arrangements, circumvent the
restrictions contained in this Agreement the NASAA
Guidelines or in applicable state securities laws and
regulations relating to transactions between the Partnership
and the General Partner and its Affiliates.
(c) Any agreements, contracts and arrangements with the General
Partner or its Affiliates permitted by this Agreement shall be subject to the
following conditions (except that Section 5.4(c)(iii), (iv) and (v) shall not
apply to the fees and reimbursements set forth in Sections 5.2 and 5.4(a),
provided, however, that Section 5.4(c)(iii) shall apply to any such
agreements, contracts and arrangements for goods and services including those
provided for in Section 5.2(e));
(i) any such agreements, contracts or
arrangements shall be embodied in a written contract (which
may be this Agreement) that precisely describes the services
to be rendered and all compensation to be paid;
(ii) any such agreements, contracts or
arrangements shall be fully disclosed in the Prospectus,
dated April 16, 1994, unless the goods and services are
provided in extraordinary circumstances. (Where the
services are available elsewhere from unaffiliated parties,
there would be a presumption that there are no extraordinary
circumstances. Extraordinary circumstances would only be
presumed where there is an emergency situation requiring
immediate action by the Sponsor, and the service is not
immediately available from unaffiliated parties.
Extraordinary circumstances shall, in no event, include
general and administrative expenses, expect as otherwise
provided herein.);
(iii) any such agreements, contracts or
arrangements shall be terminable by either party, without
penalty, upon 60 days prior written notice and may be
modified only by vote of a Majority Interest of the Class A
Limited Partners;
(iv) the compensation, price or fee charged for
providing such services may not exceed the lesser of cost of
such services to the General Partner or Affiliate of any
General Partner or 90.0% of the competitive compensation,
price or fee of any other Person who is rendering comparable
services or selling or leasing comparable goods and
materials in the same or comparable geographic location that
could reasonably be made available to the Partnership; and
(v) the Person providing such services must be
independently engaged in the business of rendering such
services to Persons other than the Partnership or its
Affiliates and at least 75.0% of such Person's gross revenue
from providing such services must be derived from sources
other than the General Partner or its Affiliates.
SECTION 5.5 Limitations and Restrictions on Exercise of Powers
of General Partner.
(a) Notwithstanding anything in this Agreement to the contrary,
the General Partner shall not:
(i) do any act in contravention of this Agreement
or the Delaware Act;
(ii) invest Partnership funds in limited
partnership interests or capital stock of other limited
partnerships, corporations or other entities or
associations, except as permitted under Sections 5.3(a)(ix)
and 10.3;
(iii) admit a Person as a General or Limited
Partner, except as permitted hereby;
(iv) underwrite or cause the Partnership to
underwrite the securities of other issuers;
(v) perform any act required to be approved or
ratified in writing by all or part of the Limited Partners
under the Delaware Act, unless the right to do so is
expressly granted in this Agreement;
(vi) without the Consent of a Majority Interest,
sell, pursuant to a single transaction or a series of
related transactions, all or substantially all of the assets
of the Partnership other than in the ordinary course of its
business as set forth in the Prospectus, except for sales in
connection with the liquidation and winding up of
Partnership business upon its dissolution;
(vii) borrow or allow an Affiliate to borrow from
the Partnership;
(viii) without the Consent of a Majority Interest
(or such greater number of Limited Partners as may then be
required under the Delaware Act), elect to dissolve the
Partnership;
(ix) perform any act that would make it impossible
to carry on the ordinary business of the Partnership;
(x) confess a judgment against the Partnership;
(xi) possess Partnership property, or assign the
Partnership's right in specific Partnership property, for
other than a Partnership purpose;
(xii) knowingly perform any act that the General
Partner is aware would subject any Limited Partner to
liability as a general partner in any jurisdiction;
(xiii) cause the Partnership to reinvest Cash From
Operations or Cash From Sales, other than as permitted in
this Agreement;
(xiv) change the Partnership's purposes from those
set forth in Section 2.3;
(xv) without the Consent of a Majority Interest,
amend this Agreement, except as provided in Sections
5.3(a)(xiv), 13.1 and 13.2;
(xvi) commingle the funds of the Partnership with
those of any other Person;
(xvii) cause the Partnership to distribute any
Partnership assets in kind;
(xviii) permit any payment or award or commissions or
other compensation to be paid directly or indirectly to any
person engaged by a potential investor for investment advice
as an inducement to such advisor to advise such prospective
purchaser to invest in the Partnership except as described
in the Prospectus;
(xix) pay, or cause the Partnership to pay, any
Acquisition Fee other than the Origination Fee, the
Evaluation Fee and any additional fee described in Section
5.4(a)(iii);
(xx) cause the Partnership to enter into any
contract or agreement with the General Partner or any
Affiliate, except as provided in this Agreement;
(xxi) cause the Partnership to distribute
Distributable Cash over the term of the Partnership to the
General Partner pursuant to Section 4.1 of this Agreement in
an aggregate amount in excess of the aggregate amount of
such distributions that would be permitted under Section
IV.D(1) of the NASAA Guideline;
(xxii) cause or permit the Partnership to engage in
any transaction that is a Roll-Up; or
(xxiii) cause the Partnership to borrow funds solely
for the purpose of making cash distributions to the Partners
and use such funds to make distributions to the Partners.
(b) The General Partner shall cause the Partnership to follow the
criteria under "Equipment Investment Criteria" set forth in the Prospectus.
All funds held by the Partnership that are not invested in Equipment shall be
invested by the General Partner as provided in Section 10.3.
(c) The Partnership may not acquire Equipment in which the Sponsor
either has, or in the past has had, an interest, except for Equipment
acquired on a temporary or interim basis (generally not longer than six
months) by the Sponsor for the purpose of facilitating the acquisition by the
Partnership of the Equipment or obtaining financing for the Partnership or
any other purpose related to the business of the Partnership. The
Partnership may acquire any such Equipment only if the Sponsor determines
that: (i) such acquisition is in the best interests of the Partnership; (ii)
such Equipment is to be purchased by the Partnership for a price no greater
than the Cost of such Equipment to the Sponsor minus any rents or other
proceeds that are received by the Sponsor in connection with the leasing of,
or other arrangement with respect to, the Equipment, except compensation in
accordance with Section IV of the NASAA Guidelines, unless the current value
of Equipment to be acquired from it or an Affiliate is less than the price so
calculated, in which case such Equipment shall be acquired at the lesser of
(A) such price so calculated or (B) the then fair market value of such
Equipment, as determined by an independent nationally-recognized equipment
appraiser selected by the Sponsor; (iii) there is no difference in interest
terms of the loans secured by the Equipment at the time acquired by the
Sponsor and the time acquired by the Partnership; and (iv) no other benefit
arises out of such transaction to the Sponsor apart from compensation
otherwise permitted by this Agreement. The Sponsor shall not purchase
Equipment from an affiliated Program for sale to the Partnership under the
preceding sentence. The Partnership shall neither purchase nor lease
Equipment from, nor lease or sell Equipment to, the Sponsor, except as
provided above and in accordance with Section V of the NASAA Guidelines. Any
profits earned on Equipment temporarily held by the Sponsor will be paid to
the Partnership.
(d) No loans may be made by the Partnership to the General Partner
or any Affiliate. The General Partner or any Affiliate may lend funds on a
short-term basis to the Partnership, but only with interest rates: (i) not
in excess of the General Partner's or Affiliate's own cost of borrowing; (ii)
in any event, not in excess of the interest rate charged (without reference
to the General Partner's or any Affiliate's financial abilities or
guaranties) by unrelated lenders on a comparable loan for the same purpose in
the same geographic area; and (iii) that shall not exceed by more than 3.0%
per annum the "prime rate" from time to time announced by The Chase Manhattan
Bank, N.A. Neither the General Partner nor any Affiliate shall provide
Permanent Financing for the Partnership. For this purpose "Permanent
Financing" means that some portion of principal and interest on the financing
provided by the General Partner or any Affiliates is due and payable more
than 12 months after the date of the loan. Neither the General Partner nor
any Affiliates may receive points or other financial charges or fees in any
amount in respect of any loans to the Partnership, although the General
Partner's compensation (such as the Evaluation Fees and the Management Fee)
may be increased as an indirect result of such loans.
(e) If the Sponsor purchases Equipment in its own name and with
its own funds in order to facilitate the ultimate purchase of such Equipment
by the Partnership, the Sponsor shall be entitled to receive interest from
the Partnership on the funds expended for such purpose on behalf of the
Partnership as provided in the definition of "Cost," but interest shall not
be paid for any period in excess of the six-month period permitted by Section
5.5(c) with respect to any item of Equipment. Interest on any such temporary
purchases shall be at a rate not to exceed the Sponsor's own cost of
borrowing and in any event shall not be in excess of the amounts that are
charged (without reference to the Sponsor's financial abilities or
guaranties) by unrelated banks on comparable loans for the same purpose in
the same geographic area, and the annual interest charged on any such loan
shall not exceed by more than 3.0% the "prime rate" from time to time
announced by The Chase Manhattan Bank, N.A. until the purchase of the
Equipment by the Partnership.
(f) The Partnership shall not acquire any Equipment in exchange
for Units.
(g) The Partnership shall not acquire Equipment from a Program in
which the General Partner or an Affiliate has an interest.
SECTION 5.6 Duties and Obligations of General Partner.
