SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended November 30, 1997
[ ] 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 Identification No.)
incorporation or organization)
7175 WEST JEFFERSON AVENUE, LAKEWOOD, COLORADO 80235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 980-1000
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
The number of shares outstanding of the Registrant's $.008 par value common
stock at January 16, 1998, was 5,077,007.
Exhibit Index - Page 18
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<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
PART I. FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - November 30, 1997
and May 31, 1997 3
Consolidated Statements of Income - Three and Six
Months Ended November 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Six Months Ended November 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Exhibit Index 18
Signature 20
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<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
ASSETS
November 30, May 31,
1997 1997
----------- --------
Cash and cash equivalents $ 9,861 $ 6,194
Receivables from affiliated limited partnerships 437 726
Accounts receivable, net 2,936 417
Equipment held for sale or re-lease 2,196 1,242
Residual values and other receivables arising from
equipment under lease sold to private investors 2,908 4,334
Net investment in direct finance leases 19,033 7,700
Leased equipment, net 71,647 71,443
Investments in affiliated limited partnerships 6,577 6,642
Deferred income taxes 2,300 2,300
Other assets 5,631 3,674
Discounted lease rentals assigned to lenders
arising from equipment sale transactions 35,000 41,845
-------- --------
$158,526 $146,517
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Recourse bank debt $ 20,380 $ 20,712
Accounts payable - equipment purchases 28,093 30,231
Other liabilities 13,634 10,607
Discounted lease rentals 72,042 61,466
--------- ---------
134,149 123,016
--------- ---------
Stockholders' equity:
Common stock 32 32
Additional paid-in capital 16,855 16,897
Retained earnings 7,730 6,854
Treasury stock (240) (282)
--------- ---------
Total stockholders' equity 24,377 23,501
--------- ---------
$ 158,526 $ 146,517
========= =========
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except earnings per share)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Equipment sales to affiliated
limited partnerships $ 12,321 $ 17,645 $ 23,703 $ 30,077
Other equipment sales 54,458 46,435 78,933 65,039
Leasing 4,132 3,761 8,549 7,736
Interest 937 1,052 1,892 2,230
Other 1,391 718 2,200 1,496
---------- ---------- ---------- ----------
Total revenue 73,239 69,611 115,277 106,578
---------- ---------- ---------- ----------
Costs and expenses:
Equipment sales 49,466 62,864 84,003 92,996
Equipment acquired from
affiliated limited partnership 15,338 - 15,338 -
Leasing 2,849 2,195 5,653 4,278
Operating and other 2,603 2,171 5,093 4,684
Provision for losses 230 80 400 105
Interest:
Non-recourse debt 1,318 1,430 2,667 2,981
Recourse debt 455 543 955 1,022
---------- ---------- ---------- ----------
Total costs and expenses 72,259 69,283 114,109 106,066
---------- ---------- ---------- ----------
Net income before income taxes 980 328 1,168 512
Income tax expense 245 82 292 128
---------- ---------- ---------- ----------
Net income $ 735 $ 246 $ 876 $ 384
========== ========== ========== ==========
Earnings per common and dilutive
common equivalent share: $ 0.14 $ 0.05 $ 0.16 $ 0.07
========== ========== ========== ==========
Weighted average number of common and dilutive
common equivalent shares outstanding used in
computing earnings per share: 5,383,000 5,384,000 5,375,000 5,342,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
---------------------
November 30,
1997 1996
--------- ---------
Net cash provided by operating activities $ 27,007 $ 21,729
-------- --------
Cash flows from investing activities:
Equipment purchased for leasing, net (23,084) (20,806)
Investment in leased office facility and
capital expenditures (371) (170)
Net receipts from affiliated limited partnerships 544 940
-------- --------
Net cash used for investing activities (22,911) (20,036)
-------- --------
Cash flows from financing activities:
Proceeds from discounting of lease rentals 5,334 1,527
Principal payments on discounted lease rentals (5,456) (4,194)
Proceeds from sales of common stock 25 6
Purchase of non-employee stock options - (138)
Net borrowings (payments) on revolving credit
facilities (965) 3,491
Net borrowings (payments) on Term Loan 633 (2,167)
-------- --------
Net cash used for financing activities (429) (1,475)
-------- --------
Net increase in cash and cash equivalents 3,667 218
Cash and cash equivalents at beginning of period 6,194 2,851
-------- --------
Cash and cash equivalents at end of period $ 9,861 $ 3,069
======== ========
Supplemental schedule of cash flow information:
Recourse interest paid $ 955 $ 1,022
Non-recourse interest paid 776 749
Income taxes paid 225 87
Income tax refunds received 70 314
Supplemental schedule of non-cash investing and
financing activities:
Increase in residual values and other receivables
relating to equipment sale transactions 1,540 1,286
Discounted lease rentals assigned to lenders arising
from equipment sales transactions 942 -
Assumption of discounted lease rentals in lease
acquisitions 18,498 -
Fair value of assets acquired, net of cash 5,342 -
Liabilities assumed and incurred in acquisition 5,342 -
The accompanying notes are an integral part
of these consolidated financial statements.
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<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for annual financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments)
considered necessary for a fair presentation have been included. For
further information, please refer to the financial statements of Capital
Associates, Inc. (the "Company"), and the related notes, included within
the Company's Annual Report on Form 10-K for the fiscal year ended May 31,
1997 (the "1997 Form 10-K"), previously filed with the Securities and
Exchange Commission.
The balance sheet at May 31, 1997 has been derived from the audited
financial statements included in the Company's 1997 Form 10-K.
2. Acquisition
-----------
Effective November 1, 1997, CAII acquired all of the outstanding shares of
DBL, Inc. d/b/a Connecting Point, in exchange for $1,200,000 in cash (paid
in December and included in Other Liabilities) and a $2,140,000 four year
note. The Company may be required to make additional payments of up to
$221,750 per year ending October 31, 2001, contingent upon the results of
Connecting Point's operations over the course of that period. Connecting
Point is a desktop information technology solutions integrator and
equipment reseller.
The $2,140,000 note payable to the sellers (included in Other Liabilities)
earns interest at the rate of 10% per annum and is payable in monthly
installments of $58,000 beginning December 12, 1997 through November 12,
2000, and $42,056.86 beginning December 12, 2000 and continuing through
November 12, 2001. Interest expense from the date of acquisition through
November 30, 1997 was approximately $18,000. The note is secured by a
second lien in all the assets of Connecting Point.
The acquisition has been accounted for using the purchase method of
accounting, and accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based on their fair values at the
date of acquisition. The excess of the purchase price over the fair values
of the net assets acquired of approximately $2.0 million (which will
increase for any future contingent cash payment), has been recorded as
goodwill, and is being amortized on a straight-line basis over 15 years.
The amount of goodwill amortized during the quarter ended November 30, 1997
was approximately $11,000.
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<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Acquisition, continued
-----------
The Company's Consolidated Statements of Operations reflect the results of
operations for Connecting Point for the period from acquisition through
November 30, 1997, which was not significant.
3. Recourse Bank Debt
------------------
On November 26, 1997, the Company obtained a new $60 million senior,
secured debt facility (the "Senior Facility") in the form of a term loan
("Term Loan"), an acquisition term loan ("Acquisition Term Loan"), working
capital revolving credit loans ("Working Capital Facility") and warehouse
revolving credit loans ("Warehouse Credit Facility"). The lender group
consists of the agent bank, CoreStates Bank, N.A., and participating
lenders, BankBoston, N.A., Colorado National Bank, Norwest Bank Colorado,
N.A., and European America Bank (the "Lender Group"). The term of the
Senior Facility expires on November 25, 1998 and may be renewed annually in
Lender's sole discretion. Interest on the Senior Facility is tied to the
Lender Group's prime rate or the LIBOR rate (8.25% and 5.685%, respectively
at November 30, 1997) plus the Applicable Margin. The principal terms of
the Senior Facility are as follows:
<TABLE>
<CAPTION>
Warehouse Working Term Acquisition
(Dollars in thousands) Credit Facility Capital Facility Loan Term Loan
--------------- ---------------- ------- -----------
<S> <C> <C> <C> <C>
Maximum Amount $ 51,000 $ 5,000 $ 2,800 $ 1,200
Borrowings at
November 30, 1997 19,000 5,000 2,800 -0-
Potential availability at
November 30, 1997 32,000 -0- -0- 1,200
Applicable Prime Rate Margin 0.0% .25% .75% .75%
Applicable LIBOR Rate Margin 2.5% 2.75% 3.00% 3.00%
</TABLE>
The Term Loan has an amortization term of two years with a balloon payment
of $1.4 million. The Acquisition Term Loan has an amortization term of four
years. The Acquisition Term Loan commitment is expected to be funded by the
Lender Group during January 1998. The proceeds will be used for the
Connecting Point acquisition discussed in Footnote 2 of the Notes to
Consolidated Financial Statements.
The Company is required to pay a quarterly commitment fee equal to .375% of
the unused portion of the Working Capital Facility and the Warehouse Credit
Facility. The Senior Facility contains certain provisions which limit the
Company as to additional indebtedness, sale of assets, liens, guarantees,
and distributions. Additionally, the Company must maintain certain
specified financial ratios. The Senior Facility replaces the terminated
Bank Facility, which was to expire under its terms as of November 30, 1997.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
I. Results of Operations
---------------------
GENERAL COMMENTS
Operating results are subject to fluctuations resulting from several
factors, including (i) the seasonality of lease originations, (ii)
variations in the relative percentages of the Company's leases entered into
during the period which are classified as DFLs or OLs, or are sold for fee
income and (iii) the level of fee income obtained from the sale of leases
in excess of lease equipment cost. The Company will adjust its mix of OLs
and DFLs and volume of leases sold to private investors from time to time,
when and as the Company determines that it would be in its best interests,
taking into account profit opportunities, portfolio concentration, residual
risk and its fiduciary duty to originate leases for its PIFs.
Because the Company finances certain of its lease transactions with
recourse and non-recourse debt, the ultimate profitability of leasing
transactions is dependent, in part, on the difference between the interest
rate inherent in the lease and the underlying debt rate. Certain of the
Company's competitors have access to lower cost funds than the Company.
However, the Company has developed relationships with various private
investors and formed various strategic alliances with investors that have a
lower cost of capital enabling the Company to originate and sell leases at
competitive prices. Currently, as a result of the present relatively low
interest rate environment and resulting relatively low lease rates, the
Company sells the majority of leases it originates to private investors
having a lower cost of capital than the Company.
LEASE ORIGINATIONS
Presented below is a schedule showing volume and placement of new lease
originations during the six months ended November 30, 1997 and November 30,
1996, respectively (in thousands):
Six Months Ended
--------------------------
November 30, November 30,
1997 1996
------------ ------------
Placement of lease originations:
Equipment under lease sold to PIFs $ 24,000 $ 28,000
Equipment under lease sold to private investors 75,000 45,000
Leases added to the Company's lease
portfolio (a significant portion of
which will subsequently be sold) 21,000 39,000
-------- --------
Total lease origination volume $120,000 $112,000
======== ========
Leasing is an alternative to financing equipment with debt. Therefore, the
ultimate profitability of the Company's leasing transactions is dependent,
in part, on the general level of interest rates. Lease rates tend to rise
and fall with interest rates, although lease rate movements generally lag
interest rate movements.
8 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
I. Results of Operations, continued
---------------------
LEASE ORIGINATIONS, continued
The Company is able to originate a certain amount of leases with higher
lease rates. Such leases are generally sold to the PIF's because, as PIF
sponsor, the Company has a fiduciary responsibility to maximize investor
returns and does so by blending the higher yielding transactions with
investment grade credit quality leases having lower rates. However, given
the present market environment, the number of higher yielding transactions
having adequate credit quality is limited, and consequently, the volume of
leases available for sale to the PIF's is limited. The Company's response
to these conditions has been to limit the amount of funds it raises from
PIF investors. Consequently, future equipment sales to PIF's are expected
to comprise a smaller percentage of total placements of new lease
originations.
The Company continues to evaluate additional sources of capital (including
sources such as securitization, a private debt placement and/or a secondary
stock offering) which would provide the liquidity necessary to
significantly add leases to its own portfolio. The goal of such financing
would be to lower the Company's cost of capital and expand the availability
of capital. The Company believes this will enable it to originate leases
for its own portfolio which have competitive market lease rates and good
credit quality. The Company believes that in the present market there are
significant opportunities to originate leases having these characteristics.
However, the Company's present capital structure (i.e., both cost of
capital and amount available) precludes taking full advantage of market
opportunities for such leases. Should the Company be successful in
identifying and closing on new sources of capital (for which no assurance
can be given), it intends to grow its own lease portfolio.
INTERIM FINANCIAL RESULTS
Presented below are schedules showing condensed income statement categories
and analyses of changes in those condensed categories derived from the
Consolidated Statements of Income (in thousands), prepared solely to
facilitate the discussion of results of operations that follows:
<TABLE>
<CAPTION>
Condensed Consolidated Condensed Consolidated
Statements of Income The effect on Statements of Income The effect on
for the three months net income for the six months net income
ended November 30, of changes ended November 30, of changes
---------------------- between ---------------------- between
1997 1996 years 1997 1996 years
--------- ---------- ------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Equipment sales margin $ 1,975 $ 1,216 $ 759 $ 3,295 $ 2,120 $ 1,175
Leasing margin (net of interest
expense on discounted lease rentals) 902 1,188 (286) 2,121 2,707 (586)
Other income 1,391 718 673 2,200 1,496 704
Operating and other expenses (2,603) (2,171) (432) (5,093) (4,684) (409)
Provision for losses (230) (80) (150) (400) (105) (295)
Interest expense on recourse debt (455) (543) 88 (955) (1,022) 67
Income taxes (245) (82) (163) (292) (128) (164)
------- ------- ------- ------- ------- -------
Net income $ 735 $ 246 $ 489 $ 876 $ 384 $ 492
======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
I. Results of Operations, continued
---------------------
INTERIM FINANCIAL RESULTS, continued
EQUIPMENT SALES
Equipment sales revenue and the related equipment sales margin consists of
the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------- Increase
November 30, 1997 November 30, 1996 (Decrease)
------------------- --------------------- -----------------
Revenue Margin Revenue Margin Revenue Margin
-------- ------ -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Transactions during initial lease term:
Equipment under lease sold to PIFs $ 12,321 $ 264 $ 17,645 $ 372
Equipment under lease sold to private investors 51,215 471 45,778 590
-------- ------- -------- -------
63,536 735 63,423 962 $ 113 $ (227)
-------- ------- -------- ------- ------- ------
Transactions subsequent to initial lease term
(remarketing revenue):
Sales of off-lease equipment 2,593 590 548 147
Sales-type leases 56 56 61 59
Excess collections (cash collections in excess
of the associated residual value from equipment
under lease sold to private investors) 594 594 48 48
-------- ------- -------- -------
3,243 1,240 657 254 2,586 986
Deduct related provision for losses - (230) - (80) - (150)
-------- ------- -------- ------- ------- ------
Realization of value in excess of provision
for losses 3,243 1,010 657 174 2,586 836
Add back related provision for losses - 230 - 80 - 150
-------- ------- -------- ------- ------- ------
3,243 1,240 657 254 2,586 986
-------- ------- -------- ------- ------- ------
Total equipment sales $ 66,779 $ 1,975 $ 64,080 $ 1,216 $ 2,699 $ 759
======== ======= ======== ======= ======= ======
Six Months Ended
----------------------------------------------- Increase
November 30, 1997 November 30, 1996 (Decrease)
------------------- --------------------- -----------------
Revenue Margin Revenue Margin Revenue Margin
-------- ------ -------- ------- ------- ------
Transactions during initial lease term:
Equipment under lease sold to PIFs $ 23,703 $ 530 $ 30,077 $ 643
Equipment under lease sold to private investors 74,983 903 64,018 957
--------- ------- -------- -------
98,686 1,433 94,095 1,600 $ 4,591 $ (167)
--------- ------- -------- ------- ------- -------
Transactions subsequent to initial lease term
(remarketing revenue):
Sales of off-lease equipment 2,721 633 772 273
Sales-type leases 56 56 61 59
Excess collections (cash collections in excess of
the associated residual value from equipment
under lease sold to private investors) 1,173 1,173 188 188
--------- ------- -------- -------
3,950 1,862 1,021 520 2,929 1,342
Deduct related provision for losses - (400) - (105) - (295)
--------- ------- -------- ------- ------- -------
Realization of value in excess of provision for losses 3,950 1,462 1,021 415 2,929 1,047
Add back related provision for losses - 400 - 105 - 295
--------- ------- -------- ------- ------- -------
3,950 1,862 1,021 520 2,929 1,342
--------- ------- -------- ------- ------- --------
Total equipment sales $ 102,636 $ 3,295 $ 95,116 $ 2,120 $ 7,520 $ 1,175
========= ======= ======== ======= ======== =======
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
I. Results of Operations, continued
---------------------
Equipment Sales to PIF's
------------------------
Equipment sales to the PIFs decreased and are expected to decrease further
because three of the PIFs are in their planned liquidation stage. Once a
PIF enters the liquidation stage, it no longer acquires equipment under
lease. Presently, two PIFs are actively acquiring leases compared to four
PIFs which were actively acquiring leases during fiscal 1997.
Equipment Sales to Private Investors
------------------------------------
Equipment sales to private investors increased principally because more
leases were identified and closed as a result of increased productivity of
the field lease originations team. The increased volume of the field lease
originators is primarily due to (i) the Company's efforts to improve its
marketing activities, including focusing on customer relationships and
vertical integration (i.e., the development of specialized equipment and
remarketing expertise) and (ii) the development of strategic alliances with
investors having lower cost of capital enabling the Company to originate
and sell leases at competitive prices.
During the three months ended November 30, 1997 and 1996, payments from one
lessee accounted for 11% and 14%, respectively, of total leasing revenue
and 11% and 14% for the six months ended November 30, 1997 and 1996,
respectively. In addition, other equipment sales revenue related to
equipment leased to that lessee accounted for 27% and 62% of total other
equipment sales revenue during the three months ended November 30, 1997 and
1996, respectively and 28% and 62% for the six months ended November 30,
1997 and 1996, respectively.
Remarketing of the Portfolio and Related Provision for Losses
-------------------------------------------------------------
The Company has successfully realized gains on the remarketing of its
portfolio of equipment after the initial lease term for the past twenty-two
consecutive quarters. The remarketing of equipment for an amount greater
than its book value is reported as part of equipment sales margin (if the
equipment is sold) or leasing margin (if the equipment is re-leased). The
realization of less than the carrying value of equipment is recorded as
provision for losses (which is typically not known until remarketing after
the expiration of the initial lease term). As shown in the table above, the
realizations from sales exceeded the provision for losses during the three
and six months ended November 30, 1997 and November 30, 1996, even without
considering realizations from remarketing activities recorded as leasing
margin.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
I. Results of Operations, continued
---------------------
Remarketing of the Portfolio and Related Provision for Losses, continued
--------------------------------------------------------------
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 equipment's remarketability,
upgrade potential and the probability that the equipment will remain in
place at the end of the initial lease term. The nature of the Company's
leasing activities is that it has credit and residual value exposure and,
accordingly, in the ordinary course of business, it will incur losses
arising from these exposures. The Company performs quarterly assessments of
its assets to identify other than temporary losses in value. The Company's
policy is to record allowances for losses as soon as any
other-than-temporary declines in asset values are known. However,
chargeoffs are recorded upon the termination or remarketing of the
underlying assets. As such, chargeoffs will primarily occur subsequent to
the recording of the allowances for losses.
Margins from remarketing sales (i.e., sales occurring after the initial
lease term) are affected by the number and dollar amount of equipment
leases that mature in a particular quarter. As shown in the tables above,
because (i) the Company sold substantially all new lease originations to
its PIFs or private investors and retained very few lease originations for
its own account during the fiscal years preceding fiscal year 1995, and
(ii) in accordance with GAAP, the Company does not consolidate the results
of its PIFs, generally, each quarter, fewer leases mature and less
equipment is available for remarketing. However, revenue from remarketing
sales increased during the three and six months ended November 30, 1997,
compared to the three and six months ended November 30, 1996, primarily due
to the sale of investor-owned grocery store furniture and fixtures on which
the Company had a retained residual interest. Although fluctuations will
occur as discussed in the preceding sentence, in general, remarketing
revenue and margin are expected to remain at levels which are lower than
fiscal 1997 and prior years. 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.
However, adding leases to the Company's portfolio will not immediately
increase the pool of maturing leases because new leases typically are not
remarketed until after their initial term (which averages approximately
four years).
The provision for losses recorded during the three and six months ended
November 30, 1997 primarily related to the following:
* Other-than-temporary declines in the value of equipment which occurred
primarily because lessees returned equipment to the Company at the end
of lease. The Company had previously expected to realize the carrying
value of such equipment through lease renewals and proceeds from sales
of the equipment to the original lessees. The fair market value of the
equipment re-leased or sold to third parties is considerably less than
was anticipated, and
12 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
I. Results of Operations, continued
----------------------
Remarketing of the Portfolio and Related Provision for Losses, continued
--------------------------------------------------------------
* The anticipated sale of two off-lease commuter aircraft. The Company
engaged MCC Financial, an expert commuter aircraft remarketer, to
remarket the aircraft. That agent determined that the aircraft could
be released within a reasonable remarketing period for an amount that
would recover the Company's full carrying value over time, or sold for
cash immediately but at a book loss. The Company has elected to sell
the aircraft immediately after determining that the proceeds could be
more effectively redeployed in its vertical integration activities and
for the equity portion of a potential financing program for leases.
The provision for loss reflects sales offers the Company has received.
LEASING MARGIN
Leasing margin consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Leasing revenue $ 4,132 $ 3,761 $ 8,549 $ 7,736
Leasing costs and expenses (2,849) (2,195) (5,653) (4,278)
Net non-recourse interest expense
on related discounted lease rentals (381) (378) (775) (751)
--------- -------- --------- --------
Leasing margin $ 902 $ 1,188 $ 2,121 $ 2,707
========= ======== ========= ========
Leasing margin ratio 22% 32% 25% 35%
== == == ==
</TABLE>
The increase in leasing revenue and leasing costs during the three and six
months ended November 30, 1997, compared to the three and six months ended
November 30, 1996 is primarily due to growth in the Company's lease
portfolio.
Leasing margin ratio fluctuates based upon (i) the mix of direct finance
leases and operating leases, (ii) remarketing activities, (iii) the method
used to finance leases added to the Company's lease portfolio, and (iv) the
relative age and types of leases in the portfolio (operating leases have a
lower leasing margin early in the lease term, increasing as the term passes
and the majority of leases added to CAI's portfolio have been operating
leases). Interest expense arising from non-recourse bank debt (discounted
lease rentals) is reflected in leasing margin, but interest arising from
the warehouse facility is not reflected in leasing margin. Leasing margin
and the related leasing margin ratio decreased primarily as a result of a
decrease in the number of leases in the remarketing phase and a related
decline in the amount of remarketing rents.
13 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
I. Results of Operations, continued
---------------------
OTHER INCOME
Other income consists of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ---------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Fees and distributions from the
Company-sponsored PIFs $ 1,298 $ 639 $ 1,978 $ 1,228
Fees from private programs 77 - 113 -
Interest on income tax refunds - - - 103
Other 16 79 109 165
------- ------ -------- --------
$ 1,391 $ 718 $ 2,200 $ 1,496
======= ====== ======== ========
</TABLE>
The increase in fees and distributions from the Company-sponsored PIFs for
the three and six months ended November 30, 1997 compared to the three and
six months ended November 30, 1996 reflects a gain of $890,000, related to
the sale of substantially all the leases owned by PaineWebber Preferred
Yield Fund and a similar type of loss of $100,000 on the Capital Preferred
Yield Fund.
As of December 31, 1997, two Company-sponsored PIF's were liquidated and
two other PIF's had sold substantially all their assets. As a result of the
effective termination of operations of the PIFs, fees and distributions
from the Company-sponsored PIF's are expected to decline in the future. As
of December 31, 1997, there are three remaining Company-sponsored PIF's
actively engaged in leasing activities.
OPERATING AND OTHER EXPENSES
The aggregate amount of operating and other expenses increased
approximately $432,000 and $409,000 for the three and six months ended
November 30, 1997, respectively, when compared to the three and six months
ended November 30, 1996. Approximately one-half the increase reflects the
acquisition of DBL, Inc. described in Footnote 2 of Notes to Consolidated
Financial Statements. The Company has 25 sales and marketing employees as
of November 30, 1997 compared to 17 as of November 30, 1996. and the
remaining increase represents labor costs related to additional sales and
marketing personnel.
INCOME TAXES
Income tax expense is provided on income at the appropriate federal and
state statutory rates applicable to such earnings. The aggregate statutory
tax rate is 40%, adjusted for utilization of the Company's ITC carryforward
(see Note 10 to Notes to Consolidated Financial Statements in the 1997 Form
10-K).
