<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999.
REGISTRATION NO. 333-56339
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
MICROFINANCIAL INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
MASSACHUSETTS 6159 04-2962824
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02154
(781) 890-0177
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER R. BLEYLEBEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICROFINANCIAL INCORPORATED
950 WINTER STREET, SUITE 41000
WALTHAM, MASSACHUSETTS 02151
(781) 890-0177
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LAURA N. WILKINSON, ESQ. JOHN W. WHITE, ESQ.
EDWARDS & ANGELL, LLP CRAVATH, SWAINE & MOORE
2800 BANKBOSTON PLAZA 825 EIGHTH AVENUE
PROVIDENCE, RHODE ISLAND 02903 NEW YORK, NEW YORK 10019
(401) 274-9200 (212) 474-1000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
PROSPECTUS
dated , 1999
4,000,000 SHARES
[MICROFINANCIAL LOGO]
COMMON STOCK
Of the 4,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), of MicroFinancial Incorporated (the "Company") being offered hereby
(the "Offering"), 3,400,000 shares are being sold by the Company and 600,000
shares are being sold by the Selling Stockholders (as defined). See "Selling
Stockholders." Because some of the Selling Stockholders are affiliates of the
Company, a substantial portion of the proceeds of the Offering will benefit such
affiliates. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
Prior to the Offering, there has not been a public market for the Common Stock.
It is currently estimated that the initial public offering price will be between
$14.00 and $16.00 per share. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Common
Stock will be listed on The New York Stock Exchange ("NYSE"), subject to
official notice of issuance, under the symbol "MFI."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=======================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total (3).............. $ $ $ $
=======================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 600,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ and $ ,
respectively.
The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that delivery
of the certificates for such shares of Common Stock will be made at the offices
of Piper Jaffray Inc. in Minneapolis, Minnesota on or about ,
1999.
PIPER JAFFRAY INC. CIBC OPPENHEIMER
<PAGE> 3
[GRAPHIC -- PICTURE OF PEOPLE BICYCLING ON
BRIDGE OVER COMPUTER TERMINALS WITH THE
COMPANY'S WEBSITE ADDRESS
(WWW.LEASECOMM.COM)
PRINTED ON THE BRIDGE,
AND THE FOLLOWING TEXT:
TECHNOLOGY
With our new secure web site, LeasecommDirect(TM), dealers have the opportunity
to send in new applications, receive approvals and access a remarkable amount of
in-depth information -- instantly, without human involvement.
LeasecommDirect(TM) -- one more example of our constant commitment to
information technology and management.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. In
particular, prospective purchasers of shares of Common Stock offered hereby
should carefully consider the factors set forth under "Risk Factors." Unless
otherwise specified, the information in this Prospectus (i) assumes that the
Underwriters do not exercise the over-allotment option described herein under
"Underwriting" and (ii) gives effect to a 10-for-1 stock split (the "1997 Stock
Split") of the Common Stock effected on June 16, 1997 and a 2-for-1 stock split
(the "1999 Stock Split") of the Common Stock to be effective as of the date on
which this Offering is consummated. Unless otherwise indicated or the context
requires otherwise, references in this Prospectus to the "Company" mean
MicroFinancial Incorporated (formerly known as Boyle Leasing Technologies, Inc.)
and its consolidated subsidiaries.
THE COMPANY
The Company, which operates primarily through its wholly-owned subsidiary,
Leasecomm Corporation, is a specialized commercial finance company that leases
and rents "microticket" equipment and provides other financing services in
amounts generally ranging from $900 to $2,500, with an average amount financed
of approximately $1,400 and an average lease term of 45 months. The Company
pioneered the use of proprietary software in developing a sophisticated,
risk-adjusted pricing model and automating its credit approval and collection
systems, including a fully-automated Internet-based application, credit scoring
and approval process. This has enabled the Company to better service its dealer
network, to develop economies of scale in originating and servicing over 200,000
leases, contracts and loans and to operate on a nationwide basis in a
historically fragmented market. The majority of the Company's leases are
currently for authorization systems for point-of-sale card-based payments, by,
for example, debit, credit and charge cards ("POS authorization systems"). The
Company continues to develop other product lines, including leasing other
commercial products and acquiring payment streams from residential security
monitoring contracts ("service contracts").
The Company targets owner-operated or other small commercial enterprises,
with little business credit history and limited or poor personal credit history
at the owner level. The Company provides a convenient source of financing to
these lessees who may have few other sources of credit. The Company primarily
leases and rents low-priced commercial equipment with limited residual value
which is used by these lessees in their daily operations. The Company does not
market its services directly to lessees, but sources leasing transactions
through a nationwide network of over 1,100 independent sales organizations and
other dealer-based origination networks ("Dealers"). The Company's ability to
approve applications quickly for a wide range of credit profiles facilitates
Dealer sales, thereby enhancing the Company's relationships with its Dealers.
The Company commenced operations in 1986 and has been profitable every year
since 1987. At September 30, 1998, the Company's gross investment in leases and
loans (as defined herein) totaled $273.1 million. The Company generated revenues
and net income of $68.2 million and $7.7 million in 1997, increases of 22.7% and
50.6%, respectively, over those amounts in 1996. Revenues and net income for the
nine months ended September 30, 1998 totaled $55.8 million and $9.5 million,
increases of 11.2% and 52.6%, respectively, over the nine months ended September
30, 1997. The Company has completed six private securitizations since 1992,
pursuant to which $67.4 million of securitized receivables remained on the
Company's balance sheet as of December 31, 1998.
The Company capitalizes on its unique understanding of its lessees,
underwriting higher risk credits with a multi-dimensional credit scoring model
that generates risk-adjusted pricing. Additionally, the Company maintains a
disciplined and persistent approach to collections which enables the Company to
collect delinquent amounts that it believes its competitors often would not
pursue due to the perceived high costs of collecting relatively small monthly
payments against equipment with low resale value. In each of these areas, the
Company has focused on the application of technology to execute its operating
strategy by designing proprietary software and systems to operate its business
and achieve economies of scale.
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3
<PAGE> 5
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STRATEGY
The Company's strategy is to significantly expand its business through
internal growth, diversification of product offerings and selective acquisitions
of lease portfolios and leasing companies, while maintaining or improving
current levels of profitability.
The Company has successfully utilized technology to (i) manage the high
volume of information associated with originating and servicing its leases, (ii)
develop a multi-dimensional credit scoring model for assessing credit risk and
pricing its leases and (iii) implement a systematic and efficient collections
policy which enables the Company to collect delinquent amounts owed on its
leases even several years after the original delinquency. The Company believes
its efficiency in these areas will provide it a competitive advantage by
allowing it to provide better service to Dealers, facilitating product sales by
such Dealers. Furthermore, the Company believes that its system has excess
capacity which it believes will decrease the Company's servicing costs per
lease, contract and loan as volumes increase. An example of the Company's
strategic use of technology is LeasecommDirect(TM), the Company's Internet-based
application processing, credit approval and Dealer information tool, use of
which has increased from approximately 3.5% of total applications processed in
the first quarter of 1998 to approximately 33.7% of total applications processed
in the fourth quarter of 1998.
The Company also intends to expand its business by applying its strategy to
other products and markets by pursuing selective acquisitions. The Company
believes that its operating strategy can facilitate Dealers' sales of most
products in the microticket market which are characterized by limited
distribution channels and high selling costs by making them available to
customers for a small monthly lease payment. Accordingly, the Company believes
that it can leverage the competitive advantage it has in its current markets to
products with similar characteristics.
SELLING STOCKHOLDERS
The stockholders listed in the table set forth under "Selling Stockholders"
(the "Selling Stockholders") currently own in the aggregate 7,265,016 shares of
Common Stock of the Company. The Selling Stockholders intend to sell 600,000
shares of Common Stock in the aggregate (1,200,000 shares of Common Stock if the
Underwriters' over-allotment option is exercised in full). See "Selling
Stockholders."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 3,400,000 shares
Common Stock offered by the Selling Stockholders... 600,000 shares(1)
Total Offering..................................... 4,000,000 shares
Common Stock to be outstanding after the
Offering......................................... 13,332,766 shares(1)(2)
Use of Proceeds.................................... The net proceeds of the Offering will be used to
repay portions of the Company's outstanding
subordinated debt ("Subordinated Debt") and
revolving credit and term loan facilities
("Credit Facilities"). See "Use of Proceeds."
Common Stock NYSE symbol........................... "MFI"
</TABLE>
- ---------------
(1) Does not include up to 600,000 shares of Common Stock which may be sold by
the Selling Stockholders pursuant to the Underwriters' over-allotment
option. See "Underwriting."
(2) Includes 19,600 shares of Common Stock to be issued upon conversion of the
Company's outstanding redeemable convertible preferred stock upon
consummation of the Offering. Excludes an aggregate of 120,380 shares of
Common Stock reserved for issuance upon exercise of stock options at
exercise prices of $0.6375 and $1.95, outstanding as of December 31, 1998,
6,682 shares of which are subject to options which are exercisable within 60
days of the date of this Prospectus. See "Management -- Stock Option Plans"
and "Description of Capital Stock." Also excludes 142,590 shares of Common
Stock held in the Company's treasury as of December 31, 1998.
RISK FACTORS
See "Risk Factors" beginning on page 8 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
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4
<PAGE> 6
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SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents summary consolidated financial and operating
data of the Company and its subsidiaries as of and for each of the years in the
five-year period ended December 31, 1997 and as of September 30, 1998 and for
the nine months ended September 30, 1997 and 1998. The summary consolidated
financial and certain other data as of December 31, 1993, 1994, 1995, 1996 and
1997, and for each of the years in the five-year period ended December 31, 1997,
have been derived from consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants. The Company's summary
consolidated financial and operating data as of September 30, 1998 and for the
nine months ended September 30, 1997 and 1998, are based on the Company's
unaudited consolidated financial statements which include all adjustments that,
in the opinion of the Company's management, are necessary for a fair
presentation of the results at such dates and for such respective interim
periods. The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results expected for fiscal year 1998 or
any interim period. The as adjusted balance sheet data assume that the issuance
and sale of shares of Common Stock offered hereby by the Company at $15.00 per
share (the mid-point of the range of estimated initial offering prices) and the
application of the net proceeds therefrom as described in "Use of Proceeds"
occurred on September 30, 1998. The summary consolidated financial and operating
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and related notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
INCOME STATEMENT DATA: ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Income on financing leases and loans............... $10,840 $15,949 $27,011 $38,654 $45,634 $33,900 $35,285
Income on service contracts(1)..................... -- -- -- 6 501 87 1,557
Rental income...................................... 1,329 2,058 3,688 8,250 10,809 8,104 11,153
Fee income(2)...................................... 2,576 3,840 5,446 8,675 11,236 8,104 7,837
------- ------- ------- ------- ------- ------- -------
Total revenues................................... 14,745 21,847 36,145 55,585 68,180 50,195 55,832
------- ------- ------- ------- ------- ------- -------
EXPENSES
Selling, general and administrative................ 2,689 4,975 8,485 14,073 17,252 12,558 14,284
Provision for credit losses........................ 5,753 8,179 13,388 19,822(3) 21,713(3) 15,601 12,568
Depreciation and amortization...................... 602 827 1,503 2,981 3,787 2,701 3,867
Interest........................................... 3,598 5,009 8,560 10,163 11,890 8,891 9,198
------- ------- ------- ------- ------- ------- -------
Total expenses................................... 12,642 18,990 31,936 47,039 54,642 39,751 39,917
------- ------- ------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES............. 2,103 2,857 4,209 8,546 13,538 10,444 15,915
NET INCOME........................................... 1,325(4) 1,643 2,524 5,080 7,652 6,199 9,460
======= ======= ======= ======= ======= ======= =======
NET INCOME PER COMMON SHARE
Basic(5)........................................... $ 0.27 $ 0.33 $ 0.34 $ 0.52 $ 0.78 $ 0.63 $ 0.96
Diluted(6)......................................... 0.15 0.19 0.27 0.52 0.76 0.62 0.94
DIVIDENDS PER COMMON SHARE........................... -- -- 0.06 0.10 0.12 0.09 0.10
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1998 AS
1993 1994 1995 1996 1997 1998 ADJUSTED
BALANCE SHEET DATA: ---- ---- ---- ---- ---- ---- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross investment in leases and loans(7)....... $ 69,561 $115,286 $189,698 $247,633 $258,230 $273,148 $273,148
Unearned income............................... (19,952) (33,807) (60,265) (76,951) (73,060) (73,742) (73,742)
Allowance for credit losses................... (4,778) (7,992) (15,952) (23,826) (26,319) (24,423) (24,423)
Investment in service contracts(1)............ -- -- -- -- 2,145 7,412 7,412
Total assets.............................. 50,810 83,484 126,479 170,192 179,701 208,767 208,767
Notes payable................................. 37,747 57,594 94,900 116,202 116,830 132,104 105,704(8)
Subordinated notes payable.................... 5,394 13,436 13,170 27,006 26,382 25,288 5,488(8)
Total liabilities......................... 45,041 77,652 118,568 158,013 160,935 181,472 135,272
Total stockholders' equity................ 5,687 5,750 7,911 12,179 18,766 27,295 73,495
</TABLE>
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5
<PAGE> 7
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<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
OTHER DATA: ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT STATISTICAL DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total leases and loans
originated(9).................. $ 43,209 $ 85,627 $134,546 $143,200 $129,064 $ 95,597 $112,158
Total service contracts
acquired(10)................... -- -- 3,635 2,431 2,972 1,660 6,298
Dealer fundings(11).............. $ 26,213 $ 52,745 $ 76,502 $ 73,659 $ 77,590 $ 56,767 $ 76,710
Average yield on leases and
loans(12)...................... 30.0% 29.9% 30.7% 32.4% 33.9% 33.3% 35.4%
Cash flows from (used in):
Operating activities............. $ 17,660 $ 26,288 $ 41,959 $ 60,104 $ 77,393 $ 53,054 $ 69,641
Investing activities............. (26,182) (51,528) (76,353) (86,682) (80,127) (58,533) (78,222)
Financing activities............. 9,502 27,803 36,155 33,711 (1,789) 1,498 12,786
-------- -------- -------- -------- -------- -------- --------
Total.......................... 980 2,563 1,761 7,133 (4,523) (3,981) 4,205
Selected Ratios:
Return on average assets(13)..... 2.96% 2.45% 2.40% 3.42% 4.37% 4.74% 6.49%
Return on average stockholders'
equity(13)..................... 29.82 28.73 36.95 50.57 49.46 55.46 54.77
Operating margin(14)............. 53.28 50.51 48.68 51.04 51.70 51.89 51.02
Credit Quality Statistics:
Net charge-offs.................. $ 4,033 $ 4,961 $ 5,428 $ 11,948(15) $ 19,220(15) $ 17,082 $ 14,464
Net charge-offs as a
percentage of average
gross investment(13)(16)....... 6.46% 5.37% 3.56% 5.46%(15) 7.57%(15) 8.58% 7.13%
Provision for credit losses as
a percentage of average
gross investment(13)(17)....... 9.21 8.85 8.78 9.07 8.55 7.83 6.20
Allowance for credit losses as a
percentage of gross
investment(18)................. 6.87 6.93 8.41 9.62 10.14 8.78 8.94
</TABLE>
- ---------------
(1) The Company began acquiring fixed-term service contracts in 1995. Until
December 1996, the Company treated these fixed-term contracts as leases for
accounting purposes. Accordingly, income from these service contracts is
included in income on financing leases and loans for all periods prior to
December 1996 and investments in service contracts were recorded as
receivables due in installments on the balance sheet at December 31, 1995
and 1996. Beginning in December 1996, the Company began acquiring
month-to-month service contracts, the income from which is included as a
separate category in the Consolidated Statements of Operations and the
investment in which are recorded separately on the balance sheet.