(a) The General Partner shall devote to the affairs of the
Partnership such time as may be necessary for the proper performance of its
duties hereunder, but neither the General Partner nor the officers, directors
or shareholders of the General Partner shall be expected to devote their full
time to the performance of such duties. The General Partner shall provide
both equipment management and additional services relating to the continued
and active operation of the Equipment, such as on-going marketing and
re-leasing of equipment and maintenance, repair and storage services.
(b) The General Partner shall take such action as may be necessary
or appropriate for the continuation of the Partnership's valid existence
under the laws of the State of Delaware and in order to form or qualify the
Partnership under the laws of any jurisdiction in which the Partnership is
doing business or in which such formation or qualification is necessary to
protect the limited liability of the Limited Partners or in order to continue
in effect such formation or qualification. The General Partner shall file or
cause to be filed for recordation in the office of the appropriate
authorities of the State of Delaware, and in the proper office or offices in
each other jurisdiction in which the Partnership is formed or qualified, such
certificates, including limited partnership and fictitious name certificates
and other documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction.
(c) The General Partner shall prepare or cause to be prepared and
shall file on or before the due date (or any extension thereof) any federal,
state or local tax returns required to be filed by the Partnership. The
General Partner shall cause the Partnership to pay any taxes payable by the
Partnership.
(d) The General Partner shall have fiduciary responsibility for
the safekeeping and use of all funds and assets of the Partnership, whether
or not in its immediate possession or control. The General Partner shall not
employ, or permit another to employ, such funds or assets in any manner
except for the exclusive benefit of the Partnership and Partnership funds
shall not be deposited with affiliated financial institutions or be used in
compensating balance arrangements for the benefit of any entity other than
the Partnership. The General Partner shall not delegate to any party the
fiduciary duty owed by it to any Partner. In addition, no Partner shall be
permitted to contract away the fiduciary duty owed to such Partner by the
General Partner under the common law.
(e) Subject to Section 5.8(c), the General Partner is authorized,
in its sole discretion, to cause the Partnership to acquire policies of
limited partnership liability insurance, insuring the General Partner, its
officers, directors, employees, shareholders and certain of its Affiliates
against certain liabilities in connection with the business of the
Partnership and insuring the Partnership against certain liabilities with
respect to any indemnification that it is legally required or permitted to
provide under this Agreement to such General Partner, its officers,
directors, employees, shareholders and such Affiliates.
(f) Subject to the provisions of this Article Five, the General
Partner may delegate any or all of the powers, rights and obligations
hereunder, and may appoint, employ, contract or otherwise deal with any
Person for the transaction of the business of the Partnership, which Person
may, under supervision of the General Partner, perform any acts or services
for the Partnership as the General Partner may approve.
SECTION 5.7 Other Activities.
The General Partner and its Affiliates may engage independently or
with others in other business ventures of every nature and description,
including without limitation the rendering of advice or services of any kind
to other investors and the making or management of other investments,
including investments in equipment. Neither the Partnership nor any Partner
shall have any right, by virtue of this Agreement or the partnership
relationship created hereby, in or to such other ventures or activities, or
to the income or proceeds derived therefrom, and the pursuit of such
ventures, even if competitive with the business of the Partnership, shall not
be deemed wrongful or improper. Neither the General Partner nor any of its
Affiliates shall be obligated to present any particular investment
opportunity to the Partnership even if such opportunity is of a character
that, if presented to the Partnership, could be taken by the Partnership and
each of such Persons shall have the right to take for its own account
(individually or as a trustee) or to recommend to others any such particular
investment opportunity. Whenever a conflict of interest arises between
another investment entity sponsored by a General Partner or its Affiliates,
and the Partnership or any Limited Partner, the General Partner shall, in
resolving such conflict, consider the relative interests of the parties
involved in such conflict or affected by such action, any customary or
accepted industry practices and any applicable generally accepted accounting
practices or principles.
SECTION 5.8 Limitation on Liability of General Partner and
Affiliates; Indemnification.
(a) Neither the General Partner nor its Affiliates, performing
services for, or acting on behalf of, the Partnership and acting within the
scope of the General Partner's authority as set forth in this Agreement (the
"Indemnitees"), shall have any liability, responsibility or accountability in
damages or otherwise to any Partners or the Partnership for any loss or
liability suffered by the Partnership that arises out of any act or omission
performed or omitted by such Indemnitee where such Indemnitee has determined,
in good faith, that the course of conduct which caused the loss or liability
was in the best interests of the Partnership, and the Indemnitee was acting
on behalf of or performing services for the Partnership, and such liability
or loss was not the result of negligence or misconduct by such Indemnitee.
Each Indemnitee shall be indemnified by the Partnership and the Partnership
hereby agrees to indemnify and hold harmless each Indemnitee from and against
any and all liabilities, losses, damages, judgments, costs, and expenses
("Liabilities") provided that the same were not the result of negligence or
misconduct on the part of the Indemnitee and the Indemnitee has determined,
in good faith, that the course of conduct which caused the Liability was in
the best interests of the Partnership, including without limitation all
reasonable legal fees. Notwithstanding the foregoing, each Indemnitee shall
be liable, responsible and accountable, and the Partnership shall not be
liable to any such Indemnitee, for any portion of such Liabilities that
resulted from such Indemnitee's own fraud, negligence, misconduct or, if
applicable, breach of fiduciary duty to the Partnership or any Partner.
Subject to Section 5.8(d), such Indemnitee shall have the right to employ
separate counsel of its choice in such legal action and the reasonable legal
expenses of such counsel and other costs incurred as a result of such legal
action shall constitute disbursements for the purposes of advances from the
Partnership pursuant to Section 5.8(d). Such indemnification or agreement to
hold harmless is recoverable only out of the assets of the Partnership and
not from the Limited Partners. The payment of all such obligations shall be
made before any distributions are made from Cash from Operations or Cash from
Sales.
(b) Notwithstanding anything to the contrary contained in Section
5.8(a), the Partnership shall not furnish indemnification to an Indemnitee or
to any person acting as a broker-dealer for any Liabilities imposed by
judgment, and costs associated therewith, including attorney's fees, arising
from or out of a violation of federal or state securities laws unless: a
court either (i) approves the settlement and finds that indemnification of
the settlement and related costs should be made, or (ii) approves
indemnification of litigation costs if a successful defense is made; and in
either case, (iii) the court shall have been apprised by the Indemnitee
seeking indemnification hereunder as to the current positions of the
Commission, the Massachusetts Securities Division, and any state securities
regulatory authority which is specifically set forth in this Agreement and in
which plaintiffs claim they were offered or sold Units with respect to the
issue of indemnification for securities laws violations.
(c) The Partnership shall not incur the cost of that portion of
any liability insurance which insures any Indemnitee for any Liability as to
which such Indemnitee is prohibited from being indemnified under this Section
5.8.
(d) Advances from Partnership funds to an Indemnitee, for legal
expenses and other costs incurred as a result of any legal action initiated
against the Indemnitee by a Limited Partner of the Partnership in his
capacity as such, are prohibited. Except as provided in the foregoing
sentence, advances from Partnership funds to an Indemnitee for legal expenses
and other costs incurred as a result of any initiated legal action, are
permissible if the following conditions are satisfied: (i) such legal action
relates to any action or inaction on the part of the Indemnitee in the
performance of its duties or provision of its services on behalf of the
Partnership; (ii) such legal action is initiated by a third party who is not
a Limited Partner; and (iii) such Indemnitee undertakes to repay any funds
advanced in cases in which such Indemnitee would not be entitled to
indemnification pursuant to Section 5.8(a). If advances are permissible
under Sections 5.8(a) and 5.8(d), the Indemnitee shall furnish the
Partnership with an undertaking as set forth in subsection (iii) of the
foregoing sentence and shall thereafter have the right to bill the
Partnership for, or otherwise request that the Partnership pay, at any time
and from time to time after such Indemnitee has become obligated to make
payment therefor, any and all amounts for which such Indemnitee has
determined in good faith that such Indemnitee is entitled to indemnification
under Section 5.8(a). The Partnership shall pay any and all such bills and
honor any and all such requests for payment for which the Partnership is
liable as determined in Section 5.8(a). In any case wherein the General
Partner disputes such Indemnitee's entitlement to indemnification, the
General Partner shall seek a final determination from the applicable court as
to whether the Partnership is obligated to a particular Indemnitee. If a
final determination is made by the applicable court that the Partnership is
not so obligated in respect to any amount paid by it, such Indemnitee shall
refund such amount, plus interest thereon at the then prevailing market rate
of interest, within 60 days of such final determination and, if a final
determination is made by the applicable court that the Partnership is so
obligated in respect to any amount not paid by the Partnership to a
particular Indemnitee, the Partnership shall pay such amount to such
Indemnitee.
SECTION 5.9 Tax Status of Partnership.
(a) The General Partner shall use its best efforts to meet such
requirements of the Code, as interpreted from time to time by the IRS, as
necessary to assure that the Partnership shall be classified as a partnership
for federal income tax purposes.
(b) The General Partner shall use its best efforts to maintain its
net worth at such levels as Tax Counsel to the Partnership requires in order
to provide Tax Counsel's favorable opinion as to the status of the
Partnership as a partnership for federal tax purposes. The General Partner's
net worth (computed in accordance with generally accepted accounting
principles, except that stockholders' equity shall not be reduced by notes
receivable from stockholders) shall not be less than the greater of (i)
$1,000,000 or (ii) 2.5% of the Gross Offering Proceeds at any time during the
term of the Partnership. To support its net worth at or above this level,
the General Partner specifically agrees not to distribute or otherwise
dispose of that certain Non-negotiable Demand Note, dated November 5, 1993,
contributed to the capital of the General Partner by its sole shareholder,
Capital Associates, Inc.