14 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
II. Liquidity and Capital Resources
-------------------------------
The Company's activities are principally funded by proceeds from sales of
on-lease equipment (to its PIFs or private investors), non-recourse debt,
recourse bank debt (see Note 3 to Notes to Consolidated Financial
Statements), rents, fees and distributions from its PIFs, sales or
re-leases of equipment after the expiration of the initial lease terms and
other cash receipts from non-recurring items such as settlements of legal
proceedings. Management believes the Company's ability to generate cash
from operations is sufficient to fund operations, as shown in the
accompanying Consolidated Statements of Cash Flows.
The Company refinanced its bank facility. See Note 3 to Notes to
Consolidated Financial Statements for a description of the Company's Bank
Facility.
The Company is offering units of its latest PIF, CPYF-IV, for sale to the
general public. Through November 30, 1997, the Company sold $42.7 million
of Class A units. The Company has up to $7.3 million of Class A units in
CPYF-IV available for sale, which will represent a future source of
liquidity and acquisition fee income for the Company. Two of the Company's
PIFs, including CPYF-IV, are using a portion of their available cash to
purchase additional equipment from the Company. The Company expects to sell
a total of approximately $55 million of equipment to these PIFs during
fiscal year 1998. Five of the Company's PIFs are in their liquidation stage
and are no longer purchasing material amounts of equipment.
Inflation has not had a significant impact upon the operations of the
Company.
III. Acquisition
-----------
Effective November 1, 1997, the Company acquired all of the outstanding
shares of DBL, Inc., d/b/a Connecting Point. See Note 2 to Notes to
Consolidated Financial Statements for a description of the related
acquisition. The increase in Accounts Receivable, net and Other Assets, was
primarily due to the assets acquired from Connecting Point.
Connecting Point was acquired to obtain specific high technology equipment
expertise which is expected to provide the Company with (i) access to new
markets which will allow the Company to record higher residual values and
to support lease origination, (ii) greater confidence in pricing and
estimating residual values and (iii) the ability to provide enhanced
equipment expertise and evaluation services to our customers.
IV. New Accounting Pronouncements
-----------------------------
See Recently Issued Financial Accounting Standards under Note 1 to Notes to
Consolidated Financial Statements in the Company's 1997 Form 10-K for a
discussion about the impact of new accounting pronouncements on the
Company's financial position or results of operations.
15 of 20
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, continued
V. "Safe Harbor" Statement Under the Private Securities Litigation Reform Act
---------------------------------------------------------------------------
of 1995
-------
The statements contained in this report which are not historical facts may
be deemed to contain forward-looking statements with respect to events,
the occurrence of which involve risks and uncertainties, and are subject to
factors that could cause actual future results to differ both adversely and
materially from currently anticipated results, including, without
limitation, the level of lease originations, realization of residual
values, the availability and cost of financing sources and the ultimate
outcome of any contract disputes. Certain specific risks associated with
particular aspects of the Company's business are discussed in detail
throughout Item 2 of this report and Parts I and II of the 1997 Form 10-K
when and where applicable.
16 of 20
<PAGE>
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
(a) OTHER. The Company is involved in other routine legal proceedings
incidental to the conduct of its business. Management believes
that none of these legal proceedings will have a material adverse
effect on the financial condition or operations of the Company.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
b. Reports on Form 8-K
-------------------
None
17 of 20
<PAGE>
Item No. Exhibit Index
- -------- -------------
10.59 Loan and Security Agreement, dated as of November 26, 1997 by and
between Capital Associates, Inc., and Capital Associates
International, Inc. as Borrowers and CoreStates Bank, N.A., as
Agent and Issuing Bank and each of the Financial Institutions now
or hereafter shown on the Signature pages of this Agreement.
11A Computation of Primary Earnings Per Share. A computation of fully
diluted earnings per share is not presented as dilution is less
than 3%.
27 Financial Data Schedule
18 of 20
<PAGE>
Exhibit 11A
CAPITAL ASSOCIATES, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six months Ended
------------------------------ -----------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares outstanding at beginning of period 5,017,000 5,002,000 5,016,000 4,994,000
Shares issued during the period
(weighted average) 4,000 - 2,000 5,000
Issuance of treasury shares upon exercise
of incentive stock options 15,000 - 15,000 -
Dilutive shares contingently issuable upon
exercise of options (weighted average) 671,000 616,000 673,000 720,000
Less shares assumed to have been purchased
for treasury with assumed proceeds
from exercise of stock options
(weighted average) (324,000) (234,000) (331,000) (313,000)
Effect of non-employee stock option
buy-out - - - (64,000)
--------- -------- --------- ---------
Total shares, primary 5,383,000 5,384,000 5,375,000 5,342,000
========= ========= ========= =========
Net income $ 735,000 $ 246,000 $ 876,000 $ 384,000
========= ========= ========= =========
Income per common and common
equivalent share, primary $ 0.14 $ 0.05 $ 0.16 $ 0.07
========= ========= ========= =========
</TABLE>
19 of 20
<PAGE>
CAPITAL ASSOCIATES INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements 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.
CAPITAL ASSOCIATES, INC.
Registrant
Date: January 20, 1998 By: /s/Anthony M. DiPaolo
---------------------
Anthony M. DiPaolo,
Senior Vice-President and
Chief Financial Officer
20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 9,861
<SECURITIES> 0
<RECEIVABLES> 3,373
<ALLOWANCES> 30
<INVENTORY> 2,196
<CURRENT-ASSETS> 0
<PP&E> 71,647
<DEPRECIATION> 0
<TOTAL-ASSETS> 158,526
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 24,345
<TOTAL-LIABILITY-AND-EQUITY> 158,526
<SALES> 102,636
<TOTAL-REVENUES> 115,277
<CGS> 99,341
<TOTAL-COSTS> 114,109
<OTHER-EXPENSES> 5,093
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 3,622
<INCOME-PRETAX> 1,168
<INCOME-TAX> 292
<INCOME-CONTINUING> 876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 876
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
EXHIBIT 10.59
LOAN AND SECURITY AGREEMENT
Capital Associates, Inc.
Capital Associates International, Inc.
with
CoreStates Bank, N.A., as Agent and Issuing Bank
and
Each of the Financial Institutions Now or Hereafter
Shown on the Signature Pages hereof
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS AND INTERPRETATION...................................-1-
1.1 Terms Defined.......................................................-1-
1.2 Accounting Principles..............................................-17-
SECTION 2. THE LOANS.......................................................-17-
2.1 Credit Facility - Description......................................-17-
2.2 Advances, Conversions, Renewals and Payments.......................-23-
2.3 Preconditions to Advances and Assignment of Leases and
Leased Property .................................................-25-
2.4 Credit Facility Interest...........................................-29-
2.5 Additional Interest Provisions.....................................-32-
2.6 Fees...............................................................-33-
2.7 Prepayments........................................................-34-
2.8 Use of Proceeds....................................................-36-
2.9 Indemnity..........................................................-36-
2.10 Capital Adequacy...................................................-36-
SECTION 3. COLLATERAL......................................................-37-
3.1 Description........................................................-37-
3.2 Lien Documents.....................................................-38-
3.3 Other Actions......................................................-38-
3.4 Searches...........................................................-38-
3.5 Filing Security Agreement..........................................-39-
3.6 Power of Attorney..................................................-39-
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES....................-40-
4.1 Resolutions, Opinions, and Other Documents.........................-40-
4.2 Absence of Certain Events..........................................-41-
4.3 Warranties and Representations at Closing..........................-41-
4.4 Compliance with this Agreement.....................................-41-
4.5 Officers' Certificate..............................................-42-
4.6 Closing............................................................-42-
4.7 Non-Waiver of Rights...............................................-42-
SECTION 5. REPRESENTATIONS AND WARRANTIES..................................-42-
5.1 Corporate Organization and Validity................................-42-
5.2 Places of Business.................................................-43-
5.3 Pending Litigation.................................................-43-
5.4 Title to Collateral................................................-44-
-i-
<PAGE>
5.5 Governmental Consent...............................................-44-
5.6 Taxes..............................................................-44-
5.7 Financial Statements...............................................-44-
5.8 Full Disclosure....................................................-45-
5.9 Subsidiaries.......................................................-45-
5.10 Guarantees, Contracts, etc.........................................-45-
5.11 Government Regulations, etc........................................-46-
5.12 Names..............................................................-47-
5.13 Other Associations.................................................-48-
5.14 Environmental Matters..............................................-48-
5.15 Regulation O.......................................................-48-
5.16 Capital Stock......................................................-48-
5.17 INTENTIONALLY OMITTED..............................................-49-
5.18 Leases and Leased Property.........................................-49-
5.19 Interrelatedness of Borrowers and Sureties.........................-54-
5.20 Investment Company.................................................-54-
SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS................................-55-
6.1 Payment of Taxes and Claims........................................-55-
6.2 Maintenance of Properties and Corporate Existence..................-55-
6.3 Business Conducted.................................................-57-
6.4 Litigation.........................................................-57-
6.5 Taxes..............................................................-58-
6.6 Bank Accounts......................................................-58-
6.7 Employee Benefit Plans.............................................-58-
6.8 Warranties for Future Advances.....................................-59-
6.9 Financial Covenants................................................-59-
6.10 Financial and Business Information.................................-60-
6.11 Officers' Certificates.............................................-62-
6.12 Inspection.........................................................-62-
6.13 Tax Returns and Reports............................................-63-
6.14 Material Adverse Developments......................................-63-
6.15 Places of Business.................................................-63-
6.16 Sale of Collateral.................................................-63-
SECTION 7. BORROWERS' NEGATIVE COVENANTS:..................................-64-
7.1 Merger, Consolidation, Dissolution or Liquidation..................-64-
7.2 Liens and Encumbrances.............................................-65-
7.3 Negative Pledge....................................................-65-
7.4 Transactions With Affiliates or Subsidiaries.......................-65-
7.5 Guarantees.........................................................-66-
7.6 Distributions, Redemptions and Other Indebtedness..................-66-
-ii-
<PAGE>
7.7 Loans and Investments..............................................-66-
7.8 Use of Lenders' Name...............................................-67-
7.9 Miscellaneous Covenants............................................-67-
7.10 Change of Ownership Interests......................................-67-
7.11 Change of Management...............................................-67-
7.12 Change of Credit Policy Manual/Depreciation Policy.................-67-
SECTION 8. DEFAULT.........................................................-67-
8.1 Events of Default..................................................-67-
8.2 Cure...............................................................-71-
8.3 Rights and Remedies on Default.....................................-71-
8.4 Nature of Remedies.................................................-73-
8.5 Set-Off............................................................-73-
SECTION 9. AGENT...........................................................-73-
9.1 Appointment and Authorization......................................-73-
9.2 General Immunity...................................................-74-
9.3 Consultation with Counsel..........................................-74-
9.4 Documents..........................................................-74-
9.5 Rights as a Bank...................................................-74-
9.6 Responsibility of Agent............................................-75-
9.7 Collections and Disbursements......................................-75-
9.8 Indemnification....................................................-77-
9.9 Expenses...........................................................-77-
9.10 No Reliance........................................................-77-
9.11 Reporting..........................................................-78-
9.12 Removal of Agent...................................................-78-
9.13 Action on Instructions of Lenders..................................-79-
9.14 Several Obligations................................................-79-
9.15 Consent of Banks...................................................-79-
9.16 Participations and Assignments.....................................-81-
SECTION 10. MISCELLANEOUS..................................................-81-
10.1 GOVERNING LAW......................................................-82-
10.2 Integrated Agreement...............................................-82-
10.3 Waiver.............................................................-82-
10.4 Time...............................................................-83-
10.5 Expenses of Agent..................................................-83-
10.6 Brokerage..........................................................-83-
10.7 Notices............................................................-84-
10.8 Waiver of Subrogation..............................................-85-
10.9 Additional Waivers.................................................-85-
10.10 Headings...........................................................-86-
-iii-
<PAGE>
10.11 Survival...........................................................-86-
10.12 Successors and Assigns.............................................-87-
10.13 Duplicate Originals................................................-87-
10.14 Modification.......................................................-87-
10.15 Signatories........................................................-87-
10.16 Third Parties......................................................-87-
10.17 Discharge of Taxes, Borrower's Obligations, Etc....................-87-
10.18 Withholding and Other Tax Liabilities..............................-88-
10.20 Consent to Jurisdiction............................................-89-
10.21 Waiver of Jury Trial...............................................-89-
10.22 Information to Participant.........................................-89-
SECTION 11. SPECIAL INTER-BORROWER/SURETY PROVISIONS.......................-90-
11.1 Certain Borrower and Surety Acknowledgments and Agreements.........-90-
11.2 Maximum Amount Of Joint and Several Liability......................-91-
11.3 Authorization of Parent by Borrowers and Sureties .................-91-
-iv-
<PAGE>
EXHIBIT LIST
Exhibit 2.1(b) -- Form of Revolving Credit Note
Exhibit 2.1(c)(ii) -- Form of Working Capital Note
Exhibit 2.1(c)(iii) -- Form of Term Loan Note
Exhibit 2.1(d) -- Form of Acquisition Term Loan Note
Exhibit 2.1(f) -- Form of Borrowing Base Certificate
Exhibit 2.3(b) -- Form of Assignment Agreement
Exhibit 5.1 -- Borrower's States of Qualifications
Exhibit 5.2 -- Places of Business
Exhibit 5.3 -- Judgments, Proceedings, Litigation and Orders
Exhibit 5.9 -- Subsidiaries and Affiliates
Exhibit 5.10 -- Existing Guaranties, Investments and Borrowings, etc.
Exhibit 5.11 -- Employee Benefit Plans
Exhibit 5.12(a) -- Schedule of Names
Exhibit 5.12(b) -- Trademarks, Patents and Copyrights
Exhibit 5.13 -- Other Associations
Exhibit 5.14 -- Environmental Matters
Exhibit 5.16 -- Capital Stock
Exhibit 5.18 -- Form of Lease
Exhibit 6.11 -- Officers' Certificates
Exhibit 7.2 -- Permitted Liens
Exhibit 7.7 -- Permitted Investments
-v-
<PAGE>
SCHEDULES
Schedule A -- Schedule and Addresses of Lenders
Schedule B -- Private Investor Programs
-vi-
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is dated this 26th day of
November, 1997, by and among Capital Associates, Inc. ("Parent") and Capital
Associates International, Inc. ("CAII" and collectively with Parent, sometimes
referred to as "Borrowers" and each individually referred to as a "Borrower"),
CoreStates Bank, N.A., a national banking association in its capacity as agent,
("Agent") and CoreStates Bank, N.A. ("CoreStates") and the financial
institutions listed on the signature pages hereto and on Schedule A attached
hereto and made a part of this Agreement (as such Schedule may be amended,
modified or replaced from time to time), in their capacity as lenders (singly,
each is a "Lender" and collectively, all are "Lenders") and the Sureties (as
defined below).
BACKGROUND
A. Borrowers are in the business of leasing personal property to Lessees
pursuant to leases. Borrowers wish to enter into this Agreement in order to
obtain advances from Lenders, from time to time, up to the Maximum Credit Limit
subject to the terms and provisions hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship to writing.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1 Terms Defined: As used in this Agreement, the following terms have
the following respective meanings:
Account - Any right to payment for goods sold or leased or for
services rendered which is not evidenced by an instrument or chattel paper,
whether or not it has been earned by performance.
Accrual Leases - A lease for which only a commitment to lease
exists but is included in the Borrowers' records as a lease for accounting
purposes pursuant to SFAS No. 23, thereby resulting in the Borrowers' recording
of an accrued equipment payable as a liability and the corresponding leased
equipment as an asset, although Borrowers have no legal liability to pay any
vendors until the actual lease documents are executed and delivered. An Accrual
Lease shall not be included in either of the Borrowing Bases.
-1-
<PAGE>
Acquisition Agreement - That certain Stock Purchase Agreement with
respect to the stock of Connecting Point, by and among Connecting Point Sellers,
as seller, and CAII, as buyer.
Acquisition Term Loan - Section 2.1(d)
Acquisition Term Note - Section 2.1(d)
Advance(s) - Any monies advanced or credit extended to, or for the
benefit of, Borrower by any Lender under the Credit Facility.
Affiliate - As to any person, each other person that directly, or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, the person in question.
Agent's Fee - Section 2.6(a).
Agreement - This Loan and Security Agreement, as it may hereafter
be amended, supplemented or replaced from time to time.
Applicable Base Rate Margin - With respect to each type of Loan,
the corresponding percentage:
Type of Loan Applicable Base Rate Margin
------------ ---------------------------
Revolving Credit Loans 0%
Working Capital Loans .25%
Acquisition Term Loan .75%
Term Loan .75%
Applicable Coverage Ratio - With respect to the Collateral Coverage
Ratio, at all times during the Initial Term, 1.75:1 and at all times thereafter
2.0:1.
-2-
<PAGE>
Applicable LIBOR Margin - With respect to each type of Loan the
corresponding percentage:
Type of Loan Applicable LIBOR Margin
------------ -----------------------
Revolving Credit Loans 2.5%
Working Capital Loans 2.75%
Acquisition Term Loan 3.00%
Term Loan 3.00%
Assignment Agreement - Section 2.3(b).
Authorized Officer - Any officer of a Borrower and/or Surety
authorized by specific resolution of such Borrower or Surety to execute the Loan
Documents, as set forth in the incumbency certificates referred to in Section
4.1(d) of this Agreement.
Base Rate - The Prime Rate plus the Applicable Base Rate Margin.
Base Rate Loan - That portion of any Loan under the Credit Facility
on which interest accrues at the Base Rate.
Base Rate Option - Section 2.4.
Books and Records - All of Borrower's original ledger cards,
payment schedules, credit applications, contract rights, liens, security
instruments, guarantees and other General Intangibles relating in any way to the
Leases or Leased Property.
Borrowing Bases - Collectively the Warehouse Borrowing Base and
Working Capital Borrowing Base.
Borrowing Rate - The interest rate, as of any date of
determination, applicable to each Loan, or portion thereof.
Business Day - Any day that is not a Saturday or Sunday or day on
which Agent or any Lender is required or permitted to close.
CAI Mexico - Capital Associates International de Mexico S. de R.L.
de C.V.
-3-
<PAGE>
Cash Collateral - Cash or marketable securities pledged and
delivered to Agent for the benefit of Lenders pursuant to documentation in form
and substance satisfactory to Agent.
Chattel Paper - The meaning ascribed thereto in the Pennsylvania
Uniform Commercial Code.
Class B Distribution - The right of CAII, as a Class B Limited
Partner to receive any and all distributions payable to the Class B Limited
Partner in accordance with terms of the partnership agreement related to each
PIF.
Class B Interest - The limited partnership interest held by CAII,
as a Class B Limited Partner in each of the PIFs, which includes without
limitation the Class B Distribution.
Closing - Section 4.6.
Closing Date - Section 4.6.
Collateral - Section 3.1.
Collateral Coverage Ratio - As of any date of determination, the
ratio of (i) the Working Capital Borrowing Base to (ii) the aggregate
outstanding balance of the Term Loan and all Working Capital Loans minus the
amount of Cash Collateral to the extent it exceeds $100,000, as of such date.
Connecting Point - DBL, Inc., d/b/a Connecting Point.
Connecting Point Security Agreement - Section 2.3(c).
Connecting Point Sellers - Brent W. Richardson and Diane A.
Richardson for themselves and as guardians of their children, Michael
Richardson, Suzanne Richardson, Sarah Richardson and Megan Richardson.
Connecting Point Surety Agreement - Section 2.3(c).
Contract Rights - All rights under contracts not yet earned by
performance.
Credit Facility - Section 2.1(a).
-4-
<PAGE>
Credit Policy Manual - The Lease Underwriting Standards of Parent,
dated as of November, 1997.
Current Term - The Initial Term during the period of the Initial
Term, and any renewal or extended term during the term thereof, if Lenders
elect, in their sole discretion to renew or extend the Credit Facility.
Defaulted Lease - Any Lease which does not meet the requirements of
an Eligible Lease.
Delinquent Leases - Those leases which are more than 60 days
contractually past due, provided however, that leases with a corresponding
lessee with a Designated Credit Rating of 1 or 2 (up to an aggregate amount at
any one time not to exceed $5,000,000) shall not be considered Delinquent Leases
if they more than 60 but less than 150 days contractually past due during the
initial 5 months of the lease term solely because of administrative delays on
the part of the lessee in setting up and commencing the rental payments.
Delinquency Percentage - The percentage which the net book value of
all Delinquent Leases in Borrowers' entire lease portfolio, including without
limitation all leases for which Borrowers provide servicing (other than those
leases sold to third party investors other than a PIF or pursuant to a Private
Investor Program) ("Lease Portfolio") bears to the net book value of Borrowers'
entire Lease Portfolio.
Designated Credit Rating - The credit rating assigned to a Lessee
pursuant to the Credit Policy Manual, Appendix C, Credit Risk Rating Guidelines.
Direct Finance Lease - A Lease which is treated as a capital lease
under GAAP and is included as an asset on Borrowers' Financial Statements, as a
direct finance lease.
Distribution -
(1) Dividends or other distributions on capital stock of Borrower;
and
-5-
<PAGE>
(2) The redemption, repurchase or acquisition of such stock or of
warrants, rights or other options to purchase such stock.
Documents - The meaning ascribed thereto in the Pennsylvania
Uniform Commercial Code.
EBIT - Borrowers' Net Income, plus interest expenses (excluding any
interest expense which is otherwise characterized as Nonrecourse Debt) and
income taxes determined on a consolidated basis, in accordance with GAAP.
Eligible Lease(s) - All Leases which meet all of the following
specifications: (1) are not subject to any Lien, security interest or prior
assignment other than Agent's security interest for the benefit of Lenders and
the rights of the Lessees thereunder; (2) are valid and enforceable Leases,
representing the undisputed obligation of each Lessee which are not Delinquent
Leases; (3) are noncancellable, not subject to any defense, set off,
counterclaim, deduction, or allowance or adjustment; (4) provide for the lease
of Leased Property which has not been returned, rejected, lost or damaged; (5)
arose in the ordinary course of Borrower's business; (6) Borrower has not
received notice of bankruptcy, receivership, reorganization, insolvency or
material adverse change in the financial condition of the Lessee; (7) the Lessee
is not a Subsidiary or Affiliate of Borrower, does not control Borrower, and is
not under the control of or under common control with Borrower; (8) are not
Defaulted Leases and comply with all general representations and warranties set
forth in Section 5.18 hereof; (9) are Leases which have not been an "Eligible
Lease" under the Warehouse Borrowing Base for more than 360 days in the
aggregate; and (10) are Leases with stated terms of not greater than 84 months.
Eligible Warehouse Leases - Those Leases which have been designated
by Borrower for inclusion in the Warehouse Borrowing Base and which are
otherwise Eligible Leases and which may include Progress Payments which meet all
of the specifications of an Eligible Lease except that the Lease has not yet
commenced, provided that such Progress Payments may only be included in the
Warehouse Borrowing Base for a period not to exceed 180 days.
-6-
<PAGE>
Eligible Working Capital Leases - Those Leases which have been
designated by Borrower for inclusion in the Working Capital Borrowing Base and
which are otherwise Eligible Leases.
Equipment - The meaning ascribed thereto in the Pennsylvania
Uniform Commercial Code.
ERISA - The Employee Retirement Income Security Act of 1974, as the
same may be amended, from time to time.
Event of Default - Section 8.1.
Excess Cash Flow - Section 2.7(d).
Excess Cash Flow Payment - Section 2.7(d).
Expenses - Section 10.5.
Federal Funds Rate - A fluctuating per annum interest rate equal,
for each day, to the weighted average of the rates for overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published for such day (or, if such day is not a Business Day,
for the next succeeding Business Day) by the Federal Reserve Bank of New York,
or if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transaction's received by the
Agent from three (3) federal funds brokers of recognized standings selected by
the Agent.
Financial Statements - The financial statements of Borrowers and/or
Sureties, as applicable, prepared in accordance with GAAP.
Funded Lease Residuals - The value of Related Equipment which is
(i) owned by a Borrower, (ii) located in the United States, and (iii) and is
subject to the perfected Lien of Agent for the benefit of Lenders subject only
to the rights of providers of the Nonrecourse Debt or the purchasers of the
lease corresponding to the Related Equipment, as the case may be, where Borrower
has granted a first prior Lien to the provider of Nonrecourse Debt associated
with the corresponding lease, or sold all of its right to payments under the
corresponding lease and, in either case, Borrower retained the right to own,
release or sell the Related Equipment free and clear of any other competing
interests upon termination of the corresponding lease and that none of the
Nonrecourse Debt provides for cross-collateralization to Related Equipment not
associated with the specific corresponding lease.
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GAAP - Generally accepted accounting principles as in effect on the
Closing Date, as may be amended from time to time, and in any event,
consistently applied.