(2) Includes loss and damage waiver fees and service fees.
(3) The provision for 1996 includes $5.0 million resulting from a reduction in
the time period for charging off the Company's receivables from 360 to 240
days. The provision for 1997 includes a one-time write-off of securitized
receivables of $9.5 million and $5.1 million in write-offs of satellite
television equipment receivables.
(4) 1993 excludes a $1.3 million cumulative increase in net income as a result
of the Company's adoption of Statement of Financial Accounting Standards
No. 109 (Accounting for Income Taxes). Prior to 1993, the Company accounted
for income taxes under the deferred method.
(5) Net income per common share (basic) is calculated based on weighted average
common shares outstanding of 4,994,296, 5,003,880, 7,352,189, 9,682,851,
9,793,140, 9,791,212 and 9,849,602 for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and
1998, respectively.
(6) Net income per common share (diluted) is calculated based on weighted
average common shares outstanding on a diluted basis of 9,120,355,
8,713,065, 9,448,206, 9,770,613, 9,925,329, 10,005,028 and 10,031,974 for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998, respectively.
(7) Consists of receivables due in installments, estimated residual value, and
loans receivable.
(8) As adjusted reflects (i) the use of approximately $19.8 million of the net
proceeds of the Offering to repay amounts outstanding under the Company's
Subordinated Debt and (ii) the use of $26.4 million of the net proceeds of
the Offering to repay amounts outstanding under the Company's Credit
Facilities.
(9) Represents the amount paid to Dealers upon funding of leases and loans plus
the associated unearned income.
(10) Represents the amount paid to Dealers upon the acquisition of service
contracts, including both non-cancelable service contracts and
month-to-month service contracts.
(11) Represents the amount paid to Dealers upon funding of leases, contracts and
loans.
(12) Represents the aggregate of the implied interest rate on each lease and
loan originated during the period weighted by the amount funded at
origination for each such lease and loan.
(13) Quarterly amounts are annualized.
(14) Represents income before provision for income taxes and provision for
credit losses as a percentage of total revenues.
(15) Charge-offs in 1996 and 1997 were higher due to write-offs related to
satellite television equipment lease receivables and due to a change in the
write-off period from 360 days to 240 days in the third quarter of 1996.
See "Business -- Exposure to Credit Losses."
(16) Represents net charge-offs as a percentage of average gross investment in
leases and loans and investment in service contracts.
(17) Represents provision for credit losses as a percentage of average gross
investment in leases and loans and investment in service contracts.
(18) Represents allowance for credit losses as a percentage of gross investment
in leases and loans and investment in service contracts.
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6
<PAGE> 8
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RECENT RESULTS
The Company recently announced its financial and operating results for the
three months ended December 31, 1998 and fiscal year 1998. The Company generated
$20.7 million in total revenues for the fourth quarter of 1998, compared to
$18.0 million in the fourth quarter of 1997. For the year ended December 31,
1998, the Company generated $76.5 million in total revenues, compared to $68.2
million for the year ended December 31, 1997. The Company earned net income of
$2.5 million, or $0.25 per diluted share, for the fourth quarter of 1998,
compared to $1.5 million, or $0.15 per diluted share, for the fourth quarter of
1997 and net income of $11.9 million, or $1.19 per diluted share for the year
ended December 31, 1998 compared to $7.7 million, or $0.76 per diluted share for
the year ended December 31, 1997.
The Company's provision for credit losses for the fourth quarter of 1998
and the year ended December 31, 1998 were $6.5 million and $19.1 million,
respectively, compared to $6.1 million and $21.7 million for the fourth quarter
of 1997 and the year ended December 31, 1997, respectively. Net charge-offs for
the fourth quarter of 1998 and the year ended December 31, 1998 were $6.1
million and $20.5 million, respectively, compared to $2.1 million and $19.2
million for the fourth quarter of 1997 and the year ended December 31, 1998,
respectively.
Dealer fundings were $28.5 million and $105.2 million for the fourth
quarter of 1998 and the year ended December 31, 1998, respectively, compared to
$20.8 million and $77.6 million for the fourth quarter of 1997 and the year
ended December 31, 1997, respectively. The Company's total leases and loans
originated were $41.7 million and $153.8 million for the fourth quarter of 1998
and the year ended December 31, 1998, respectively, compared to $33.5 million
and $129.1 million for the fourth quarter of 1997 and the year ended December
31, 1997, respectively. The Company acquired service contracts totaling $2.0
million and $8.3 million for the fourth quarter of 1998 and the year ended
December 31, 1998, respectively, compared to $1.3 million and $3.0 million for
the fourth quarter of 1997 and the year ended December 31, 1997.
- --------------------------------------------------------------------------------
7
<PAGE> 9
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company and its business before purchasing shares of the Common Stock
offered hereby. Except for historical information contained herein, this
Prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
DEPENDENCE ON POS AUTHORIZATION SYSTEMS
Reduced demand for financing of POS authorization systems could adversely
affect the Company's lease volume, which in turn could have a material adverse
effect on the Company's business, financial condition and results of operations.
The leasing of POS authorization systems currently represents the Company's
largest product, at over 65% of its outstanding portfolio and approximately 58%
of new lease originations during the first nine months of 1998. Technological
advances may lead to a decrease in the price of POS authorization systems and a
consequent decline in the need for financing of such equipment. A price decrease
may result in such equipment being sold through conventional retail outlets. In
addition, business and technological changes could change the manner in which
POS authorization is obtained. These changes could reduce the need for outside
financing sources which would reduce the Company's lease financing opportunities
and origination volume in such products. Technological changes and price
decreases have in the past required the Company to exit its principal source of
lease volume. During the late 1980s, the Company provided financing primarily to
lessees of cellular phones, which at the time retailed in excess of $1,000 per
unit. Consumers leased cellular phones through dealers due to the product's
limited availability and high price. As the price of cellular phones decreased,
the demand for financing of cellular phones diminished, and by mid-1991, the
Company originated no new leases for cellular phones.
In the event that demand for financing POS authorization systems declines,
the Company will expand its efforts to provide lease financing for other
products. There can be no assurance, however, that the Company will be able to
do so successfully. The Company currently originates its leases for POS
authorization systems through a network of Dealers who predominantly deal
exclusively in that product. It is unlikely that the Company would be able to
capitalize on these relationships in the event it shifts its business focus to
originating leases of other products. Any failure by the Company to successfully
enter into new relationships with dealers of other products or to extend
existing relationships with such dealers in the event of reduced demand for
financing of POS authorization systems would have a material adverse effect on
the Company.
RISKS OF EXPANSION STRATEGY
The Company's principal growth strategy of expansion into new products and
markets may be adversely affected by (i) its inability to cultivate new sources
of originations and (ii) its inexperience with products with different
characteristics from those currently offered by the Company, including the type
of obligor and the amount financed.
New Sources. The Company currently originates a significant majority of
its leases and contracts through a network of Dealers which deal exclusively in
POS authorization systems. The Company is currently unable to capitalize on
these relationships in originating leases for products other than POS
authorization systems. Any failure by the Company to develop additional
relationships with Dealers of other products which it leases or may seek to
lease would hinder the Company's growth strategy.
New Products. The Company's existing portfolio primarily consists of
leases to owner-operated or other small commercial enterprises with little
business history and limited or poor personal credit history at the owner level.
These leases are characterized by small average monthly payments for equipment
with limited residual value at the end of the lease term. The Company's ability
to successfully underwrite new products with different characteristics is highly
dependent on the Company's ability to (i) successfully analyze the
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<PAGE> 10
credit risk associated with the user of such new products so as to appropriately
apply its risk-adjusted pricing to such products and (ii) utilize its
proprietary software to efficiently service and collect on its portfolio. The
Company has recently entered into markets in which the ultimate obligor on a
lease or contract is an individual rather than a commercial enterprise. The
results of the Company's most significant venture into financing products for
individuals, the leasing of consumer satellite television equipment, failed to
meet the Company's expectations principally due to difficulty in assessing the
credit risk of lessees and in effectively pricing leases. As a result, the
Company significantly scaled back its origination of new leases in this area
after July 1996 and no longer originates a significant number of leases for
satellite television equipment. There can be no assurance that the Company will
be able to successfully apply its operating strategy to provide financing
services to non-commercial lessees, which could have a material adverse effect
on the Company. The Company also has recently commenced underwriting leases for
small-ticket items or services (having a value between $5,000 and $25,000). The
Company has no significant experience with providing small-ticket leasing or
financing services. Additionally, the larger monthly payments associated with
leases for small-ticket items may result in different repayment patterns for
lessees of small-ticket items. Accordingly, there can be no assurance that the
Company's expertise in analyzing credit risk and applying its collection
strategy in the microticket market will be applicable to the small-ticket
market. Any failure by the Company to successfully enter this market could
materially adversely affect its growth prospects.
Because the successful implementation of the Company's expansion strategy
will require significant time and resources to cultivate new sources and develop
any specialized expertise necessary to enter into new markets, the Company
intends to implement its growth strategy gradually. Rapidly diminishing demand
for financing of POS authorization systems could force the Company to accelerate
its expansion strategy in a less than optimal manner and have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON EXTERNAL FINANCING
The Company's ability to successfully execute its business strategy and to
sustain its operations is dependent on its ability to raise debt and equity
capital. The Company funds the majority of its leases, contracts and loans
through its Credit Facilities with banks and other institutional lenders,
on-balance sheet securitizations ("Securitizations") and issuances of
Subordinated Debt. The Company's failure to obtain required financing on
favorable terms and on a timely basis would limit its ability to add new
originations, which would have a material adverse effect on the Company's
business, financial condition and results of operations. Any future debt
financings or issuances of preferred stock by the Company will be senior to the
rights of the holders of Common Stock. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
The terms of the Company's Credit Facilities, Securitizations and
Subordinated Debt programs impose operating and financial restrictions on the
Company. In addition, the Credit Facilities contain, and any future
Securitizations may contain, restrictions on the type of product which may be
funded with the proceeds of such financings. The Credit Facilities also contain
a covenant pursuant to which the Company has agreed not to make any material
change in its business. As a result, the ability of the Company to respond to
changing business and economic conditions, to implement its expansion strategy
and to secure additional financing, if needed, may be significantly restricted,
and the Company may be prevented from engaging in transactions that might
further its growth strategy or otherwise be considered beneficial to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Description of
Certain Indebtedness."
RISK OF DEFAULTS ON LEASES
The credit characteristics of the Company's lessee base correspond to a
high incidence of delinquencies which in turn may lead to significant levels of
defaults. The Company's receivables (including the entire lease receivable with
the exception of service contracts, as to which only the amount of the invoices
billed but not collected is included) which were contractually past due by 31
days or more at October 2, 1998 represented 25.1% of the sum of the Company's
receivables due in installments plus investment in service contracts plus
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<PAGE> 11
loans receivable at September 30, 1998. See "Business -- Exposure to Credit
Losses." Under the Company's charge-off policy, cumulative net charge-offs from
the Company's inception to September 30, 1998 have totaled 7.45% of total
cumulative receivables plus total billed fees. The credit profile of the
Company's lessees heightens the importance to the Company of both pricing its
leases, loans and contracts for risk assumed, as well as maintaining adequate
reserves for losses. Significant defaults by lessees in excess of those
anticipated by the Company in setting its prices and reserve levels may
adversely affect the Company's cash flow and earnings. Reduced cash flow and
earnings could limit the Company's ability to repay debt, obtain financing and
effect Securitizations which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Additionally, the Company utilizes its leases, contracts and loans as
collateral under its Credit Facilities and Securitizations. The Company's Credit
Facilities and Securitizations provide for events of default in the event of
delinquencies beyond certain levels. Actual defaults, as well as delinquencies
under leases, contracts and loans above pre-determined thresholds, would reduce
the amount of collateral available for financing under its Credit Facilities and
future Securitizations and would have a material adverse effect on the Company's
business as previously discussed. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Certain Indebtedness."