ARTICLE SIX
CHANGES IN GENERAL PARTNER
SECTION 6.1 Certain Withdrawals of General Partner.
(a) The Voluntary Withdrawal of the General Partner pursuant to
Section 17-602 of the Delaware Act is not permitted without the Consent of a
Majority Interest. The designation of an Assignee to be a successor or
additional General Partner, whose Partnership Interest in the Partnership
shall be such as is agreed upon by the General Partner and such a successor
or additional General Partner, is permitted, provided that the conditions
contained in Section 6.2 have been met.
(b) If there is a Voluntary Withdrawal of the General Partner from
the Partnership or such General Partner Assigns its entire Partnership
Interest, such General Partner shall be and shall remain liable for all
obligations and liabilities incurred by the Partnership before such Voluntary
Withdrawal or Assignment becomes effective but, so long as such Voluntary
Withdrawal or Assignment was effected in accordance with the terms of this
Agreement, such General Partner shall be free of any obligation or liability
for wrongful withdrawal or incurred on account of the activities of the
Partnership from and after such Voluntary Withdrawal or Assignment becomes
effective.
(c) There shall be no Voluntary Withdrawal of the General Partner
from the Partnership pursuant to Section 17-602 of the Delaware Act unless at
least 60 days notice is given to each Limited Partner at his record address,
or at such other address that he may have furnished in writing to the General
Partner.
(d) The General Partner may be removed by the vote of the Class A
Limited Partners as provided in Section 11.2(a)(iv).
SECTION 6.2 Admission of Additional or Successor General
Partner.
A Person shall be admitted as an additional or successor General
Partner of the Partnership only if each of the following conditions is
satisfied:
(a) the admission of such Person shall have been Consented to, or
ratified, in accordance with the terms of Section 11.2, by a Majority
Interest, in accordance with the terms of Section 11.2 and a Class B
Majority, taking into account only those Class B Limited Partners that are
not Affiliates of the General Partner;
(b) such Person shall have accepted and agreed to be bound by the
terms and provisions of this Agreement, by executing a counterpart hereof,
and such other documents or instruments as may be required or appropriate in
order to effect the admission of such Person as a General Partner shall have
been filed for recording, and all other actions required by law in connection
with such admission shall have been performed;
(c) if such Person is a corporation, it shall have provided the
Partnership with evidence satisfactory to counsel for the Partnership of its
authority to become a General Partner and to be bound by the terms and
provisions of this Agreement; and
(d) counsel for the Partnership shall have rendered an opinion to
the Partnership that the admission of such Person as a General Partner is in
conformity with the Delaware Act and that none of the actions taken in
connection with the admission of such Person is in violation of the Delaware
Act, shall impair the limited liability of the Limited Partners, shall cause
the termination or dissolution of the Partnership for tax purposes or
otherwise, shall cause the Partnership to be classified other than as a
partnership, (including as a publicly-traded partnership) for federal income
tax purposes or shall violate federal or state securities laws.
SECTION 6.3 Consent of Class A Limited Partners to
Admission of Additional or Successor General
Partner.
Unless otherwise prohibited by the Delaware Act at the time that
such Consent is necessary, each of the Class A Limited Partners, by the
execution of this Agreement, Consents to the admission of any Person as a
successor or additional General Partner upon which there has been given the
express Consent of a Majority Interest. Upon receipt of such Consent, such
admission shall, without any further Consent or approval of the Class A
Limited Partners, be the act of all the Class A Limited Partners.
SECTION 6.4 Effect of Voluntary Withdrawal of General Partner
or Removal of General Partner by Class A Limited
Partners.
(a) Upon the Voluntary Withdrawal of the General Partner or the
removal of the General Partner by the Class A Limited Partners (other than
removal for cause, as defined in Section 6.4(b)), the following shall apply:
(i) The Partnership shall pay the departing
General Partner the then present fair market value of its
General Partner Partnership Interest ("Fair Value"). The
Fair Value of the departing General Partner's Partnership
Interest shall be determined by agreement between the
departing General Partner and the Partnership. If the
departing General Partner and the Partnership cannot agree
on such Fair Value within 30 days of the date of a Voluntary
Withdrawal, or the date of the Notice referred to in
Section 11.2(a)(iv), in the case of a removal, the Fair
Value thereof shall be determined by arbitration in
accordance with the then current rules of the American
Arbitration Association, i.e., the departing General Partner
to choose one arbitrator, the Partnership to choose one
arbitrator and the two arbitrators so chosen to choose a
third arbitrator. The decision of a majority of such
arbitrators as to the Fair Value shall be final and binding
and may be enforced by legal proceedings. The departing
General Partner and the Partnership shall each compensate
the arbitrator appointed by it. The compensation of the
third arbitrator shall be borne equally by such parties.
Upon the Voluntary Withdrawal of the General Partner or the
removal of the General Partner by the Class A Limited
Partners (other than removal for cause), the Class B Limited
Partner shall retain the Class B Interest on the same terms
and conditions as if the General Partner had not withdrawn.
(ii) Where the departing General Partner is
removed by the Class A Limited Partners, payment of the Fair
Value shall be in the form of an interest bearing promissory
note maturing in no less than five years, which may be paid,
unless the Partnership's capital would be impaired, in five
equal annual installments, the first of which shall be paid
on the first business day after the date one year after the
date of such removal. The unpaid portion of such amount
shall bear interest at the publicly announced "prime rate,"
from time to time, of The Chase Manhattan Bank, N.A. from
the date such first installment is to be paid, such interest
to accrue and be paid annually in addition to each such
annual installment. Where the departing General Partner
effects a Voluntary Withdrawal, payment of the Fair Value
shall be in the form of a non-interest bearing unsecured
promissory note with principal payable, if at all, from
distributions that the departing General Partner otherwise
would have received under this Agreement had the General
Partner not voluntarily withdrawn. All loans and advances
from the departing General Partner shall be repaid in the
ordinary course according to their terms.
(iii) Subject to this Section 6.4, the departing
General Partner shall, as of the effective date of a
Voluntary Withdrawal or removal by the Class A Limited
Partners, cease to share in any Partnership allocations or
distributions with respect to its Partnership Interest as a
General Partner.
(b) Upon the removal for cause of the General Partner by the Class
A Limited Partners, the provisions of Section 6.4(a) shall apply, except that
"Fair Value" of the removed General Partner's Partnership Interest for
purposes of this Section 6.4(b) shall be zero. The Class B Limited Partner
shall retain the Class B Interest on the same terms and conditions as if the
removal of the General Partner had not occurred. As used in this Section
6.4(b), the term "cause" shall mean the commission of any act or the failure
to take any action that, as determined by a court of competent jurisdiction
in a final judgment subject to no further appeals, constitutes gross
negligence, willful misconduct or fraud and has a material adverse effect on
the Partnership.
(c) Following the Withdrawal of the General Partner, the remaining
General Partners (including a successor General Partner, if any) shall
receive and have transferred to one or more of them, and the departing
General Partner shall transfer to one or more remaining General Partners
(including a successor General Partner, if any), without cost, such
Partnership Interest as the remaining General Partners (including a successor
General Partner, if any) deem necessary to assure that the remaining General
Partners (including a successor General Partner, if any) retain, in the
aggregate, a Partnership Interest representing at least 1.0% interest in all
items of Partnership Profit or Loss and cash distributions.
(d) If, at the time of Withdrawal of the General Partner, the
departing General Partner was not the sole General Partner of the
Partnership, the remaining General Partner or Partners shall immediately:
(i) give Notice to the Limited Partners of such Withdrawal; and (ii) prepare
such amendments to this Agreement and execute and file for recording such
amendments or documents or other instruments necessary to reflect the
assignment, transfer or termination (as the case may be) of the Partnership
Interest of the departing General Partner.
(e) All parties hereto hereby agree to take all actions and to
execute all documents necessary or appropriate to effect the foregoing
provisions of this Section 6.4.
ARTICLE SEVEN
ASSIGNMENT OF PARTNERSHIP INTERESTS
OF LIMITED PARTNERS
SECTION 7.1 Assignment.
There shall be no Assignment of a Limited Partner's Partnership
Interest, in whole or in part, except in accordance with the terms and
conditions set forth in this Article Seven. Any Assignment or purported
Assignment of any such Partnership Interest not made in accordance with this
Article Seven shall be null and void.
SECTION 7.2 Withdrawal of Limited Partners.
No Limited Partner shall have any right to withdraw from the
Partnership; provided that when an Assignee of a Limited Partner's Units or
Class B Interest, as the case may be, becomes a Record Holder, the rights of
the assignor Limited Partner shall cease with respect to such rights or
interests in the Units or Class B Interest so Assigned, but until such
Assignee becomes a substituted Limited Partner such assignor Limited Partner
shall continue to be the Limited Partner on the books and records of the
Partnership and shall continue to have the rights provided in Article Eleven,
which rights shall not be assignable.
SECTION 7.3 Assignment of Partnership Interests.