General Intangibles - The meaning ascribed thereto in the
Pennsylvania Uniform Commercial Code and shall include, but not be limited to,
all contract rights, chattel paper, documents, instruments, books, records,
ledgers, journals, check books, print outs, blue prints, designs, computer
programs, computer tapes, punch cards, formulae, drawings, customer lists,
choses in action, claims, goodwill, designs and plans, licenses, license
agreements, tax and all other types of refunds, returned and unearned insurance
premiums, rights and claims under insurance policies, patents, patent
application, trademarks, trade names, trade styles, trademark applications and
copyrights.
Good Business Day - Any Business Day when banks in Philadelphia,
Pennsylvania and London, England are open for business.
Hazardous Substance - Section 5.14.
Initial Term - Section 2.1(e).
Interest Coverage Ratio - The ratio of EBIT to interest expense
(excluding any interest expense which is otherwise characterized as Nonrecourse
Debt), determined in accordance with GAAP on a consolidated, rolling four
quarter basis.
Instruments - The meaning ascribed thereto in the Pennsylvania
Uniform Commercial Code.
Inventory - The meaning ascribed thereto in the Pennsylvania
Uniform Commercial Code and shall include all additions, improvements,
accessions, attachments, upgrades, replacements and substitutions thereto or
therefor.
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Issuing Bank - CoreStates Bank, N.A., or its successors and
assigns.
IRS - Section 6.7.
L/C Sublimit - A sublimit under the Working Capital Facility for
documentary/merchandise Letters of Credit limited to an aggregate face amount at
any one time outstanding, whether drawn and unpaid or undrawn, of $3,000,000.
Lease(s) - All of each Borrower's Accounts, Documents, General
Intangibles, Instruments and Chattel Paper arising in connection with each and
every equipment lease, and/or schedule to a master lease agreement, assigned to
Lenders and/or Agent for the benefit of Lenders, or now or hereafter designated
on any schedule or Assignment Agreement as being assigned to Lenders and/or
Agent for the benefit of Lenders. The term "Lease" includes Direct Finance
Leases and Operating Leases, and (i) all payments to be made thereunder, (ii)
all rights of such Borrower therein, and (iii) any and all amendments, renewals,
extensions or guarantees thereof.
Lease Collateral - All now or hereafter existing Leases and Leased
Property, Books and Records and all cash and noncash proceeds, thereof,
including insurance proceeds.
Leased Property - Any property leased or to be leased or financed
by a Borrower pursuant to a Lease or Progress Payments; the term "Leased
Property" includes all of such Borrower's Inventory and/or Equipment so leased
and any and all additions, improvements, accessions, attachments, upgrades,
replacements and substitutions thereto and therefor.
Lender's Loan Balance - The aggregate outstanding principal balance
of Advances owing to a Lender at any particular time or from time to time.
Lessee - The lessee(s) or obligor(s) responsible for payment and/or
performance under a Lease or Progress Payment.
Letters of Credit - Section 2.1(c).
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Liabilities - Collectively, all liabilities of every kind of each
Borrower including, without limitation, those liabilities as would be shown on a
consolidated Financial Statement of Borrowers prepared in accordance with GAAP,
and all contingent liabilities and obligations of each Borrower (including
guaranty obligations) whether or not shown on the consolidated Financial
Statements of Borrowers, other than Nonrecourse Debt and following consummation
of the Acquisition Agreement, accounts payable of Connecting Point which are
less than 30 days past the invoice date.
Liabilities to Tangible Net Worth Ratio - At any time, the ratio of
(i) total Liabilities to (ii) Tangible Net Worth, determined on a consolidated
basis.
LIBOR Based Rate - The LIBOR Rate plus the Applicable LIBOR Margin.
LIBOR Based Rate Loan - That portion of any Loan under the Credit
Facility on which interest accrues at the LIBOR Based Rate.
LIBOR Interest Period - Section 2.4(b)(ii).
LIBOR Rate - An annual rate of interest (rounded upwards, if
necessary, to the nearest 1/16 of 1%) determined by CoreStates as being the rate
quoted to the principal London Branch of CoreStates Bank, N.A. at approximately
11:00 a.m. London time for the offering by leading banks in the London interbank
market of U.S. Dollar deposits in immediately available funds for the LIBOR
Interest Period elected by Borrowers, in effect two Business Days prior to the
funding date for a requested LIBOR Based Rate Loan (including those requested in
connection with the conversion of a Loan(s) subject to the Base Rate Option to a
LIBOR Based Rate Loan in accordance herewith), or for a LIBOR Based Rate Loan
which Borrowers have elected to continue as a LIBOR Based Rate Loan beyond the
expiration of the then current LIBOR Interest Period with respect thereto, for
deposits of dollars in amounts equal (as nearly as may be estimated) to the
amount of the LIBOR Based Rate Loan which shall then be loaned by Lenders to
Borrower as of the time of such determination, as such rate may be adjusted by
the reserve percentage applicable during the LIBOR Interest Period in effect (or
if more than one such percentage shall be applicable, the daily average of such
percentages or those days in such LIBOR Interest Period during which any such
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percentage shall be so applicable) under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation, any
emergency, supplemental or other marginal reserve requirement) for CoreStates
with respect to liabilities or assets consisting of or including "Eurocurrency
Liabilities" as such term is defined in Regulation D of the Board of Governors
of the Federal Reserve System, as in effect from time to time, having a term
equal to such LIBOR Interest Period but without the benefit of credit proration,
exemptions, or offsets that might otherwise be available from time to time under
Regulation D ("Eurocurrency Reserve Requirement"). Such adjustment shall be
effectuated by calculating, and the LIBOR Rate shall be equal to, the quotient
of (i) the rate determined by CoreStates divided by (ii) one minus the
Eurocurrency Reserve Requirement plus (iii) the Assessment Rate if applicable.
The "Assessment Rate" for purposes of this definition means the average rate at
which premiums for deposit insurance are then charged by the Federal Deposit
Insurance Corporation (or any successor) to CoreStates for time deposits at
foreign branches.
LIBOR Rate Option - Section 2.4.
Lien - Any interest of any kind or nature in property securing an
obligation owed to, or a claim of any kind or nature in Property by, a Person
other than the owner of the Property, whether such interest is based on the
common law, statute, regulation or contract, and including, but not limited to,
a security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt, a lease, consignment or bailment for security
purposes, a trust, or an assignment.
Loans - Collectively all Revolving Credit Loans, the Term Loan, the
Acquisition Term Loan and Working Capital Loans, and each is sometimes referred
to as a "Loan" or "type of Loan".
Loan Documents - This Agreement, the Notes, the Surety Agreement,
the Pledge Agreement, the Surety Security Agreements and all agreements,
instruments and documents executed and/or delivered from time to time in
connection with the foregoing, all as amended or replaced from time to time.
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Majority Lenders - At any time, Lenders holding Pro Rata
Percentages aggregating at least fifty-one (51%) percent of the total Credit
Facility at such time.
Maturity Date - The last day of the then Current Term.
Maximum Credit Limit - The sum of the Pro Rata Shares, which at the
time of Closing equals Sixty Million Dollars ($60,000,000).
Net Income - The consolidated net income after taxes of Borrowers
as such would appear on Borrowers' consolidated statement of income, prepared in
accordance with GAAP.
Nonrecourse Debt - All Liabilities of Borrowers which (i)
correspond to Accrual Leases or (ii) are non-recourse in nature and treated as
non-recourse obligations on Borrowers' Financial Statements.
Notes - Collectively the Revolving Credit Notes, Term Notes, the
Acquisition Term Notes and Working Capital Notes.
Obligations - All existing and future liabilities and obligations
of every kind or nature at any time owing by Borrowers, or either of them, to
Lenders and/or to Agent, whether joint or several, related or unrelated, primary
or secondary, matured or contingent, due or to become due, and whether
principal, interest, fees or Expenses, including, without limitation,
obligations in respect of the Credit Facility and any extensions, modifications,
substitutions, increases and renewals thereof, and the payment of all amounts
advanced by Agent (or any Lender after the occurrence of an Event of Default) to
preserve, protect and enforce rights hereunder and in the Collateral and all
Expenses incurred by Agent (or any Lender after the occurrence of an Event of
Default) in connection therewith.
Operating Lease - A Lease not characterized as a "capital lease"
under GAAP and is included as an asset on Borrowers' Financial Statements as an
"operating lease".
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PBGC - Section 6.7.
Pennsylvania Uniform Commercial Code or UCC - The Uniform
Commercial Code as enacted in Pennsylvania, as the same shall be amended from
time to time.
Permitted Liens - Section 7.2.
Person - An individual, partnership, corporation, limited liability
company, trust, unincorporated association or organization, joint venture or any
other entity.
PIF - Each of Capital Preferred Yield Fund, Capital Preferred Yield
Fund II, Capital Preferred Yield Fund III, Capital Preferred Yield Fund IV,
Capital Preferred Yield Fund V and Paine Webber Preferred Yield Fund, which are
considered Public Income Funds, and collectively they are referred to as PIFs.
PIF Collateral - The right of each Surety, as the general partner
of a PIF to receive management fees, acquisition fees, and general partner
distributions in conjunction with the management of, and ownership interest in,
the related PIF.
Pledge Agreement - That certain collateral pledge agreement from
Parent in favor of Agent for the benefit of Lenders.
Potential Lessee - See definition of "Progress Payments."
Prime Rate - That per annum rate designated or announced by Agent
at its principal office from time to time as its prime rate of interest, which
may be greater or less than other interest rates charged by Agent to other
borrowers and is not solely based or dependent upon the interest rate which
Agent may charge any particular borrower or class of borrowers.
Private Investor Programs - Those certain private investor programs
identified on Schedule B attached hereto and made a part hereof.
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Progress Payments - Payments owed by a third party ("Potential
Lessee") who has executed a binding lease commitment with a Borrower, pursuant
to an agreement whereby such Potential Lessee has agreed to repay such Borrower
in installments for the purchase price advanced by Borrower in conjunction with
equipment purchases relating to equipment delivered to the Potential Lessee
prior to the commencement date of the corresponding lease which is the subject
of the lease commitment, and where such Borrower either owns such equipment
subject to no other Liens or holds a perfected first Lien and security interest
in such equipment.
Pro Rata Percentage - Section 2.1(a)(ii).
Pro Rata Share - Section 2.1(a)(ii).
Property - Any interest of a Person in any kind of property or
asset, whether real, personal or mixed, or tangible or intangible.
Regulation D - Regulation D of the Board of Governors of the
Federal Reserve System, comprising Part 204 of Title 12, Code of Federal
Regulations, as amended, and any successor thereto.
Related Equipment - With respect to a lease which is not a "Lease"
hereunder, the personal property leased pursuant thereto.
Retained Residuals - The rights and interests of a Borrower,
determined on a present value basis, to share in the remaining value of Related
Equipment subject to a lease which has been sold by such Borrower to a third
party and which rights and interests of such Borrower are set forth in a legal,
valid and binding written agreement between such Borrower and the purchaser of
such lease and Related Equipment.
Revolving Credit Notes - Section 2.1(b).
Securitization Certificate(s) - The "B" or "C" piece certificates
evidencing a subordinate interest in a securitization transaction which
corresponds to the residual value of equipment owned by a special purpose
subsidiary of a Borrower.
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Securitization Residual Financing - Loans made to a Borrower
secured only by such Borrower's interest in the corresponding Securitization
Certificate.
Senior Management Team - Dennis Lacey, Richard Abernethy, Anthony
DiPaolo and Jack Olmstead.
Subordination Agreement - That certain subordination agreement by
and among Connecting Point Sellers, as sellers under the Acquisition Agreement,
Borrowers and Agent on behalf of Lenders.
Subsidiary - Any orporation or limited liability company more than
fifty percent (50%) of whose voting stock or ownership interest is legally and
beneficially owned by Borrower or owned by a corporation or limited liability
company more than fifty percent (50%) of whose voting stock or ownership
interest is legally and beneficially owned by a Borrower.
SuperMajority Lenders - At any time, Lenders holding Pro Rata
Percentages aggregating at least sixty-six and two-thirds (66-2/3%) percent of
the aggregate amount outstanding under the Credit Facility at such time.
Sureties - Collectively, CAI Equipment Leasing II Corp., CAI
Equipment Leasing III Corp., CAI Equipment Leasing IV Corp., CAI Partners
Management Company, Capital Equipment Corporation, CAI Equipment Leasing V
Corp., CAI Equipment Leasing VI Corp., CAI Leasing Canada, Ltd., CAI-Mexico,
Whitewood Equipment Corporation f/k/a Whitewood Credit Corporation, CAI
Securities Corporation and CAI Lease Securitization I Corp., and following
consummation of the Acquisition Agreement, Connecting Point.
Surety Agreement - Section 3.7
Surety Security Agreement(s) - Those certain security agreements
from each of the Sureties, including following consummation of the Acquisition
Agreement, the Connecting Point Security Agreement.
Tangible Net Worth - At any time means, with respect to Borrowers
on a consolidated basis, the amount of stockholders equity (excluding the value
of leased equipment relating to Accrual Leases, trademarks, goodwill, covenants
not to compete, deferred closing costs in conjunction with this Agreement and
all other intangible assets as that term is defined under GAAP).
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Term Loan - Section 2.1(c)(iii).
Term Loan Notes - Section 2.1(c)(iii).
Unmatured Event of Default - An event or condition which with the
passage of time, the giving of notice, or both would become an Event of Default.
Unused Line Fee - Section 2.6(b).
Warehouse Borrowing Base - As of any date of determination, an
amount equal to the lesser of (i) the Warehouse Sublimit and (ii) the sum of
(A)95% of the present value of the remaining scheduled payments due under
Eligible Warehouse Leases characterized as Direct Finance Leases or Progress
Payments plus (B) 95% of the cost of the Leased Property associated with
Eligible Warehouse Leases characterized as Operating Leases, less advanced
rentals, security deposits and other "up-front" monies received and the
scheduled monthly depreciation through the date of determination. For purposes
of calculating the present value of the remaining payments due under Eligible
Warehouse Leases, the gross lease receivables due under the Eligible Warehouse
Leases shall be discounted to present value using a discount rate equal to the
highest applicable Borrowing Rate corresponding to Revolving Credit Loans.
Warehouse Sublimit - an amount equal to $51,000,000.
Working Capital Borrowing Base - As of any date of determination,
without duplication, the sum of (A)95% of the present value of the remaining
scheduled payments due under Eligible Working Capital Leases characterized as
Direct Finance Leases plus (B) 95% of the cost of the Leased Property associated
with Eligible Working Capital Leases characterized as Operating Leases, less
advanced rentals, security deposits and other "up- front" monies received and
the scheduled monthly depreciation through the date of determination, plus (C)
the present value of the aggregate Class B Distributions and PIF Collateral,
plus (D) the present value of the Funded Lease Residuals, plus (E) 50% of the
Retained Residuals. For purposes of calculating the present value of the
respective portions of the Working Capital Borrowing Base, the gross receivables
due or anticipated to be paid shall be discounted to present value using a
discount rate equal to the highest applicable Borrowing Rate corresponding to
Working Capital Loans.
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Working Capital Facility - Section 2.1(c)(i).
Working Capital Notes - Section 2.1(c)(ii).
Working Capital Sublimit - an amount equal to $5,000,000.
1.2 Accounting Principles: Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except as otherwise expressly provided in this Agreement.
SECTION 2. THE LOANS
2.1 Credit Facility - Description:
(a) General Terms:
(i) Subject to the terms and conditions of this
Agreement, each Lender, severally hereby establishes for the joint and several
benefit of Borrowers a credit facility (collectively referred to as "Credit
Facility") which shall include Advances extended by Lenders to or for the
benefit of Borrowers from time to time hereunder in the form of warehouse
revolving credit loans ("Revolving Credit Loans"), working capital revolving
credit loans ("Working Capital Loans"), a term loan to finance the acquisition
of Connecting Point ("Acquisition Term Loan") and a general working capital term
loan ("Term Loan"). The aggregate outstanding principal amount of all (x) Loans,
at any time, shall not exceed the Maximum Credit Limit; (y) Revolving Credit
Loans, at any time shall not exceed the Warehouse Borrowing Base; and (z)
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Working Capital Loans shall not exceed the Working Capital Sublimit. In
addition, the aggregate outstanding balance of all Working Capital Loans plus
the outstanding balance of the Term Loan shall not exceed $7,800,000 and the
Collateral Coverage Ratio shall at all times be at least equal to the Applicable
Coverage Ratio. Subject to such limitation, the outstanding balance of all
Revolving Credit Loans and Working Capital Loans may fluctuate from time to
time, to be reduced by repayments made by Borrower, to be increased by future
Revolving Credit Loans and/or Working Capital Loans which may be made by
Lenders. In no event shall Borrowers request a Revolving Credit Loan with an
initial principal amount which is less than $500,000 or a Working Capital Loan
with an initial principal amount which is less than $250,000. If the aggregate
outstanding amount of all Loans exceeds the Maximum Credit Limit, Borrowers
shall immediately repay such excess in full. If the aggregate outstanding amount
of all Revolving Credit Loans exceeds the Warehouse Borrowing Base, Borrowers
shall either immediately (x) repay such excess in full or (y) pledge additional
Eligible Warehouse Leases in accordance with the terms hereof. If the Collateral
Coverage Ratio falls below the Applicable Coverage Ratio, Borrowers shall either
immediately repay an amount, or pledge additional Working Capital Leases, such
that the Collateral Coverage Ratio equals at least the Applicable Coverage
Ratio. Agent has the right at any time and from time to time, in its reasonable
discretion, (but without any obligation) to set aside reasonable reserves
against the Borrowing Bases in such amounts as it may deem appropriate. The
Obligations of Borrowers under the Credit Facility and this Agreement shall at
all times be joint and several and absolute and unconditional.
(ii) Subject to the terms and conditions of this
Agreement, each Lender severally, agrees to lend to Borrowers an amount equal to
such Lender's respective percentage (as to each Lender, the percentage of the
Credit Facility set forth opposite its name on Schedule "A" attached hereto and
made a part hereof and referred to as its "Pro Rata Percentage") of the Advance
requested by Borrowers. The aggregate outstanding Loans by each Lender shall not
exceed the respective amounts ("Pro Rata Shares") set forth opposite such
Lender's name on Schedule "A".
(b) Revolving Credit Loans: At Closing, Borrowers shall execute
and deliver their promissory note to each Lender for the total principal amount
of such Lender's Pro Rata Percentage of the Warehouse Sublimit (collectively as
may be amended, modified or replaced from time to time, the "Revolving Credit
Notes"). The Revolving Credit Notes shall evidence Borrowers' joint and several,
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absolute and unconditional obligation to repay such Lender for all Revolving
Credit Loans made by such Lender under the Credit Facility, with interest as
herein and therein provided. Each and every Revolving Credit Loan under the
Credit Facility shall be deemed evidenced by the Revolving Credit Notes, which
are deemed incorporated herein by reference and made a part hereof. All
Revolving Credit Notes shall be substantially in the form set forth in Exhibit
"2.1(b)" attached hereto and made a part hereof.
(c) Working Capital Facility:
(i) Lenders hereby establish as a portion of the Credit
Facility, for the joint and several benefit of Borrowers a working capital
facility ("Working Capital Facility") under which Lenders shall make Working
Capital Loans and the Term Loan. The aggregate outstanding amount of all Working
Capital Loans and the Term Loan shall not exceed $7,800,000 or an amount that
would cause the Collateral Coverage Ratio to be lower than the Applicable
Coverage Ratio.
(ii) At Closing, Borrowers shall execute and deliver their
promissory note to each Lender for the total principal amount of such Lender's
Pro Rata Percentage of the Working Capital Sublimit (collectively as may be
amended, modified or replaced from time to time, the "Working Capital Notes").
The Working Capital Notes shall evidence Borrowers' joint and several, absolute
and unconditional obligation to repay such Lender for all Working Capital Loans
made by such Lender under the Credit Facility, with interest as herein and
therein provided. Each and every Working Capital Loan under the Credit Facility
shall be deemed evidenced by the Working Capital Notes, which are deemed
incorporated herein by reference and made a part hereof. All Working Capital
Notes shall be substantially in the form set forth in Exhibit "2.1(c)(ii)"
attached hereto and made a part hereof.
(iii) At Closing, Lenders agree to make a Term Loan ("Term
Loan") to Borrowers in the principal amount equal to $2,800,000, which shall be
repaid in successive quarterly installments in accordance with the terms of the
Term Note. The quarterly payments under the Term Loan shall be based on a
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four-year amortization schedule with each installment due and payable on the
last Business Day of each fiscal quarter, commencing on the last Business Day of
February, 1998. The Term Loan shall be repaid in full on the earlier of the
Maturity Date or the last Business Day of November, 1999 and shall be secured by
all of the Collateral. Borrowers shall execute and deliver their promissory note
to each Lender for the total principal amount of such Lender's Pro Rata
Percentage of the Term Loan(collectively as may be amended, modified or replaced
from time to time, the "Term Loan Notes"). The Term Loan Notes shall evidence
Borrowers' joint and several, absolute and unconditional obligation to repay
such Lender for its Pro Rata Percentage of the Term Loan made by such Lender
under the Credit Facility, with interest as herein and therein provided. The
Term Loan shall be deemed evidenced by the Term Loan Notes, which are deemed
incorporated herein by reference and made a part hereof. All Term Loan Notes
shall be substantially in the form set forth in Exhibit "2.1(c)(iii)" attached
hereto and made a part hereof.
(iv) (A) As a part of the Working Capital Facility Credit
and subject to its terms and conditions (including, without limitation, the
Working Capital Borrowing Base), the Issuing Bank shall, on behalf of and for
the benefit of all Lenders, make available to Borrowers documentary/merchandise
letters of credit (collectively "Letters of Credit") which shall not exceed, in
the aggregate at any one time outstanding, the L/C Sublimit. Notwithstanding the
foregoing, all Letters of Credit shall be in form and substance reasonably
satisfactory to Issuing Bank. No documentary/merchandise letter of credit shall
be issued with an expiry date of greater than one hundred eighty (180) days from
the date of issuance, but in no event shall any Letter of Credit carry an expiry
date later than the Maturity Date. Borrowers shall execute and deliver to
Issuing Bank all letter of credit agreements and other documents required by
Issuing Bank for such purposes, all such documents to be in form and substance
satisfactory to Issuing Bank in its sole discretion.
(B) Immediately upon the issuance of any Letter of
Credit, Issuing Bank is deemed to have granted to each other Lender, and each
other Lender is hereby deemed to have acquired, an undivided participating
interest (without recourse or warranty), in accordance with each such other
Lender's respective Pro Rata Percentage, in all of Issuing Bank's rights and
liabilities with respect to such Letter of Credit. Each Lender shall be
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directly, absolutely and unconditionally obligated, without deduction or setoff
of any kind, to Issuing Bank, according to its Pro Rata Percentage, to reimburse
Issuing Bank for any amount paid pursuant to any draws made at any time
(including without limitation following the commencement of any bankruptcy,
reorganization, receivership, liquidation or dissolution proceeding with respect
to any Borrower) under any Letter of Credit, unless such draw is honored as a
direct result of Issuing Bank's gross negligence or willful misconduct.
(C) Each Letter of Credit issued from time to time
under the Working Capital Facility which remains undrawn (and the amounts of
draws on Letters of Credit prior to payment as hereinafter set forth), shall
reduce dollar for dollar the amount available to be borrowed by Borrowers under
the Working Capital Facility, except to the extent that draws have been made
thereunder as to which Borrowers have reimbursed Issuing Bank. Issuing Bank
shall be immediately reimbursed by Borrowers for amounts paid pursuant to any
draws made under a Letter of Credit, at the option of Agent, by either a cash
payment by Borrowers or by Agent or Lenders automatically making or having
deemed made (without further request or approval of Borrowers or Lenders) a cash
Advance under the Working Capital Facility (even if the making of such Advance
occurs at a time when no availability under the Working Capital Borrowing Base
exists, provided that the making of any such Advance shall not alleviate
Borrowers' obligations under Section 2.1(a)(i) and 2.7(d) hereof). All cash
Advances made by Agent which constitute a reimbursement to Issuing Bank for a
draw under a Letter of Credit shall be repaid to Agent by Lenders (each Lender's
obligation hereunder being identical to its obligation described in the last
sentence of clause (B) above) in accordance with their respective Pro Rata
Percentages in accordance with Section 2.2(b) below.