ADVERSE CONSEQUENCES OF COLLECTION POLICY
The Company's use of litigation as a means of collection of unpaid
receivables exposes it to counterclaims on its suits for collection, to class
action lawsuits and to negative publicity surrounding its leasing and collection
policies. The Company has been a defendant in attempted class action suits as
well as counterclaims filed by individual obligors in attempts to dispute the
enforceability of the lease, contract or loan. The Company believes its
collection policies and use of litigation comply fully with all applicable laws.
Because of the Company's persistent enforcement of its leases, contracts and
loans through the use of litigation, the Company may have created ill will
toward it on the part of certain lessees and other obligors who were defendants
in such lawsuits. The Company's litigation strategy has generated adverse local
publicity in certain circumstances. Adverse publicity at a national level could
negatively impact public perception of the Company and may materially impact the
price of the Common Stock. Any such class action suit, if successful, or any
such adverse publicity, if widespread, could have a material adverse effect on
the Company's business, financial condition or results of operations.
RISK OF INCREASED INTEREST RATES
Since the Company generally funds its leases, contracts and loans through
its Credit Facilities or from working capital, the Company's operating margins
could be adversely affected by an increase in interest rates. The implicit yield
to the Company on all of its leases, contracts and loans is fixed due to the
leases, contracts and loans having scheduled payments that are fixed at the time
of origination. When the Company originates or acquires leases, contracts and
loans, it bases its pricing in part on the "spread" it expects to achieve
between the implicit yield rate to the Company on each lease, contract and loan
and the effective interest cost it will pay when it finances such leases,
contracts and loans. Increases in interest rates during the term of each lease,
contract and loan could narrow or eliminate the spread, or result in a negative
spread, to the extent such lease, contract or loan was financed with
floating-rate funding. The Company may undertake to hedge against the risk of
interest rate increases, based on the size and interest rate profile of its
portfolio. Such hedging activities, however, would limit the Company's ability
to participate in the benefits of lower interest rates with respect to the
hedged portfolio. In addition, the Company's hedging activities may not protect
it from interest rate-related risks in all interest rate environments. Adverse
developments resulting from changes in interest rates or hedging transactions
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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<PAGE> 12
RISK OF ECONOMIC DOWNTURN
An economic downturn could result in a decline in the demand for some of
the types of equipment or services which the Company finances, which could lead
to a decline in originations. An economic downturn may slow the development and
continued operation of small commercial businesses, which are the primary market
for POS authorization systems and the other commercial equipment leased by the
Company. Such a downturn could also adversely affect the Company's ability to
obtain capital to fund lease, contract and loan originations or acquisitions or
to complete Securitizations. In addition, such a downturn could result in an
increase in delinquencies and defaults by the Company's lessees and other
obligors beyond the levels forecasted by the Company, which could have an
adverse effect on the Company's cash flow and earnings, as well as on its
ability to securitize leases. These results could have a material adverse effect
on the Company's business, financial condition and results of operations.
Additionally, as of September 30, 1998, approximately 41% of the Company's
portfolio was represented by leases, contracts and loans with lessees and other
obligors operating in California, Florida, Texas and New York. Economic
conditions in these states may affect the level of collections from, as well as
delinquencies and defaults by, these obligors.
INTENSE COMPETITION
The microticket leasing and financing industry is highly competitive. The
Company competes for customers with a number of national, regional and local
banks and finance companies. The Company's competitors also include equipment
manufacturers that lease or finance the sale of their own products. While the
market for microticket financing has traditionally been fragmented, the Company
could also be faced with competition from small- or large-ticket leasing
companies that could use their expertise in those markets to enter and compete
in the microticket financing market. The Company's competitors include larger,
more established companies, some of which may possess substantially greater
financial, marketing and operational resources than the Company, including lower
cost of funds and access to capital markets and to other funding sources which
may be unavailable to the Company. If a competitor were to lower lease rates,
the Company could be forced to follow suit or lose origination volume, either of
which would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, competitors may seek to
replicate the automated processes used by the Company to monitor dealer
performance, evaluate lessee credit information, appropriately apply
risk-adjusted pricing, and efficiently service a nationwide portfolio. The
development of computer software similar to that developed by the Company by or
for the Company's competitors may jeopardize the Company's strategic position
and allow such companies to operate more efficiently than the Company.
RISK OF YEAR 2000 NON-COMPLIANCE
Failure by third parties with which the Company interacts to remediate any
Year 2000 issues in a timely or successful manner could have a material adverse
effect on the Company's business. A failure by companies which process POS
transactions to remediate any Year 2000 issues in their software could result in
the Company's lessees' inability to consummate POS transactions. In that event,
lessees of POS authorization systems may become unwilling or unable to comply
with their lease obligations. In addition, the Company does and will continue to
interconnect certain portions of its network and systems with other companies'
networks and systems, certain of which may not be as Year 2000 compliant as
those installed by the Company. While the Company has discussed these matters
with, and/or obtained written certifications from, such other companies as to
their Year 2000 compliance, there can be no assurance that any potential impact
associated with incompatible systems after December 31, 1999 would not have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company believes that any modifications necessary to make its own
computer systems and proprietary software Year 2000 compliant will not result in
material costs to the Company. There can be no assurance, however, that these
cost estimates are accurate, nor can there be any assurance that the Company
will be able to successfully identify all relevant Year 2000 issues in its
systems in a timely manner.
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<PAGE> 13
GOVERNMENT REGULATION
The Company's leasing business is not currently subject to extensive
federal or state regulation. While the Company is not aware of any proposed
legislation, the enactment of, or a change in the interpretation of, certain
federal or state laws affecting the Company's ability to price, originate or
collect on receivables (such as the application of usury laws to the Company's
leases and contracts) could negatively affect the collection of income on its
leases, contracts and loans, as well as the collection of fee income. Any such
legislation or change in interpretation, particularly in Massachusetts, whose
law governs the majority of the Company's leases, contracts and loans, could
have a material adverse effect on the Company's ability to originate leases,
contracts and loans at current levels of profitability, which in turn could have
a material adverse effect on the Company's business, financial condition or
results of operations.
RISKS OF ACQUIRING OTHER PORTFOLIOS AND COMPANIES
A portion of the Company's growth strategy depends on the consummation of
acquisitions of leasing companies or portfolios. An inability by the Company to
identify suitable acquisition candidates or portfolios, or to complete
acquisitions on favorable terms, could limit the Company's ability to grow its
business. Any major acquisition would require a significant portion of the
Company's resources. The timing, size and success, if at all, of the Company's
acquisition efforts and any associated capital commitments cannot be readily
predicted. The Company may finance future acquisitions by using shares of its
Common Stock, cash or a combination of the two. Any acquisition made by the
Company using Common Stock would result in dilution to existing stockholders of
the Company. If the Common Stock does not maintain a sufficient market value, or
if potential acquisition candidates are otherwise unwilling to accept Common
Stock as part or all of the consideration for the sale of their businesses, the
Company may be required to utilize more of its cash resources, if available, or
to incur additional indebtedness in order to initiate and complete acquisitions.
Additional debt, as well as the potential amortization expense related to
goodwill and other intangible assets incurred as a result of any such
acquisition, could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, certain of the
Company's Credit Facilities and Subordinated Debt agreements contain financial
covenants that do not permit the issuance of any shares of its capital stock if,
after giving effect to such issuance, certain shareholders of the Company cease
to own or control specified percentages of voting capital stock of the Company.
These provisions could prevent the Company from making an acquisition using
shares of its Common Stock as consideration. See "Use of Proceeds,"
"Management's Discussion and Analysis of Results of Operations -- Liquidity and
Capital Resources" and "Description of Certain Indebtedness."
The Company also may experience difficulties in the assimilation of the
operations, services, products and personnel of acquired companies, an inability
to sustain or improve the historical revenue levels of acquired companies, the
diversion of management's attention from ongoing business operations, and the
potential loss of key employees of such acquired companies. Any of the foregoing
could have a material adverse effect on the Company's business, financial
condition or results of operations.
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a large extent upon the abilities and
continued efforts of Peter R. Bleyleben, President and Chief Executive Officer
and Richard Latour, Executive Vice President, Chief Operating Officer and Chief
Financial Officer, and its other senior management. The Company has entered into
employment agreements with its two principal executive officers. As required by
the Company's Subordinated Note Agreements (as hereinafter defined), the Company
maintains a key man life insurance policy of $1.5 million on Dr. Bleyleben. The
Company currently intends to continue such policy even if no longer required to
do so under the terms of such agreements. The Company also maintains a $500,000
key man life insurance policy on Mr. Latour. The loss of the services of one or
more of the key members of the Company's senior management before the Company is
able to attract and retain qualified replacement personnel could have a material
adverse effect on the Company's financial condition and results of operations.
In addition, certain of the Company's Credit Facilities and Subordinated Debt
agreements contain financial covenants that do not permit the issuance of any
shares of its capital stock if, after giving effect to such
12
<PAGE> 14
issuance, certain shareholders of the Company, including Dr. Bleyleben, cease to
own or control specified percentages of voting capital stock of the Company. In
addition, under certain of the Company's Subordinated Debt agreements, the
Company has agreed that Dr. Bleyleben and Mr. Latour must remain as Chief
Executive Officer and Chief Financial Officer, respectively, of the Company. The
Company's failure to comply with these covenants could have a material adverse
effect on the Company's business, financial condition or results of operations.
See "Management" and "Description of Certain Indebtedness."
CONTROL BY EXISTING SHAREHOLDERS; CERTAIN ANTI-TAKEOVER PROVISIONS
Upon completion of the Offering, Dr. Bleyleben, Brian E. Boyle and Torrence
C. Harder and their respective affiliates will beneficially own approximately
41.0% of the outstanding Common Stock (approximately 38.0% of the outstanding
Common Stock assuming full exercise of the Underwriters' over-allotment option).
As a result, these stockholders, if they act as a group, will likely be able to
control substantially all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions, which
may have the effect of discouraging certain types of transactions involving an
actual or potential change of control of the Company. See "Management,"
"Principal Stockholders" and "Description of Common Stock."
The Company's Restated Articles of Incorporation (the "Articles") and
Bylaws ("Bylaws") contain certain provisions that may have the effect of
discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals that a stockholder might consider favorable,
including (i) provisions authorizing the issuance of "blank check" preferred
stock, (ii) providing for a Board of Directors with staggered terms, (iii)
requiring super-majority or class voting to effect certain amendments to the
Articles and Bylaws and to approve certain business combinations, (iv) limiting
the persons who may call special stockholders' meetings and (v) establishing
advance notice requirements for nominations for election to the Board of
Directors or for proposing matters that can be acted upon at stockholders'
meetings. In addition, certain provisions of Massachusetts law to which the
Company is subject may have the effect of discouraging, delaying or preventing a
change in control of the Company or unsolicited acquisition proposals. See
"Description of Capital Stock -- Massachusetts Law and Certain Charter
Provisions."
EFFECT OF SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK
Sales of a substantial number of shares of Common Stock in the public
market following the Offering, or the perception that such sales could occur,
could adversely affect the market price for the Common Stock. Upon completion of
the Offering, the Company will have 13,332,766 shares of Common Stock
outstanding. The 4,000,000 shares of Common Stock offered hereby will be freely
tradeable without restriction or further registration under the Securities Act,
except for shares sold by persons deemed to be "affiliates" of the Company or
acting as "underwriters," as those terms are defined in the Securities Act.
Beginning 90 days after the date of this Prospectus, all of the remaining shares
of Common Stock that are not subject to the 180-day lock-up period described
below will be freely tradeable by holders thereof. Following the expiration of
the lock-up period, all of the remaining outstanding shares of Common Stock will
be freely tradeable subject to the restrictions on resale imposed upon
"affiliates" by Rule 144 under the Securities Act. See "Shares Eligible for
Future Sale" and "Underwriting."
The Company, the Selling Stockholders and the executive officers and
directors of the Company have agreed that, for a period of 180 days following
the date of this Prospectus, they will neither issue nor sell any shares of
Common Stock or securities convertible into, or exercisable for, such stock,
held by them now or in the future, without the prior written consent of Piper
Jaffray Inc. See "Underwriting."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public trading market for the
Common Stock. There can be no assurance that an active market for the Common
Stock will develop upon completion of the Offering or, if developed, that such
market will be sustained. The initial public offering price of the Common Stock
was determined through negotiations between the Company and the Underwriters
based upon several factors and
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<PAGE> 15
may bear no relationship to the Company's assets, book value, results of
operations or net worth or any other generally accepted criteria of value and
should not be considered as indicative of the actual value of the Company. For
information relating to the factors considered in determining the initial public
offering price, see "Underwriting." The price at which the Common Stock will
trade in the public market after the Offering may be less than the initial
public offering price. In addition, the trading price of the Common Stock may be
influenced by a number of factors, including the liquidity of the market for the
Common Stock, investor perceptions of the Company and the equipment financing
industry in general, variations in the Company's quarterly operating results,
interest rate fluctuations, variations in financial estimates by securities
analysts and general economic and other conditions. Moreover, the stock market
recently has experienced significant price and value fluctuations, which have
not necessarily been related to corporate operating performance. The volatility
of the stock market could adversely affect the market price of the Common Stock
and the ability of the Company to raise equity in the public markets.
SUBSTANTIAL DILUTION INCURRED BY INVESTORS
Investors in the Common Stock offered hereby will experience immediate and
substantial dilution in net tangible book value per share of $9.47. See
"Dilution." If the Company issues additional Common Stock in the future,
including shares which may be issued pursuant to option grants and future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of the Common Stock.