Except for Assignments by operation of law, a Limited Partner may
not Assign all or any part of his Units or Class B Interest and, in
addition, no such Assignment may be effected unless such Limited Partner
shall file with the Partnership, in form and substance satisfactory to the
General Partner, a duly executed counterpart of the instrument making such
Assignment, and such instrument: (i) evidences the written acceptance by the
Assignee of all of the terms and provisions of this Agreement; (ii)
represents that such Assignee has authority to enter into, and agrees to
comply with and be bound by, all the provisions of this Agreement; (iii)
gives the Consents, approvals, and waivers set forth herein; (iv) grants the
Power of Attorney in Section 13.1; (v) represents that such Assignee is not
an entity exempt from federal income tax, and is not controlled by any such
entity, unless written notice thereof has been received by the Partnership;
(vi) represents that such Assignment was made in accordance with all
applicable laws and regulations (including without limitation such minimum
investment and investor suitability requirements as may then be applicable
under state securities laws); and (vii) is accompanied by a fee set by the
General Partner from time to time, in partial reimbursement of the
Partnership's costs respecting the Assignment. All Assignments shall be
effective for record purposes as of the first day of the month following the
date upon which all of the conditions of this Section 7.3 shall have been
satisfied.
SECTION 7.4 Distributions.
The Partnership shall be required to make each distribution in
respect of Units or the Class B Interest only to the Record Holders thereof
as of the Record Date set for the distribution. Such payment shall
constitute full payment and satisfaction of the Partnership's liability in
respect of such payment, regardless of any claim of any Person who may have
an interest in such payment, by reason of an Assignment or otherwise.
SECTION 7.5 Restrictions on Assignment.
(a) Unless in each of the following instances the General Partner
shall give its express written approval, no Units or Class B Interests may
be Assigned or otherwise
transferred:
(i) to a minor or incompetent (unless a guardian,
custodian or conservator has been appointed to handle the
affairs of such Person);
(ii) to any Person not permitted to be an Assignee
under applicable law, including without limitation
applicable federal and state securities laws;
(iii) to any Assignee of Units if such Assignee
would hold after such Assignment an interest in fewer than
20 Units (8 Units in the case of an IRA or Qualified Plan)
or if, following an Assignment of an interest in fewer than
all his Units, an assignor would retain an interest in fewer
Units than would have satisfied the minimum investment
standards applicable to his initial purchase of Units;
(iv) to any Person if, in the opinion of Tax
Counsel, such Assignment would result in the termination
under the Code of the Partnership's Year or its status as a
partnership for federal income tax purposes; or
(v) to any Person if such Assignment would affect
the Partnership's existence or qualification as a limited
partnership under the Delaware Act or the applicable laws of
any other jurisdiction in which the Partnership is then
conducting business.
In the case of a proposed Assignment that is prohibited solely
under Section 7.5(a)(iv), however, the Partnership shall be obligated to
permit such Assignment to become effective if and when, in the opinion of Tax
Counsel, such Assignment would no longer have either of the adverse
consequences under the Code that are specified in Section 7.5(a)(iv).
(b) The General Partner is expressly authorized to suspend
transfers of Units if and when any such transfer would result in the transfer
of 50.0% or more of the Units within a 12-month period.
So long as there are adverse federal income tax consequences from
being treated as a "publicly traded partnership" for federal income tax
purposes, the General Partner shall not permit any interest in a Unit to be
Assigned on a secondary public market (or a substantial equivalent thereof)
as defined under the Code and any regulations promulgated thereunder (a
"Secondary Market") and, if the General Partner determines, in its sole
discretion, that a proposed Assignment was effected on a Secondary Market,
the Partnership and the General Partner have the right to refuse to recognize
any such proposed Assignment and to take any action deemed necessary or
appropriate in the General Partner's reasonable discretion so that such
Assignment is not in fact recognized. For purposes of this Section 7.5(b),
an Assignment that results in a failure to meet one or more of the "safe
harbor" provisions of Notice 88-75 (July 5, 1988) issued by the IRS, or any
substitute safe-harbor provisions subsequently established by Treasury
Regulation, shall be treated as causing the Units to be traded on a Secondary
Market. The Class A Limited Partners agree to provide all information
respecting Assignments that the General Partner deems necessary in order to
determine whether a proposed transfer occurred on a Secondary Market. The
General Partner shall incur no liability to any investor or prospective
investor for any action or inaction by it in connection with the foregoing,
provided that it acted in good faith.
SECTION 7.6 Redemption of Partnership Units.
(a) A Class A Limited Partner shall have the right, at any time
after the expiration of 36 months from the Closing Date, to request that the
Partnership repurchase all or any number of Units by submitting a written
request to the General Partner. A Class A Limited Partner who has a Health
Emergency (or his representative) may request a repurchase of Units prior to
the expiration of the 36-month period described in the preceding sentence.
To the extent permitted by applicable laws and regulations and, if in the
sole and absolute discretion of the General Partner, such repurchase shall
not (i) cause the Partnership to be taxed as a corporation under Code 7704,
(ii) impair the capital or operations of the Partnership or (iii) result in
payment of an excessive price for the Units redeemed, the Partnership shall
repurchase Units from one or more Class A Limited Partners (or assignees) who
so request, up to a maximum of 2.0% of total outstanding Units per year. The
Partnership may redeem Units in excess of this 2.0% amount if, in the General
Partner's sole discretion, the standards set forth in the preceding sentence
shall remain satisfied.
(b) Within 60 days after receipt of a written request for
redemption, the General Partner shall accept or deny the request. The
General Partner shall, in its sole and absolute discretion, decide whether a
repurchase is in the best interest of the Partnership and shall not be
required to provide any reason for the denial of a repurchase request.
(c) The repurchase price for repurchased Units shall be determined
by the General Partner as of the last day of the Quarter prior to the Quarter
during which such request was received. The repurchase price per Unit shall
equal 110.0% of the Unrecovered Capital Contribution of such Unit as of such
day, reduced by all distributions after the date of determination of the
Unrecovered Capital Contribution made with respect to the tendered Units.
(d) The Class A Limited Partner shall tender the repurchased Units
upon the acceptance of the repurchase request by the General Partner, and the
Partnership shall pay the repurchase price for the tendered Units in cash
within 30 days after the end of the Quarter during which the request was
received.
(e) Upon the repurchase of any Units by the Partnership, the
tendered Units shall be cancelled and shall no longer be deemed to represent
an interest in the Partnership.
(f) The General Partner shall, if necessary or appropriate, cause
this Agreement or the Certificate to be amended to reflect the change in the
interests of the Class A Limited Partners (including the person whose Units
were repurchased) in the Partnership.
(g) Neither the General Partner nor its Affiliates may request the
Partnership to repurchase any Units owned by them.
ARTICLE EIGHT
ADMISSION OF LIMITED PARTNERS
AND SUBSTITUTED LIMITED PARTNERS
SECTION 8.1 Admission of Limited Partners.
On the Closing Date or the date provided in Section 3.4(g), the
General Partner shall admit the Class A and Class B Limited Partners to the
Partnership. Each such party shall either execute a counterpart of this
Agreement (either individually or through the General Partner that is granted
a power-of-attorney by such party in the Subscription Agreement and in
Section 13.1 hereof) and thereby agree to be bound by the terms hereof, or,
without such execution, take the actions required by Section 17-101(10) of
the Delaware Act to become bound by the terms hereof.
SECTION 8.2 Admission of Substituted Limited Partners.
An Assignee of Units or the Class B Interest shall be admitted to
the Partnership if all of the following conditions are satisfied:
(a) the instrument of Assignment provided for in
Section 7.3 sets forth the intentions of the assignor that
the Assignee succeed to the assignor's interest as a Limited
Partner in his place, and such assignor is a Limited
Partner;
(b) the Assignee shall have fulfilled the
requirements of Section 7.3 and Section 13.2;
(c) the Assignee shall have paid all actual,
necessary and reasonable administrative and filing expenses
incurred by the Partnership in connection with his
substitution as a Limited Partner;
(d) the General Partner shall have consented in
writing to such substitution, which Consent may be withheld
or given in the sole discretion of the General Partner; and
(e) if requested by the General Partner, the
Partnership shall have received an Opinion of Counsel (at
the cost and expense of the General Partner) to the effect
that such substitution shall not cause the Partnership to
cease to be treated as a partnership that is not a
publicly-traded partnership for federal income tax purposes
or cause a termination of the Partnership pursuant to Code
708 or applicable state law.
If all of the conditions of Section 7.3 and this Section 8.2 shall
have been met, the Assignee of Units or the Class B Interest shall become a
substituted Limited Partner on the date as of which the General Partner
consents in writing to his admission to the Partnership as a substituted
Limited Partner, which consent shall be evidenced by the filing, if required
by law, of an amendment to the Certificate listing the name of such
substituted Limited Partner, and the entry of the name of the Assignee on the
books and records of the Partnership. Such an amendment, if any, shall be
filed no later than the first day of the month following the completion of
any Quarter of the Partnership during which all of the conditions of this
Section 8.2 shall have been satisfied. All substitutions shall be effective
for record purposes, and for purposes of Article Four, upon the filing of
such amendment or, if not required, on the date of admission to the
Partnership as a substituted Limited Partner.
An Assignee of Units or Class B Interest who does not become a
substituted Limited Partner in accordance with this Section 8.2 and who
desires to make a further Assignment of his Units or the Class B Interest
shall be subject to all of the provisions of Sections 7.3, 7.5(c) and this
Section 8.2 to the same extent and in the same manner as any Limited Partner
desiring to make an Assignment of his Units or Class B Interest. Failure or
refusal of the General Partner to admit an Assignee as a substituted Limited
Partner shall in no way affect the right of such Assignee to receive
distributions of Cash From Operations, Cash From Sales or Liquidation
Proceeds and the share of the Profits or Losses for tax purposes to which his
predecessor in interest would have been entitled in accordance with
Articles Four and Nine or to receive Partnership reports to which his
predecessor would have been entitled in accordance with Section 10.4.