(d) Acquisition Term Loan: Subject to the terms of this
Agreement including satisfaction of each of the preconditions set forth in
Section 2.3(c), Lenders agree to make available to Borrowers, a term loan, the
proceeds of which shall be used to pay a portion of the purchase price in
connection with CAII's acquisition of Connecting Point in accordance with the
terms of the Acquisition Agreement ("Acquisition Term Loan"). The Acquisition
Term Loan shall be in an initial principal amount not to exceed $1,200,000 which
shall be repaid in successive quarterly installments in accordance with the
Acquisition Term Loan Note. The quarterly payments under the Acquisition Term
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Loan shall be based on a four-year amortization schedule with each installment
due and payable on the last Business Day of each fiscal quarter commencing on
the last day of the fiscal quarter during which the Acquisition Term Loan is
made. The Acquisition Term Loan shall be repaid in full on or before the
Maturity Date and in accordance with the Acquisition Term Loan Notes, subject to
the mandatory prepayment described in Section 2.7(d)(ii), and shall be secured
by all of the Collateral. Prior to advancing the proceeds of the Acquisition
Term Loan, Borrowers shall execute and deliver their promissory note to each
Lender for the total principal amount of such Lender's Pro Rata Percentage of
the Acquisition Term Loan (collectively as may be amended, modified or replaced
from time to time, the "Acquisition Term Loan Notes"). The Acquisition Term Loan
Notes shall evidence Borrowers' absolute and unconditional obligation to repay
such Lender for its Pro Rata Percentage of the Acquisition Term Loan advanced by
such Lender under the Credit Facility, with interest as herein and therein
provided. The Acquisition Term Loan shall be deemed evidenced by the Acquisition
Term Loan Notes, which will be deemed incorporated herein by reference and made
a part hereof. All Acquisition Term Loan Notes shall be substantially in the
form set forth in Exhibit "2.1(d)" attached hereto and made a part hereof.
(e) Term: The term ("Initial Term") of the Credit Facility shall
expire on November 25, 1998. The Credit Facility may, nonetheless, be renewed
annually in Lenders' sole discretion (without any obligation to do so), for
additional one year periods, provided Borrowers request such renewal at least 60
days prior to the anniversary date of this Agreement. As of the Maturity Date no
further Loans shall be available from Lenders and all of Borrowers' Obligations
shall be immediately due and payable without notice or demand.
(f) Warehouse Borrowing Base Certificate: Borrowers shall
deliver to Agent and each Lender, at least monthly on the fifteenth (15th) day
of each month, and with each borrowing request, unless Agent requests more
frequent delivery, a Warehouse Borrowing Base Certificate in the form of Exhibit
2.1(f) attached hereto and made a part hereof, executed by an Authorized
Officer, evidencing the availability under the Warehouse Borrowing Base.
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2.2 Advances, Conversions, Renewals and Payments:
(a) Except to the extent otherwise set forth in this Agreement,
all payments of principal and of interest on the Credit Facility, Unused Line
Fee, Agent's Fee, the Expenses, and all other charges and any other Obligations
of Borrower hereunder, shall be made to Agent at its main Philadelphia banking
office CoreStates Bank, N.A., 1339 Chestnut Street, Philadelphia, Pennsylvania,
in United States dollars, in immediately available funds. Agent, on behalf of
all Lenders, shall have the unconditional right and discretion to make an
Advance under the Credit Facility in the form of a Revolving Credit Loan to pay,
and/or to charge Borrowers' operating account with any such respective
institution for, all of Borrowers' Obligations as they become due from time to
time under this Agreement including without limitation, interest, principal,
fees and reimbursement of Expenses.
(b) (i) Advances which may be made by Lenders from time to time
under the Credit Facility shall be made available by crediting such proceeds to
Borrowers' operating account with Agent.
(ii) All Revolving Credit Loans and the Acquisition Term
Loan requested by Borrowers (whether such Advance is to be subject to the Base
Rate Option or the LIBOR Rate Option) and all Working Capital Loans subject to
LIBOR Rate Option, must be requested by 1:00 P.M. Eastern time, three Good
Business Days prior to the date such Advance is requested to be made. All
Working Capital Loans requested by Borrowers subject to the Base Rate Option
must be requested by 1:00 P.M. Eastern time on the date such Working Capital
Loan is requested to be made. All requests or confirmation of requests for an
Advance are to be in writing and may be sent by telecopy or facsimile
transmission provided that Agent shall have the right to require that receipt of
such request not be effective unless confirmed via telephone with Agent.
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(iii) A. Upon receiving a request for an Advance in
accordance with subparagraph (ii) above, as soon as reasonably practical
thereafter, Agent shall notify all Lenders of the request. Subject to the terms
of this Agreement, each Lender shall advance its applicable Pro Rata Percentage
of the requested Advance to Agent by remitting federal funds immediately
available, to Agent pursuant to Agent's instructions prior to 1:00 P.M. Eastern
Time on the scheduled date of the Advance. Subject to satisfaction of the terms
and conditions hereof, Agent shall make the requested Advance available to
Borrowers by crediting such amount to Borrowers' operating account with Agent as
soon as is reasonably practical thereafter on the day the requested Advance is
to be made. In lieu of the foregoing, Agent may, in its discretion (unless such
Lender has notified Agent in writing that such Lender will not fund its Pro Rata
Percentage of such Advance), fund the Pro Rata Percentage of such Advance on
behalf of any one or more Lenders (unconditionally and absolutely obligating
such affected Lender(s) to reimburse Agent in full without deduction or setoffs
for its portion of such Advance) with a settlement of the Pro Rata Percentages
of such Advance with each such Lender on the following Business Day under such
procedures as Agent may establish.
B. Neither Agent nor any other Lender shall be
obligated, for any reason whatsoever, to advance the share of any other Lender.
If such corresponding amount is not made available to Agent by such Lender on
the date the Advance is made and Agent elects (at its discretion, without any
obligation to do so) to make such Lender's Pro Rata Percentage of the Advance,
Agent shall be entitled to recover such amount on demand from such Lender
together with interest at the per annum rate equal to the Federal Funds Rate in
respect of the first two days and at the Base Rate in respect to each day
thereafter during the period commencing 2:00 P.M. Eastern Time on the date of
such Advance and ending on (but excluding) the date Agent recovers such amount.
To the extent Agent is not reimbursed by such Lender, Borrower shall repay Agent
immediately upon demand, such amount. Agent may set off the obligations of a
Lender under this paragraph against any distributions or payments of the
Obligations which Agent would otherwise make available to such Lender.
C. To the extent and during the time period in which
any Lender fails to provide or delays providing its respective payment to Agent
pursuant to subsections A or B above (any such Lender being referred to, during
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such period, as a "Defaulting Lender"), such Lender's percentage of all payments
of the Obligations (but not its Pro Rata Percentage of future Advances required
to be funded by such Lender) shall decrease to reflect the actual percentage
which its actual Lender's Loan Balance outstanding bears to the total
outstanding amount of all Loans. In addition, notwithstanding any definition or
other provision of this Agreement to the contrary, during any period in which a
Lender is a Defaulting Lender, all calculations for voting purposes among the
Lenders shall be made as if the Defaulting Lender were not a Lender and not a
party to this Agreement.
2.3 Preconditions to Advances and Assignment of Leases and Leased
Property
(a) Before Lenders will make any Working Capital Loan, Revolving
Credit Loan or the Acquisition Term Loan:
(i) Borrowers will deliver to Agent the following (dated
and signed) in form and substance satisfactory to Agent:
A. A borrowing request setting forth the requested
date of the Advance, the requested advance amount, whether the Advance will be a
Revolving Credit Loan or a Working Capital Loan, a Borrowing Base Certificate
with respect to the Warehouse Borrowing Base in the form attached hereto as
Exhibit "2.1(f)" setting forth the availability under the Warehouse Borrowing
Base, any information required by this Agreement and such other information as
Agent shall reasonably request. A borrowing request may be made orally, provided
that Borrowers confirm the request in writing within two (2) days thereafter,
provided further however, that Lenders need not make any Advances until Agent
receives actual written confirmation and a Borrowing Base Certificate,
B. Such financial information concerning any of the
Leases, Borrowers or any Lessee, as Agent and/or Lenders may reasonably request,
and
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C. Such other instruments, agreements and documents
as Agent reasonably requests to carry out the intent of the parties to this
Agreement.
(ii) No Event of Default or Unmatured Event of Default
shall have occurred hereunder.
(b) In order to increase the Borrowing Bases, Borrowers shall
deliver to Agent for the benefit of Lenders the following items:
(i) a description of the collateral package, which
shall include, identification of the Lessee, a description of the Leased
Property, the net cost of the Leased Property, the net remaining principal
balance under the Lease(s), and the terms of and rentals owed under each Lease,
and such other information which Agent or Lenders shall reasonably request,
(ii) an Assignment Agreement designating whether such
Leases are to be included in the Warehouse Borrowing Base or the Working Capital
Borrowing Base, signed by Borrowers assigning Borrowers' right, title and
interest in and to the Leased Property and Leases to Agent for the benefit of
Lenders, in the form attached hereto as Exhibit "2.3(b)" ("Assignment
Agreement"),
(iii) if requested by Agent, additional Uniform Commercial
Code ("UCC") financing statements covering, inter alia, the Leased Property and
the Leases listing Agent for the benefit of Lenders, as secured party and CAII
and/or Parent, as applicable, as debtor, to be filed in locations reasonably
required by Agent,
(iv) the sole original of each Lease along with all
schedules duly assigned to Agent for the benefit of Lenders,
(v) a certificate of acceptance or other document which
(A) evidencing that the Lessee has received and accepted the Leased Property and
(B) summarizes the "true cost" of the Leased Property,
(vi) where the initial cost of the Leased Property is in
excess of $250,000 and such Leased Property is to be affixed to real estate in
such a manner as, under applicable law, to become a fixture, a landlord or
mortgagee waiver from all persons having an interest in the real estate on which
the Leased Property will be located,
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(vii) an undated notice signed by the Borrower directing
each Lessee to pay all sums due or to become due under each Lease directly to
Agent for the benefit of Lenders ("Lessee Notice") to be used only following the
occurrence of an Event of Default. Agent will hold the Lessee Notices in escrow
and will not release them, unless and until an Event of Default shall have
occurred,
(viii) where the Leased Property constitutes a motor
vehicle, trailer or similar type of rolling stock, following the occurrence of
an Event of Default or an Unmatured Event of Default, upon Agent's request,
deliver the vehicle title with a completed application for noting Agent, for the
benefit of Lenders, as first lienholder thereon, or the manufacturer's
certificate of origin with all documentation necessary to have the vehicle
titled in a Borrower's name with Agent for the benefit of Lenders noted as the
first lienholder thereon,
(ix) where the Collateral constitutes Progress Payments,
and the Potential Lessee's obligations are evidenced by an instrument or chattel
paper, the sole original counterpart of such instrument and/or chattel paper,
(x) where the Collateral is to be included in the Working
Capital Borrowing Base, documentation satisfactory to Agent in its discretion,
evidencing (A) the value of such Collateral and, (B) except as otherwise
provided in this Agreement, that Agent has a first perfected Lien on such
Collateral, and
(xi) where aggregate Borrowing Base Lessee Concentration
referred to in Section 5.18(d)(i) exceeds $3,000,000 for Lessees with a
Designated Credit Rating of 3, the actual firm commitment for the sale of such
Leases to a third party with respect to each Lease that causes the concentration
limitation to be exceeded.
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(c) Before Lenders will make the Acquisition Term Loan, Borrowers
will deliver to Agent the following (dated and signed) in form and substance
satisfactory to Agent:
(i) a surety agreement pursuant to which Connecting
Point agrees to guaranty, as surety, all of the Obligations hereunder
("Connecting Point Surety Agreement");
(ii) a security agreement pursuant to which Connecting
Point shall grant to Agent for the benefit of Lenders and Issuing Bank, a
security interest in all its then-owned and thereafter acquired assets which
Lien shall be a first Lien except with respect to specific receivables financed
by Deutsche Financial ("Connecting Point Security Agreement"). The Lien shall
secure all of Connecting Point's obligations under the Connecting Point Surety
Agreement and the Connecting Point Security Agreement shall also contain, inter
alia, an agreement that no other party (other than Deutsche Financial) shall be
granted a Lien on any of Connecting Point's assets;
(iii) certified copies of (A) Resolution of Connecting
Point's Board of Directors authorizing execution and delivery of the Connecting
Point Surety Agreement and the Connecting Point Security Agreement and the
performance by it of all transactions contemplated thereby, (B) Connecting
Point's Bylaws and Articles of Incorporation, and (C) an Incumbency Certificate
of Connecting Point;
(iv) Good Standing Certificate of Connecting Point issued
by the Secretary of State or other appropriate official of Connecting Point's
jurisdiction of incorporation and each jurisdiction where the conduct of
Connecting Point's business activities or the ownership of its Properties
necessitates qualification;
(v) the favorable written opinion of Borrowers' counsel
in connection with the Connecting Point acquisition opining that the acquisition
has been consummated;
(vi) written instruction from Borrowers directing the
application of the proceeds of the Acquisition Term Loan;
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(vii) the fully executed Acquisition Agreement with all
completed schedules;
(viii) an Officer's Certificate from the Borrowers
certifying compliance with the terms and conditions of this Agreement, that no
material adverse change has occurred since the date of this Agreement, that no
Event of Default or Unmatured Event of Default has occurred hereunder and that
all of the representations and warranties contained in this Agreement remain
true and correct in all material respects;
(ix) evidence that Connecting Point has insurance coverage
as is otherwise required for Borrowers as set forth in Section 6.2 hereof and a
certificate naming Agent, for the benefit of Lenders, as Lender Loss Payee;
(x) UCC, state and federal tax lien and judgment searches
against Connecting Point and any and all necessary UCC-3 Termination Statements
corresponding to existing filings against Connecting Point;
(xi) a collateral assignment of rights and representations
under the Acquisition Agreement ("Collateral Assignment");
(xii) a certified copy of the subordinated promissory note
issued in favor of the Connecting Point Sellers, as sellers under the
Acquisition Agreement and the Subordination Agreement (if necessary); and
(xiii) evidence that the transactions contemplated by
Acquisition Agreement have been consummated.
2.4 Credit Facility Interest:
(a) Base Rate Option - The unpaid principal balance of any type of
Loan outstanding under the Credit Facility, unless subject to the LIBOR Rate
Option, shall bear interest, subject to the terms hereof, at the per annum rate
equal to the Base Rate ("Base Rate Option"). Changes in the Base Rate shall
become effective on the same day as a change in the Base Rate occurs. Interest
on Base Rate Loans shall be due and payable in arrears on the last Business Day
of each calendar month commencing the first full month following the Closing
Date.
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(b) LIBOR Rate Option:
(i) The unpaid principal balance of all or a portion of
any type of Loan may, at Borrowers' option, bear interest at the LIBOR Based
Rate ("LIBOR Rate Option") provided that in no event (i) may a LIBOR Based Rate
Loan be less than $1,000,000 nor (ii) may there be LIBOR Based Rate Loans with
more than five (5) different LIBOR Interest Periods, outstanding at any time.
(ii) LIBOR Based Rate Loans shall be selected for a period
of either one (1), two (2) or three (3) months' duration, as Borrowers may
elect, during which the LIBOR Based Rate is applicable ("LIBOR Interest
Period"); provided, however, that (a) if the LIBOR Interest Period would
otherwise end on a day which shall not be a Good Business Day, such LIBOR
Interest Period shall be extended to the next succeeding Good Business Day,
unless such Good Business Day falls in another calendar month, in which case
such LIBOR Interest Period shall end on the next preceding Good Business Day
subject to clause (c) below; (b) interest shall accrue from and including the
first day of each LIBOR Interest Period to, but excluding the day on which any
LIBOR Interest Period expires; and (c) with respect to any LIBOR Interest Period
which begins on the last Good Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the end
of such LIBOR Interest Period), the LIBOR Interest Period shall end on the last
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Good Business Day of a calendar month. All accrued and unpaid interest on a
LIBOR Based Rate Loan must be repaid in full on the day the applicable LIBOR
Interest Period expires. No LIBOR Interest Period may end after the Maturity
Date. Subject to all of the terms and conditions applicable to a request that a
new Advance be a LIBOR Based Rate Loan, Borrowers may extend LIBOR Based Rate
Loans as of the last day of the applicable LIBOR Interest Period to a new LIBOR
Based Rate Loan or may convert all or a portion of the Loans subject to the Base
Rate Option to a LIBOR Based Rate Loan. If Borrowers fail to notify the Agent of
their desire to extend a LIBOR Based Rate Loan at least three Good Business Days
prior to the last day of the then current LIBOR Interest Period of an
outstanding LIBOR Based Rate Loan, then such outstanding LIBOR Based Rate Loan
shall become a loan subject to the Base Rate Option at the end of the current
LIBOR Interest Period for such outstanding LIBOR Based Rate Loan and shall
accrue interest in accordance with Section 2.4(a) above until such Loan is
converted to another LIBOR Based Rate Loan.
(iii) The LIBOR Rate may be automatically adjusted by Agent
on a prospective basis to take into account the additional or increased cost of
maintaining any necessary reserves for Eurodollar deposits or increased costs
due to changes in applicable law or regulation or the interpretation thereof
occurring subsequent to the commencement of the then applicable LIBOR Interest
Period, including but not limited to changes in tax laws and changes in the
reserve requirements imposed by the Board of Governors of the Federal Reserve
System (or any successor), excluding any such changes that have resulted in a
payment pursuant to Section 2.10 hereof, that increase the cost to Lenders of
funding the LIBOR Based Rate Loan. Agent shall promptly give Borrowers and each
Lender notice of such a determination and adjustment, which determination shall
be conclusive, absent manifest error, as to the correctness of the fact and the
amount of such adjustment. Agent shall furnish to Borrowers a statement setting
forth the basis for adjusting such LIBOR Based Rate and the method for
determining the amount of such adjustment. In such event Borrowers may prepay
the LIBOR Based Rate Loan with respect to which such adjustment is made, subject
to the requirements of Section 2.9 below.
(iv) In the event that Borrowers shall have requested
the LIBOR Rate Option in accordance with Section 2.4(b) and Agent shall have
reasonably determined that Eurodollar deposits equal to the amount of the
principal of the requested LIBOR Based Rate Loan and for the LIBOR Interest
Period specified are unavailable, impractical or unlawful, or that the rate
based on the LIBOR Rate will not adequately and fairly reflect the cost of the
LIBOR Based Rate applicable to the specified LIBOR Interest Period of making or
maintaining the principal amount of the requested LIBOR Based Rate Loan
specified by Borrowers during the LIBOR Interest Period specified, or that by
reason of circumstances affecting Eurodollar markets, adequate and reasonable
means do not exist for ascertaining the rate based on the LIBOR Rate applicable
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to the specified LIBOR Interest Period, Agent shall promptly give notice of such
determination to Borrowers that the rate based on the LIBOR Rate is not
available. A determination by Agent hereunder shall be prima facie evidence of
the correctness of the fact and amount of such additional costs or
unavailability. Upon such a determination, (i) the right of Borrowers to select,
convert to, or maintain a LIBOR Based Rate Loan at the rate based on the LIBOR
Rate shall be suspended until Agent shall have notified Borrowers that such
conditions shall have ceased to exist, and (ii) the Loans subject to the
requested LIBOR Rate Option shall accrue interest in accordance with Section
2.4(a) above.
(v) In the event that, as a result of any changes in
applicable law or regulation or the interpretation thereof, it becomes unlawful
for a Lender to maintain Eurodollar liabilities sufficient to fund any LIBOR
Based Rate Loan subject to the LIBOR Based Rate, and then such Lender shall
immediately notify Agent who shall immediately notify the other Lenders and
Borrower thereof, and such Lender's ability to make, convert to, or maintain a
LIBOR Based Rate Loan at the LIBOR Based Rate shall, without penalty to
Borrowers, be suspended until such time as such Lender may again cause the LIBOR
Base Rate to be applicable to its share of any LIBOR Based Rate Loans and such
Lender's share of the Loans subject to the LIBOR Based Rate shall accrue
interest in accordance with Section 2.4(a) above. Promptly after becoming aware
that it is no longer unlawful for such Lender to maintain such Eurodollar
liabilities, such Lender shall notify Agent who will notify Borrowers thereof
and such suspension shall cease to exist.
2.5 Additional Interest Provisions.
(a) Calculation of Interest: Interest on the Loans, regardless of
the rate option, shall be based on a three hundred sixty (360) day year and
charged for the actual number of days elapsed.
(b) Limitation on LIBOR Based Rate Loans: Upon the occurrence and
continuance of an Event of Default, Agent may in its sole discretion, or the
Majority Lenders shall have the right to cause Agent to, eliminate the
availability of LIBOR Based Rate Loans.
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(c) Default Rate: After the occurrence and during the continuance
of an Event of Default hereunder, the per annum effective rate of interest on
all Advances outstanding under the Credit Facility, regardless of the rate
option, shall be increased to a rate equal to two (2%) percentage points in
excess of the applicable Borrowing Rate.
(d) Conversion: Following the occurrence of an Event of Default,
all LIBOR Based Rate Loans at the end of their applicable LIBOR Interest Period,
shall convert to a Loan subject to the Base Rate Option, which conversion is
independent of Agent's rights under Section 2.5(b).
(e) Continuation of Interest Charges: All contractual rates of
interest chargeable on outstanding Advances, regardless of the rate option,
shall continue to accrue and be paid even after default, maturity, acceleration,
judgment, bankruptcy, insolvency proceedings of any kind or the happening of any
event or occurrence similar or dissimilar.
(f) Applicable Interest Limitations: In no contingency or event
whatsoever shall the aggregate of all amounts deemed interest hereunder and
charged or collected pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent jurisdiction shall, in
a final determination, deem applicable hereto. In the event that such court
determines Lenders have charged or received interest hereunder in excess of the
highest applicable rate, Agent, on behalf of Lenders, shall in its sole
discretion, apply and set off such excess interest received by Lenders against
other Obligations due or to become due and such rate shall automatically be
reduced to the maximum rate permitted by such law.
2.6 Fees:
(a) Agent's Fee: So long as any of Borrowers' Obligations remain
outstanding, Borrowers shall unconditionally pay to Agent, for its sole benefit,
a non-refundable annual fee ("Agent's Fee") in accordance with the terms of that
certain letter agreement of even date herewith among Borrowers and Agent.
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(b) Unused Line Fee: So long as the Credit Facility is
outstanding and has not been terminated, Borrowers shall unconditionally pay to
Agent, for the benefit of Lenders in accordance with their respective Pro Rata
Percentages, a nonrefundable fee ("Unused Line Fee") equal to three-eighths of
one percent (3/8%) per annum of the daily average unused portion of the
Warehouse Sublimit and Working Capital Sublimit (which shall be calculated as
$56,000,000 minus the average daily outstanding balance of all Revolving Credit
Loans and all Working Capital Loans during the quarter for which such
calculation is made). The unused line fee shall be computed and paid on a
quarterly basis in arrears, on the last day of each February, May, August and
November for the previous quarter for which such computation is made by Agent,
beginning on the last day of February, 1998.
(c) Letter of Credit Fees: Borrowers shall pay to Agent, for the
ratable benefit of Lenders in accordance with their Pro Rata Percentage, letter
of credit fees equal to 2.75% per annum of the face amount of each Letter of
Credit, which fees shall be payable quarterly in arrears on the same days as
referenced in clause 2.6(b) above, based on the actual number of days the
corresponding Letter of Credit was outstanding during such quarter. Borrowers
shall also pay to Issuing Bank all of Issuing Bank's standard charges (including
without limitation all cable and wire transfer charges) for the account of
Issuing Bank for the issuance, amendment, negotiation/payment, extension and
cancellation of each such Letter of Credit. All such fees are collectively the
"L/C Fees".
2.7 Prepayments:
(a) LIBOR Based Rate Loans: No portion of the LIBOR Based Rate
Loans may be prepaid at any time except if the Borrowers first satisfy in full
their obligations under Section 2.9 below arising from such prepayment.
(b) Base Rate Loans: Subject to Section 2.1(a), Loans subject to
the Base Rate Option may be prepaid at any time and from time to time in whole
or in part without premium or penalty.
(c) Proceeds of Collateral: Prior to the occurrence of an Event
of Default, proceeds from Collateral comprising a portion of the Warehouse
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Borrowing Base or Working Capital Borrowing Base, as applicable, to the extent
that the aggregate outstanding amount of all Revolving Credit Loans exceeds the
Warehouse Borrowing Base or the Collateral Coverage Ratio is less than the
Applicable Coverage Ratio, shall promptly be paid to Agent for the benefit of
Lenders and be first applied to accrued but unpaid interest, fees, costs and
expenses related to the Credit Facility, and then to the outstanding balance of
the Revolving Credit Loans and/or Working Capital Loans, as applicable, and then
to Borrowers' other Obligations. Following the occurrence of an Event of
Default, all proceeds from the Collateral shall be immediately delivered to
Agent and Agent may apply such proceeds to any of Borrowers' Obligations in such
order as Agent may decide in its sole discretion. Such payments shall first be
applied to the outstanding balance of the Base Rate Loans, then to the LIBOR
Based Rate Loans.
(d) Mandatory Prepayment:
(i) In the event the aggregate outstanding amount of all
Advances at any time exceeds the Maximum Credit Limit, Borrowers shall
immediately repay such excess in full and if the aggregate outstanding amount of
all Revolving Credit Loans, exceeds the Warehouse Borrowing Base or the
Collateral Coverage Ratio is less than the Applicable Coverage Ratio, Borrower
shall either immediately (i) repay such excess in full or (ii) pledge additional
Eligible Leases in accordance with the terms hereof. Such payments shall first
be applied to the outstanding balance of the Base Rate Loans, then to the LIBOR
Based Rate Loans.