CHANGE IN DIVIDEND POLICY
The Company has paid quarterly cash dividends on the Common Stock since the
second quarter of 1995. However, there can be no assurance as to the amount and
timing of payment of future dividends. The decision as to the amount and timing
of future dividends paid by the Company, if any, will be made at the discretion
of the Company's Board of Directors in light of the financial condition, capital
requirements, earnings and prospects of the Company and any restrictions under
the Company's Credit Facilities and agreements governing the Subordinated Debt,
as well as other factors the Board of Directors may deem relevant. See "Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995 (the "Reform
Act")). The "safe harbor" protections of the Reform Act are not available to
initial public offerings, including this Offering. Discussions containing such
forward-looking statements may be found in the material set forth under
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as within the
Prospectus generally. In addition, when used in this Prospectus, the words
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other important factors include, among others: the
Company's dependence on POS authorization systems and expansion into new
markets; the Company's significant capital requirements; risks associated with
economic downturns; higher interest rates; intense competition; risks associated
with acquisitions; and other factors included in this Prospectus. The Company
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained in this Prospectus to
reflect any change in the Company's expectations with regard thereto or any
change in events, conditions or circumstances on which any such statement is
based. In light of these risks and uncertainties, there can be no assurance that
the forward-looking information contained in this Prospectus will in fact
transpire.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby will be approximately $46.2 million (assuming an initial public
offering price of $15.00 per share, the mid-point of the range of estimated
initial public offering prices), after deducting the estimated underwriting
discount and offering expenses payable by the Company. The following table sets
forth the approximate amounts to be used by the Company for each specified
purpose:
<TABLE>
<CAPTION>
USE OF PROCEEDS AMOUNT
- --------------- ------
(DOLLARS IN MILLIONS)
<S> <C>
Repayment of junior subordinated notes(1)................... $10.3
Repayment of senior subordinated debt(2).................... 9.5
Repayment of Credit Facilities (2)(3)....................... 26.4
-----
Total(4).................................................... $46.2
=====
</TABLE>
- ---------------
(1) The Company's junior subordinated notes (the "Junior Subordinated Notes")
were issued in private placements to a number of individual investors. The
Junior Subordinated Notes have maturities ranging from April 1, 1999 to
December 1, 2003 and bear interest at rates ranging from 8.0% to 12.0% per
annum at December 31, 1998. The Company has borrowed $1.3 million principal
amount of the Junior Subordinated Notes since December 31, 1997, with
proceeds thereof used for general corporate purposes, including the funding
of leases, contracts and loans which were not otherwise eligible for funding
under the Company's Credit Facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Description of
Certain Indebtedness" and Note E to the Company's consolidated financial
statements included elsewhere in this Prospectus.
(2) This amount is based on the Company's expectations under current market
conditions. If market conditions at the time of consummation of the Offering
are substantially different than management's expectations, the Company may
choose to use proceeds otherwise earmarked for repayment of senior
subordinated debt to repay amounts outstanding under the Credit Facilities.
As of December 31, 1998, the Company had (a) $4.5 million outstanding under
its subordinated note with Massachusetts Mutual Life Insurance Company, all
of which bears interest at a fixed rate of 12.0% per annum and matures on
July 15, 2001, (b) $4.6 million outstanding under its subordinated note with
Rothschild Inc., all of which bears interest at a fixed rate of 12.25% per
annum and matures on October 1, 2001 and (c) $5.0 million outstanding under
its subordinated note with Aegon Insurance Group, all of which bears
interest at a fixed rate of 12.6% per annum and matures on October 15, 2003.
None of such indebtedness was incurred within one year.
(3) The Company intends to use the remaining net proceeds of the Offering to
repay amounts outstanding under its Credit Facilities (other than $17.5
million principal amount subject to a fixed rate swap agreement which would
not be repaid with proceeds of the Offering). As of December 31, 1998, the
Company had $39.3 million in revolving credit and term loans outstanding
under its facility led by Fleet Bank, N.A. and, excluding the amount subject
to the swap agreement, $5.9 million in revolving credit and term loans
outstanding under its facility led by BankBoston, N.A. Of these amounts,
$3.7 million is a term loan which bears interest at a fixed rate of 7.75%
per annum and matures on August 2, 1999; and $41.5 million is a revolving
credit loan which bears interest at the prime or base rate of each of the
agent banks and which converts to a term loan on July 31, 1999 (the
"Commitment Termination Date") that matures no later than the fourth
anniversary of the Commitment Termination Date as to $35.6 million principal
amount and no later than the second anniversary of the Commitment
Termination Date as to $5.9 million principal amount. See "Description of
Certain Indebtedness" and Note E to the Company's consolidated financial
statements included elsewhere in this Prospectus.
(4) While the Company currently does not intend to use the net proceeds from the
Offering or existing resources to consummate acquisitions, the Company
intends, as part of its business strategy, to evaluate future acquisitions
of leasing companies or lease portfolios, and may use a portion of the net
proceeds from the Offering to make such acquisitions. The Company presently
is not negotiating, nor does it have any agreements or understandings, to
make any such acquisitions. See "Business -- Strategy."
15
<PAGE> 17
DIVIDEND POLICY
The Company has paid quarterly cash dividends on the Common Stock since the
second quarter of 1995. The following table sets forth the cash dividends per
share paid by the Company for the periods indicated, all as adjusted to give
effect to the 1997 Stock Split and the 1999 Stock Split:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
(AMOUNT PER SHARE)
<S> <C> <C> <C>
First Quarter............................................ $0.020 $0.025 $0.030
Second Quarter........................................... 0.025 0.030 0.035
Third Quarter............................................ 0.025 0.030 0.035
Fourth Quarter........................................... 0.025 0.030 0.035
</TABLE>
The Company currently intends to continue payment of dividends following
consummation of the Offering. Provisions in certain of the Company's Credit
Facilities and agreements governing the Subordinated Debt contain, and the terms
of any indebtedness issued by the Company in the future are likely to contain,
certain restrictions on the payment of dividends on the Common Stock. The
decision as to the amount and timing of future dividends paid by the Company, if
any, will be made at the discretion of the Company's Board of Directors in light
of the financial condition, capital requirements, earnings and prospects of the
Company and any restrictions under the Company's Credit Facilities or
Subordinated Debt agreements, as well as other factors the Board of Directors
may deem relevant, and there can be no assurance as to the amount and timing of
payment of future dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources", "Description of Certain Indebtedness" and "Risk Factors -- Change in
Dividend Policy."
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 on an actual basis and as adjusted to give effect to the sale
of the shares of Common Stock offered hereby (at an assumed offering price of
$15.00 per share, the mid-point of the range of estimated initial public
offering prices) and the application of the estimated net proceeds therefrom.
The table should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
ACTUAL AS ADJUSTED(1)
(DOLLARS IN THOUSANDS) ------ --------------
<S> <C> <C>
Debt:
Notes payable............................................. $132,104 $105,704
Subordinated notes payable................................ 25,288 5,488
-------- --------
Total debt............................................. 157,392 111,192
-------- --------
Redeemable convertible preferred stock(2)................... -- --
Stockholders' equity:
Common Stock $0.01 par value per share, 25,000,000 shares
authorized; 9,886,516 shares issued and outstanding;
and 13,306,116 shares issued and outstanding, after
giving effect to the Offering(2)(3).................... 99 133
Additional paid-in capital................................ 1,764 47,930
Retained earnings......................................... 25,838 25,838
Treasury stock............................................ (138) (138)
Notes receivable from officers and employees.............. (268) (268)
-------- --------
Total stockholders' equity............................. 27,295 73,495
-------- --------
Total capitalization.............................. $184,687 $184,687
======== ========
</TABLE>
- ---------------
(1) As adjusted reflects (i) the use of approximately $19.8 million of the net
proceeds of the Offering to repay amounts outstanding under the Company's
subordinated indebtedness and (ii) the use of $26.4 million of the net
proceeds of the Offering to repay amounts outstanding under the Company's
Credit Facilities.
(2) Actual amount of redeemable convertible preferred stock is $490.00. This
preferred stock will convert automatically into 19,600 shares of Common
Stock upon consummation of the Offering. "As Adjusted" includes such shares
of Common Stock as if such conversion had occurred on September 30, 1998.
(3) Shares issued and outstanding do not include an aggregate of 147,030 shares
of Common Stock reserved for issuance upon exercise of stock options at
exercise prices of $0.6375 and $1.95, outstanding as of September 30, 1998,
26,650 of which were exercised between October 1, 1998 and December 31, 1998
and 6,682 of which are subject to options which are exercisable within 60
days of the date of this Prospectus. See "Management -- Stock Option Plans"
and "Description of Capital Stock." Common Stock issued and outstanding
excludes 142,590 shares held in the Company's treasury as of September 30,
1998.
17
<PAGE> 19
DILUTION
Dilution per share to new investors represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the net tangible book value per share of Common Stock offered hereby
immediately after completion of the Offering. Net tangible book value per share
represents the amount of the Company's stockholders' equity, less intangible
assets, divided by the 9,886,516 million shares of Common Stock outstanding as
of September 30, 1998 (not including treasury stock).
The net tangible book value of the Company as of September 30, 1998 was
approximately $27.3 million, or $2.76 per share of Common Stock. After giving
effect to the sale of the Common Stock by the Company at an assumed initial
public offering price of $15.00 per share (the mid-point of the range of
estimated initial public offering prices) and after deduction of the
underwriting discount and estimated expenses of the Offering payable by the
Company and the application of the estimated net proceeds of the Offering, the
adjusted pro forma net tangible book value, as of September 30, 1998, would have
been approximately $73.5 million or $5.53 per share of Common Stock. This
represents an immediate increase in net tangible book value of $2.77 per share
to existing stockholders and an immediate dilution of $9.47 per share to new
investors purchasing the Common Stock in the Offering. The following table
illustrates the pro forma per share dilution, as of September 30, 1998:
<TABLE>
<S> <C>
Initial public offering price per share..................... $15.00
Net tangible book value per share at September 30, 1998..... 2.76
Increase per share attributable to new investors............ 2.77
Pro forma net tangible book value per share after the
Offering.................................................. 5.53
Net tangible book value dilution per share to new
investors................................................. 9.47
</TABLE>
The following table sets forth, as of September 30, 1998 after giving
effect to the Offering, the number of shares of Common Stock purchased from the
Company, the total consideration paid therefor and the average price per share
paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........... 9,886,516 74.4% $ 1,905,949 3.6% $ 0.19
New investors(1)................... 3,400,000 25.6 51,000,000 96.4 15.00
---------- ----- ----------- ----- ------
Total.................... 13,286,516 100.0% $52,905,949 100.0% $ 3.98
========== ===== =========== ===== ======
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders will reduce the number of shares of Common
Stock held by existing stockholders to 9,286,516, or 69.9% of the total
number of shares to be outstanding after the Offering, and will increase the
number of shares to be purchased by new investors to 4,000,000, or 30.1% of
the total number of shares of Common Stock to be outstanding after the
Offering. See "Principal Stockholders" and "Selling Stockholders."