The admission of an Assignee as a substituted Limited Partner shall
be effected without the Consent of any of the Partners, other than the
General Partner.
ARTICLE NINE
DISSOLUTION AND LIQUIDATION OF PARTNERSHIP
SECTION 9.1 Events Causing Dissolution.
(a) The Partnership shall dissolve upon the happening of any of
the following events:
(i) the Withdrawal of the General Partner from
the Partnership, unless the remaining General Partner or
General Partners agree in writing to continue the business
of the Partnership within 90 days after the occurrence of
such an event, but the Partnership is not dissolved and is
not required to be wound up by reason of any Withdrawal if,
within 90 days after the Withdrawal, all Partners agree in
writing to continue the business of the Partnership and to
the appointment, effective as of the date of Withdrawal, of
one or more additional General Partners if necessary or
desired;
(ii) the Sale or other disposition of all or
substantially all the assets of the Partnership;
(iii) the election by the General Partner, with the
Consent of a Majority Interest or the vote by the Limited
Partners pursuant to Section 11.2(a)(iii), to dissolve the
Partnership;
(iv) the expiration of the term of the Partnership
specified in Section 2.4; or
(v) any other event causing the dissolution of
the Partnership under the Delaware Act.
(b) Dissolution of the Partnership shall be effective on the day
on which the event occurs giving rise to the dissolution, but the Partnership
shall not terminate until after its affairs are wound up pursuant to the
Delaware Act, the assets of the Partnership are distributed as provided in
Section 9.3 and a certificate of cancellation is filed with the Secretary of
State of the State of Delaware. Notwithstanding the dissolution of the
Partnership, prior to the termination of the Partnership the business of the
Partnership and the affairs of the Partners shall continue to be governed by
this Agreement.
SECTION 9.2 Continuation of Business of Partnership After
Dissolution.
Upon dissolution of the Partnership in accordance with Section 9.1
and, in the case of Section 9.1(a)(i), a failure of all Partners to agree to
continue the business of the Partnership and appoint a successor General
Partner 90 days after such event, then within 90 days thereafter, a Majority
Interest and a Class B Majority may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those
set forth in this Agreement and having as a general partner a Person elected
by a Majority Interest and a Class B Majority. Upon any such election by a
Majority Interest and a Class B Majority, all Partners shall be bound thereby
and shall be deemed to have consented thereto and to have requested that the
records of the new limited partnership reflect their admission thereto as
partners. In determining a Class B Majority for purposes of this Section
9.2, the Partnership Interest of a Class B Limited Partner that is an
Affiliate of a General Partner or a withdrawing General Partner shall not be
considered. If all Class B Limited Partners are Affiliates of a General
Partner or a withdrawing General Partner, a Class B Majority shall not be
necessary for purposes of this Section 9.2. Unless such an election is made
within 180 days after dissolution, the Partnership shall conduct only
activities necessary to wind up its affairs. If such an election is made
within 180 days after dissolution, then:
(a) the reconstituted limited partnership shall
continue until the end of the term set forth in Section 2.4
unless earlier dissolved in accordance with this Article
Nine; and
(b) all necessary steps shall be taken to cancel
the Certificate and file a new Certificate, and the
successor general partner may for this purpose exercise the
powers of attorney granted the General Partner pursuant to
Section 13.1, provided that the right of a Majority Interest
to select a successor General Partner and to reconstitute
and to continue the business of the Partnership shall not
exist and may not be exercised unless the Partnership has
received an Opinion of Counsel that: (i) the exercise of
the right would not result in the loss of limited liability
of any Limited Partner or any materially adverse federal
income tax consequences to the Limited Partners; and
(ii) neither the Partnership nor the reconstituted limited
partnership would cease to be treated as a partnership that
is not a publicly traded partnership, for federal income tax
purposes upon the exercise of such right to continue.
SECTION 9.3 Liquidation.
(a) Upon dissolution of the Partnership, unless the Partnership is
continued under an election to reconstitute and continue the Partnership
pursuant to Section 9.2, the General Partner or, if all General Partners have
withdrawn from the Partnership, then a liquidator or liquidating committee
approved by a Majority Interest, shall be the liquidating trustee (the
"Liquidating Trustee").
(b) The Liquidating Trustee (if other than a General Partner)
shall be entitled to receive such compensation for its services as may be
approved by a Majority Interest. The Liquidating Trustee shall agree not to
resign at any time without 15 days' prior written notice and may be removed
at any time, with or without cause, by notice of removal approved by a
Majority Interest. Upon dissolution, removal or resignation of the
Liquidating Trustee, a successor and substitute Liquidating Trustee (who
shall have and succeed to all rights, powers and duties of the original
Liquidating Trustee) shall within 30 days thereafter be approved by a
Majority Interest. The right to approve a successor or substitute
Liquidating Trustee in the manner provided herein shall be recurring and
continuing for so long as the functions and services of the Liquidating
Trustee are authorized to continue under the provisions hereof, and every
reference herein to the Liquidating Trustee shall be deemed to refer also to
any such successor or substitute Liquidating Trustee approved in the manner
herein provided. Except as expressly provided in this Article Nine, the
Liquidating Trustee approved in the manner provided herein shall have and may
exercise, without further authorization or approval of any of the parties
hereto, all of the powers conferred upon the General Partner under the terms
of this Agreement to the extent reasonable and necessary to carry out the
duties and functions of the Liquidating Trustee hereunder for and during such
period of time as shall be reasonably required to complete the winding up and
liquidation of the Partnership as provided for herein and only for such
purposes. The Liquidating Trustee shall liquidate the assets of the
Partnership, and apply and distribute the proceeds of such liquidation, in
the following order or priority (provided that no such distributions shall be
made in kind), unless otherwise required by mandatory provisions of
applicable law:
(i) First, to the payment to creditors of the
Partnership, including Partners and Assignees who are
creditors, in order of priority provided by law, and to the
creation of a reserve of cash or other assets of the
Partnership for contingent or unforeseen liabilities in an
amount, if any, determined by the Liquidating Trustee to be
appropriate for such purposes (which reserve shall be
distributed as provided in Section 9.3(b)(ii) at such times
as the Liquidating Trustee determines that it is no longer
necessary); and
(ii) to the Partners, on a pari passu basis, in
proportion to the positive balances in the Partners'
respective Capital Accounts on the Record Date of the
distribution, as determined after giving effect to all
adjustments to Capital Accounts, including without
limitation adjustments for allocations of Profits or Losses
relating to the Liquidation Proceeds. Distributions of
Liquidation Proceeds to Partners shall be made by the end of
the Year of the Partnership in which the final liquidation
occurs or, if later, within 90 days after the date of the
final liquidation.
In connection with distributions in winding up the affairs of the
Partnership on dissolution, the General Partner shall be required to account
to the Partnership for any deficit that may exist in their Capital Accounts
by contributing to the capital of the Partnership an amount equal to the
lesser of:
(A) the deficit that may exist in its
Capital Account at such time; or
(B) an amount equal to 1.01% of the Capital
Contributions to the Partnership by the Limited Partners,
reduced by the Capital Contributions to the Partnership by
the General Partner.
(c) Notwithstanding the foregoing, if the Liquidating Trustee
determines that an immediate sale of part or all of the Partnership's assets
would cause undue loss to the Partners, the Liquidating Trustee may, after
giving Notice to all the Limited Partners, to the extent not then prohibited
by an applicable law of any jurisdiction in which the Partnership is then
formed or qualified, defer liquidation of and withhold from distribution
for a reasonable time any assets of the Partnership except those necessary to
satisfy the Partnership's debts and obligations.
(d) Each holder of Limited Partner Partnership Interests shall
look solely to the assets of the Partnership for all distributions with
respect to the Partnership and his Capital Contribution thereto and shall
have no recourse therefor, upon dissolution or otherwise, against the General
Partner or any other Limited Partner. No Partner shall have any right to
demand or receive property other than cash upon dissolution and termination
of the Partnership.
SECTION 9.4 Cancellation of Certificate of Limited
Partnership.
Upon the completion of the distribution of Partnership assets as
provided in Section 9.3, the Partnership shall be terminated, and the
Certificate and all qualifications of the Partnership as a foreign limited
partnership in jurisdictions other than the State of Delaware shall be
cancelled and such other actions as may be necessary to terminate the
Partnership shall be taken.
SECTION 9.5 Reasonable Time for Winding Up.
A reasonable time shall be allowed for the orderly winding up of
the business and affairs of the Partnership and the liquidation of its
assets pursuant to Section 9.3 in order to minimize any losses otherwise
attendant upon such winding up.
SECTION 9.6 Return of Capital.
The General Partner shall not be personally liable for the return
of the Capital Contributions of the Limited Partners, or any portion
thereof, it being expressly understood that any such return shall be made
solely from Partnership assets.
SECTION 9.7 No Capital Account Restoration.
No Limited Partner or Assignee shall have any obligation to restore
any negative balance in its Capital Account upon liquidation of the
Partnership.
ARTICLE TEN
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS
SECTION 10.1 Books and Records.
(a) The books and records of the Partnership shall be maintained
at the office of the General Partner, at 7175 West Jefferson Avenue, Suite
3000, Lakewood, Colorado 80235 and shall there be available for examination
by any Partner or his duly authorized representatives at all reasonable
times. Any Partner or his duly authorized representatives shall be permitted
access to all records of the Partnership at all reasonable times for
inspection or copying.