(ii) Notwithstanding anything to the contrary contained
herein, Borrowers shall, on a quarterly basis within ten days following delivery
of their quarterly, and as applicable annual audited, Financial Statements to
Agent, prepay the Acquisition Term Loan in an amount equal to the Excess Cash
Flow ("Excess Cash Flow Payment"). Any Excess Cash Flow Payment shall be applied
to the installments due under the Acquisition Term Loan, in the inverse order of
maturity. For purposes hereof, "Excess Cash Flow" shall mean the earnings before
interest, taxes, depreciation and amortization of Connecting Point minus the
amount of scheduled principal amortization and interest payments due and paid
during such quarter, less cash taxes actually paid; provided however, that the
Excess Cash Flow Payments shall in no event exceed, in the aggregate for any one
fiscal year, an amount equal to $100,000.
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2.8 Use of Proceeds: The extensions of credit under and proceeds of
the Credit Facility shall be used to enable Borrower to purchase Leased Property
and finance Leases associated with such Leased Property, for general working
capital purposes and for the acquisition of the stock of Connecting Point.
2.9 Indemnity: Borrowers shall indemnify, defend and hold harmless
Agent and Lenders against any and all loss, liability, cost or expense which
Agent and Lenders may sustain or incur as a consequence of (a) any failure of
Borrowers to accept, convert or extend any LIBOR Based Rate Loan after notice
thereof has been given to Agent or (b) any payment, prepayment or conversion of
a LIBOR Based Rate Loan Borrowers made for any reason on a date other than the
last day of the applicable LIBOR Interest Period. Borrowers shall pay the full
amount thereof to Agent on demand by Agent.
2.10 Capital Adequacy: If any present or future law, governmental
rule, regulation, policy, guideline, directive or similar requirement (whether
or not having the force of law) imposes, modifies, or deems applicable any
capital adequacy, capital maintenance or similar requirement which affects the
manner in which any Lender allocates capital resources to its commitments
(including any commitments hereunder), and as a result thereof, in the opinion
of such Lender, the rate of return on such Lender's capital with regard to the
Loans is reduced to a level below that which such Lender could have achieved but
for such circumstances, then in such case and upon notice from Agent to
Borrowers, from time to time, Borrowers shall pay such Lender such additional
amount or amounts as shall compensate such Lender for such reduction in its rate
of return. Such notice shall contain the statement of such Lender with regard to
any such amount or amounts which shall, in the absence of manifest error, be
binding upon Borrowers. In determining such amount, such Lender may use any
reasonable method of averaging and attribution that it deems applicable.
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SECTION 3. COLLATERAL
3.1 Description: As security for the payment of the Obligations, and
satisfaction by Borrowers of all covenants and undertakings contained in this
Agreement and the other Loan Documents, each Borrower hereby assigns and grants
to Agent, for the benefit of Lenders and Issuing Bank, a continuing lien on and
security interest in, upon and to all of its following described Property
("Collateral"):
(i) All now owned and hereafter acquired, created, or arising
Accounts, accounts receivable, notes receivable, contract rights, chattel paper
(including without limitation the Lease Collateral), documents (including
documents of title), instruments and letters of credit;
(ii) All now owned or hereafter acquired, created or arising
Inventory of every nature and kind, wherever located (including without
limitation, the Leased Property and Related Equipment);
(iii) All now owned or hereafter acquired, created or arising
General Intangibles of every kind and description (including without limitation
the Class B Interests and Class B Distributions);
(iv) All now owned and hereafter acquired or arising Equipment
(including without limitation, the Leased Property and Related Equipment);
(v) All now existing and hereafter acquired or arising deposit
accounts, investment accounts, commercial paper, investment securities,
investment property (including, without limitation, with respect to Parent, the
stock of CAII and each Surety), certificates of deposit of every nature,
wherever located and all documents and records associated therewith;
(vi) All Property, now owned or hereafter in Agent's or any
Lender's possession;
(vii) All other personal Property of Borrowers, or either of
them, not described above, whether now existing or hereafter acquired; and
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(viii) All proceeds (including without limitation, insurance
proceeds) whether cash or noncash, of all of the foregoing.
3.2 Lien Documents: At Closing and thereafter as Agent deems
necessary, Borrowers shall execute and deliver to Agent, or have executed and
delivered (all in form and substance reasonably satisfactory to Agent):
(a) Financing Statements - Financing statements pursuant to the
UCC, which Agent, on behalf of Lenders, may file in any jurisdiction where any
Collateral is or may be located and in any other jurisdiction that Agent deems
appropriate; and
(b) Other Agreements - Any other agreements, documents,
instruments and writings, (including, without limitation, security agreements,
Assignment Agreements and the Pledge Agreement) reasonably required by Agent to
evidence, perfect or protect Agent's and/or Lenders' liens and security interest
in the Collateral or as Agent may reasonably request from time to time.
3.3 Other Actions: In addition to the foregoing, Borrowers shall do
anything further that may be lawfully and reasonably required by Agent to secure
Lenders and effectuate the intentions and objects of this Agreement, including,
but not limited to, the execution and delivery of lockbox agreements,
continuation statements, amendments to financing statements, security
agreements, contracts and any other documents required hereunder. At Agent's
request, Borrowers shall also immediately deliver (with execution by Borrowers
of all necessary documents or forms to reflect Agent's, Lenders' and Issuing
Bank's Lien thereon) to Agent as bailee for Lenders, all items for which Lenders
must or may receive possession to obtain a perfected security interest,
including without limitation, all Leases, notes, certificates and documents of
title, chattel paper, warehouse receipts, instruments, and any other similar
instruments constituting Collateral.
3.4 Searches: Agent shall, prior to or at Closing, and thereafter as
Agent may determine from time to time, at Borrowers' expense, obtain the
following searches (the results of which are to be consistent with the
warranties made by Borrowers in this Agreement):
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(a) UCC Searches: UCC searches with the Secretary of State and
local filing office of each state where each Borrower and Surety maintains its
executive office, a place of business, or assets;
(b) Judgments, Etc.: Judgment, federal tax lien and corporate tax
lien searches, in all applicable filing offices of each state searched under
subparagraph (a) above.
Borrowers shall, prior to or at Closing and at their expense,
obtain and deliver to Agent good standing certificates showing each Borrower and
Surety to be in good standing in its respective states of incorporation and in
each other state or foreign country in which such Borrower or Surety is doing
and presently intends to do business for which a failure to be so qualified
might have material adverse effect on such Borrower's or Surety's business,
financial condition, Property or Agent's and/or Lenders' rights hereunder.
3.5 Filing Security Agreement: A carbon, photographic or other
reproduction or other copy of this Agreement or of a financing statement is
sufficient as and may be filed in lieu of a financing statement.
3.6 Power of Attorney: Each of the officers of Agent is hereby
irrevocably made, constituted and appointed the true and lawful attorney for
each Borrower (without requiring any of them to act as such) with full power of
substitution (such power being coupled with an interest) to do the following:
(1) endorse the name of either Borrower upon any and all checks, drafts, money
orders and other instruments for the payment of monies that are payable to such
Borrower and constitute collections on the Collateral; (2) execute in the name
of either Borrower any financing statements, schedules, assignments,
instruments, documents and statements that such Borrower is obligated to give
Agent hereunder or is necessary to perfect Agent's and/or Lenders' security
interest or Lien in the Collateral; (3) to verify validity, amount or any other
matter relating to the Collateral by mail, telephone, telecopy or otherwise; and
(4) following the occurrence of an Event of Default, do such other and further
acts and deeds in the name of either Borrower that Agent may reasonably deem
necessary or desirable to enforce any Lease or other Collateral.
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3.7 Surety Agreement - Each of the Sureties shall execute and deliver
to Agent a surety agreement ("Surety Agreement") pursuant to which the Sureties
shall jointly and severally, absolutely and unconditionally, guaranty as surety
all of the Obligations. In conjunction with the delivery of the Surety
Agreement, each Surety shall execute and deliver to Agent a Surety Security
Agreement.
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES
Closing under this Agreement is subject to the following conditions
precedent (all documents to be in form and substance satisfactory to Agent and
Agent's counsel):
4.1 Resolutions, Opinions, and Other Documents: Borrowers shall have
delivered to Agent the following:
(a) this Agreement and the Notes all properly executed;
(b) each document and agreement required to be executed under any
provision of this Agreement or any related agreement;
(c) certified copies of (i) resolutions of each Borrower's and
Surety's board of directors authorizing the execution of this Agreement, the
Notes and the Surety Agreement, as applicable, and each document required to be
delivered by any Section hereof or thereof and (ii) each Borrower's and Surety's
Articles of Incorporation and By-laws;
(d) incumbency certificates identifying all Authorized Officers of
each Borrower and Surety, with specimen signatures;
(e) a written opinion of Borrowers' and Sureties' independent
counsel addressed to Agent for the benefit of all Lenders;
(f) payment by Borrowers of all Expenses associated with the
Credit Facility incurred to the Closing Date;
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(g) all documentation required by Section 3.4 hereof;
(h) initial Borrowing Base Certificates dated the Closing Date
evidencing Borrowers' minimum borrowing availability under the Warehouse
Borrowing Base and the Working Capital Borrowing Base as of the Closing Date;
(i) a Surety Agreement from the Sureties;
(j) the Pledge Agreement from Parent along with the original stock
certificates (and stock powers signed in blank) representing all of the issued
and outstanding shares of common stock of CAII and each Surety; and
(k) a Surety Security Agreement from each Surety pursuant to which
each Surety shall grant to Agent for the benefit of Lenders a first priority
perfected Lien and security interest in all of the assets of such Surety,
including without limitation the respective general partnership interests in the
related PIF and fully executed confirmations and notifications of such pledge in
form and substance satisfactory to Agent.
4.2 Absence of Certain Events: At the Closing Date, no Event of Default
or Unmatured Event of Default hereunder shall have occurred and be continuing.
4.3 Warranties and Representations at Closing: The warranties and
representations contained in Section 5 as well as any other Section of this
Agreement shall be true and correct in all material respects on the Closing Date
with the same effect as though made on and as of that date. Borrowers shall not
have taken any action or permitted any condition to exist which would have been
prohibited by any Section hereof.
4.4 Compliance with this Agreement: Borrowers shall have performed
and complied with all agreements, covenants and conditions contained herein
including, without limitation, the provisions of Sections 6 and 7 hereof, which
are required to be performed or complied with by Borrower before or at the
Closing Date.
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4.5 Officers' Certificate: Agent shall have received a certificate
dated the Closing Date and signed by the chief financial officer of each
Borrower certifying that all of the conditions specified in this Section have
been fulfilled as well as certification that there has not occurred any material
adverse change in the operations and condition (financial or otherwise) of
either Borrower since August 31, 1997.
4.6 Closing: Subject to the conditions of this Section 4, the Credit
Facility shall be made available on the date (Closing Date") this Agreement is
executed and all of the conditions contained in Section 4.1 hereof are completed
(the "Closing").
4.7 Non-Waiver of Rights: By completing the Closing here under, or by
making Advances hereunder, Agent and Lenders do not thereby waive a breach of
any warranty, representation or covenant made by either Borrower hereunder or
any agreement, document, or instrument delivered to Agent or otherwise referred
to herein and any claims and rights of Agent or any Lender resulting from any
breach or misrepresentation by Borrowers are specifically reserved by Agent for
the benefit of Lenders.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce Lenders to complete the Closing and make the initial Advances
under the Credit Facility to Borrowers, each Borrower warrants and represents to
Agent and Lenders that:
5.1 Corporate Organization and Validity:
(a) Each Borrower and Surety is a corporation duly organized and
validly existing under the laws of its state of incorporation (or in the case of
CAI-Mexico, the Federal Republic of Mexico), is duly qualified, is validly
existing and in good standing and has lawful power and authority to engage in
the business it conducts in each state and other jurisdiction where the nature
and extent of its business requires qualification, except where the failure to
so qualify would not have a material adverse effect on such Borrower's business,
financial condition, Property or prospects. A list of all states and other
jurisdictions where Borrowers and Sureties are qualified to do business is
attached hereto as Exhibit "5.1" and made a part hereof.
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(b) The making and performance of this Agreement and related
agreements, and each document required by any Section hereof will not violate
any law, government rule or regulation, or the charter, minutes or bylaw
provisions of either Borrower or violate or result in a default (immediately or
with the passage of time) under any contract, agreement or instrument to which
either Borrower is a party, or by which it is bound. Neither Borrower is in
violation of nor has knowingly caused any Person to violate any term of any
agreement or instrument to which it or such Person is a party or by which it may
be bound or of its charter, minutes or bylaws which violation could have a
material adverse effect on such Borrower's business, financial condition,
Property or prospects.
(c) Each Borrower has all requisite corporate power and authority
to enter into and perform this Agreement and to incur the obligations herein
provided for, and has taken all proper and necessary corporate action to
authorize the execution, delivery and performance of this Agreement, and the
documents and related agreements required hereby.
(d) This Agreement, the Notes, and all related agreements and
documents required to be executed and delivered by Borrowers or Sureties
hereunder, when delivered, will be valid and binding upon Borrowers and
enforceable in accordance with their respective terms.
5.2 Places of Business: Each Borrower's and Surety's chief executive
office is located at 7175 W. Jefferson Avenue, Suite 4000, Lakewood, Colorado
80235 and the only other places of busi ness of Borrower, are at the addresses
listed in Exhibit "5.2" attached hereto and made a part hereof.
5.3 Pending Litigation: There are no judgments or judicial or
administrative orders, proceedings or investigations (civil or criminal)
pending, or to the knowledge of Borrowers, threatened, against either Borrower
or any Surety in any court or before any governmental authority or arbitration
board or tribunal which if adversely determined against such Borrower or Surety
might materially and adversely affect the business, financial condition,
Property or prospects of such Borrower or Surety, or the ability of such
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Borrower to perform under this Agreement. Neither Borrower nor any Surety is in
default with respect to any order of any court, governmental authority,
regulatory agency or arbitration board or tribunal, the effect of which would
materi ally and adversely affect the business, financial condition, Property or
prospects of such Borrower or Surety. No executive officer of either Borrower
has been indicted or convicted in connection with or is engaging in any criminal
conduct, or is currently subject to any lawsuit or proceeding or under
investigation in connection with any anti-racketeering or other conduct or
activity.
5.4 Title to Collateral: Each Borrower has good and marketable title
in fee simple (or its equivalent under applicable law) to all the Collateral it
respectively purports to own, free from Liens, except those of Agent and/or
Lenders and the corresponding Lessee and Permitted Liens.
5.5 Governmental Consent: Neither the nature of either Borrower or of
its respective business or Property, nor any relationship between Borrowers and
any other Person, nor any circumstance affecting either Borrower in connection
with the issuance or delivery of the Notes, is such as to require a con sent,
approval or authorization of, or filing, registration or qualification with, any
governmental authority on the part of such Borrower in connection with the
execution and delivery of this Agreement or the issuance or delivery of the
Notes or other documents contemplated hereby.
5.6 Taxes: All tax returns required to be filed by Borrowers in any
jurisdiction have in fact been filed, and all taxes, assessments, fees and other
governmental charges upon Borrowers, or either of them, or upon any of their
respective Property, income or franchises, which are shown to be due and payable
on such returns have been paid, except for those taxes being contested in good
faith with due diligence by appropriate proceedings for which appropriate
reserves have been maintained under GAAP. Neither Borrower is aware of any
proposed additional tax assessment or tax to be assessed against or applicable
to such Borrower that might have a material adverse effect on either Borrower's
business, financial condition, Property or prospects.
5.7 Financial Statements: Borrowers' annual consolidated audited
balance sheet as of May 31, 1997 and the quarterly consolidated internally
prepared balance sheet as of August 31, 1997 and the related income statements
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and statements of cash flows as of such dates, complete copies of which have
been delivered to Agent, have been prepared in accordance with GAAP and present
fairly, accurately and completely the financial posi tion of the Borrowers as of
such dates and the results of their operations for such periods. The fiscal year
for Borrowers currently ends on May 31. Each Borrower's and Surety's federal tax
identification number is set forth on the signature page hereof under such
Borrower's name.
5.8 Full Disclosure: Neither the financial statements referred to in
Section 5.7, nor this Agreement or related agreements and documents or any
written statement furnished by either Borrower to Agent in connection with the
negotiation of the Credit Facility and contained in any financial statements or
documents relating to Borrowers, or either of them, contain any untrue statement
of a material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading.
5.9 Subsidiaries: Borrowers have no Subsidiaries or Affiliates, except
as listed on Exhibit "5.9" attached hereto and made a part hereof.
5.10 Guarantees, Contracts, etc.:
(a) Neither Borrower owns nor holds equity or long term debt
investments in, has any outstanding advances to, or serves as guarantor, surety
or accommodation maker for the obligations of, or has any outstanding borrowings
from, any Person except as described in Exhibit "5.10", attached hereto and a
made part hereof.
(b) Neither Borrower is a party to any contract or agreement, or
subject to any charter or other corporate restriction, which materially and
adversely affects its business, financial condition, Property or prospects.
(c) Except as otherwise specifically provided in this Agreement,
neither Borrower has agreed or consented to cause or permit any of the
Collateral whether now owned or hereafter acquired to be subject in the future
(upon the happening of a contingency or otherwise) to a Lien not permitted by
this Agreement.
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5.11 Government Regulations, etc.:
(a) The use of the proceeds of and Borrowers' issuance of the
Notes will not directly or indirectly violate or result in a violation of
Section 7 of the Securities Exchange Act of 1934, as amended, Regulations U, T,
G and X of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter II. Neither Borrower owns or intends to carry or purchase any "margin
stock" within the meaning of said Regulation U.
(b) Each Borrower has obtained all licenses, permits, franchises
or other governmental authorizations necessary for the ownership of its Property
and for the conduct of its business, where the failure to obtain would have a
material adverse effect on the business, financial condition, Property or
prospects of such Borrower.
(c) As of the date hereof, no employee benefit plan ("Pension
Plan"), as defined in Section 3(2) of ERISA, maintained by Borrowers or under
which Borrower could have any liability under ERISA (i) has failed to meet the
minimum funding standards established in Section 302 of ERISA, (ii) has failed
to comply with all applicable requirements of ERISA and of the Internal Revenue
Code, including all applicable rulings and regulations thereunder, (iii) has
engaged in or been involved in a prohibited transaction under Section 406 of
ERISA or Section 4975 of the Internal Revenue Code which would subject Borrowers
to any material liability, or (iv) has been terminated if such termination would
subject Borrowers to any material liability. Neither Borrower has assumed, or
received notice of a claim asserted against Borrowers, or either of them, for,
withdrawal liability (as defined in Section 4207 of ERISA) with respect to any
multi employer pension plan and is not a member of any Controlled Group (as
defined in ERISA). Borrowers have timely made all contributions when due with
respect to any multi-employer pension plan in which it participates and no event
has occurred triggering a claim against Borrowers for withdrawal liability with
respect to any multi-employer pension plan in which Borrowers participates. All
Employee Benefit Plans and multi-employer pension plans to which either Borrower
participates are listed on Exhibit "5.11" attached hereto and made a part
hereof.
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(d) Neither Borrower is in violation of, nor has received written
notice that it is in violation of, or has knowingly caused any Person to
violate, any applicable statute, regulation or ordinance of the United States of
America, or of any state, city, town, municipality, county or of any other
jurisdiction, or of any agency, or department thereof, (including without
limitation, environmental laws and regulations), which may materially and
adversely affect its business, financial condition, Property or prospects.
(e) Each Borrower is current with all reports and documents
required to be filed with any state or federal secu rities commission or similar
agency and is in full compliance in all material respects with all applicable
rules and regulations of such commissions.
5.12 Names:
(a) Within five (5) years prior to the Closing Date, Borrowers
have not conducted business under or used any other name (whether corporate or
assumed) except for the names shown on Exhibit "5.12(a)", attached hereto and
made a part hereof. Each Borrower is the sole owner of the respective names
listed on such Exhibit "5.12(a)" and, to the best of Borrowers' knowledge, any
and all business done and all invoices issued in such trade names are Borrowers'
sales, leases, business and invoices. Each trade name of a Borrower represents a
division or trading style of such Borrower and not a separate corporate
subsidiary or affiliate or independent entity.
(b) All trademarks, patents or copyrights which either Borrower
uses, plans to use or has a right to use are listed on Exhibit "5.12(b) attached
hereto and made a part hereof. Borrower is the sole owner of such Property
except to the extent any other Person has claims or rights in such Property, as
such claims and rights are described on such Exhibit "5.12(b)." To the best of
Borrower's knowledge, Borrower is not in violation of any rights of any other
Person with respect to such Property.
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5.13 Other Associations: Neither Borrower is engaged and or has an
interest in any joint venture or partnership with any other Person except as
described on Exhibit "5.13" hereto and made a part hereof.
5.14 Environmental Matters: Except as disclosed on Exhibit "5.14"
attached hereto and made a part hereof, Borrowers have no knowledge:
(a) of the presence of any Hazardous Substances on any of the real
property where Borrowers conduct operations or have their personal property, or
(b) of any on-site spills, releases, discharges, disposal or
storage of Hazardous Substances that have occurred or are presently occurring on
any of such real property or where any Collateral is located, or
(c) of any spills, releases, discharges or disposal of Hazardous
Substances that have occurred, are presently occurring on any other real
property as a result of the conduct, action or activities of Borrowers.
As used herein, the term "Hazardous Substances" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or similar term, by any environmental statute, rule or
regulation of any governmental entity presently in effect and applicable to such
real property.
5.15 Regulation O: No director, executive officer or principal
shareholder of any Borrower is a director, executive officer or principal
shareholder of any Lender. For the purposes hereof the terms "director" (when
used with reference to a Lender), "executive officer" and "principal
shareholder" have the respective meanings assigned thereto in Regulation O
issued by the Board of Governors of the Federal Reserve System.
5.16 Capital Stock: The authorized and outstanding shares of capital
stock of each Borrower is as set forth on Exhibit "5.16" attached hereto and
made a part hereof. All of the capital stock of each Borrower has been duly and
validly authorized and issued and is fully paid and non-assessable and has been
sold and delivered to the holders thereof in compliance with, or under valid
exemption from, all Federal and state laws and the rules and regulations of all
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regulatory bodies thereof governing the sale and delivery of securities.
Except for the rights and obligations set forth in Exhibit "5.16", there are no
subscriptions, warrants, options, calls, commitments, rights or agreements by
which Borrowers or any of the shareholders of either Borrower is bound relating
to the issuance, transfer, voting or redemption of shares of its capital stock
or any pre-emptive rights held by any Person with respect to the shares of
capital stock of such Borrower. Except as set forth in Exhibit "5.16", neither
Borrower has issued any securities convertible into or exchangeable for shares
of its capital stock or any options, warrants or other rights to acquire such
shares or securities convertible into or exchangeable for such shares.
5.17 INTENTIONALLY OMITTED.
5.18 Leases and Leased Property: Each Lease or Progress Payment reported
to Agent and/or Lender as an Eligible Lease or Progress Payment, and the Leased
Property associated therewith, shall at all times when such Leases or Progress
Payment (as applicable) are included in the calculation of either Borrowing
Base, be in compliance with each of the following representations:
(a) Each Lease contains substantially the same printed provisions
without material deletions or modifications as those contained in the standard
lease form attached hereto as Exhibit 5.18, and is genuine, constitutes the
entire agreement for the leasing of the Leased Property thereby covered, has not
been altered or amended, except as set forth in the related schedules, and
Borrower's Books and Records relating thereto are accurate, complete and
genuine;
(b) The sole original of each Lease (or with respect to Progress
Payments, the sole original of each note or other instrument evidencing the
Lessee's obligations) has been delivered to Agent, and all other counterparts of
each Lease shall contain language specifying that such counterpart is not an
original for "chattel paper" purposes under the UCC;
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(c) Where the Lease consists of a Master Lease Agreement and
specific schedules which describe the terms of any specific items to be leased
pursuant to such schedule, the sole original schedule shall constitute the sole
original Lease, provided that the terms of the Master Lease Agreement and the
schedule make it clear that the sole original schedule is a separate lease for
"Chattel Paper" purposes under the UCC and that possession of such schedule
constitutes possession of "Chattel Paper" under the UCC;
(d) (i) Except as otherwise consented to by Agent and all
Lenders in writing, no more than the following aggregate availability under both
Borrowing Bases shall be attributable to Leases and/or Progress Payments with
same Lessee based on the Lessee's Designated Credit Rating:
Designated Aggregate Borrowing
Credit Rating Base Lessee Concentration
------------- -------------------------
1 15,000,000
2 10,000,000
3 5,000,000 (provided that the Lessee
concentration shall not
exceed $3,000,000 for Leases
where the Borrowers do not
have a firm commitment for
the sale of such Leases to a
third party)
In addition, no more than $1,000,000 of the aggregate availability under both
Borrowing Bases shall be attributable to all Leases and/or Progress Payments
where the Lessees' have a Designated Credit Rating of 4;
(ii) Except as otherwise consented to by Agent and all
Lenders in writing, the aggregate availability under both Borrowing Bases
attributable to the designated equipment types described below shall not exceed
the corresponding concentration limitation, determined as a percentage of the
total amount outstanding under the Credit Facility:
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Equipment Type Concentration Limitation
-------------- ------------------------
Lift Trucks 40%
Machine Tools, manufacturing
and printing 40%
Personal computers and office
automation equipment 25%
Furnitures, fixtures and
equipment 25%
Semiconductors 25%
Other equipment types
(not otherwise described above
but limited to no more than 10
additional categories) 15%
(iii) Except as otherwise consented to by Agent and
SuperMajority Lenders in writing, no more than $5,000,000 of the aggregate
availability under both Borrowing Bases shall be attributable to Progress
Payments provided that no more than $2,000,000 of such availability shall be
attributable to Progress Payments relating to Lessees with a Designated Credit
Rating that is not a 1 or 2.