The foregoing tables (i) exclude an aggregate of 26,650 shares of Common
Stock issued after September 30, 1998 pursuant to the exercise of stock options
granted under the Company's 1987 Stock Option Plan for an aggregate
consideration of $51,968; and (ii) assume no conversion of the Company's
outstanding Series C Preferred Stock, $1.00 par value (the "Series C Preferred
Stock") into 19,600 shares of Common Stock upon consummation of the Offering.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected consolidated financial and operating
data of the Company and its subsidiaries as of and for each of the years in the
five-year period ended December 31, 1997 and as of September 30, 1998, and for
the nine months ended September 30, 1997 and 1998. The selected consolidated
financial and certain other data as of December 31, 1993, 1994, 1995, 1996 and
1997, and for each of the years in the five-year period ended December 31, 1997,
have been derived from consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants. The Company's selected
consolidated financial and operating data as of September 30, 1998 and for the
nine months ended September 30, 1997 and 1998, are based on the Company's
unaudited consolidated financial statements which include all adjustments that,
in the opinion of the Company's management, are necessary for a fair
presentation of the results at such dates and for such respective interim
periods. The results of operations for the nine months ended September 30, 1998
are not necessarily indicative of the results expected for fiscal year 1998 or
any interim period. The as adjusted balance sheet data assume that the issuance
and sale of shares of Common Stock offered hereby by the Company at $15.00 per
share (the mid-point of the range of estimated initial public offering prices)
and the application of the net proceeds therefrom as described in "Use of
Proceeds" occurred on September 30, 1998. The selected consolidated financial
and operating data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company and related
notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
INCOME STATEMENT DATA: ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Income on financing leases and loans................ $10,840 $15,949 $27,011 $38,654 $45,634 $33,900 $35,285
Income on service contracts(1)...................... -- -- -- 6 501 87 1,557
Rental income....................................... 1,329 2,058 3,688 8,250 10,809 8,104 11,153
Fee income(2)....................................... 2,576 3,840 5,446 8,675 11,236 8,104 7,837
------- ------- ------- ------- ------- ------- -------
Total revenues.................................... 14,745 21,847 36,145 55,585 68,180 50,195 55,832
------- ------- ------- ------- ------- ------- -------
EXPENSES
Selling, general and administrative................. 2,689 4,975 8,485 14,073 17,252 12,558 14,284
Provision for credit losses......................... 5,753 8,179 13,388 19,822(3) 21,713(3) 15,601 12,568
Depreciation and amortization....................... 602 827 1,503 2,981 3,787 2,701 3,867
Interest............................................ 3,598 5,009 8,560 10,163 11,890 8,891 9,198
------- ------- ------- ------- ------- ------- -------
Total expenses.................................... 12,642 18,990 31,936 47,039 54,642 39,751 39,917
------- ------- ------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES.............. 2,103 2,857 4,209 8,546 13,538 10,444 15,915
NET INCOME............................................ 1,325(4) 1,643 2,524 5,080 7,652 6,199 9,460
======= ======= ======= ======= ======= ======= =======
NET INCOME PER COMMON SHARE
Basic(5)............................................ $ 0.27 $ 0.33 $ 0.34 $ 0.52 $ 0.78 $ 0.63 $ 0.96
Diluted(6).......................................... 0.15 0.19 0.27 0.52 0.76 0.62 0.94
DIVIDENDS PER COMMON SHARE............................ -- -- 0.06 0.10 0.12 0.09 0.10
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1998 AS
1993 1994 1995 1996 1997 1998 ADJUSTED
BALANCE SHEET DATA: ---- ---- ---- ---- ---- ---- --------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Gross investment in leases and loans(7)........ $ 69,561 $115,286 $189,698 $247,633 $258,230 $273,148 $273,148
Unearned income................................ (19,952) (33,807) (60,265) (76,951) (73,060) (73,742) (73,742)
Allowance for credit losses.................... (4,778) (7,992) (15,952) (23,826) (26,319) (24,423) (24,423)
Investment in service contracts(1)............. -- -- -- -- 2,145 7,412 7,412
Total assets............................... 50,810 83,484 126,479 170,192 179,701 208,767 208,767
Notes payable.................................. 37,747 57,594 94,900 116,202 116,830 132,104 105,704(8)
Subordinated notes payable..................... 5,394 13,436 13,170 27,006 26,382 25,288 5,488(8)
Total liabilities.......................... 45,041 77,652 118,568 158,013 160,935 181,472 135,272
Total stockholders' equity................. 5,687 5,750 7,911 12,179 18,766 27,295 73,495
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
OTHER DATA: ---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT STATISTICAL DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Total leases and loans originated(9).... $ 43,209 $ 85,627 $134,546 $143,200 $129,064 $ 95,597 $112,158
Total service contracts acquired(10).... -- -- 3,635 2,431 2,972 1,660 6,298
Dealer fundings(11)..................... $ 26,213 $ 52,745 $ 76,502 $ 73,659 $ 77,590 $ 56,767 $ 76,710
Average yield on leases and loans(12)... 30.0% 29.9% 30.7% 32.4% 33.9% 33.3% 35.4%
Cash flows from (used in):
Operating activities.................... $ 17,660 $ 26,288 $ 41,959 $ 60,104 $ 77,393 $ 53,054 $ 69,641
Investing activities.................... (26,182) (51,528) (76,353) (86,682) (80,127) (58,533) (78,222)
Financing activities.................... 9,502 27,803 36,155 33,711 (1,789) 1,498 12,786
-------- -------- -------- -------- -------- -------- --------
Total................................. 980 2,563 1,761 7,133 (4,523) (3,981) 4,205
Selected Ratios:
Return on average assets(13)............ 2.96% 2.45% 2.40% 3.42% 4.37% 4.74% 6.49%
Return on average
stockholders' equity(13).............. 29.82 28.73 36.95 50.57 49.46 55.46 54.77
Operating margin(14).................... 53.28 50.51 48.68 51.04 51.70 51.89 51.02
Credit Quality Statistics:
Net charge-offs......................... $ 4,033 $ 4,961 $ 5,428 $ 11,948(15) $ 19,220(15) $ 17,082 $ 14,464
Net charge-offs as a percentage of average
gross investment(13)(16).............. 6.46% 5.37% 3.56% 5.46%(15) 7.57%(15) 8.58% 7.13%
Provision for credit losses as a percentage
of average gross investment(13)(17)... 9.21 8.85 8.78 9.07 8.55 7.83 6.20
Allowance for credit losses as a percentage
of gross investment(18)............... 6.87 6.93 8.41 9.62 10.14 8.78 8.94
</TABLE>
- ---------------
(1) The Company began acquiring fixed-term service contracts in 1995. Until
December 1996, the Company treated these fixed-term contracts as leases for
accounting purposes. Accordingly, income from these service contracts is
included in income on financing leases and loans for all periods prior to
December 1996 and investments in service contracts were recorded as
receivables due in installments on the balance sheet at December 31, 1995
and 1996. Beginning in December 1996, the Company began acquiring
month-to-month service contracts, the income from which is included as a
separate category in the Consolidated Statements of Operations and the
investment in which are recorded separately on the balance sheet.
(2) Includes loss and damage waiver fees and service fees.
(3) The provision for 1996 includes $5.0 million resulting from a reduction in
the time period for charging off the Company's receivables from 360 to 240
days. The provision for 1997 includes a one-time write-off of securitized
receivables of $9.5 million and $5.1 million in write-offs of satellite
television equipment receivables.
(4) 1993 excludes a $1.3 million cumulative increase in net income as a result
of the Company's adoption of Statement of Financial Accounting Standards
No. 109 (Accounting for Income Taxes). Prior to 1993, the Company accounted
for income taxes under the deferred method.
(5) Net income per common share (basic) is calculated based on weighted average
common shares outstanding of 4,994,296, 5,003,880, 7,352,189, 9,682,851,
9,793,140, 9,791,212 and 9,849,602 for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 and the nine months ended September 30, 1997 and
1998, respectively.
(6) Net income per common share (diluted) is calculated based on weighted
average common shares outstanding on a diluted basis of 9,120,355,
8,713,065, 9,448,206, 9,770,613, 9,925,329, 10,005,028 and 10,031,974 for
the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998, respectively.
(7) Consists of receivables due in installments, estimated residual value, and
loans receivable.
(8) As adjusted reflects (i) the use of approximately $19.8 million of the net
proceeds of the Offering to repay amounts outstanding under the Company's
Subordinated Debt and (ii) the use of $26.4 million of the net proceeds of
the Offering to repay amounts outstanding under the Company's Credit
Facilities.
(9) Represents the amount paid to Dealers upon funding of leases and loans plus
the associated unearned income.
(10) Represents the amount paid to Dealers upon the acquisition of service
contracts, including both non-cancelable service contracts and
month-to-month service contracts.
(11) Represents the amount paid to Dealers upon funding of leases, contracts and
loans.
(12) Represents the aggregate of the implied interest rate on each lease and
loan originated during the period weighted by the amount funded at
origination for each such lease and loan.
(13) Quarterly amounts are annualized.
(14) Represents income before provision for income taxes and provision for
credit losses as a percentage of total revenues.
(15) Charge-offs in 1996 and 1997 were higher due to write-offs related to
satellite television equipment lease receivables and due to a change in the
write-off period from 360 days to 240 days in the third quarter of 1996.
See "Business -- Exposure to Credit Losses."
(16) Represents net charge-offs as a percentage of average gross investment in
leases and loans and investment in service contracts.
(17) Represents provision for credit losses as a percentage of average gross
investment in leases and loans and investment in service contracts.
(18) Represents allowance for credit losses as a percentage of gross investment
in leases and loans and investment in service contracts.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
Certain matters discussed below are forward-looking statements that involve
substantial risks and uncertainties that could cause actual results to differ
materially from targets or projected results. Factors that could cause actual
results to differ materially include, among others, those factors described in
"Risk Factors." Many of these factors are beyond the Company's ability to
predict or control. Prospective investors are cautioned not to put undue
reliance on forward-looking statements, which statements have been made as of
the date of this Prospectus, after which date there may have been changes in the
affairs of the Company that would warrant modification of forward-looking
statements made herein. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained in this Prospectus to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this Prospectus will in fact transpire.
GENERAL
The Company is a specialized commercial finance company that provides
"microticket" equipment leasing and other financing services in amounts
generally ranging from $900 to $2,500, with an average amount financed of
approximately $1,400. The Company primarily leases POS authorization systems and
other small business equipment to small commercial enterprises. For the nine
months ended September 30, 1998 and the year ended December 31, 1997, the
Company had fundings to Dealers upon origination of leases, contracts and loans
("Dealer Fundings") of $76.7 million and $77.6 million, respectively, and
revenues of $55.8 million and $68.2 million, respectively.
The Company derives the majority of its revenues from leases originated and
held by the Company, payments on service contracts, rental payments from lessees
who continue to rent the equipment beyond the original lease term, and fee
income. The Company funds the majority of leases, contracts and loans through
its Credit Facilities and on-balance sheet Securitizations, and to a lesser
extent, its Subordinated Debt program and internally generated funds.
In a typical lease transaction, the Company originates leases through its
network of independent Dealers. Upon approval of a lease application by the
Company and verification that the lessee has both received the equipment and
signed the lease, the Company pays the Dealer the cost of the equipment plus the
Dealer's profit margin. In a typical transaction for the acquisition of service
contracts, a homeowner purchases a security system and simultaneously signs a
contract with the Dealer for the monitoring of that system for a monthly fee.
Upon credit approval of the monitoring application and verification with the
homeowner that the system is installed, the Company purchases from the Dealer
the right to the payment stream under that monitoring contract at a negotiated
multiple of the monthly payments.
Substantially all leases originated or acquired by the Company are
non-cancelable. During the term of the lease, the Company is scheduled to
receive payments sufficient, in the aggregate, to cover the Company's borrowing
costs and the costs of the underlying equipment, and to provide the Company with
an appropriate profit. The Company enhances the profitability of its leases,
contracts and loans by charging late fees, prepayment penalties, loss and damage
waiver fees and other service fees, when applicable. The initial non-cancelable
term of the lease is equal to, or less than, the equipment's estimated economic
life, and often provides the Company with additional revenues based on the
residual value of the equipment financed at the end of the initial term of the
lease. Initial terms of the leases in the Company's portfolio generally range
from 12 to 48 months, with an average initial term of 45 months as of September
30, 1998. Substantially all service and rental contracts are month-to-month
contracts with an expected term of seven years for service contracts and 15
months for rental contracts.
21
<PAGE> 23
CERTAIN ACCOUNTING CONSIDERATIONS
The Company's lease contracts are accounted for as financing leases. At
origination, the Company records the gross lease receivable, the estimated
residual value of the leased equipment, initial direct costs incurred and the
unearned lease income. Unearned lease income is the amount by which the gross
lease receivable plus the estimated residual value exceeds the cost of the
equipment. Unearned lease income and initial direct costs incurred are amortized
over the related lease term using the interest method. Amortization of unearned
lease income and initial direct costs is suspended if, in the opinion of
management, full payment of the contractual amount due under the lease agreement
is doubtful. In conjunction with the origination of leases, the Company may
retain a residual interest in the underlying equipment upon termination of the
lease. The value of such interests is estimated at inception of the lease and
evaluated periodically for impairment. Other revenues such as loss and damage
waiver fees, service fees relating to the leases, contracts and loans and rental
revenues are recognized as they are earned.
The Company's investments in cancelable service contracts are recorded at
cost and amortized over the expected life of the service period. Income on
service contracts from monthly billings is recognized as the related services
are provided. The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or recoverability of the
investment in service contracts. Rental equipment is recorded at estimated
residual value and depreciated using the straight-line method over a period of
twelve months. Loans are reported at their outstanding principal balance.
Interest income on loans is recognized as it is earned.
The Company maintains an allowance for credit losses on its investment in
leases, service contracts and loans at an amount that it believes is sufficient
to provide adequate protection against losses in its portfolio. The allowance is
determined principally on the basis of the historical loss experience of the
Company and the level of recourse provided by such lease, service contract or
loan, if any, and reflects management's judgment of additional loss potential
considering future economic conditions and the nature and characteristics of the
underlying lease portfolio. The Company determines the necessary periodic
provision for credit losses taking into account actual and expected losses in
the portfolio as a whole and the relationship of the allowance to the net
investment in leases, service contracts and loans. Such provisions generally
represent a percentage of funded amounts of leases, contracts and loans. The
resulting charge is included in the provision for credit losses.
Leases, service contracts, and loans are charged against the allowance for
credit losses and are put on non-accrual when they are deemed to be
uncollectible. Generally, the Company deems leases, service contracts and loans
to be uncollectible when one of the following occur: (i) the obligor files for
bankruptcy; (ii) the obligor dies and the equipment is returned; or (iii) when
an account has become 360 days delinquent. The typical monthly payment under the
Company's leases is between $30 and $50 per month. As a result of these small
monthly payments, the Company's experience is that lessees will pay past due
amounts later in the process because of the small amount necessary to bring an
account current (at 360 days past due, a lessee will only owe lease payments of
between $360 and $600).
The Company has developed and regularly updates proprietary credit scoring
systems designed to improve its risk based pricing. The Company uses credit
scoring in most, but not all, of its extensions of credit. In addition, the
Company aggressively employs collection procedures and a legal process to
resolve any credit problems.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Total revenues for the nine months ended September 30, 1998 were $55.8
million, an increase of $5.6 million, or 11.2%, from the nine months ended
September 30, 1997, due primarily to increases of $1.4 million, or 4.1%, in
income on financing leases and loans and $4.5 million, or 55.2%, in rental and
service contract income over such amounts in the previous year's period. The
increase in income on financing leases and loans was due to the continued growth
in the Company's lease and loan portfolio. The increase in rental and service
22
<PAGE> 24
contract income was due to an increase in the number of lessees that have
continued renting the equipment beyond the original lease term and the increase
in the number of service contracts in the Company's portfolio.
Selling, general and administrative expenses increased $1.7 million, or
13.7%, for the nine-month period ended September 30, 1998 as compared to the
same period in 1997. Such increase was primarily attributable to an increase in
personnel resulting in a 19.9% increase in employee-related expenses, as the
number of employees needed to maintain and manage the Company's increased
portfolio and the general expansion of the Company's operations increased.
Management expects that salaries and employee-related expenses, marketing
expenses and other selling, general and administrative expenses will continue to
increase as the portfolio grows due to the nature of the maintenance of the
Company's microticket portfolio and the Company's focus on collections.
The Company's provision for credit losses decreased $3.0 million from the
nine months ended September 30, 1997 to $12.6 million for the nine months ended
September 30, 1998, primarily due to an increase in recoveries. This decrease
was the result of the Company's estimate of future losses. See
"Business -- Exposure to Credit Losses."
Depreciation and amortization expense increased by $1.2 million, or 43.2%,
due to the increased number of rental contracts and the amortization of the
investment associated with service contracts.