(b) An alphabetical list of the names, addresses, and business
telephone numbers of the Class A Limited Partners along with the number of
Units held by each of them (the "Participant List") shall be maintained as a
part of the books and records of the Partnership and shall be available for
inspection by any Class A Limited Partner or its designated agent at the home
office of the Program upon the request of the Class A Limited Partner.
(c) The Participant List shall be updated at least quarterly to
reflect changes in the information contained therein.
(d) A copy of the Participant List shall be mailed to any Class A
Limited Partner requesting the Participant List within ten days of the
request. The copy of the Participant List shall be printed in alphabetical
order, on white paper, and in a readily readable type size (in no event
smaller than 10-point type). A reasonable charge for copy work may be
charged by the Partnership.
(e) The purposes for which a Class A Limited Partner may request a
copy of the Participant List include, without limitation, matters relating to
Class A Limited Partners' voting rights under this Agreement and the exercise
of their rights under federal proxy laws.
(f) If the General Partner of the Partnership neglects or refuses
to exhibit, produce, or mail a copy of the Participant List as requested, the
General Partner shall be liable to any Class A Limited Partner requesting the
list for the costs, including attorneys' fees, incurred by that Class A
Limited Partner for compelling the production of the Participant List, and
for actual damages suffered by any Class A Limited Partner by reason of such
refusal or neglect. It shall be a defense that the actual purpose and reason
for the requests for inspection or for a copy of the Participant List is to
secure such list or other information for the purpose of selling such list or
copies thereof, or of using the same for a commercial purpose other than in
the interest of the applicant as a Class A Limited Partner relative to the
affairs of the Partnership. The General Partner may require the Class A
Limited Partner requesting the Participant List to represent that the list is
not requested for a commercial purpose unrelated to the Class A Limited
Partner's interest in the Partnership. The remedies provided hereunder to
Class A Limited Partners requesting copies of the Participant List are in
addition to, and shall not in any way limit, other remedies available to
Class A Limited Partners under federal law, or the laws of any state.
(g) The General Partner, at the Partnership's expense, shall
retain for five years any appraisal obtained with respect to the value of the
Equipment.
(h) The General Partner or the Dealer-Manager, at the
Partnership's expense, shall retain for the term of the Partnership all
subscription agreements received from Class A Limited Partners and any
additional written information utilized by the General Partner in determining
that all subscribers who have been admitted as Class A Limited Partners have
satisfied the suitability standards as set forth in the Prospectus.
SECTION 10.2 Accounting Method.
The books of the Partnership initially shall be kept on the accrual
basis.
SECTION 10.3 Bank Accounts.
Except as otherwise provided in this Agreement, the bank accounts
of the Partnership shall be maintained in such banking institutions as the
General Partner shall determine. All deposits and other funds not needed in
the operation of the Partnership's business may be invested in United States
government securities, securities issued or guaranteed by United States
government agencies, certificates of deposit and time or demand deposits in
state or national banks having capital (including subordinated capital
notes), surplus and undivided profits aggregating more than $100,000,000,
securities issued or guaranteed by states or municipalities, bank repurchase
agreements, banker's acceptances, commercial paper having investment grade
ratings, securities of mutual funds that invest either in government
securities or tax-exempt securities, and other similar investments. The
funds of the Partnership shall not be commingled with the funds of any other
Person.
SECTION 10.4 Reports.
(a) Within 60 days after the end of each of the first 3 Quarters
of each Year, the Partnership shall send to each Person who was a Record
Holder during such Quarter: (i) a balance sheet; (ii) a statement of income
for the Quarter then ended; (iii) a statement of Cash From Operations and
Cash From Sales for the Quarter then ended (none of which need be audited);
(iv) if the Partnership is registered or required to file reports under
Section 12 or Section 15(d) of the Securities Exchange Act, any other
financial information contained or required to be contained in the
Partnership's Quarterly Report on Form 10-Q for such Quarter, pursuant to
such Exchange Act; and (v) other pertinent information regarding the
Partnership and its activities during such Quarter, including a detailed
statement concerning fees received in such Quarter by the General Partner
or its Affiliates for services rendered to the Partnership. Within 60 days
following the end of each Quarter, until the proceeds of the offering
pursuant to the Prospectus are fully invested or returned to the Partners,
each Partner shall be furnished a report detailing Equipment purchases, which
shall include a statement of the Equipment Purchase Price, the terms of the
purchase, a statement of the total amount of cash expended by the Partnership
to acquire such Equipment (including and itemizing all commissions, fees,
expenses and the name of each payee), and a statement of the amount of
Offering Proceeds that remain unexpended or uncommitted.
(b) The Partnership shall send to each Person who was a Record
Holder at any time during the Year then ended such tax information as shall
be necessary for inclusion by such Record Holder in his federal income tax
return and required state income tax return and other tax information with
regard to jurisdictions in which the Partnership is formed or qualified or
owns investments. The Partnership shall send this information within 75 days
after the end of each calendar Year.
(c) Within 120 days after the end of each Year, the General
Partner shall send to each person who was a Record Holder at any time during
the Year then ended an annual report, including: (i) the balance sheet of
the Partnership as of the end of such Year and statements of operations,
changes in Partners' capital, cash flow, Cash From Operations and Cash From
Sales, all of which, except the statements of Cash From Operations and Cash
From Sales, shall be prepared in accordance with generally accepted
accounting principles consistently applied and accompanied by a report of the
Accountants containing an opinion of the Accountants; (ii) a report of the
activities of the Partnership during the period covered by the report; (iii)
a breakdown of distributions to Partners for the period covered, showing
separately (A) Cash From Operations, (B) Cash From Operations of previous
periods that had been held as Reserves, (C) proceeds from disposition of
Equipment and investments, and (D) Reserves attributable to the Gross
Proceeds of the Offering; (iv) a detailed statement of any transactions with
the General Partner or its Affiliates, and of fees, commissions, compensation
and other benefits paid, or accrued to the General Partner or its Affiliates
for the Year completed, showing the amount paid or accrued to each recipient
and the services performed; and (v) a breakdown of the goods, material and
services provided by, and the amounts actually reimbursed to, the General
Partner. Within the scope of the annual audit of the General Partner's
financial statements, the Accountants shall issue a special report on the
allocation of reimbursed costs to the Partnership in accordance with the
Partnership Agreement. The special report shall at a minimum provide:
(i) a review of the time records of individual
employees, the costs of whose services were reimbursed; and
(ii) a review of the specific nature of the work
performed by each such employee.
The special report shall be in accordance with the American Institute of
Certified Public Accountants United States Auditing standards relating to
special reports. The additional costs of such special report shall be
itemized on a Partnership by Partnership basis and may be reimbursed to the
General Partner by the Partnership only to the extent that such
reimbursement, when added to the cost for administrative services rendered
does not exceed the competitive rate for such services as determined above.
For each piece of Equipment acquired by the Partnership which
individually represents at least 10.0% of the Partnership's total investment
in Equipment, the General Partner shall include a status report as part of
the annual report, which status report shall indicate: (i) condition of
Equipment, (ii) how equipment is being utilized as of the end of year
(leased, operated, held for lease, repair, or sale), (iii) remaining term of
leases, (iv) projected use of Equipment for next year (renew lease, lease,
retire, or sell), and (v) such other information relevant to the value or
utilization of the Equipment as the General Partner deems appropriate. The
status report shall describe the method used or basis for valuation.
(d) A copy of each report referred to in this Section 10.4 shall
be filed with all securities commissions requiring such filing at the time
required by such commissions.
SECTION 10.5 Designation, Duties and Expenses of Tax Matters
Partner.
(a) The General Partner shall be the Tax Matters Partner pursuant
to Code 6231.
(b) The Tax Matters Partner shall have the following duties:
(i) To the extent and in the manner required by
applicable law and regulations, to furnish the name,
address, profits interest and taxpayer identification number
of each Partner to the Secretary of the Treasury or his
delegate (the "Secretary"); and
(ii) To the extent and in the manner required by
applicable law and regulations, to keep each Partner
informed of administrative and judicial proceedings for the
adjustment at the Partnership level of any item required to
be taken into account by a Partner for income tax purposes
("Judicial Review").
(c) Subject to Section 5.8, the Partnership shall indemnify and
reimburse the Tax Matters Partner for all expenses, including legal and
accounting fees, claims, liabilities, losses and damages, incurred in
connection with any administrative or judicial proceeding with respect to the
tax liability of the Partners. The payment of all such expenses shall be
made before any distributions are made from Cash From Operations or Cash From
Sales. Neither the General Partner nor any Affiliate, nor any other Person,
shall have any obligation to provide funds for such purpose. The taking of
any action and the incurring of any expense by the Tax Matters Partner in
connection with any such proceeding, except to the extent required by law, is
a matter in the sole discretion of the Tax Matters Partner; and the
provisions on limitations of liability of the General Partner and
indemnification set forth in Section 5.8 shall be fully applicable to the Tax
Matters Partner in its capacity as such.
SECTION 10.6 Authority of Tax Matters Partner.