(e) Each Lease and Progress Payment has a corresponding Lessee
which is located in the United States, although except as otherwise consented to
by Agent and SuperMajority Lenders in writing, no more than $3,000,000 of the
aggregate availability under the Borrowing Bases shall be attributable to
otherwise Eligible Leases with a Lessee having a Designated Credit Rating of 1
or 2), where the Leased Property is physically located outside of the United
States, provided however that Agent reserves the right to review the country
locations of such Leased Property and exclude from Eligible Leases, Leases or
Progress Payments where the Leased Property is located in country with which
Agent is uncomfortable, in its sole discretion, with its ability to enforce its
rights hereunder with respect to such Leased Property.
(f) The original amount and unpaid balance of each Lease and
Progress Payment shown on Borrowers' Books and Records and on any statement or
schedule delivered to Agent in connection therewith is the true and correct
amount actually owed to Borrowers, no portion of which, except as specifically
provided for in the Lease or Progress Payment, has been prepaid;
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(g) The amount due under each Lease and Progress Payment is not
and will not be, subject to any claim or reduction, counterclaim, setoff,
recoupment, or any other claim, allowance or adjustment and no Lease has been
re-negotiated, restructured or compromised except as renewed in the ordinary
course of business;
(h) All security agreements, title retention instruments and other
documents and instruments which are security for any Lease or Progress Payment,
and/or each Lease, contain a correct and sufficient description of the Leased
Property covered thereby and all security interests, if any, granted therein to
a Borrower(s) (either directly or as assignee), if applicable, have been
properly perfected and assigned to Agent for the benefit of Lenders;
(i) Neither Borrower has nor will either enter into any
agreement with a Lessee of any Leased Property which provides, directly or
indirectly, for the crediting of any obligation or liability of such Borrower to
such Lessee against future rentals accruing under the Lease or Progress Payment;
(j) Each item of Leased Property is in good condition, ordinary
wear and tear accepted, has not been returned, rejected, lost, stolen, destroyed
or damaged;
(k) Each item of Leased Property has been delivered to and, in all
instances, accepted by the Lessee and has not been removed from service;
(l) Each Lease and instrument evidencing a Lessee's obligation
under a Progress Payment, has been duly executed by a Borrower and each Lessee,
and is the valid, legal and binding obligation of such Borrower and such Lessee,
and is enforceable against such Borrower and such Lessee in accordance with its
terms. A Borrower is the sole owner of each of the Leases and has the authority
to assign all of its right, title and interest therein upon the terms herein set
forth;
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(m) Each Lease and Progress Payment and all Leased Property which
is the subject matter thereof at the time of its assignment to Agent for the
benefit of Lenders and at all times thereafter, will be free and clear of any
and all assignments, options, rights, or other Liens, whatsoever except Lenders'
and/or Agent's and the rights of the Lessee thereunder;
(n) Borrowers have made an adequate credit investigation of each
Lessee and have determined that the credit is satisfactory in accordance with
the Credit Policy Manual;
(o) All costs, fees, and expenses incurred in making and closing
each of the Leases has been paid and no Lease shall be a Delinquent Lease at the
time of the assignment thereof to Agent and Lenders. No default exists or event
exists which with the giving of notice or the passage of time or both, will
result in the occurrence of a default of any obligation, as expressed in any
Lease;
(p) All rentals, fees, costs, expenses and charges paid or payable
by the Lessee under any Lease, including without limitation, any brokerage and
other fees paid to a Borrower(s) do not violate any laws relating to the maximum
fees, costs, expenses or charges that can be charged in any state in which any
Leased Property is located or in which the corresponding Lessee is located, or
in which a transaction was consummated, or in any other state which may have
jurisdiction with respect to any such Leased Property, Lease or Lessee;
(q) Agent, for the benefit of Lenders, has a first perfected lien
and security interest in the Collateral (including without limitation the Lease
Collateral) subject to no other Lien except Permitted Liens. Borrowers have
taken and in the future, shall take all steps necessary to maintain Agent's
first perfected lien and security interest in the Lease Collateral, including,
if required, perfecting the respective Borrower's security interest (in the
event the Lease is not a "true lease") through filing financing statements,
amendments thereto, or assignments and/or continuations thereof and recording of
the documentation necessary to perfect such Borrower's lien;
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(r) For each Lease, the appropriate Borrower has filed within ten
(10) days of receipt by the Lessee of possession of the Leased Property, such
UCC financing statements (listing such Borrower as secured party, Lessee as
debtor, and such Leased Property as collateral), in such locations as would be
required by applicable law (if such Borrower were a secured party and Lessee
were a debtor) in order to perfect a security interest in such Leased Property
under the UCC or otherwise, in favor of Agent for the benefit of Lenders, as
such Borrower's assignee;
(s) Each item of Leased Property has been insured in the ordinary
course of Borrowers' or the corresponding Lessee's business;
(t) Neither Borrower has received notice of a bankruptcy,
receivership, reorganization or insolvency of the corresponding Lessee;
(u) No Lessee is a subsidiary, or affiliate of Borrowers, or under
common control with Borrowers or is an officer or employee of either Borrower;
(v) The Lessee is not otherwise in default under the corresponding
Lease or Progress Payment; and
(w) No Lease has been restructured due to a Lessee default.
5.19 Interrelatedness of Borrowers and Sureties: The business
operations of each Borrower and Surety are interrelated and complement one
another, and such companies have a common business purpose, with inter-company
bookkeeping and accounting adjustments used to separate their respective
Properties, Liabilities, and transactions. To permit their uninterrupted and
continuous operations, such companies now require and will from time to time
hereafter require funds for general business purposes. The proceeds of Advances
under the Credit Facility will directly or indirectly benefit each Borrower and
Surety hereunder severally and jointly, regardless of which Borrower requests or
receives part or all of the proceeds of such Advances.
5.20 Investment Company: No Borrower is an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is any Borrower controlled by such a company.
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SECTION 6. BORROWERS' AFFIRMATIVE COVENANTS
Each Borrower covenants that until all of Borrowers' Obligations to
Lenders and Agent are paid and satisfied in full and the Credit Facility has
been terminated:
6.1 Payment of Taxes and Claims: Borrowers shall pay, before they
become delinquent,
(a) all taxes, assessments and governmental charges or levies
imposed upon it or upon Borrower's Property, and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other Persons entitled to the benefit of statutory
or common law Liens, which, if unpaid, would result in the imposition of a Lien
upon the Collateral; provided, however, that Borrowers shall not be required to
pay any such tax, assessment, charge, levy, claim or demand if the amount,
applicability or validity thereof shall at the time be contested in good faith
and by appropriate proceedings by Borrowers, and if Borrowers shall have set
aside on their books adequate reserves in respect thereof, in accordance with
GAAP; which deferment of payment is permissible so long as no Lien has been
entered and the respective Borrower's title to, and its right to use, the
Collateral are not adversely affected thereby.
6.2 Maintenance of Properties and Corporate Existence:
(a) Property - Borrowers shall maintain their Property in good
condition and make all necessary renewals, replacements, additions, betterments
and improvements thereto and will pay and discharge when due the cost of repairs
and maintenance to its Property, all as in the judgment of Borrowers may be
necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
(b) Property Insurance - Borrowers shall maintain or cause to be
maintained insurance on the Collateral against fire, flood, casualty and such
other hazards in such amounts, with such deductibles and with such insurers as
are customarily used by companies operating in the same industry as Borrowers or
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the corresponding Lessee. Upon request, Borrowers shall furnish Agent with
copies of original policies of insurance certified as true and correct and being
in full force and effect as of the Closing Date or such other evidence of
insurance as Agent may require. In the event Borrowers fail to procure or cause
to be procured any such insurance or to timely pay or cause to be paid the
premium(s) on any such insurance, Agent (on behalf of Lenders) may do so for
Borrowers, but Borrowers shall continue to be liable for the same. The policies
of all such casualty insurance shall contain standard Lender's Loss Payable
Clauses issued in favor of Agent (on behalf of Lenders) under which all losses
thereunder shall be paid to Agent (on behalf of Lenders) as Agent's interest may
appear. Such policies shall expressly provide that the requisite insurance
cannot be altered or canceled without thirty (30) days prior written notice to
Agent and shall insure Lenders notwithstanding the act or neglect of either
Borrower. Each Borrower hereby appoints Agent as such Borrower's
attorney-in-fact, exercisable at Agent's option to endorse any check which may
be payable to such Borrower in order to collect the proceeds of such insurance
and any amount or amounts collected by Agent pursuant to the provisions of this
paragraph may be applied by Agent to Borrowers' Obligations. Borrowers further
covenant that all insurance premiums owing under its current casualty policy
have been paid. Borrowers also agree to notify Agent, promptly, upon either
Borrower's receipt of a notice of termination, cancellation, or non-renewal from
its insurance company of any such policy.
(c) Public and Products Liability Insurance Borrowers shall
maintain, and shall deliver to Agent upon Agent's request evidence of, public
liability, products liability and business interruption insurance in such
amounts as is customary for companies in the same or similar businesses located
in the same or similar area.
(d) Financial Records - Borrowers shall keep current and accurate
books of records and accounts in which full and correct entries will be made of
all of its business transactions, and will reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance with GAAP.
Borrowers shall not change their respective fiscal year end date without the
prior written consent of Agent.
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(e) Corporate Existence and Rights - Borrowers shall do (or cause
to be done) all things necessary to preserve and keep in full force and effect
its existence, good standing, rights and franchises.
(f) Compliance with Laws - Borrowers shall be in compliance with
any and all laws, ordinances, governmental rules and regulations, and court or
administrative orders or decrees to which it is subject, whether federal, state
or local, (including without limitation environmental or environmental-related
laws, statutes, ordinances, rules, regulations and notices), and shall obtain
and maintain any and all licenses, permits, franchises or other governmental
authorizations necessary to the ownership of their Property or to the conduct of
their businesses, which vio lation or failure to obtain may materially adversely
affect the business, Property, financial conditions or prospects of Borrowers or
either of them. Borrowers shall timely satisfy all assessments, fines, costs and
penalties imposed by any governmental body against either Borrower or any
Property of either Borrower subject to the provisions of Section 6.1 above.
6.3 Business Conducted:
(i) Borrowers shall continue in the business presently operated
by them using their best efforts to maintain their customers and goodwill and
shall service the Leases in a careful and workmanlike manner.
(ii) Borrowers shall not engage, directly or indirectly, in any
material respect in any line of business substantially different from the
businesses conducted by them immediately prior to the Closing Date, unless such
line of business is reasonably related to such business so conducted prior to
the Closing Date.
6.4 Litigation: Borrowers shall give prompt notice to Agent of any
litigation claiming in excess of $1,000,000 from Borrowers or either of them, or
which may otherwise have a material adverse effect on the business, financial
condition, Property or prospects of Borrowers.
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6.5 Taxes:
(a) Borrowers shall pay all taxes (other than taxes based upon or
measured by any Lender's income or revenues), if any, in connection with the
Loans and/or the recording of any Lien documents. The Obligations of Borrowers
under this section shall survive the payment of Borrowers' Obligations under
this Agreement and the termination of this Agreement. Borrowers shall cause to
be paid all taxes incurred in connection with any of the Leases or the
acquisition, sale or lease of any of the Leased Property.
6.6 Bank Accounts: Borrowers shall maintain a major depository and
disbursement account(s) with Agent.
6.7 Employee Benefit Plans: Borrowers will (a) fund all their Pension
Plan(s) in a manner that will satisfy the minimum funding standards of Section
302 of ERISA, or will promptly satisfy any accumulated funding deficiency that
arises under Section 302 of ERISA, (b) furnish Agent, promptly upon Agent's
request of the same, with copies of all reports or other statements filed with
the United States Department of Labor, the Pension Benefit Guaranty Corporation
("PBGC") or the Internal Revenue Service ("IRS") with respect to all Pension
Plan(s), or which Borrowers, or any member of a Controlled Group, may receive
from the United States Department of Labor, the IRS or the PBGC, with respect to
all such Pension Plan(s), and (c) promptly advise Agent of the occurrence of any
reportable event (as defined in Section 4043 of ERISA, other than a reportable
event for which the thirty (30) day notice requirement has been waived by the
PBGC) or prohibited transaction (under Section 406 of ERISA or Section 4975 of
the Internal Revenue Code) with respect to any such Pension Plan(s) and the
action which Borrowers propose to take with respect thereto. Borrowers will make
all contributions when due with respect to any multi-employer pension plan in
which they participate and will promptly advise Agent (i) upon their receipt of
notice of the assertion against either Borrower of a claim for withdrawal
liability, (ii) upon the occurrence of any event which, to the best of
Borrowers' knowledge, would trigger the assertion of a claim for withdrawal
liability against either Borrower, and (iii) upon the occurrence of any event
which, to the best of Borrowers' knowledge, would place either Borrower in a
Controlled Group as a result of which any member (including Borrowers) thereof
may be subject to a claim for withdrawal liability, whether liquidated or
contingent.
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6.8 Warranties for Future Advances: Each request by Borrowers for an
Advance under the Credit Facility in any form following the Closing Date shall
constitute an automatic representation and warranty by Borrowers to the effect
that:
(a) There has been no material adverse change in Borrowers'
operations or condition (financial or otherwise) since the date of delivery of
Borrowers' most recent Financial Statements.
(b) No Event of Default which has not been cured or waived, or
Unmatured Event of Default, then exists;
(c) Each Advance is within and complies with the terms and
conditions of this Agreement including without limitation the notice provisions
contained in Section 2.3 hereof;
(d) No Lien, other than Permitted Liens, including, without
limitation, any federal tax Lien, has been imposed on either Borrower which may,
in any way, take priority over Agent's and/or Lenders' security interests in or
Liens on any Collateral; and
(e) Each representation and warranty set forth in Section 5 of
this Agreement is then true and correct in all material respects; provided that
Borrower may update Exhibits "5.1", "5.3", "5.9", "5.10", "5.11", "5.12(b)",
"5.13", "5.14" and "5.16" so that such Exhibits accurately reflect the state of
Borrower's affairs as of the date of a request for an Advance by giving written
notice thereof to Agent, and further provided that such updated Exhibits do not
reflect events or conditions which constitute violations of Section 6 or 7
hereof or otherwise reflect material adverse developments.
6.9 Financial Covenants: Borrowers shall maintain and comply with the
following financial covenants as reflected on and computed from their
consolidated Financial Statements:
(a) Tangible Net Worth: Borrower shall have and maintain a
Tangible Net Worth on a consolidated basis, measured quarterly as of the last
day of each fiscal quarter, of not less than $23,000,000; provided that such
Tangible Net Worth covenant shall increase annually by an amount equal to 75% of
Borrowers' Net Income for the immediately preceding fiscal year, beginning with
fiscal year commencing on June 1, 1998.
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(b) Net Income/Loss: Borrower shall not suffer an operating loss
and/or incur negative net income on a consolidated basis in excess of $150,000
during any fiscal quarter.
(c) Liabilities to Tangible Net Worth Ratio: Borrowers shall have
and maintain a Liabilities to Tangible Net Worth Ratio on a consolidated basis,
measured quarterly as of the last day of each fiscal quarter, of not greater
than 3.0:1.
(d) Interest Coverage Ratio: Borrowers shall have and maintain at
all times an Interest Coverage Ratio on a consolidated basis, measured quarterly
as of the last day of each fiscal quarter, of not less than 1.20:1.
(e) Delinquency Percentage: Borrowers shall have and maintain a
Delinquency Percentage, measured quarterly as of the last day of each fiscal
quarter, of not greater than 3.00%.
6.10 Financial and Business Information: Borrowers shall deliver to
Agent and each Lender the following:
(a) Financial Statements and Collateral Reports:
(i) within one hundred and five (105) days after the end
of each fiscal year of Borrower, Financial Statements of Borrowers and Sureties
for such year including the balance sheet of Borrowers and Sureties as at the
end of such fiscal year and a statement of cash flows and income statement for
such fiscal year, all on a consolidated and consolidating basis, setting forth
in the consolidated statements in comparative form, the corresponding figures as
at the end of and for the previous fiscal year, all in reasonable detail,
including all supporting schedules, and audited and certified by independent
public accountants of recognized standing, selected by Borrowers and reasonably
satisfactory to the Agent to have been prepared in accordance with GAAP, and
such independent public accountants shall also provide an unqualified opinion
that the Financial Statements present fairly the Borrowers' and Sureties'
financial condition. Such independent accountants shall also provide a statement
certifying that nothing has come to their attention to cause them to believe
that calculations contained in the compliance certificate are inaccurate.
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(ii) within sixty (60) days after the end of each fiscal
quarter, Borrowers' and Sureties' internally prepared quarterly consolidated and
consolidating Financial Statements, including balance sheet, income statement
and statements of cash flows and a complete detailed listing of all Accrual
Leases existing at any time during the subject fiscal quarter;
(iii) within thirty-five (35) days of the end of each
calendar month, Borrower's Lease receivables aging report, the Working Capital
Borrowing Base Certificate and Collateral Coverage Ratio calculations and such
other reports as Agent reasonably deems necessary, certified by Borrower's chief
financial officer as true and correct; and
(iv) such data, reports, statements, information, financial
or otherwise, as Agent may reasonably request.
(b) Notice of Event of Default - promptly upon becoming aware of
the existence of any condition or event which constitutes a default or an Event
of Default or Unmatured Event of Default under this Agreement, a written notice
specifying the nature and period of existence thereof and what action Borrowers
are taking (and proposes to take) with respect thereto;
(c) Notice of Claimed Default - promptly upon receipt by either
Borrower, notice of default, oral or written, given to such Borrower by any
creditor for borrowed money in excess of $1,000,000;
(d) Securities and Other Reports - if either Borrower or any
Surety shall be required to file reports with the Securities and Exchange
Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, promptly upon its becoming available, one copy of each
financial statement, report, notice or proxy statement sent by such Borrower(s)
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or Surety(ies) to stockholders or equityholders generally, and, a copy of each
regular or periodic report, and any registration statement, or prospectus in
respect thereof, filed by such Borrower(s) or Surety(ies) with any securities
exchange or with federal or state securities and exchange com missions or any
successor agency.
6.11 Officers' Certificates: Along with the set of Financial Statements
delivered to Agent and Lenders at the end of each fiscal quarter and fiscal year
pursuant to Section 6.10(a) hereof, deliver to Agent a certificate (in the form
of Exhibit "6.11" attached hereto and made a part hereof) from the chief
financial officer of Borrowers (and as to certificates accompanying the annual
statements of Borrowers, also certified by Borrowers' independent certified
public accountant) setting forth:
(a) Covenant Compliance - the information (including detailed
calculations) required in order to establish whether Borrowers are in compliance
with the requirements of Sections 6.9 as of the end of the period covered by the
financial statements then being furnished (and any exhibits appended thereto)
under Section 6.10; and
(b) Event of Default - that the signer in his capacity as an
officer of Borrowers has reviewed the relevant terms of this Agreement, and has
made (or caused to be made under his supervision) a review of the transactions
and conditions of Borrowers from the beginning of the accounting period covered
by the Financial Statements being delivered therewith to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or
Unmatured Event of Default or if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action Borrowers
have taken or propose to take with respect thereto.
6.12 Inspection: Borrowers will permit any of Agent's officers or other
representatives to visit and inspect any of Borrowers' locations or where any
Collateral is kept during regular business hours, to examine and audit all of
Borrowers' books of account, records, reports and other papers, to make copies
and extracts therefrom and to discuss their affairs, finances and accounts with
their officers, employees and independent certified public accountants. All such
inspections shall be at Borrowers' expense at the standard rates charged by the
Agent for such activities (plus the Agent's out-of-pocket expenses), provided
that prior to the occurrence of an Event of Default or Unmatured Event of
Default, Borrowers will not be liable to Agent for field examination fees and
expenses relating to more than two (2) field examinations during the Initial
Term or for more than one (1) field examination during each consecutive 12 month
period following the Initial Term.
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6.13 Tax Returns and Reports: At Agent's request from time to time,
Borrowers shall promptly furnish Agent with copies of the annual federal and
state income tax returns of Borrowers and Sureties. Borrowers further agree
that, if requested by Agent, they shall promptly furnish Agent with copies of
all reports filed with any federal, state or local governmental authority or
agency, board or commission.
6.14 Material Adverse Developments: Each Borrower agrees that
immediately upon becoming aware of any development or other information which
would reasonably be expected to materially and adversely affect its businesses,
financial condition, Property, prospects or its ability to perform under this
Agreement, it shall give to Agent telephonic or telegraphic notice specifying
the nature of such development or information and such anticipated effect. In
addition, such verbal communication shall be confirmed by written notice thereof
to Agent on the next business day after such verbal notice is given.
6.15 Places of Business: Each Borrower shall give thirty (30) days
prior written notice to Agent of any changes in the location of any of its
respective places of business, of the places where Books and Records are kept,
or the establishment of any new, or the discontinuance of any existing place of
business.
6.16 Sale of Collateral: Each Borrower shall mark its books and records
to indicate Agent's security interest in the Collateral for the benefit of
Lenders, including the Lease Collateral and, except as otherwise provided
herein, such Borrower shall retain title at all times to the Collateral;
provided however, that so long as no Event of Default or Unmatured Event of
Default has occurred, such Borrower may, subject to the prepayment provisions
set forth herein, sell portions of the Collateral. So long as no Event of
Default or Unmatured Event of Default has occurred, upon receipt of the proceeds
from the sale of such Collateral (if applicable), Agent shall execute and/or
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deliver such documentation as is reasonably necessary to release its security
interest in such Collateral. Notwithstanding anything in the foregoing to the
contrary, in the case of Pre-Sold Leases, as defined below, the Lien of Agent
for the benefit of Lenders in each such Pre-Sold Lease and the Related Equipment
covered by such Pre-Sold Lease shall be deemed automatically terminated,
released and extinguished upon the sale and transfer of title to such Pre-Sold
Lease and the Related Equipment to a third party purchaser thereof and receipt
by Borrower(s) of fair market consideration for such transfer. For purposes of
the foregoing, a "Pre-Sold Lease" means any lease with respect to which (i)
possession thereof has not been delivered to and at no time held by the Agent,
(ii) neither the lease nor the Related Equipment has at any time been described
in a Borrowing Base Certificate, (iii) neither the lease nor the Related
Equipment has at any time been included or described as an asset of the
Borrowers for purposes of computing the Collateral Coverage Ratio or the
availability under the Warehouse Borrowing Base, and (iv) the lease and Related
Equipment have been sold by the Borrower(s) to a third party purchaser within
seven calendar days following the date on which such Borrower shall have
obtained title to such lease and/or Related Equipment.
SECTION 7. BORROWERS' NEGATIVE COVENANTS:
Each Borrower covenants that until all of Borrowers' Obligations to
Lenders are paid and satisfied in full and the Credit Facility has been
terminated, that:
7.1 Merger, Consolidation, Dissolution or Liquidation:
(a) Except as permitted by the second sentence of this Section
7.1(a) neither Borrower shall sell, lease, license, transfer or otherwise
dispose of its Property, other than Property sold in the ordinary course or
ordinary operation of such Borrower's business (which includes, without
limitation, sales or transfers in conjunction with securitization transactions
and other nonrecourse lease financing transactions), without Agent's prior
written consent. Notwithstanding the foregoing, so long as no Event of Default
has occurred or would result from the sale, lease, license, transfer or other
disposition, Borrowers may, in addition to the sales in the ordinary course of
business, sell, lease, license, transfer or otherwise dispose of not more than
10% of their Property during any twelve (12) month period.
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(b) Neither Borrower shall, without the prior written consent of
the SuperMajority Lenders, enter into any merger, consolidation, reorganization
or recapitalization or acquire all or substantially all of the assets of any
other Person or entity, except with respect to a merger, consolidation or
acquisition in which such Borrower's Property is transferred to or combined
with, as a single entity, any one Person, so long as (i) no Event of Default or
Unmatured Event of Default has occurred hereunder or would occur after giving
effect to such merger, consolidation or acquisition, and (ii) such Borrower
shall be the surviving corporation.