Interest expense increased by $307,000, or 3.5%, from $8.9 million for the
nine months ended September 30, 1997 to $9.2 million for the nine months ended
September 30, 1998 due to an increase in the average outstanding balance of the
Company's Credit Facilities.
As a result of these factors, net income increased by $3.3 million, or
52.6%, from $6.2 million for the nine months ended September 30, 1997 to $9.5
million for the nine months ended September 30, 1998.
Dealer Fundings were $76.7 million during the nine months ended September
30, 1998, an increase of $19.9 million, or 35.1%, compared to the nine months
ended September 30, 1997. This increase primarily resulted from continued growth
in leases of equipment other than POS authorization systems, acquisitions of
service contracts and loans to commercial businesses. Receivables due in
installments, estimated residual values and loans receivable ("gross investment
in leases and loans") also increased from $254.1 million at September 30, 1997
to $273.1 million at September 30, 1998, representing a 7.5% increase. Cash
collections increased by $17.4 million to $102 million during the first nine
months of 1998, or 20.6%, from the first nine months of 1997 due to the increase
in the size of the Company's overall portfolio as well as the Company's
continued emphasis on collections. Unearned income decreased $300,000, or 0.4%,
from $74.0 million at September 30, 1997 to $73.7 million at September 30, 1998.
This decrease resulted primarily from increased acquisitions of service
contracts and originations of loans which are accounted for on a cost basis and
as a result do not have any unearned income associated with them.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Total revenues for the year ended December 31, 1997 were $68.2 million, an
increase of $12.6 million, or 22.7%, from the year ended December 31, 1996, due
to increases of $7.0 million, or 18.1%, in income on financing leases and loans,
$2.6 million, or 31.0%, in rental income and $2.6 million, or 29.5%, in fee
income. The increase in income on leases and loans was primarily the result of
the continued growth in the Company's lease portfolio. The increase in rental
income is due to the increased number of lessees who continued to rent the
equipment beyond the original lease term. The increase in fee income was a
result of the increase in the overall portfolio serviced by the Company.
The Company completed two portfolio acquisitions, one in May 1996 for $1.9
million of rental contracts and a second in December 1996 for $7.9 million of
leases. The income attributable to these acquired leases and rental contracts
represented approximately $2.2 million, or 4.7%, of total income on leases and
loans and rental income for 1996 and approximately $4.4 million, or 7.8%, of
total income on leases and loans and rental income for 1997.
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<PAGE> 25
Selling, general and administrative expenses increased $3.2 million, or
22.6%, for the year ended December 31, 1997 as compared to the year ended
December 31, 1996. Such increase was primarily attributable to a 20% increase in
the number of employees needed to maintain and manage the Company's increased
portfolio, the general expansion of the Company's operations and the more
competitive employment environment.
The Company's provision for credit losses increased by $1.9 million, or
9.5%, from $19.8 million in 1996 to $21.7 million in 1997. The higher provision
was due to a one-time write-off of securitized receivables of $9.5 million, $5.1
million in one-time write-offs of satellite television equipment receivables and
growth in the overall size of the Company's portfolio. The Company's 1997
provision reflected a cumulative write-off of non-accruing fully reserved
receivables in the Company's securitized portfolio. The Company wrote off the
$5.1 million in satellite television equipment receivables in 1997 sooner than
its normal 360-day policy because it was the Company's experience that certain
characteristics of consumer receivables which were different from commercial
receivables would render such receivables uncollectible under the Company's
normal collection procedures.
Depreciation and amortization expense increased by $806,000, or 27.0%, from
1996 to 1997 due to the increased number of rental contracts and the
amortization of the investment costs associated with service contracts.
Interest expense increased by $1.7 million, from $10.2 million for the year
ended December 31, 1996 to $11.9 million in 1997. This increase was primarily
due to an increase in the average outstanding balances of the Company's Credit
Facilities and Subordinated Debt.
As a result of these factors, net income increased by $2.6 million, or
50.6%, from $5.1 million in the year ended December 31, 1996 to $7.7 million in
the year ended December 31, 1997.
Dealer Fundings were $77.6 million for the fiscal year ended December 31,
1997, an increase of $3.9 million, or 5.3%, compared to $73.7 million for the
fiscal year ended December 31, 1996. The Company decided in July 1996 to scale
back its Dealer Fundings of consumer satellite television equipment leases,
funding to Dealers only $0.8 million of such leases in 1997 compared to $4.7
million in 1996. Excluding this factor, the Company had an increase in Dealer
Fundings of $7.8 million, or 11.3%, over 1996. This increase primarily resulted
from continued growth in leases of equipment other than POS authorization
systems, acquisitions of service contracts and loans to commercial businesses.
Gross investment in leases and loans also increased from $247.6 million in 1996
to $258.2 million at December 31, 1997, representing an increase of $10.6
million, or 4.3%. Cash collections increased by $31.3 million, or 35.9%, from
$87.1 million in 1996 to $118.4 million in 1997 due to the increase in the size
of the Company's overall portfolio, as well as the Company's continued emphasis
on collections. Unearned income decreased $3.9 million, or 5.1%, from $77.0
million at December 31, 1996 to $73.1 million at December 31, 1997. This
decrease resulted primarily from increased acquisitions of service contracts and
originations of loans which are accounted for on a cost basis and as a result do
not have any unearned income associated with them, as well as one-time
write-offs in 1997 of approximately $5.0 million in consumer satellite
television equipment lease receivables and $9.5 million of securitized
receivables and the corresponding unearned income associated with those leases.
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
Total revenues for fiscal year 1996 were $55.6 million, an increase of
$19.4 million, or 53.8% over fiscal year 1995, due to increases of $11.6
million, or 43.1%, in income on financing leases and loans, $4.6 million, or
123.9%, in rental income and $3.2 million, or 59.3%, in total fee income. The
increase in income on leases and loans was the result of the continued growth in
the Company's lease portfolio in 1996, while the increase in rental income was
due to the increased number of lessees who continue to rent the equipment beyond
the original lease term including as a result of two lease and rental portfolio
acquisitions with fundings of $1.9 million in May 1996 and $7.9 million in
December 1996. The income attributable to these acquired leases and rental
contracts represented approximately $2.2 million, or 4.7%, of total income on
leases and loans and rental income for 1996. Fee income increased as a result of
the continued growth in the overall portfolio serviced by the Company.
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<PAGE> 26
Selling, general and administrative expenses were $14.1 million in 1996,
representing an increase of 65.9% over such expenses in 1995, due primarily to a
34% increase in the number of personnel and the significant growth in the
Company's lease portfolio from 1995 to 1996.
The Company's provision for credit losses increased by $6.4 million from
$13.4 million in 1995 to $19.8 million in 1996. Approximately $5.0 million of
the increase was to replenish the allowance for credit losses due to the change
in the write-off period from 360 days to 240 days in the third quarter of 1996.
See "Business -- Exposure to Credit Losses."
Depreciation and amortization expense increased by $1.5 million from $1.5
million in 1995 to $3.0 million in 1996. This increase was due to the increased
number of rental contracts in the Company's portfolio.
Interest expense increased by $1.6 million, or 18.7%, from $8.6 million in
1995 to $10.2 million in 1996. This increase was primarily due to an increase in
the average outstanding balances of the Company's Credit Facilities and
Subordinated Debt.
As a result of these factors, net income increased by $2.6 million, or
101.3%, from $2.5 million for the year ended December 31, 1995 to $5.1 million
in the year ended December 31, 1996.
Dealer Fundings were $73.7 million in 1996, a decrease of $2.8 million, or
3.7%, over the $76.5 million funded during 1995. The decrease in Dealer Fundings
in 1996, excluding portfolio purchases, was primarily attributable to
management's focus on maintaining higher rates of return on POS authorization
systems, exiting the business of origination of consumer satellite television
equipment leases and performing developmental work to reposition the Company's
efforts in other commercial and residential markets, including the design of
more competitive products, a product-specific sales approach, and a renewed
focus on service contracts. Gross investment in leases and loans also increased
from $189.7 million at December 31, 1995, to $247.6 million at December 31,
1996, representing a 30.5% increase. Cash collected was $87.1 million during
1996, an increase of $26.5 million, or 43.7%, over the $60.6 million collected
in 1995. This increase was due to the increase in the size of the Company's
overall portfolio, as well as the Company's continued emphasis on collections.
Unearned income increased $16.7 million, or 27.7%, from $60.3 million at
December 31, 1995 to $77.0 million at December 31, 1996. This increase resulted
from an increase in the size of the Company's lease portfolio.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's lease and finance business is capital-intensive and requires
access to substantial short-term and long-term credit to fund new leases,
contracts and loans. Since inception, the Company has funded its operations
primarily through borrowings under its Credit Facilities, issuances of
Subordinated Debt and its on-balance sheet Securitizations. The Company will
continue to require significant additional capital to maintain and expand its
volume of leases, contracts and loans funded, as well as to fund any future
acquisitions of leasing companies or portfolios.
The Company's uses of cash include the origination and acquisition of
leases, contracts and loans, payment of interest expenses, repayment of
borrowings under its Credit Facilities, Subordinated Debt and Securitizations,
payment of selling, general and administrative expenses, income taxes and
capital expenditures.
The Company utilizes its Credit Facilities to fund the origination and
acquisition of leases that satisfy the eligibility requirements established
pursuant to each facility. At September 30, 1998, the Company had an aggregate
maximum of $140 million available for borrowing under two Credit Facilities, of
which the Company had borrowed an aggregate of approximately $97.1 million. The
Company also uses its Subordinated Debt program as a source of funding for
potential acquisitions of portfolios and leases which otherwise are not eligible
for funding under the Credit Facilities and for potential portfolio purchases.
See "Description of Certain Indebtedness" for a description of the terms of the
Credit Facilities and the Subordinated Debt. To date, cash flow from its
portfolio and other fees have been sufficient to repay amounts borrowed under
the Credit Facilities and Subordinated Debt.
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<PAGE> 27
The Company believes that cash flow from its operations, the net proceeds
to the Company of the Offering and amounts available under its Credit Facilities
will be sufficient to fund the Company's operations for the foreseeable future.
Although the Company is not currently involved in negotiations and has no
current commitments or agreements with respect to any acquisitions, to the
extent that the Company successfully consummates acquisitions, it may be
necessary to finance such acquisitions through the issuance of additional debt
or equity securities, the incurrence of indebtedness or a combination of both.
See "Risk Factors -- Dependence on External Financing."
Hedging Transactions
The implicit yield to the Company on all of its leases, contracts and loans
is on a fixed interest rate basis due to the leases, contracts and loans having
scheduled payments that are fixed at the time of origination of the lease. When
the Company originates or acquires leases, contracts and loans it bases its
pricing in part on the "spread" it expects to achieve between the implicit yield
rate to the Company on each lease and the effective interest cost it will pay
when it finances such leases, contracts and loans through its Credit Facilities.
Increases in interest rates during the term of each lease, contract or loan
could narrow or eliminate the spread, or result in a negative spread. See "Risk
Factors -- Risk of Increased Interest Rates." The Company has adopted a policy
designed to protect itself against interest rate volatility during the term of
each lease, contract or loan.
Given the relatively short average life of the Company's leases, contracts
and loans, the Company's goal is to maintain a blend of fixed and variable
interest rate obligations. As of September 30, 1998, the Company's outstanding
fixed rate indebtedness, including indebtedness outstanding under the Company's
Securitizations and indebtedness subject to the swap described below,
represented 45% of the Company's outstanding indebtedness. In July 1997, the
Company entered into an interest rate swap arrangement with one of its banks.
This arrangement, which expires in July 2000, has a notional amount of $17.5
million which represented 29.8% of the Company's fixed rate indebtedness
outstanding at September 30, 1998. The interest rate associated with the swap is
capped at 6.6%. During the term of the swap, the Company has agreed to match the
swap amount with 90-day LIBOR loans. If at any time the 90-day LIBOR rate
exceeds the swap cap of 6.6%, the bank would pay the Company the difference.
Through September 30, 1998, the Company had entered into LIBOR loans with
interest rates ranging from 7.54% to 8.19%. This arrangement effectively changes
the Company's floating interest rate exposure on the $17.5 million notional
amount to a fixed rate of 8.45%.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note B of the notes to the consolidated financial statements for a
discussion of the impact of recently issued accounting pronouncements.
YEAR 2000
Many computer programs and microprocessors were designed and developed
without consideration of the impact of the transition to the year 2000. As a
result, these programs and microprocessors may not be able to differentiate
between the year "1900" and "2000"; the year 2000 may be recognized as the
two-digit number "00". If not corrected, this could cause difficulties in
obtaining accurate system data and support.
The Company has designed and purchased numerous computer systems since its
inception. The Company's owned software and hardware is substantially Year 2000
compliant. The costs associated with such compliance will not be material to the
Company's liquidity or results of operations. The Company believes, based on
written and verbal advice from its vendors, that its critical third party
software is generally Year 2000 compliant, with minor issues, and will be
capable of functioning after December 31, 1999. However, the Company does and
will continue to interconnect certain portions of its network and systems with
other companies' networks and systems, certain of which may not be as Year 2000
compliant as those installed by the Company. While the Company has discussed
these matters with, and/or obtained written certifications from, such other
companies as to their Year 2000 compliance, there can be no assurance that any
potential impact associated with incompatible systems after December 31, 1999
would not have a material adverse effect on the Company's business, financial
condition or results of operations.
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<PAGE> 28
BUSINESS
GENERAL
The Company, which operates primarily through its wholly-owned subsidiary,
Leasecomm Corporation, is a specialized commercial finance company that leases
and rents "microticket" equipment and provides other financing services in
amounts generally ranging from $900 to $2,500, with an average amount financed
of approximately $1,400 and an average lease term of 45 months. The Company
pioneered the use of proprietary software in developing a sophisticated,
risk-adjusted pricing model and automating its credit approval and collection
systems, including a fully-automated Internet-based application, credit scoring
and approval process. This has enabled the Company to better service its dealer
network, to develop economies of scale in originating and servicing over 200,000
leases, contracts and loans and to operate on a nationwide basis in a
historically fragmented market. The majority of the Company's leases are
currently for POS authorization systems. The Company continues to develop other
product lines, including leasing other commercial products and acquiring payment
streams from service contracts.