The Tax Matters Partner is hereby authorized, but not required:
(a) to enter into any settlement with the IRS or the Secretary
with respect to any tax audit or Judicial Review, in which agreement the Tax
Matters Partner may expressly state that such agreement shall bind the other
Partners, except that such settlement agreement shall not bind any Partner
who (within the time prescribed pursuant to the Code and regulations
thereunder) files a statement with the Secretary providing that the Tax
Matters Partner shall not have the authority to enter into a settlement
agreement on the behalf of such Partner;
(b) if a notice of a final administrative adjustment at the
Partnership level of any item required to be taken into account by a Partner
for tax purposes (a "final adjustment") is mailed to the Tax Matters Partner,
to seek further Judicial Review of such final adjustment, including the
filing of a petition for determination with the Tax Court, the District Court
of the United States for the district in which the Partnership's principal
place of business is located or the United States Claims Court;
(c) to intervene in any action brought by any other Partner for
Judicial Review of a final adjustment;
(d) to file a request for an administrative adjustment with the
Secretary at any time and, if any part of such request is not allowed by the
Secretary, to file a petition for further Judicial Review with respect to
such request;
(e) to enter into an agreement with the IRS to extend the period
for assessing any tax that is attributable to any item required to be taken
into account by a Partner for tax purposes, or an item affected by such item;
and
(f) to take any other action on behalf of the Partners or the
Partnership in connection with any administrative or judicial tax proceeding
to the extent permitted by applicable law or regulations.
ARTICLE ELEVEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 11.1 Meetings.
(a) Meetings of the Limited Partners for any purpose may be called
by the General Partner at any time and shall be called by the General
Partner following receipt of a written request for such a meeting signed by
the holders of 10.0% or more of the Units (a "Written Request"). A Written
Request shall state the purpose of the proposed meeting and the matters
proposed to be acted upon at such meeting. Meetings called by Written
Request shall be held at such reasonable time and place specified by the
General Partner. All other meetings shall be held at the principal office of
the Partnership or at such other place as may be designated by the General
Partner. In addition, the General Partner may, and upon written request of
Class A Limited Partners holding 10.0% or more of the Units shall, submit
any matter upon which the Limited Partners are entitled to act to the Limited
Partners for a vote by written Consent without a meeting.
(b) Notice of any meeting to be held pursuant to Section 11.1(a)
shall be given to each Limited Partner at his record address, or at such
other address that he may have furnished in writing to the General Partner.
Notice shall be given within 10 days following receipt of a Written Request.
Such Notice shall state the place, date and hour of the meeting (which shall
be held on a date not less than 15 days nor more than 60 days after
distribution of such Notice, at the time and place specified in a Written
Request, or if none, at a time and place convenient to the Class A Limited
Partners) and shall indicate that the Notice is being issued at or by the
direction of the Partner or Partners calling the meeting. The Notice shall
state the purpose or purposes of the meeting. If a meeting is adjourned to
another time or place, and if any announcement of the adjournment of time or
place is made at the meeting, it shall not be necessary to give Notice of the
adjourned meeting. The presence in person or by proxy of a Majority Interest
shall constitute a quorum at all meetings of the Limited Partners;
provided that if there be no such quorum, holders of a majority of Units so
present or represented may adjourn the meeting from time to time without
further Notice, until a quorum is obtained. No Notice of the time, place or
purpose of any meeting of Limited Partners need be given to any Limited
Partner who attends in person or is represented by proxy, except for a
Limited Partner attending a meeting for the express purpose of objecting at
the beginning of the meeting to the transaction of any business on the ground
that the meeting is not lawfully called or convened, or to any Limited
Partner entitled to such Notice, who, in writing, executed and filed with the
records of the meeting, either before or after the time thereof, waives such
Notice.
(c) For the purpose of determining the Limited Partners entitled
to vote at any meeting of the Limited Partners, or any adjournment thereof,
or to vote by written Consent without a meeting, the General Partner or the
Limited Partners requesting such meeting or vote may fix, in advance, a date
as the Record Date of any such determination of Limited Partners. Such date
shall not be more than 50 days nor less than 10 days before any such meeting
or submission of a matter to the Limited Partners for a vote by written
Consent.
(d) At each meeting of Limited Partners, the Limited Partners
present or represented by proxy shall elect such officers and adopt such
rules for the conduct of such meeting as they shall deem appropriate.
SECTION 11.2 Voting Rights of Limited Partners.
(a) Without the concurrence of the General Partner and any
Affiliates, Class A Limited Partners may, by the vote of a Majority Interest:
(i) amend this Agreement, subject to the
conditions that such amendment may not (A) in any manner
allow the Limited Partners to take part in the management or
control of the Partnership's business or otherwise modify
their limited liability, (B) without the Consent of the
General Partner affected, alter any of the rights, powers
and duties of such General Partner as set forth in Article
Five, the percentage interest of such General Partner in
Profits or Losses or distributions as set forth in this
Agreement, or (C) without the Consent of a Class B Majority,
adversely affect the percentage interest of the Class B
Limited Partner in Profits or Losses or distributions as set
forth in this Agreement;
(ii) approve or disapprove the sale of all or
substantially all of the assets of the Partnership;
(iii) dissolve the Partnership; or
(iv) remove any General Partner and elect a
replacement therefor, which replacement shall become a
General Partner only in accordance with Section 6.2. If the
Limited Partners vote to remove a General Partner pursuant
to this Section 11.2, they shall provide the removed General
Partner with notice thereof, which notice shall set forth
the Removal Effective Date, which under this Article Eleven,
shall be the date of the vote of a Majority Interest to
remove any General Partner. Any General Partner removed
pursuant to this Article Eleven shall remain liable for all
obligations and liabilities incurred by it as a General
Partner arising out of events occurring before the Removal
Effective Date, but shall be free of any obligation or
liability as a General Partner incurred on account of the
activities of the Partnership from and after the Removal
Effective Date.
(b) A Class A Limited Partner shall be entitled to cast one vote
for each Unit that he owns: (i) at a meeting, in person, by written proxy or
other signed writing directing the manner in which he desires that the vote
be cast ("Proxy"), which writing must be received by the General Partner
prior to such meeting; or (ii) without a meeting, by a Proxy, which must be
received by the General Partner prior to the date upon which the votes of
Limited Partners are to be counted. Every Proxy must be signed by the Class
A Limited Partner or his attorney-in-fact. A Proxy shall not be valid after
the expiration of 12 months from the date thereof, unless otherwise provided
in the Proxy, and shall be revocable at any time at the pleasure of the Class
A Limited Partner executing it. Only the votes of Limited Partners of record
on the Record Date, whether at a meeting or otherwise, shall be counted. The
General Partner shall not be entitled to vote in its capacity as General
Partner. In matters submitted to Limited Partners regarding the removal of a
General Partner or any transaction between the Partnership and a General
Partner, units beneficially owned by a General Partner (or its Affiliates)
which (i) is proposed to be removed by the vote of a Majority Interest, or
(ii) has an interest in the transaction which is the subject of the vote,
shall not be voted on any such question and shall not be counted as
outstanding in calculating whether the vote of a Majority Interest has been
obtained. The laws of the State of Delaware pertaining to the validity and
use of corporate proxies shall govern the validity and use of proxies given
by the Limited Partners.
(c) The Class B Limited Partner shall not be permitted a vote on
any matter except as provided in Sections 6.2(a), 9.2 and 11.2(a)(i). To the
extent the Class B Limited Partner is not permitted a vote on any matter
pursuant to this Section 11.2(c), the General Partner may execute any
amendment hereto or other required document on its behalf pursuant to the
power-of-attorney granted in Section 13.1.
SECTION 11.3 Management of the Partnership.
No Limited Partner in his capacity as such shall take part in the
management or control of the business of the Partnership or transact any
business in the name of the Partnership. No Limited Partner shall have the
power or authority to bind the Partnership or to sign any agreement or
document in the name of the Partnership. No Limited Partner shall have any
power or authority with respect to the Partnership except insofar as the
Consent of the Limited Partners shall be expressly required by this
Agreement. The exercise by the Limited Partners of any of their voting or
other rights pursuant to and in accordance with this Agreement shall not
constitute participating in or management or control over Partnership
business.
SECTION 11.4 Other Activities.
The Limited Partners may engage in or possess interests in other
business ventures of any kind and description for their own accounts.
Neither the Partnership nor any of the Partners shall have any rights by
virtue of this Agreement in or to such business ventures or to the income or
profits derived therefrom.
ARTICLE TWELVE
NON-FOREIGN STATUS
SECTION 12.1 Certification of Non-Foreign Status.
(a) Each Limited Partner shall, upon subscribing for a Unit,
certify whether he is a "United States Person" within the meaning of Code
7701(a)(30) on forms to be provided by the General Partner at the time of
subscription. If at any time a Unit is transferred or Assigned, the
transferee shall certify as to whether he is a United States Person.
(b) Each Partner shall notify the General Partner if he is no
longer a United States Person within 30 days of such change.
(c) Prior to a distribution by the Partnership (or other event
that may create an obligation on the Partnership to withhold tax under
Chapter 3 of the Code), each Partner may be required by the General Partner
to certify as to whether he is a United States Person.
(d) All certifications under this Section 12.1 shall be made on a
form to be provided by the General Partner.
SECTION 12.2 Withholding on Certain Amounts Attributable
to Interests of Non-Resident Alien Partners.
Any tax required to be withheld under Chapter 3 of the Code shall
be charged to that non-resident alien Partner's Capital Account as if the
amount of such tax had been distributed to such Partner. For purposes of
this Section 12.2, any person who fails to provide a certification that he is
a United States Person when requested to do so by the General Partner shall
be treated as a non-resident alien.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
SECTION 13.1 Appointment of General Partner As Attorney-
In-Fact.