7.2 Liens and Encumbrances: Neither Borrower nor any Surety shall:
(i) execute a negative pledge agreement with any Person covering any of the
Collateral, or (ii) cause or permit or agree or consent to cause or permit in
the future (upon the happening of a contingency or otherwise) the Collateral,
whether now owned or hereafter acquired, to be subject to a Lien or be subject
to any claim except for Permitted Liens. As used herein, "Permitted Liens" means
(A) Liens securing taxes, assessments or govern mental charges or levies or the
claims or demands of materialmen, mechanics, carriers, warehousemen, landlords,
and other like persons, provided the payment thereof is not at the time required
by Section 6.1, (B) Liens on Securitization Certificates securing only the
corresponding Securitization Residual Financing and (C) such Liens as are
described on Exhibit 7.2 attached hereto and made a part hereof.
7.3 Negative Pledge: Neither Borrower shall pledge, grant or permit
any Lien to exist on the common stock of its Subsidiaries except with respect to
the Liens granted hereunder to Agent for the benefit Lenders.
7.4 Transactions With Affiliates or Subsidiaries:
(a) Neither Borrower shall enter into any transaction with any
Subsidiary or other Affiliate including, without limita tion, the purchase,
sale, lease or exchange of Property, or the loaning or giving of funds to any
Affiliate or any Subsidiary, unless (i) such Subsidiary or Affiliate is engaged
in a business substantially related to the business conducted by such Borrower
and the transaction is in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's business and upon terms substantially the same
and no less favorable to such Borrower as it would obtain in a comparable
arm's-length trans actions with any Person not an Affiliate or a Subsidiary, and
(ii) so long as such transaction is not prohibited hereunder.
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(b) Subject in any event to the limitations of Section 7.4(a)
above and except with respect to the Connecting Point acquisition, neither
Borrower shall create or acquire any Subsidiary without Agent's prior written
consent, unless such Subsidiary engages in a business substantially related to
the business of Borrowers as conducted immediately prior to the Closing Date.
7.5 Guarantees: Except with respect to the obligations of Borrowers
described on Exhibit 5.10 and, excepting the endorsement in the ordinary course
of business of negotiable instruments for deposit or collection, neither
Borrower shall become or be liable, directly or indirectly, primary or
secondary, matured or contingent, in any manner, whether as guarantor, surety,
accommodation maker, or otherwise, for the existing or future indebtedness of
any kind of any Person.
7.6 Distributions, Redemptions and Other Indebtedness:
(a) Parent shall not declare or pay or make any forms of
Distribution to its shareholders, their successors or assigns.
(b) Neither Borrower shall borrow money from, or incur
indebtedness to, any than Person other than in the form of Nonrecourse Debt or
pursuant to a Securitization Residual Financing.
7.7 Loans and Investments: Neither Borrower shall have or make any
outstanding loans, advances, extensions of credit or capital contributions to,
or investments in, any person except with respect to loans or advances made by
Borrowers to any employee(s) in an aggregate amount outstanding not to exceed
$100,000 at any time and with respect to those investments designated on Exhibit
7.7 attached hereto and made a part hereof.
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7.8 Use of Lenders' Name: Borrowers shall not use any Lender's name
(or the name of any of any Lender's Affiliates) or Agent's name in connection
with any of its business operations except to identify the existence of the
Credit Facility and the names of the Lenders and Agent in the ordinary course of
Borrowers' business. Nothing herein contained is intended to permit or authorize
either Borrower to make any contract on behalf of any Lender or Agent.
7.9 Miscellaneous Covenants:
(a) Neither Borrower shall become or be a party to any contract or
agreement which at the time of becoming a party to such contract or agreement
materially impairs such Borrower's ability to perform under this Agreement, or
under any other instrument, agreement or document to which such Borrower is a
party or by which it is or may be bound.
(b) Neither Borrower shall carry or purchase any "margin stock"
within the meaning of Regulations U, G, T or X of the Board of Governors of the
Federal Reserve System, 12 C.F.R., Chapter II.
7.10 Change of Ownership Interests: Parent shall not at any time own,
legally or beneficially, less than 100% of the aggregate voting interests of all
classes of capital stock of CAII and the Sureties entitled to vote generally.
7.11 Change of Management: Borrowers shall not at any time permit
Dennis Lacey and at least two other current members of Borrowers' Senior
Management Team to cease to be involved in the day to day operations of the
Borrowers.
7.12 Change of Credit Policy Manual/Depreciation Policy: Borrowers
shall not amend or modify the Credit Policy Manual or alter their current policy
regarding depreciation of assets, in any material respect without Agent's prior
written consent.
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SECTION 8. DEFAULT
8.1 Events of Default: Each of the following events shall constitute
an event of default ("Event of Default") and Agent shall thereupon have the
option, and the SuperMajority Lenders shall have the right to cause Agent, to
declare the Obligations immediately due and payable, all without demand, notice,
presentment or protest or further action of any kind (it also being understood
that the occurrence of any of the events or conditions set forth in
subparagraphs (j), (k) or (l) shall automatically cause an acceleration of the
Obligations):
(a) Payments - if Borrowers fail to make any payment of principal
or interest due under the Credit Facility within five (5) days of date on which
such payment is due and payable; provided however that such five (5) day grace
period shall not be applicable if such payments are due and payable due to
maturity, acceleration or demand by Agent, whether following an Event of Default
or otherwise; or
(b) Other Charges - if Borrowers fail to pay any other charges,
fees, Expenses or other monetary obligations owing to any Lender or Agent
arising out of or incurred in connection with this Agreement within five (5)
days of the date on which such payment is due and payable; provided however that
such five (5) day grace period shall not be applicable if such payments are due
and payable due to maturity, acceleration or demand by Agent, whether following
an Event of Default or otherwise; or
(c) Particular Covenant Defaults - if Borrowers fail to perform,
comply with or observe any covenant or undertaking contained in this Agreement;
provided however that with respect to those covenants which are capable of being
cured (which specifically does not include the covenants contained in Section
6.9 and Section 7 hereof) Borrowers shall have 10 days from the date upon which
Borrowers, or either of them, become aware of such failure, to comply with, or
perform such covenants; or
(d) Financial Information - if any statement, report, financial
statement, or certificate made or delivered by Borrowe rs, or either of them or
any of their respective officers, employees or agents, to Agent or any Lender is
not true and correct, in all material respects, when made; or
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(e) Uninsured Loss - if there shall occur any uninsured damage to
or loss, theft, or destruction in excess of $500,000 with respect to any portion
of any Collateral; or
(f) Warranties or Representations - if any warranty,
representation or other statement by or on behalf of either Borrower contained
in or pursuant to this Agreement, or in any document, agreement or instrument
furnished in compliance with, relating to, or in reference to this Agreement, is
false, erroneous, or misleading in any material respect when made; or
(g) Agreements with Others - if Borrowers, or either of them, or
any Surety shall default beyond any grace period under any agreement with any
creditor for borrowed money and (i) such default consists of the failure to pay
any principal, premium or interest with respect to such indebtedness or (ii)
such default consists of the failure to perform any covenant or agreement with
respect to such indebtedness, if the effect of such default is to cause such
Borrower's or Surety's obligations which are the subject thereof to become due
prior to its maturity date or prior to its regularly scheduled date of payment;
(h) Other Agreements with Lenders - if Borrowers, or either of
them, or any Surety breach or violate the terms of, or if a default or an Event
of Default, occurs under, any Loan Document or other existing or future
agreement (related or unrelated) between or among Borrowers, or either of them
and/or any Surety and Agent or any Lender or all Lenders; or
(i) Judgments - if any final judgment for the payment of money in
excess of $500,000 which is not fully and unconditionally covered by insurance
or for which Borrowers have not established a cash or cash equivalent reserve in
the amount of such judgment, shall be rendered against Borrowers, or either of
them;
(j) Assignment for Benefit of Creditors, etc. - if either Borrower
or any Surety makes or proposes an assignment for the benefit of creditors
generally, offers a composition or extension to creditors, or makes or sends
notice of an intended bulk sale of any business or assets now or hereafter owned
or conducted by such Borrower or Surety which might materially and adversely
affect such Borrower or Surety; or
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(k) Bankruptcy, Dissolution, etc. - upon the commencement of any
action for the dissolution or liquidation of Borrower or any Surety, or the
commencement of any proceeding to avoid any transaction entered into by either
Borrower or any Surety, or the commencement of any case or proceeding for
reorganization or liquidation of either Borrower's or any Surety's, as the case
may be, debts under the Bankruptcy Code or any other state or federal law, now
or hereafter enacted for the relief of debtors, whether instituted by or against
such Borrower or Surety; provided, however, that such Borrower or Surety shall
have sixty (60) days to obtain the dismissal or discharge of involuntary
proceedings filed against it, it being understood that during such sixty (60)
day period, no Lender shall be obligated to make Advances hereunder and Agent
may seek adequate protection in any bankruptcy proceeding; or
(l) Receiver - upon the appointment of a receiver, liquidator,
custodian, trustee or similar official or fiduciary for either Borrower, or any
Surety, or for any of such Borrower's or Surety's Property; or
(m) Execution Process, Seizure, etc. - the issuance of any
execution or distraint process against either Borrower or any Surety, or any
Property of either Borrower or any Surety is seized by any governmental entity,
federal, state or local; or
(n) Termination of Business - if either Borrower ceases any
material portion of its business operations as presently conducted; or
(o) Pension Benefits, etc. - if Borrowers fail to comply with
ERISA, so that grounds exist to permit the appoint ment of a trustee under ERISA
to administer Borrowers' employee plans or to allow the Pension Benefit Guaranty
Corporation to institute proceedings to appoint a trustee to administer such
plan(s), or to permit the entry of a Lien to secure any defi ciency or claim; or
(p) Investigations - any indication or evidence received by Agent
or any Lender that reasonably leads it to believe Borrowers, or either of them
may have directly or indirectly been engaged in any type of activity which,
would be reasonably likely to result in the forfeiture of any Property of either
Borrower to any governmental entity, federal, state or local; or
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(q) Sureties - if any Surety breaches or defaults under the terms
and conditions of the Surety Agreement or a Surety Security Agreement, or if the
Surety Agreement or any Surety Security Agreement ceases to be in full force and
effect; or
(r) Material Adverse Change - if a material adverse change occurs
in the business or condition of the Borrowers or any Surety (whether financial
or otherwise).
8.2 Cure - Nothing contained in this Agreement or the Loan Documents
shall be deemed to compel Agent and/or Lenders to accept a cure of any Event of
Default hereunder.
8.3 Rights and Remedies on Default:
(a) In addition to all other rights, options and remedies granted
or available to Agent or Lenders under this Agreement or the Loan Documents, or
otherwise available at law or in equity, upon or at any time after the
occurrence and during the continuance of an Event of Default or Unmatured Event
of Default, Agent may, in its discretion, and the SuperMajority Lenders shall
have the right to cause Agent to, withhold or cease making Advances under the
Credit Facility.
(b) In addition to all other rights, options and remedies granted
or available to Agent under this Agreement or the Loan Documents (each of which
is also then exercisable by Agent), Agent may, in its discretion, and the
SuperMajority Lenders shall have the right to cause Agent to, upon or at any
time after the occurrence and during the continuance of an Event of Default, to
terminate the Credit Facility.
(c) In addition to all other rights, options and remedies granted
or available to Agent under this Agreement or the Loan Documents (each of which
is also then exercisable by Agent), Agent may, in its discretion, and the
SuperMajority Lenders shall have the right to cause Agent to, upon or at any
time after the occurrence of an Event of Default, exercise all rights under the
UCC and any other applicable law or in equity, and under all Loan Documents
permitted to be exercised after the occurrence of an Event of Default, including
the following rights and remedies (which list is given by way of example and is
not intended to be an exhaustive list of all such rights and remedies):
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(i) The right to take possession of, and notify all
Lessees of the Agent's and Lenders' security interest in the Collateral and
require payment under the Leases to be made directly to Agent for the benefit of
Lenders and Agent may, in its own name or in the name of a Borrower(s), exercise
all rights of lessor under the Leases and collect, sue for and receive payment
on all Leases, and settle, compromise and adjust the same on any terms as may be
satisfactory to Agent, in its sole and absolute discretion for any reason or
without reason and Agent may do all of the foregoing with or without judicial
process (including without limitation notifying the United States postal
authorities to redirect mail addressed to Borrowers, or either of them, to an
address designated by Agent); or
(ii) By its own means or with judicial assistance, subject
to the rights of the Lessees, enter Borrowers' premises or location of
Collateral and take possession of the Collateral, or render it unusable, or
dispose of the Collateral on such premises in compliance with subsection (e)
below, without any liability for rent, storage, utilities or other sums, and
Borrowers shall not resist or interfere with such action; or
(iii) Require Borrowers at Borrowers' expense, subject to
the rights of the Lessees, to assemble all or any part of the Collateral and
make it available to Agent at any place designated by Agent; or
(iv) The right to reduce the Maximum Credit Limit, either
or both Borrowing Bases or any portions thereof or the advance rates or to
modify the terms and conditions upon which Agent, on behalf of Lenders, may be
willing to consider making Advances under the Credit Facility or to take
additional reserves in the Borrowing Bases for any reason.
(e) Borrowers hereby agree that a notice received by them at least
ten (10) days before the time of any intended public sale or of the time after
which any private sale or other disposition of the Collateral is to be made,
shall be deemed to be reasonable notice of such sale or other disposition. If
per mitted by applicable law, any Collateral which threatens to speedily decline
in value or which is sold on a recognized market may be sold immediately by
Agent without prior notice to Borrowers. Borrowers covenant and agree not to
interfere with or impose any obstacle to Agent's exercise of its rights and
remedies with respect to the Collateral, after the occurrence of an Event of
Default hereunder.
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8.4 Nature of Remedies: All rights and remedies granted Agent or
Lenders hereunder and under the Loan Documents, or otherwise available at law or
in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Agent may proceed with any number of remedies at the same time
until all Obligations are satisfied in full. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy, and
Agent, upon or at any time after the occurrence of an Event of Default, may
proceed against Borrowers, or either of them, at any time, under any agreement,
with any available remedy and in any order.
8.5 Set-Off: If any bank account of Borrowers, or either of them, with
Agent, any Lender or any participant is attached or otherwise liened or levied
upon by any third party, such Lender (and such participant) as agent for Lenders
shall have and be deemed to have, without notice to Borrowers, the immediate
right of set-off and may apply the funds or amount thus set-off against any of
Borrowers' Obligations hereunder.
SECTION 9. AGENT
As between the Agent, on one hand, and the Lenders, on the other hand, the
Agent and each of the Lenders, who are now or shall become parties to this
Agreement, agree as follows (with the consent and approval of Borrowers):
9.1 Appointment and Authorization. Each Lender, and each subsequent
holder of any of the Notes by its acceptance thereof, hereby irrevocably
appoints and authorizes the Agent to take such action on its behalf and to
exercise such powers under this Agreement as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
Except as may be otherwise expressly provided herein, Borrowers are hereby
authorized by the Lenders to deal solely with the Agent in all transactions
which affect the Lenders under this Agreement and the Loan Documents. The
rights, privileges and remedies accorded to the Agent hereunder shall be
exercised by the Agent on behalf of all of the Lenders.
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9.2 General Immunity. Subject to the provisions of this Agreement,
the Agent will handle all transactions relating to the Loans and all other
Obligations, including, without limitation, all transactions with respect to
this Agreement, the Loan Documents and all related documents in accordance with
its usual banking practices. In performing its duties as Agent hereunder, the
Agent will take the same care as it takes in connection with loans in which it
alone is interested. However, neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them hereunder or in connection herewith except for its or
their own gross negligence or willful misconduct.
9.3 Consultation with Counsel. The Agent may consult with legal
counsel and any other professional advisors or consultants deemed necessary or
appropriate and selected by Agent and shall not be liable for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.
9.4 Documents. The Agent shall not be under a duty to examine into or
pass upon the effectiveness, genuineness or validity of this Agreement or any of
the Notes, any Letters of Credit, or any other instrument or document furnished
pursuant hereto or in connection herewith, and the Agent shall be entitled to
assume that the same are valid, effective and genuine and what they purport to
be. In addition the Agent shall not be liable for failing to make any inquiry
concerning the accuracy, performance or observance of any of the terms,
provisions or conditions of such instrument or document.
9.5 Rights as a Bank. With respect to its applicable Pro Rata
Percentage of the Credit Facility, the Agent shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it were
not the Agent, and the term "Lender" or "Lenders" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. Subject to
the provisions of this Agreement, the Agent may accept deposits from, lend money
to and generally engage in any kind of banking or trust business with Borrowers,
or either of them, and their Affiliates as if it were not the Agent.
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9.6 Responsibility of Agent. It is expressly understood and agreed
that the obligations of the Agent hereunder are only those expressly set forth
in this Agreement and that the Agent shall be entitled to assume that no Event
of Default and no Unmatured Event of Default has occurred and is continuing,
unless the Agent has actual knowledge of such fact. Except to the extent Agent
is required by the Lenders pursuant to the express terms hereof to take a
specific action, the Agent shall be entitled to use its discretion with respect
to exercising or refraining from exercising any rights which may be vested in it
by, or with respect to taking or refraining from taking any action or actions
that it may be able to take under or in respect of, this Agreement and the Loan
Documents. The Agent shall incur no liability under or in respect of this
Agreement and the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument reasonably believed by it to
be genuine or authentic or to be signed by the proper party or parties, or with
respect to anything that it may do or refrain from doing in the reasonable
exercise of its judgment, or that may seem to it to be necessary or desirable
under the circumstances. It is agreed among the Agent and the Lenders that the
Agent shall have no responsibility to carry out field examinations or otherwise
examine the books and records or properties of Borrowers, except as the Agent in
its sole discretion deems appropriate. The relationship between the Agent and
each Lender is and shall be that of agent and principal only and nothing herein
shall be construed to constitute the Agent a joint venturer with any Lender, a
trustee or fiduciary for any of the Lenders or for the holder of a participation
therein nor impose on the Agent duties and obligations other than those set
forth herein.
9.7 Collections and Disbursements.
(a) The Agent will have the right to collect and receive all
payments of the Obligations, together with all fees, charges and other amounts
due under this Agreement and the Loan Documents, and the Agent will remit to
each Lender according to applicable Pro Rata Percentage (but based on its
respective Lender's Loan Balance) all such payments actually received by Agent
(subject to any required clearance procedures) on the same Business Day of
receipt thereof (but if such payments shall not have been received by the Agent
prior to 12:00 noon Eastern Time on such Business Day then, on the next Business
Day).
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(b) On the Business Day for which notice is given Lenders by
Agent with respect to requested Advances (which notice shall state the date and
amount of such payment), each Lender shall, remit to the Agent its Pro Rata
Percentage of the payment in respect to such Advance. The obligation of Lenders
hereunder are absolute and unconditional.
(c) If any such payment received by the Agent is rescinded,
determined to be unenforceable or invalid or is otherwise required to be
returned for any reason at any time, whether before or after termination of this
Agreement and the Loan Documents, each Lender will, upon written notice from the
Agent, promptly pay over to the Agent its Pro Rata Percentage of the amount so
rescinded, held unenforceable or invalid or required to be returned, together
with interest and other fees thereon if also required to be rescinded or
returned.
(d) All payments by the Agent and the Lenders to each other
hereunder shall be in immediately available funds. The Agent will at all times
maintain proper books of account and records reflecting the interest of each
Lender in the Credit Facility, in a manner customary to the Agent's keeping of
such records, which books and records shall be available for inspection by each
Lender at reasonable times during normal business hours, at such Lender's sole
expense. In the event that any Lender shall receive any payments in reduction of
the Obligations in an amount greater than its applicable Pro Rata Percentage
(based on its respective Lender's Loan Balance) in respect of indebtedness to
the Lenders evidenced hereby (including, without limitation amounts obtained by
reason of setoffs), such Lender shall hold such excess in trust for Agent (on
behalf of all other Lenders) and shall promptly remit to the Agent such excess
amount so that the amounts received by each Lender hereunder shall at all times
be in accordance with its applicable Pro Rata Percentage. To the extent
necessary for each Lender's actual percentage of all outstanding Loans to equal
its applicable Pro Rata Percentage (based on its respective Lender's Loan
Balance), the Lender having a greater share of any payment(s) than its
applicable Pro Rata Percentage (based on its respective Lender's Loan Balance)
shall acquire a participation in the applicable outstanding balances of the Pro
Rata Shares of the other Lenders as determined by Agent.
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9.8 Indemnification. To the extent not otherwise promptly reimbursed
by Borrowers (if appropriate), the Lenders hereby each indemnify the Agent
ratably according to their respective Pro Rata Percentages, 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 the Agent in
any way relating to or arising out of this Agreement or any other Loan Document
or any action taken or omitted by the Agent under or related to this Agreement
or the other Loan Documents or the Loans, provided that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
solely from the Agent's gross negligence or willful misconduct. Agent shall have
the right to deduct, from any amounts to be paid by Agent to any Lender
hereunder, any amounts owing to Agent by such Lender by virtue of this
paragraph.
9.9 Expenses.
(a) All out-of-pocket costs and out-of-pocket expenses incurred by
Agent and not reimbursed on demand by Borrowers, in connection with the
creation, amendment, administration, termination and enforcement of the Loans
(including, without limitation, audit expenses, counsel fees and expenditures to
protect, preserve and defend Agent's and each Lender's rights and interest under
the Loan Documents) shall be shared and paid on demand by Lenders pro rata,
based on their applicable Pro Rata Percentage.
(b) Agent may deduct from payments or distributions to be made to
Lenders such funds as may be necessary to pay or reimburse Agent for such costs
or expenses.
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9.10 No Reliance. By execution of or joining in this Agreement, each
Lender acknowledges that it has entered into this Agreement and the Loan
Documents solely upon its own independent investigation and is not relying upon
any information supplied by or any representations made by Agent. Each Lender
shall continue to make its own analysis and evaluation of Borrowers. Agent makes
no representation or warranty and assumes no responsibility with respect to the
financial condition or Property of Borrowers, any Lessee or any Collateral; the
accuracy, sufficiency or currency of any information concerning the financial
condition, prospects or results of operations of Borrowers; or for sufficiency,
authenticity, legal effect, validity or enforceability of the Loan Documents.
Agent assumes no responsibility or liability with respect to the collectibility
of the Obligations or the performance by Borrowers of any obligation under the
Loan Documents.
9.11 Reporting. During the term of this Agreement, Agent will promptly
furnish each Lender such financial statements and reports of Borrowers as any
Lender may reasonably request. Agent will notify Lenders within a reasonable
period of time (not to exceed ten (10) Business Days) after it receives actual
knowledge of any Event of Default under the Loan Documents.
9.12 Removal of Agent. The Agent may resign at any time upon giving
thirty (30) days prior written notice thereof to Lenders and Borrower. The Agent
may be removed as Agent hereunder upon the written direction of all Lenders
exclusive of the Agent upon the following: (i) wilful misconduct in the
performance of Agent's duties or responsibilities under this Agreement; or (ii)
if a receiver, trustee or conservator is appointed for Agent or any state or
federal regulatory authority assumes management or control of Agent or if, under
applicable law, the administrative or discretionary duties and responsibilities
of Agent hereunder become controlled by or subject to the approval of any state
or federal regulatory authority. Upon any resignation or permitted removal of
Agent, the Lenders shall have the right to appoint a successor Agent by majority
vote of the other Lenders (based upon the percentages of the total Pro Rata
Shares of the Lenders other than the Lender which is the Agent). Upon the
acceptance of the appointment as a successor Agent hereunder by such successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all rights, powers, obligations and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations hereunder.
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9.13 Action on Instructions of Lenders. With respect to any provision
of this Agreement, or any issue arising thereunder, concerning which the Agent
is authorized to act or withhold action by direction of one or more Lenders, the
Agent shall in all cases be fully protected in so acting, or in so refraining
from acting, hereunder in accordance with written instructions signed by the
requisite Lenders. Such instructions and any action taken or failure to act
pursuant thereto shall be binding on all Lenders and on all holders of the
Notes.
9.14 Several Obligations. The obligation of each Lender is several, and
neither the Agent nor any other Lender shall be responsible for any obligation
hereunder of any other Lender.
9.15 Consent of Banks.
(a) Subject to the terms hereof, Agent shall have the sole and
exclusive right to service, administer and monitor the Loans and the Loan
Documents, including without limitation, the right to exercise all rights,
remedies, privileges and options under the Loan Documents, including without
limitation the determination as to the basis on which and extent to which,
Advances may be made.