The Company targets owner-operated or other small commercial enterprises,
with little business credit history and limited or poor personal credit history
at the owner level. The Company provides a convenient source of financing to
these lessees who may have few other sources of credit. The Company primarily
leases and rents low-priced commercial equipment with limited residual value
which is used by these lessees in their daily operations. The Company does not
market its services directly to lessees, but sources leasing transactions
through a nationwide network of over 1,100 Dealers. The Company's ability to
approve applications quickly for a wide range of credit profiles facilitates
Dealer sales, thereby enhancing the Company's relationships with its Dealers.
The Company commenced operations in 1986 and has been profitable every year
since 1987. At September 30, 1998, the Company's gross investment in leases and
loans totaled $273.1 million. The Company generated revenues and net income of
$68.2 million and $7.7 million in 1997, increases of 22.7% and 50.6%,
respectively, over those amounts in 1996. Revenues and net income for the first
nine months of 1998 totaled $55.8 million and $9.5 million, increases of 11.2%
and 52.6%, respectively, over the first nine months of 1997.
The Company capitalizes on its unique understanding of its lessees,
underwriting higher risk credits with a multi-dimensional credit scoring model
that generates risk-adjusted pricing. Additionally, the Company maintains a
disciplined and persistent approach to collections which enables the Company to
collect delinquent amounts that it believes its competitors often would not
pursue due to the perceived high costs of collecting relatively small monthly
payments against equipment with low resale value. In each of these areas, the
Company has focused on the application of technology to execute its operating
strategy by designing proprietary software and systems to operate its business
and achieve economies of scale.
STRATEGY
The Company's goal is to continue to significantly expand its business
through internal growth, diversification of product offerings and selective
acquisitions of lease portfolios and leasing companies, while maintaining or
improving current levels of profitability. The principal strategies to achieve
this goal include:
Utilizing and Enhancing its Advanced Technology and Servicing
Capabilities. The Company's business is operationally intensive, due in part to
the small average amount financed. Accordingly, technology and automated
processes are critical in keeping origination and servicing costs to a minimum,
while at the same time providing quality customer service. An example of the
Company's strategic use of technology is LeasecommDirect(TM), the Company's
Internet-based application processing, credit approval and Dealer information
tool, use of which has increased from approximately 3.5% of total applications
processed in the first quarter of 1998 to approximately 33.7% of total
applications processed in the fourth quarter of 1998. Management believes that
its proprietary data processing system efficiently manages the high volume of
information associated with originating and servicing its leases and other
financing products on a nationwide
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<PAGE> 29
basis. The Company believes this system has excess capacity which it believes
will decrease the Company's servicing costs per lease, contract and loan as
volumes increase. The Company intends to continue enhancing its proprietary data
processing system in order to ensure that its systems can be efficiently
utilized for new products as its portfolio grows.
Employing Multi-Dimensional Credit Scoring. The Company has used its
proprietary software to develop a multi-dimensional credit scoring model which
generates pricing of its leases, contracts and loans commensurate with the risk
assumed, enabling it to underwrite a broad range of credit risks. By analyzing
both the quality and amount of credit history available with respect to both
obligors and Dealers, the Company improves its ability to assess credit risk.
Emphasizing Service to Dealers. The Company has developed value-added
services that facilitate the sales of products by its Dealers and differentiate
the Company from its competitors. These value-added services include fast
responses to applications (including a fully automated Internet-based
applications processing system), consistent underwriting, quick and reliable
funding following application approval and identifiable and dedicated support
from the Company's customer service employees.
Efficient Collections. The Company's technology and its disciplined and
persistent approach to collections enable it to collect delinquent amounts, even
several years after the account originally became delinquent. The Company
believes that, as a result of the small payments associated with microticket
transactions, the credit performance of its customers is driven by factors
beyond merely an ability to pay. Therefore, it is the Company's policy to pursue
virtually all delinquent accounts in a lawful, reasonable and timely fashion and
in many instances, to recover amounts due under the Company's leases, contracts
and loans through litigation. The Company maintains a highly structured,
well-defined and automated system that enables a minimum number of personnel to
maximize the collection of delinquent payments.
Seeking to Develop New Products and Markets. The Company continues to seek
new product lines to which it can successfully apply its operating strategy,
both in the microticket market and, more recently, the lower end of the
small-ticket market. The Company originates leases for products that typically
have limited distribution channels and high selling costs. The Company
facilitates sales of such products by making them available to Dealers'
customers for a small monthly lease payment rather than a high initial purchase
price. The Company believes that it can leverage the competitive advantage it
has in its current markets to products with similar characteristics. The Company
intends to intensify its marketing effort, including increasing national
awareness of the Leasecomm brand name, as part of its strategy to develop new
product lines.
Expanding its Business through Selective Acquisitions. The Company intends
to pursue selective acquisitions of microticket and small-ticket leasing
companies and lease portfolios where the Company believes it can gain access to
an expanded Dealer base and successfully apply its operating strategy and where
such companies or portfolios can be acquired on attractive terms. In particular,
the Company seeks to acquire lease portfolios which will expand product lines
and ultimately provide a source of additional lease originations or lease
portfolios. The Company presently is not negotiating, nor does it have any
agreements or understandings to make, any such acquisitions.
INDUSTRY OVERVIEW
Lease Financing Industry. The equipment financing industry in the United
States has grown rapidly during the last decade and includes a wide range of
entities that provide funding for the purchase or lease of equipment or
services. The leasing industry in the United States is a significant factor in
financing capital expenditures of businesses. According to research by the
Equipment Leasing Association of America ("ELA"), using United States Department
of Commerce data, approximately $180 billion of the $582 billion spent on
productive assets in 1997 was financed by means of leasing. The ELA estimates
that 80% of all U.S. businesses lease or finance capital assets.
The Company considers the microticket segment of the lease financing
industry to include lease transactions of less than $5,000. It is served by a
wide range of fragmented financing sources primarily on a
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local and regional level. The segment also includes equipment manufacturers that
finance the sale or lease of their own products.
The Company believes that the microticket segment is one of the most
rapidly growing segments of the financing industry in part due to (i) a
technology-driven trend toward instant approvals at the point of sale; (ii) the
consolidation of the banking industry, which has eliminated many of the smaller
community banks that traditionally provided equipment and service financing for
small businesses; and (iii) the rate of growth and ongoing viability of small
businesses that represent the target market for microticket leasing products.
The Company's market focus includes small businesses with limited business
credit history. According to the Small Business Administration ("SBA"), small
businesses (firms with fewer than 500 employees) contribute 47% of all sales
nationwide, employ 53% of the private non-farm workforce and are responsible for
51% of the private gross domestic product. As of December 31, 1996, small
businesses represented 99% of the 23.3 million non-farm businesses in the United
States. New business formation reached a record level of over 885,000 new
employer firms in 1997, a 5.1% increase over 1996. The number of small
businesses in the U.S., as measured in business tax returns, has increased 57%
since 1982, according to SBA estimates.
Point of Sale Payment Systems. In recent years, consumers demanding fast,
convenient and secure methods of payment have increasingly substituted POS
card-based payments, such as debit, credit and charge cards, for traditional
forms of payment, such as checks and cash. To accommodate consumer preferences
for card-based payments and to facilitate the electronic delivery of such
payments, automated POS authorization systems were introduced in the early
1980s. These new automated capabilities included electronic authorization, data
capture, transaction transmission and settlement. These functions require the
use of a POS terminal capable of reading a cardholder's account information from
the card's magnetic stripe and combining this information with the amount of the
sale entered via a POS terminal keypad. The terminal electronically transmits
this information over a communications network to a computer data center and
then displays the returned authorization or verification response on the POS
terminal. According to published reports, by December 31, 1997, the number of
POS payment terminals worldwide had increased 25.4% from 13.4 million at
December 31, 1996 to 16.8 million, of which approximately 44% were located in
the U.S. The Company believes that card-based verifications will become a part
of an increasing number of commercial transactions in the future, including, for
example, verification of drivers' licenses by alcohol and tobacco merchants and
vendor activations of pre-paid cards. Consequently, the Company believes that as
such verifications become more prevalent, demand for POS authorization systems
will increase.
OVERVIEW OF FINANCING PROGRAMS
The Company primarily leases and rents low-priced commercial equipment with
limited residual value to small merchants. Many such merchants prefer leasing
such equipment for a relatively affordable monthly payment rather than
purchasing such equipment outright with a large initial payment. The Company
utilizes its expertise at credit analysis and collections to purchase or
originate monthly payment streams without regard to the residual value of the
leased product. The Company has applied this expertise to leasing a wide variety
of equipment in addition to POS authorization systems, including advertising and
display equipment, coffee machines, paging systems, water coolers and restaurant
equipment. In addition, the Company also acquires service contracts and
opportunistically seeks to enter various other financing markets.
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<PAGE> 31
The Company has enjoyed a long history of portfolio growth, fueled by
origination growth in both traditional and developing markets that the Company
serves. The Company's commercial originations and financings grew 12% during
1997 compared to 1996, and relate primarily to POS authorization systems used by
small merchants. Although leases for POS authorization systems continued to be
the major source of the Company's revenues in 1997, leases for other commercial
equipment are experiencing significant growth. The following table outlines
historical Dealer Fundings defined as the amount paid to Dealers upon
origination for each type of underlying equipment or service financed:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1995 1996 1997 1997 1998
(DOLLARS IN THOUSANDS) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMMERCIAL
POS authorization systems(a)........... $54,658 $55,938 $55,391 $42,418 $44,478
Service contracts...................... 0 28 283 103 518
Other commercial....................... 9,235 10,437 17,656 11,589 22,627
------- ------- ------- ------- -------
Total commercial.................... $63,893 $66,403 $73,330 $54,110 $67,623
RESIDENTIAL
Service contracts...................... $ 3,635 $ 2,403 $ 2,689 $ 1,557 $ 5,780
Other residential...................... 8,974 4,853 1,571 1,100 3,307
------- ------- ------- ------- -------
Total residential................... $12,609 $ 7,256 $ 4,260 $ 2,657 $ 9,087
Total amount funded................. $76,502 $73,659 $77,590 $56,767 $76,710
</TABLE>
- ---------------
(a) Excludes portfolio acquisitions in 1996 of approximately $9.8 million
representing 16,200 separate contracts.
The Company's residential financings include acquiring service contracts
from Dealers that provide security monitoring services and various other types
of residential finance products. The Company's residential portfolio in past
years primarily included leases of satellite television equipment. Despite
significant origination volume in this market, the Company made a strategic
decision in July 1996 to de-emphasize the satellite television equipment
business and has greatly reduced originations of these leases since that time.
The Company originates and services leases, contracts and loans in all 50
states of the United States and its territories, taking advantage of the
nationwide reach of its Dealer network. As of September 30, 1998, leases in
California, Florida, Texas and New York accounted for approximately 41% of the
Company's portfolio, with none of the remaining states accounting for more than
5% of such total.
TERMS OF EQUIPMENT LEASES
Substantially all equipment leases originated or acquired by the Company
are non-cancelable. During the term of a typical lease, the Company is scheduled
to receive payments sufficient, in the aggregate, to cover the Company's
borrowing costs and the costs of the underlying equipment, and to provide the
Company with an appropriate profit. Throughout the term of the lease, the
Company charges late fees, prepayment penalties, loss and damage waiver fees and
other service fees, when applicable, which enhance the profitability of the
lease. The initial non-cancelable term of the lease is equal to or less than the
equipment's estimated economic life. Initial terms of the leases in the
Company's portfolio generally range from 12 to 48 months, with an average
initial term of 45 months as of September 30, 1998.
The terms and conditions of all of the Company's leases are substantially
similar. In most cases, the contracts require lessees to: (i) maintain, service
and operate the equipment in accordance with the manufacturer's and
government-mandated procedures; (ii) insure the equipment against property and
casualty loss; (iii) pay all taxes associated with the equipment; and (iv) make
all scheduled contract payments regardless of the performance of the equipment.
The Company's standard lease forms provide that in the event of a default by the
lessee, the Company can require payment of liquidated damages and can seize and
remove the equipment for subsequent sale, refinancing or other disposal at its
discretion. Any additions, modifications
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<PAGE> 32
or upgrades to the equipment, regardless of the source of payment, are
automatically incorporated into and deemed a part of the equipment financed.
RESIDUAL INTERESTS IN UNDERLYING EQUIPMENT
The Company typically owns a residual interest in the equipment covered by
a lease. The Company's equipment leases outstanding as of September 30, 1998 had
an aggregate residual value of approximately $17.6 million, representing 7.1% of
the Company's total lease receivables at September 30, 1998.
At the end of the lease term, the lease typically converts into a
month-to-month rental contract. If the lease does not convert, the lessee either
buys the equipment at a price quoted by the Company or returns the equipment. If
the equipment is returned, the Company may place the equipment into its used
equipment rental and leasing program. The Company may also sell the used
equipment through equipment brokers and remarketers in order to maximize the net
proceeds from such sale.
ORIGINATION AND UNDERWRITING
Sales and Marketing. The Company provides financing to obligors under
microticket leases, contracts and loans through its Dealers. Since the Company
relies primarily on its network of Dealers for its origination volume, the
Company considers them its customers. The Company's nationwide Dealer network is
the key to the Company's origination volume, with over 1,100 different Dealers
originating 56,002 Company leases, contracts and loans in 1997. Cardservice
Laguna accounted for approximately 14% of all originations in 1997. No other
Dealer accounted for more than 10% of the Company's origination volume during
such year.