(a) Each Limited Partner, by the execution of this Agreement,
irrevocably constitutes and appoints, with full power of substitution, the
General Partner, the President and any Vice-President or Director of any
corporate General Partner, the general partner of any partnership General
Partner and each of them acting singly, his true and lawful attorney-in-fact
with full power and authority in his name, place and stead, to execute,
certify, acknowledge, deliver, swear to, file and record at the appropriate
public offices such documents as may be necessary or appropriate to carry out
the provisions of this Agreement, including without limitation the following:
(i) execution and filing of all certificates and
other instruments (including counterparts of this Agreement
and the Certificate, and any amendment thereof, that any
such Person deems appropriate to form, qualify or continue
the Partnership as a limited partnership (or a partnership
in which the Limited Partners shall have limited liability
comparable to that provided by the Delaware Act on the date
hereof) in any jurisdiction in which the Partnership may
conduct business or in which such formation, qualification
or continuation is, in the opinion of any such Person,
necessary to protect the limited liability of the Limited
Partners;
(ii) execution and filing of any other instrument
or document that may be required to be filed by the
Partnership under the laws of any state or that any such
Person deems advisable to file;
(iii) execution and filing of all amendments to
this Agreement and the Certificate adopted in accordance
with the terms hereof and all instruments that any such
Person deems appropriate to reflect a change or modification
of the Partnership in accordance with the terms of this
Agreement; and
(iv) execution and filing of any instrument or
document, including amendments to this Agreement and the
Certificate, that may be required to effect the continuation
of the Partnership, the admission of a Limited Partner or
substituted Limited Partner or an additional or successor
General Partner, or the dissolution and termination of the
Partnership (provided such continuation, admission or
dissolution and termination are in accordance with the terms
of this Agreement), or to reflect any reductions in the
amount of Capital Contributions.
(b) The appointment by each Limited Partner of each such Person as
his attorney-in-fact is irrevocable and shall be deemed to be a power coupled
with an interest, in recognition of the fact that each of the Partners under
this Agreement shall be relying upon the power of such Person to act as
contemplated by this Agreement in any filing and other action by such Person
on behalf of the Partnership, and shall survive the Bankruptcy, death,
incompetence or dissolution of any Person hereby giving such power and the
transfer or assignment of all or any part of the Partnership Interests of
such Person; provided that, in the event of the transfer by a Limited Partner
of all or any part of his Partnership Interests, the foregoing power of
attorney of a transferor Limited Partner shall survive such transfer only
until such time, if any, as the transferee shall have been admitted to the
Partnership as a substituted Limited Partner and all required documents and
instruments shall have been duly executed to effect such substitution.
SECTION 13.2 Signatures; Amendments.
(a) Each Limited Partner, General Partner, additional General
Partner and successor General Partner shall become a signatory hereto by
signing, directly or by an attorney-in-fact, this Agreement and such other
instrument or instruments, and in such manner and at such time, as the
General Partner shall determine. By so signing, each such Limited Partner,
General Partner, or additional or successor General Partner shall be deemed
to have adopted, and to have agreed to be bound by, all the provisions of
this Agreement, as amended from time to time; provided that no such
counterpart shall be binding until it shall have been accepted by the General
Partner.
(b) In addition to any amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time by the General
Partner, without the Consent of the Limited Partners, to: (i) add to the
representations, duties or obligations of the General Partner or surrender
any right or power granted to the General Partner herein; (ii) cure any
ambiguity, correct or supplement any provision herein that may be
inconsistent with any other provision herein or make any other provision with
respect to matters or questions arising under this Agreement that shall not
be inconsistent with the provisions of this Agreement; (iii) change the name
of the Partnership; and (iv) delete or add any provision of this Agreement
required to be deleted or added by the staff of the Commission or other
federal agency or by a state securities commissioner or other governmental
official, which deletion or addition is deemed by such Commission, agency or
official to be for the benefit or protection of, or not adverse to, the
Limited Partners; provided that no amendment shall be adopted pursuant to
this Section 13.2(b) unless the adoption thereof (A) is for the benefit of or
not adverse to the interests of the Limited Partners, (B) is consistent with
Section 11.3, (C) does not affect the distribution of Cash From Operations,
Cash From Sales, Liquidation Proceeds or the allocation of Profits and Losses
for tax purposes among the Limited Partners, and (D) does not affect the
limited liability of the Limited Partners or the status of the Partnership as
a partnership for federal income tax purposes.
(c) If this Agreement shall be amended as a result of adding or
substituting a Limited Partner, the amendment to this Agreement need only be
signed by one General Partner. If this Agreement or the Certificate shall be
amended to reflect the designation of an additional General Partner, such
amendment shall be signed by at least one General Partner and by such
additional General Partner. If this Agreement or the Certificate shall be
amended to reflect the Withdrawal of a General Partner when the business of
the Partnership is being continued, such amendment shall be signed by at
least one General Partner other than the withdrawing General Partner;
provided that, in each such case, such signature shall have been authorized
by all General Partners other than the withdrawing General Partner.
(d) In making any amendments, there shall be prepared and filed by
the General Partner for recording such documents and certificates as shall be
required to be prepared and filed under the Delaware Act and under the laws
of any other jurisdictions under which the Partnership is then formed or
qualified.
(e) Any provision to the contrary herein notwithstanding, the
General Partner may, without the consent of a Majority Interest, make any
technical changes to the provisions of this Agreement to conform the
allocations set forth in Article Four to the requirements of regulations
under Code 704(b) and 704(c). Any amendment made by the General Partner in
accordance with this Section 13.2(e) shall be made pursuant to appropriate
advice of counsel, and shall be deemed to have been made pursuant to the
fiduciary obligations of the General Partner to the Partnership and the
Limited Partners.
SECTION 13.3 Ownership By Limited Partners of General Partner
or Its Affiliates.
Except as to the holding of any Class A Units by the General
Partner and its Affiliates for their own accounts, as permitted by Section
3.4, no Limited Partner shall at any time, either directly or indirectly, own
any stock or other interest in any General Partner or in any Affiliate of any
General Partner if such ownership by itself or in conjunction with the stock
or other interest owned by other Limited Partners would, in the Opinion of
Counsel, jeopardize the classification of the Partnership as a partnership
for federal income tax purposes. Each Limited Partner shall promptly supply
any information requested by the General Partner in order to establish
compliance by the Limited Partner with the provisions of this Section 13.3.
SECTION 13.4 Notices.
All Notices under this Agreement shall be in writing and shall be
given to the Partners entitled thereto by personal service or by certified
or registered mail, return receipt requested, to the Limited Partners, at
their respective addresses on file with the General Partner and, to the
General Partner, at the principal place of business of the Partnership as set
forth in this Agreement or as changed by Notice given pursuant hereto. The
date of personal delivery or the date of mailing thereof, as the case may be,
shall be deemed the date of receipt of Notice.
SECTION 13.5 Binding Provisions.
The covenants and agreements contained herein shall be binding
upon, and inure to the benefit of, the heirs, executors, administrators,
personal representatives, successors and permitted assigns of the respective
parties hereto.
SECTION 13.6 Applicable Law.
This Agreement shall be governed and construed and enforced in
accordance with the laws of the State of Delaware without regard to
principles of conflict of laws; provided, however, that causes of action for
violations of federal or state securities laws shall not be governed by this
Section 13.6.
SECTION 13.7 Counterparts.
This Agreement may be executed in several counterparts, all of
which together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not executed the same counterpart,
except that no counterpart shall be binding unless executed by the General
Partner.
SECTION 13.8 Separability of Provisions.
Each provision of this Agreement shall be considered separable and
if, for any reason, any provision or provisions hereof are determined to be
invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those portions of this Agreement that are
valid.
SECTION 13.9 Captions.
Article and Section titles and any table of contents are for
convenience of reference only and shall not control or alter the meaning of
this Agreement as set forth in the text.
SECTION 13.10 Partnership Property; No Partition.
No Partner or successor in interest to any Partner may have any
property of the Partnership partitioned or, except as provided by applicable
law, file a complaint or institute any proceeding at law or in equity to have
the property partitioned, and each Partner, for itself, its successors,
representatives and permitted assigns, hereby waives any right to proceed
under any applicable law or otherwise to partition any Partnership property.
Any creditor of a Partner shall have recourse only against such Partner's
interest in the Partnership, but such creditor shall not have any recourse
against the property of the Partnership.
SECTION 13.11 No Benefit to Third Parties.
The provisions of this Agreement shall not be construed for the
benefit of or enforceable by a Person not a party hereto, including without
limitation limited to any creditor of any Partner or any of their Affiliates.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
GENERAL PARTNER:
CAI Equipment Leasing IV Corp.
By: /s/John F. Olmstead
----------------------------------
John F. Olmstead, President
CLASS B LIMITED PARTNER:
Capital Associates International, Inc.
By: /s/John F. Olmstead
----------------------------------
Title: Vice President
WITHDRAWING ORIGINAL LIMITED PARTNER:
/s/John F. Olmstead
----------------------------------
John F. Olmstead
CLASS A LIMITED PARTNERS:
By: CAI Equipment Leasing IV Corp.
By: /s/John F. Olmstead
----------------------------------
John F. Olmstead, President
As Attorney-in-Fact for such Class A
Limited Partners
Exhibit 23
Consent of Independent Auditors
Board of Directors
Capital Associates, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Capital Associates, Inc. of our report dated June 30, 1994 relating to
the consolidated balance sheets of Capital Associates, Inc. and subsidiaries as
of May 31, 1994 and 1993, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows and related schedules for the
years then ended, which report appears in the May 31, 1994 annual report on Form
10-K of Capital Associates, Inc.
KPMG Peat Marwick
/s/KPMG Peat Marwick
- - ---------------------------------
KPMG Peat Marwick
Denver, Colorado
July 14, 1994