(b) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
all Lenders: (i) extend or renew the Current Term or, any payment date under the
Credit Facility, (ii) decrease any interest rate on the Credit Facility, (iii)
compromise or settle all or a portion of the Obligations, (iv) release any
obligor from the Obligations except in connection with termination of the Credit
Facility and full payment and satisfaction of all Obligations, (v) increase the
Borrowing Base advance rate, (vi) modify Section 9.15(b) or (c) or the
definition of SuperMajority Lenders or Majority Lenders, or (vii) increase the
Maximum Credit Limit; provided however that Agent may increase the Maximum
Credit Limit by first offering the amount of any such increase to each of the
Lenders in accordance with their respective Pro Rata Percentage. To the extent
any Lender(s) may choose not to increase its/their respective Pro Rata Shares by
the amount attributable to its/their Pro Rata Percentage of such increase, such
amount will be offered to the other Lenders on such sharing basis as Agent may
reasonably establish. After each Lender choosing to increase its Pro Rata Share
has agreed to do so, and in conjunction with the modification of this Agreement
to reflect such increase executed by those Lenders sharing in the increase of
the Credit Facility, the Lenders' Pro Rata Percentages will be adjusted
accordingly and all Lenders (whether or not sharing in such increase) shall be
bound by such modification.
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(c) Notwithstanding anything to the contrary contained in
subparagraph (a) above, Agent shall not, without the prior written consent of
the SuperMajority Lenders: (i) enter into any written amendment to any of the
Loan Documents; (ii) waive Borrower's compliance with the terms and conditions
of the Loan Documents or any Event of Default hereunder or thereunder; or (iii)
consent to Borrower taking any action which, if taken, would constitute an Event
of Default under this Agreement or under any of the Loan Documents.
(d) After an acceleration of the Obligations, Agent shall have the
sole and exclusive right, with communication (to the extent reasonably
practicable under the circumstances) with all Lenders, to exercise or refrain
from exercising any and all rights, remedies, privileges and options under the
Loan Documents and available at law or in equity to protect and enforce the
rights of the Lenders and collect the Obligations, including, without
limitation, instituting and pursuing all legal actions against Borrowers or to
collect the Obligations, or defending any and all actions brought by Borrowers
or other Person; or incurring Expenses or otherwise making expenditures to
protect the Loans, the Collateral or Lenders' rights or remedies.
(e) To the extent Agent is required to obtain or otherwise elects
to seek the consent of Lenders to an action Agent desires to take, if any Lender
fails to notify Agent, in writing, of its consent or dissent to any request of
Agent hereunder within seven (7) Business Days of such Lender's receipt of such
request, such Lender shall be deemed to have given its consent thereto.
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(f) No provision in Section 9 of this Agreement may be amended
without Agent's prior written consent.
9.16 Participations and Assignments: Each Borrower hereby acknowledges
and agrees that a Lender may at any time:
(a) grant participations in up to forty-nine percent (49%) of its
Pro Rata Percentage and Pro Rata Share or of its right, title and interest
therein or in or to this Agreement (collectively, "Participations") to any other
lending office of such Lender or to any other bank, lending institution or other
entity which the granting Lender reasonably determines has the requisite
sophistication to evaluate the merits and risks of investments in participations
("Participants"); provided, however, that: (i) all amounts payable by the
Borrower to each Lender hereunder shall be determined as if such Lender had not
granted such Participation; and (ii) any agreement pursuant to which any Lender
may grant a Participation: (A) shall provide that such Lender shall retain the
sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provisions of this Agreement; and (B) such
participation agreement may provide that such Lender will not agree to any
modification, amendment or waiver of this Agreement without the consent of the
Participant if such amendment, modification or waiver would reduce the principal
of or rate of interest on the Loans, increase the amount of the Maximum Credit
Limit or postpone the date fixed for any scheduled payment of principal of or
interest on the Loans subject to Section 9.15 hereof; and
(b) assign (i) all or any percent of its Pro Rata Percentage and
Pro Rata Share or any right, title and interest therein or in and to this
Agreement to a Lender or any affiliate of a Lender; or (ii) up to forty nine
percent (49%) of its Pro Rata Percentage or Pro Rata Share or any right, title
and interest therein or in and to this Agreement to a third party, with the
prior written consent of the Agent which consent shall not be unreasonably
withheld, and in either event, such Lender shall pay to the Agent a $2,500
transfer fee. All Participations and assignments hereunder shall be of the Pro
Rata Percentage or Pro Rata Share of the Lender making the assignment or
granting the Participation.
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SECTION 10. MISCELLANEOUS
10.1 GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND
DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN
ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCEABILITY OF ANY
PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL
CONTINUE IN FULL FORCE AND EFFECT.
10.2 Integrated Agreement: The Notes, the other Loan Documents, all
related agreements, and this Agreement shall be construed as integrated and
complementary of each other, and as augmenting and not restricting Lenders' and
Agent's rights and remedies. If, after applying the foregoing, an inconsistency
still exists, the provisions of this Agreement shall constitute an amendment
thereto and shall control.
10.3 Waiver:
(a) No omission or delay by Agent or Lenders in ex ercising any
right or power under this Agreement or any related agreements and documents will
impair such right or power or be construed to be a waiver of any default, or
Event of Default or an acquiescence therein, and any single or partial exercise
of any such right or power will not preclude other or further exercise thereof
or the exercise of any other right, and as to Borrower no waiver will be valid
unless in writing and signed by Agent and then only to the extent specified.
(b) Each Borrower releases and shall indemnify, defend and hold
harmless Agent and Lenders, and their respective officers, employees and agents,
of and from any claims, demands, liabilities, obligations, judgments, injuries,
losses, damages and costs and expenses (including, without limitation,
reasonable legal fees) resulting from (i) acts or conduct of either Borrower or
under, pursuant or related to this Agreement and the other Loan Documents, (ii)
either Borrower's breach or violation of any representation, warranty, covenant
or undertaking contained in this Agreement or the other Loan Documents, and
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(iii) either Borrower's failure to comply with any or all laws, statutes,
ordinances, governmental rules, regulations or standards, whether federal, state
or local, or court or administrative orders or decrees, (including without
limitation environmental laws, etc.) and all costs, expenses, fines, penalties
or other damages resulting therefrom, unless resulting from acts or conduct of
Lenders constituting wilful misconduct or gross negligence.
10.4 Time: Whenever Borrowers shall be required to make any payment,
or perform any act, on a day which is not a Business Day, such payment may be
made, or such act may be performed, on the next succeeding Business Day. Time is
of the essence in Borrowers' performance under all provisions of this Agreement
and all related agreements and documents.
10.5 Expenses of Agent: At Closing and from time to time thereafter,
Borrowers will pay all expenses of Agent on demand (including, without
limitation, search costs, audit fees, appraisal fees, and the fees and expenses
of legal counsel for Agent) relating to this Agreement, and all related
agreements and documents, including, without limitation, expenses incurred in
the analysis, negotiation, preparation, closing, administration and enforcement
of this Agreement and the other Loan Documents, the enforcement, protection and
defense of the rights of Agent and Lenders in and to the Loans and Collateral or
otherwise hereunder, and any reasonable expenses relating to extensions,
amendments, waivers or consents pursuant to the provisions hereof, or any
related agreements and documents or relating to agreements with other creditors,
or termination of this Agreement (collectively, the "Expenses").
10.6 Brokerage: Except as otherwise provided herein, this transaction
was brought about and entered into by Agent, Lenders and Borrowers acting as
principals and without any brokers, agents or finders being the effective
procuring cause hereof. Borrowers represent that it has not committed Agent or
any Lender to the payment of any brokerage fee, commission or charge in
connection with this transaction. If any such claim is made on Agent or any
Lender by any broker, finder or agent or other person, Borrowers hereby
indemnify, defend and save such party harmless against such claim and further
will defend, with counsel satisfactory to Agent, any action or actions to
recover on such claim, at Borrowers' own cost and expense, including such
party's reasonable counsel fees. Borrowers further agree that until any such
claim or demand is adjudicated in such party's favor, the amount demanded shall
be deemed a liability of Borrowers under this Agreement.
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10.7 Notices:
(a) Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed given if delivered in person
or if sent by telecopy or by nationally recognized overnight courier, or via
first class, Certified or Registered mail, postage prepaid, as follows, unless
such address is changed by written notice hereunder:
If to Agent to: CoreStates Bank, N.A.
1339 Chestnut Street, 11th Floor
Philadelphia, PA 19107
Attn: Mr. Hugh Connelly, Vice President
Telecopy No.: 215/786-7704
With copies to: Blank, Rome, Comisky & McCauley
One Logan Square
Philadelphia, PA 19103
Attn: Mark I. Rabinowitz, Esquire
Telecopy No.: 215/569-5522
If to Borrowers to: Capital Associates International, Inc.
7175 W. Jefferson Avenue
Suite 4000
Lakewood, Colorado 80235
Attn: Anthony DiPaolo, Sr. Vice President
Telecopy No.: 303/980-7065
With copies to:
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If to Lenders:
to the addresses set forth on Schedule A
(b) Any notice sent by Agent, any Lender or Borrowers by any of
the above methods shall be deemed to be given when so received.
(c) Agent shall be fully entitled to rely upon any facsimile
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.
10.8 Waiver of Subrogation: Borrowers and Sureties each hereby
irrevocably, unconditionally and fully subordinate in favor of Agent, for the
benefit of Lenders, any and all rights they, or any of them, may have at any
time (whether arising directly or indirectly, by operation of law or contract)
to assert or receive payment on any claim against each other or any of them, on
account of payments made under this Agreement, including without limitation, any
and all rights of subrogation, reimbursement, exoneration, contribution or
indemnity. Each Borrower and Surety waives any event or circumstance which might
constitute a legal or equitable defense of, or discharge of, such Borrower or
Surety. Furthermore, each Borrower and Surety agrees that if any payment on the
Obligations is recovered from, or repaid by Agent and/or any Lender in whole or
in part in any bankruptcy, insolvency or similar proceeding instituted by or
against any Borrower or Surety, the remaining Borrower and Sureties shall be
obligated to the same extent as if the recovered or repaid payment had never
been originally made on such Obligation.
10.9 Additional Waivers:
(a) Each Borrower hereby consents and agrees that Agent and/or
Lenders may (subject to Section 9.15) at any time or from time to time in their
discretion (i) settle, compromise or grant releases for liabilities of other
Borrower, and/or any other Person or Persons liable for any Obligations, (ii) in
the exercise of its remedies under Section 8.3 of this Agreement, exchange,
release, surrender, sell, subordinate, or compromise any Collateral of any party
now or hereafter securing any of the Obligations, and (iii) apply any and all
payments received at any time against the Obligations in any order as Agent or
Lenders may determine; all of the foregoing in such manner and upon such terms
as Agent or Lenders may see fit, and without notice to or further consent from
such Borrower who hereby agrees to be and shall remain bound upon this Agreement
notwithstanding any such action on Agent's or Lenders' part.
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(b) The liability of each Borrower hereunder is absolute and
unconditional and shall not be reduced, impaired or affected in any way by
reason of (i) any failure to obtain, retain or preserve, or the lack of prior
enforcement of, any rights against any Person or Persons (including the other
Borrower and the Sureties) or in any Property, (ii) the invalidity or
unenforceability of any Obligations or rights in any Collateral, (iii) any delay
in making demand upon the Borrower or any delay in enforcing, or any failure to
enforce, any rights against the other Borrower or in any Collateral even if such
rights are thereby lost, (iv) any failure, neglect or omission to obtain,
perfect or retain any lien upon, protect, exercise rights against, or realize
on, any Property of either Borrower, the Sureties, or any other party securing
the Obligations, (v) the existence or nonexistence of any defenses which may be
available to the other Borrower, or Sureties with respect to the Obligations, or
(vi) the commencement of any bankruptcy, reorganization, liquidation,
dissolution or receivership proceeding or case filed by or against either of the
Borrowers.
10.10 Headings: The headings of any paragraph or Section of this
Agreement are for convenience only and shall not be used to interpret any
provision of this Agreement.
10.11 Survival: All warranties, representations, and covenants made by
Borrowers, or either of them, herein, or in any agreement referred to herein or
on any certificate, document or other instrument delivered by it or on its
behalf under this Agreement, shall be considered to have been relied upon by
Agent and Lenders, and shall survive the delivery to Lenders of the Notes,
regardless of any investigation made by Lenders or on their behalf. All
statements in any such certificate or other instrument prepared and/or delivered
for the benefit of Agent and any and all Lenders shall constitute warranties and
represen tations by Borrowers hereunder. Except as otherwise expressly provided
herein, all covenants made by Borrowers, or either of them, hereunder or under
any other agreement or instrument shall be deemed continuing until all
Obligations are satisfied in full.
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10.12 Successors and Assigns: This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties.
Neither Borrower may transfer, assign or delegate any of its duties or
obligations hereunder.
10.13 Duplicate Originals: Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed document.
10.14 Modification: No modification hereof or any agreement referred to
herein shall be binding or enforceable unless in writing and signed by
Borrowers, Agent and the Lenders except as to Section 9 hereof.
10.15 Signatories: Each individual signatory hereto repre sents and
warrants that he is duly authorized to execute this Agreement on behalf of his
principal and that he executes the Agreement in such capacity and not as a
party.
10.16 Third Parties: No rights are intended to be created hereunder, or
under any related agreements or documents for the benefit of any third party
donee, creditor or incidental benefi ciary of either Borrower. Nothing contained
in this Agreement shall be construed as a delegation to Agent or any Lender of
Borrowers' duty of performance, including, without limitation, Borrowers' duties
under any Lease, account or contract with any other Person.
10.17 Discharge of Taxes, Borrower's Obligations, Etc.: Agent, in its
sole discretion, shall have the right at any time, and from time to time, with
prior notice to Borrowers, if Borrowers fail to do so five (5) Business Days
after requested in writing to do so by Agent, to: (a) pay for the performance of
any of Borrowers' obligations hereunder, and (b) discharge taxes or Liens, at
any time levied or placed on any of Borrowers' Property in violation of this
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Agreement unless Borrowers are in good faith with due diligence by appropriate
proceedings contesting such taxes or Liens and maintaining proper reserves
therefor in accordance with GAAP. Expenses and advances shall be deemed to be
the Revolving Credit Loans, bear interest at the highest applicable Borrowing
Rate or the Default Rate, as applicable, until reimbursed to Agent. Such
payments and advances made by Agent shall not be construed as a waiver by Agent
or Lenders of an Event of Default under this Agreement.
10.18 Withholding and Other Tax Liabilities: Each Lender shall have the
right to refuse to make any Advances from time to time unless Borrowers shall,
at Agent's request, have given to Agent evidence, reasonably satisfactory to
Agent, that Borrowers have properly deposited or paid, as required by law, all
with holding taxes and all federal, state, city, county or other taxes due up to
and including the date of the requested Advance. Copies of deposit slips showing
payment shall likewise constitute satisfactory evidence for such purpose. In the
event that any lien, assessment or tax liability against Borrowers shall arise
in favor of any taxing authority, whether or not notice thereof shall be filed
or recorded as may be required by law, Agent shall have the right (but shall not
be obligated, nor shall Agent or any Lender hereby assume the duty) to pay any
such lien, assess ment or tax liability by virtue of which such charge shall
have arisen; provided, however, that Agent shall not pay any such tax,
assessment or lien if the amount, applicability or validity thereof is being
contested in good faith and by appropriate proceedings by Borrowers. In order to
pay any such lien, assessment or tax liability, Agent shall not be obliged to
wait until said lien, assessment or tax liability is filed before taking such
action as hereinabove set forth. Any sum or sums which Agent (shared ratably by
Lenders) shall have paid for the discharge of any such lien shall be treated as
a Revolving Credit Loan and shall be paid by Borrowers to Agent with interest
thereon at the highest applicable Borrowing Rate or Default Rate, as applicable,
upon demand, and Agent shall be subrogated to all rights of such taxing
authority against Borrowers.
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10.19 Most Favored Lenders: Borrowers agree to promptly notify Agent in
writing if any agreement for borrowed money to which either Borrower is a party,
contains or is amended to contain, financial or performance covenants more
restrictive than those contained herein and upon Agent's request, Borrowers
agree to amend this Agreement accordingly so that covenants contained herein are
substantially the same as those contained in such other agreements for borrowed
money.
10.20 Consent to Jurisdiction: Each Borrower and each Lender hereby
irrevocably consents to the jurisdiction of the Courts of Common Pleas of
Philadelphia, Commonwealth of Pennsylvania or the United States District Court
for the Eastern District of Pennsylvania in any and all actions and proceedings
whether arising hereunder or under any other agreement or undertaking and
irrevocably agree to service of process by certified mail, return receipt
requested to the address of the appropriate party set forth herein.
10.21 Waiver of Jury Trial: EACH BORROWER, EACH LENDER AND AGENT HEREBY
WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION WITH ANY
LITIGATION COMMENCED BY OR AGAINST AGENT OR ANY LENDER OR LENDERS WITH RESPECT
TO RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS.
10.22 Information to Participant: Agent and each Lender may divulge to
any participant, co-lender or assignee or prospective participant, co-lender or
assignee it may obtain in the Credit Facility, or any portion thereof, all
information, and furnish to such Person copies of any reports, financial
statements, certifi cates, and documents obtained under any provision of this
Agreement, or related agreements and documents; provided, however that any
potential participant, co-lender or assignee agrees to hold in confidence all
confidential or proprietary information provided to them by Borrowers, Agent or
such Lender except (a) to the extent that the production of such information is
required pursuant to any statute, ordinance, regulation, rule or order or any
subpoena or any governmental inquiry or by reason of any bank regulation in
connection with any bank examination, and (b) such potential participant,
co-lender or assignee shall not be prohibited from disclosing any such
information to any of their agents, officers, employees, attorneys, accountants
or consultants who shall be informed of this provision.
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SECTION 11. SPECIAL INTER-BORROWER/SURETY PROVISIONS
11.1 Certain Borrower and Surety Acknowledgments and Agreements.
(a) Each Borrower and Surety acknowledges that it will enjoy
significant benefits from the business conducted by the Borrowers because of,
inter alia, their combined ability to bargain with other Persons including
without limitation their ability to receive the Credit Facility on favorable
terms granted by this Agreement and other Loan Documents which would not have
been available to an individual Borrower acting alone. Each Borrower and Surety
has determined that it is in its best interest to procure the Credit Facility
which each Borrower may utilize directly and which receive the credit support of
the other Borrower and Sureties as contemplated by this Agreement and the other
Loan Documents.
(b) The Agent and Lenders have advised the Borrowers that they are
unwilling to enter into this Agreement and the other Loan Documents and make
available the Credit Facility extended hereby to any Borrower unless each
Borrower and each Surety agrees, among other things, to be jointly and severally
liable for the due and proper payment of the Obligations of Borrowers under this
Agreement and other Loan Documents. Each Borrower and Surety has determined that
it is in its best interest and in pursuit of its purposes that it so induce the
Agent and Lenders to extend credit pursuant to this Agreement and the other
documents executed in connection herewith (i) because of the desirability to
each Borrower and Surety of the Credit Facility, the interest rates and the
modes of borrowing available hereunder, (ii) because each Borrower may engage in
transactions jointly with the other Borrower and the Sureties and (iii) because
each Borrower may require, from time to time, access to funds under this
Agreement for the purposes herein set forth.
(c) Each Borrower and Surety has determined that it has and, after
giving effect to the transactions contemplated by this Agreement and the other
Loan Documents (including, without limitation, the inter-Borrower/Surety
arrangement set forth in this Section 11) will have, assets having a fair
saleable value in excess of the amount required to pay its probable liability on
its existing debts as they fall due for payment and that the sum of its debts is
not and will not then be greater than all of its property at a fair valuation,
that such Borrower and/or Surety has, and will have, access to adequate capital
for the conduct of its business and the ability to pay its debts from time to
time incurred in connection therewith as such debts mature and that the value of
the benefits to be derived by such Borrower and/or Surety from the access to
funds under this Agreement.
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11.2 Maximum Amount Of Joint and Several Liability. To the extent that
applicable law otherwise would render the full amount of the joint and several
obligations of any Borrower or Surety hereunder and under the other Loan
Documents invalid or unenforceable, such Borrower's or Surety's obligations
hereunder and under the other Loan Documents shall be limited to the maximum
amount which does not result in such invalidity or unenforceability, provided,
however, that each Borrower's and Surety's obligations hereunder and under the
other Loan Documents shall be presumptively valid and enforceable to their
fullest extent in accordance with the terms hereof or thereof, as if this
Section 11.2 were not a part of this Agreement.
11.3 Authorization of Parent by Borrowers and Sureties.
(a) Each of the Borrowers and Sureties hereby irrevocably
authorizes Parent to give notices, make requests, make payments, receive
payments and notices, give receipts and execute agreements, make agreements or
take any other action whatsoever on behalf of such Borrower or Surety under and
with respect to any Loan Document and each Borrower and Surety shall be bound
thereby. This authorization is coupled with an interest and shall be
irrevocable, and the Agent and Lenders may rely on any notice, request,
information supplied by Parent, every document executed by Parent, every
agreement made by Parent or other action taken by Parent in respect of the
Borrowers and Sureties or any thereof as if the same were supplied, made or
taken by any or all Borrowers and Sureties. Without limiting the generality of
the foregoing, the failure of any Borrower to join in the execution of any
writing in connection herewith shall not, unless the context clearly requires,
relieve any such Borrower or Surety from obligations in respect of such writing.
(b) The Borrowers and Sureties acknowledge that the credit
provided hereunder is on terms more favorable than any Borrower or Surety acting
alone would receive and that each Borrower and Surety benefits directly and
indirectly from all Advances hereunder. Subject only to the terms of the
preceding Section 11.2, each of the Borrowers and Sureties, shall be jointly and
severally liable for all Obligations, regardless of, inter alia, which Borrower
requested (or received the proceeds of) a particular Advance.
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IN WITNESS WHEREOF, the undersigned parties have executed this Agreement
the day and year first above written.
BORROWERS:
CAPITAL ASSOCIATES, INC.
By: /s/Anthony M. DiPaolo
---------------------------------
Anthony M. DiPaolo
Title: Senior V.P.
Attest: /s/Philip J. Teigen
-----------------------------
Philip J. Teigen
(Corporate Seal)
Fed. Tax ID No. 84-1055327
CAPITAL ASSOCIATES INTERNATIONAL, INC.
By: /s/Anthony M. DiPaolo
---------------------------------
Anthony M. DiPaolo
Title: Senior V.P.
Attest: /s/Philip J. Teigen
-----------------------------
Philip J. Teigen
(Corporate Seal)
Fed. Tax ID No. 84-0724694
S-1
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AGENT:
CORESTATES BANK, N.A.
By: /s/Hugh W. Connelly
----------------------------------
Hugh W. Connelly
Title: Vice President
LENDERS:
CORESTATES BANK, N.A., as Lender and Issuing Bank
By: /s/Hugh W. Connelly
----------------------------------
Hugh W. Connelly
Title: Vice President
NORWEST BANK COLORADO, N.A.
By: /s/Sandra A. Sauer
----------------------------------
Sandra A. Sauer
Title: Vice President
BANKBOSTON, N.A.
By: /s/Deirdre M. Holland
----------------------------------
Deirdre M. Holland
Title: Vice President
EUROPEAN AMERICAN BANK
By: /s/Robert Peck
----------------------------------
Robert Peck
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION, D/B/A
COLORADO NATIONAL BANK
By: /s/Ralph P. Atkinson
----------------------------------
Ralph P. Atkinson
Title: Vice President
S-2
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SURETIES:
CAI EQUIPMENT LEASING II CORP.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P. & Treasurer
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 84-1133179
CAI EQUIPMENT LEASING III CORP.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P. & Treasurer
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 84-1184608
CAI EQUIPMENT LEASING IV CORP.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P. & Treasurer
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 84-1248788
CAI EQUIPMENT LEASING V CORP.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P. & Treasurer
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 84-1348277
CAI PARTNERS MANAGEMENT COMPANY
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P. & Treasurer
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 84-1066243
S-3
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CAPITAL EQUIPMENT CORPORATION
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P.
Attest: /s/John A. Reed
------------------------------
John A. Reed
(Corporate Seal)
Fed. Tax ID No.: 84-0913965
CAI EQUIPMENT LEASING VI CORP.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P. & Treasurer
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 84-1435874
CAI LEASE SECURITIZATION I CORP.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P.
Attest: /s/John A. Reed
------------------------------
John A. Reed
(Corporate Seal)
Fed. Tax ID No.: 84-1250490
CAI LEASING CANADA, LTD.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: President
Attest: /s/John A. Reed
------------------------------
John A. Reed
(Corporate Seal)
Fed. Tax ID No.: 84-1150068
CAPITAL ASSOCIATES INTERNATIONAL de MEXICO S. de
R.L. de C.V.
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Treasurer
Attest: /s/Philip J. Teigen
-----------------------------
Philip J. Teigen
(Corporate Seal)
Fed. Tax ID No.: N/A
S-4
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WHITEWOOD EQUIPMENT CORPORATION f/k/a
WHITEWOOD CREDIT CORPORATION
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: President
Attest: /s/John A. Reed
------------------------------
John A. Reed
(Corporate Seal)
Fed. Tax ID No.: 84-1032253
CAI SECURITIES CORPORATION
By: /s/Anthony M. DiPaolo
----------------------------------
Anthony M. DiPaolo
Title: Senior V.P.
Attest: /s/David J. Anderson
------------------------------
David J. Anderson
(Corporate Seal)
Fed. Tax ID No.: 68-0002657
S-5