The Company seeks to maintain relationships with its Dealers in order to
establish the Company as the provider of financing recommended by such Dealers
to their customers. The Company does not sign exclusive agreements with its
Dealers, but expects Dealers to conduct a significant portion of their business
with the Company in order to ensure a productive, cost-effective relationship.
Thousands of Dealers nationwide provide a wide variety of services to small
merchants. Dealers interact with merchants directly, and, for example, typically
market not only POS authorization systems, but also their financing through the
Company and ancillary POS processing services. As such, the Dealers' sales
approach appeals to the multiple needs of a small merchant and allows for sales
that are driven as much by convenience as by price. The Company believes that
lease financing represents a compelling alternative for any product critical to
a merchant's ongoing operation whose initial cost exceeds a particular price
threshold for small merchants.
The Company's marketing strategy is to increase its volume of funding by
(i) maintaining, expanding and supporting its network of Dealers, (ii)
developing programs for specific vendor or customer groups, (iii) developing and
introducing complementary lease finance products that can be marketed and sold
through its existing network of Dealers and (iv) increasing national awareness
of the Leasecomm brand name. The Company receives on average 7,000 to 10,000
applications per month (approximately 10,800 in September 1998) through its
network of Dealers. Because of this volume, and in order to continue to expand,
cultivate and nurture these relationships, the Company's 45 customer service
employees in its two locations work directly with this Dealer network.
Management believes that a focused marketing effort with dedicated personnel by
product type will ensure the continuation of significant origination growth and
profitability in the future. The Company also employs 11 individuals who are
dedicated to marketing to Dealers in specific product segments to ensure that
the Company adequately addresses the unique characteristics of the product.
These employees are responsible for implementing marketing plans and
coordinating marketing activities with the Company's Dealers, as well as
attending industry conventions and trade shows on behalf of the Company. As new
product initiatives are developed, the Company intends to continue to dedicate
personnel in this manner.
The Company provides a variety of value-added services to its Dealers,
including fast responses to applications, consistent underwriting, quick and
reliable funding following application approval and identifiable and dedicated
support nationwide. In addition, as a further convenience to its Dealers, the
Company has developed LeasecommDirect(TM), an Internet-based application
processing, credit approval and Dealer information tool. Using
LeasecommDirect(TM), a Dealer can input an application directly to the Company
via the
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<PAGE> 33
Internet and obtain almost instantaneous approval automatically over the
Internet through the Company's computer system, all without any contact with any
employee of the Company. Use of this system by Dealers has increased from
approximately 3.5% of total applications processed in the first quarter of 1998
to approximately 33.8% of total applications processed in the fourth quarter of
1998. The Company also offers Instalease(R), a program that allows a Dealer to
submit applications by telephone, telecopy or e-mail to a Company
representative, receive approval, and complete a sale from a lessee's location.
By assisting the Dealers in providing timely, convenient and competitive
financing for their equipment or service contracts and offering Dealers a
variety of value-added services, the Company simultaneously promotes equipment
and service contract sales and the utilization of the Company as the finance
provider, thus differentiating the Company from its competitors.
Originations. In a typical lease transaction, the Company originates
leases referred to it by the Dealer and buys the underlying equipment from the
referring Dealer upon funding of an approved application. Leases are structured
with limited recourse to the Dealer, with risk of loss in the event of default
by the lessee residing with the Company in most cases. The Company owns the
underlying equipment covered by a lease and, in substantially all cases, retains
a residual interest in such underlying equipment. The Company performs all
processing, billing and collection functions under its leases.
In a typical transaction for the acquisition of service contracts, a
homeowner will purchase a security system and simultaneously sign a contract
with the Dealer for the monitoring of that system for a monthly fee. The Dealer
will then sell the right to payment under that contract to the Company for a
multiple of the monthly payments. The Company performs all processing, billing
and collection functions under these contracts.
Underwriting. The Company has developed credit underwriting policies and
procedures that management believes have been effective in determining pricing
which is commensurate with the creditworthiness of its obligors. The nature of
the Company's business requires two levels of review, the first focused on the
ultimate end-user of the equipment or service and the second focused on the
Dealer. The Company's variable pricing approach, which compensates for differing
risk profiles through risk-adjusted pricing, allows the Company to underwrite
obligors with a broad band of credit quality and provide financing in situations
where its competitors may be unwilling to provide such financing.
The Company utilizes a proprietary automated computer scoring model to
assess the credit of both the lessee and the Dealer along several dimensions.
This software does not produce a binary, "yes or no" decision, but rather
determines the price at which the lease, contract or loan can be profitably
underwritten. The Company has developed its credit-scoring model internally over
the past twelve years based on its specific experiences with its portfolio of
leases, contracts and loans and its extensive experience with its lessees and
Dealers. The Company believes that no general commercially available
credit-scoring model is as effective as the Company's model in predicting the
payment behavior of the Company's lessee base. The Company reviews its
underwriting policies and the computer scoring model on a regular basis and
makes adjustments when necessary.
The approval process begins with the submission by telephone, facsimile or
electronic transmission of a credit application by the Dealer. Upon submission,
the Company, either manually or through LeasecommDirect(TM) over the Internet,
conducts its own independent credit investigation of the lessee through its own
proprietary data base and recognized commercial credit reporting agencies such
as Dun & Bradstreet, TRW, Equifax and TransUnion. The Company's software
evaluates this information on a two-dimensional scale, examining both credit
depth (how much information exists on an applicant) and credit quality (past
payment history). The credit scoring model is complex and automatically adjusts
for different transactions. For instance, depending on the size of the credit,
different weight is placed on individual pieces of credit information. In
situations where the amount financed is over $3,000, the Company may go beyond
its own data base and recognized commercial credit reporting agencies and obtain
information from less readily available sources such as banks. In certain
instances, the Company will require the lessee to provide verification of
employment and salary.
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<PAGE> 34
The second aspect of the credit decision involves an assessment of the
originating Dealer. This assessment reflects the Company's experience that the
likelihood of lessee compliance is commensurate with Dealer quality. Dealers
undergo both an initial screening process and ongoing evaluation, including an
examination of Dealer portfolio performance, lessee complaints, cases of fraud
or misrepresentation, aging studies, number of applications and conversion rates
for applications. This ongoing assessment enables the Company to manage its
Dealer relationships, including ending relationships with poor-performing
Dealers.
Upon credit approval, the Company requires receipt of signed lease
documentation on the Company's standard or other pre-approved lease form before
funding. Once the equipment is shipped and installed, the Dealer invoices the
Company, and thereafter the Company verifies that the lessee has received and
accepted the equipment. Upon the lessee authorizing payment to the Dealer, the
lease is forwarded to the Company's funding and documentation department for
funding, transaction accounting and billing procedures.
Bulk and Portfolio Acquisitions. In addition to originating leases through
its Dealer relationships, the Company from time to time has purchased lease
portfolios from Dealers in order to grow its portfolio and diversify the
underlying equipment financed. The Company purchases leases from Dealers on an
ongoing basis in packages ranging from $20,000 to $200,000. While certain of
these leases initially do not meet the Company's underwriting standards, the
Company will often purchase the leases once the lessee demonstrates a payment
history. The Company will only acquire these smaller lease portfolios in
situations where the company selling the portfolio will continue to act as a
Dealer following the acquisition. The Company also completed the acquisition of
three large POS authorization system lease and rental portfolios, two in 1996
and one in 1998, all of which have contributed to lease yield, fee income and
extended rental profits. The first acquisition, completed in May 1996, consisted
of over 8,000 rental contracts with total fundings of $1.9 million. The second
acquisition was for approximately 8,200 leases in December 1996 with fundings of
$7.9 million. The Company acquired 4,841 rental contracts in July 1998 with
fundings of $2.8 million. The Company considers portfolio acquisitions to be a
lucrative source of immediate lease yield and fee income as well as future
rental income, and accordingly, will continue to pursue such acquisitions.
SERVICING AND COLLECTIONS
The Company performs all servicing functions on its leases, contracts and
loans, including its securitized leases, through its automated servicing and
collection system. Servicing responsibilities generally include billing,
processing payments, remitting payments to Dealers and investors in
Securitizations, preparing investor reports, paying taxes and insurance and
performing collection and liquidation functions.
The Company's business is operationally intensive, due in part to the small
average amount financed. Accordingly, technology and automated processes are
critical in keeping servicing costs to a minimum while providing quality
customer service. The Company's automated lease administration system handles
application tracking, invoicing, payment processing, automated collection
queuing, portfolio evaluation and report writing. The system is linked with bank
accounts for payment processing and provides for direct withdrawal of lease,
contract and loan payments.
The Company combines its collection efforts with its general relations with
obligors. A Lessee Relations Representative ("LRR") is assigned to each lease,
contract or loan at the time of funding, giving each lessee or other obligor a
specific customer relations contact throughout the term of the lease, contract
or loan, including during delinquent collection efforts. The lessee relations
department is organized under the Director of Lessee Relations, who manages 2
senior managers, 11 supervisors and 61 LRRs. LRRs are broadly classified as
either "front-end" (43 LRRs) or "back-end" (18 LRRs), with the "back-end" LRRs
servicing only very delinquent accounts. The "back-end" LRRs generally have
several years of experience with delinquent accounts and are entirely dedicated
to collections.
The Company's collection effort is a key component of its success. The
Company believes that its competitors have not energetically pursued collection
of microticket delinquent accounts due to the perceived high costs of collecting
relatively small monthly payments against equipment with low resale value. In
contrast, the Company can cost-effectively pursue such delinquencies due to its
highly automated collection process. In addition to writing collection letters,
making collection calls and reporting delinquent accounts to
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<PAGE> 35
the credit reporting agencies, the Company litigates essentially all delinquent
accounts where necessary and obtains and enforces judgments through a network of
over 100 law firms nationwide. The Company uses several computerized processes
in its collection efforts, including the generation of daily priority call lists
and scrolling for daily delinquent account servicing, generation and mailing of
delinquency letters, routing of incoming calls to appropriate LRRs with instant
computerized access to account details, generation of delinquent account lists
eligible for litigation, generation of pleadings and litigation monitoring.
Collection efforts commence immediately, with repeated reminder letters and
telephone calls upon payments becoming 10 days past due, with a lawsuit
generally filed if an account is more than 85 days past due.
The Company takes a team-oriented approach to collections, with supervisors
directly overseeing a team of five to six LRRs. Compensation at all levels of
the collection effort is linked to the success of the entire collection team.
LRRs are assigned daily productivity targets based on dollars collected, phone
calls placed and phone calls fielded, with scrolling call lists reprioritized
nightly. If these targets are exceeded, LRRs receive a higher percentage of the
amounts collected based on a tiered compensation scale. In order to be eligible
for the highest scale of commissions, each team member must meet his collection
target, providing an incentive to team members to assist in the servicing of
each team member's accounts.
EXPOSURE TO CREDIT LOSSES
The Company's risk-adjusted approach to underwriting allows it to
profitably originate and acquire leases, contracts and loans with a high risk of
default. The Company's risk-adjusted pricing model and credit analyses are
designed to take into account estimated defaults. The Company attempts to
maximize the ultimate cash collected through its disciplined and persistent
collection procedures. Management evaluates the collectibility of leases,
contracts and loans acquired or originated based on the lessee's or other
obligor's and Dealer's respective credit profiles, delinquency statistics,
historical loss experience, current economic conditions and other relevant
factors.
The Company maintains an allowance for credit losses on its investment in
leases, service contracts and loans at an amount that it believes is sufficient
to provide adequate protection against losses in its portfolio. The allowance is
determined principally on the basis of the historical loss experience of the
Company and the level of recourse provided by such lease, service contract or
loan, if any, and reflects management's judgment of additional loss potential
considering future economic conditions and the nature and characteristics of the
underlying lease portfolio. The Company determines the necessary periodic
provision for credit losses taking into account actual and expected losses in
the portfolio as a whole and the relationship of the allowance to the net
investment in leases, service contracts and loans. Such provisions generally
represent a percentage of funded amounts of leases, contracts and loans. The
resulting charge is included in the provision for credit losses.
Leases, service contracts, and loans are charged against the allowance for
credit losses and are put on non-accrual when they are deemed to be
uncollectible. Generally, the Company deems leases, service contracts and loans
to be uncollectible when one of the following occur: (i) the obligor files for
bankruptcy; (ii) the obligor dies and the equipment is returned; or (iii) when
an account has become 360 days delinquent. The typical monthly payment under the
Company's leases is between $30 and $50 per month. As a result of these small
monthly payments, the Company's experience is that lessees will pay past due
amounts later in the process because of the small amount necessary to bring an
account current (at 360 days past due, a lessee will only owe lease payments of
between $360 and $600).
The Company has developed and regularly updates proprietary credit scoring
systems designed to improve its risk based pricing. The Company uses credit
scoring in most, but not all, of its extensions of credit. In addition, the
Company aggressively employs collection procedures and a legal process to
resolve any credit problems.
The Company seeks to protect itself from credit exposure relating to poor
quality Dealers by entering into recourse agreements with its Dealers, under
which the Dealer agrees to reimburse the Company for payment of defaulted
amounts under certain circumstances, primarily defaults within the first month
following origination and upon evidence of Dealer errors or misrepresentations
in originating a lease or contract. In case
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<PAGE> 36
of Dealer error or misrepresentation, the Company will charge-back the Dealer
for both the lessee's delinquent amounts and attorney and court fees.
The following table sets forth certain information as of December 29, 1995,
December 31, 1996 and 1997 and as of October 2, 1998, with respect to delinquent
leases, contracts and loans. These dates represent the dates on the Company's
regular schedule for calculating delinquencies which are nearest to the final
day of the corresponding fiscal year and quarter. The percentages in the table
below represent the aggregate on such date of actual amounts not paid on each
invoice by the number of days past due (rather than the entire balance of a
delinquent receivable) over the cumulative amount billed at such date from the
date of origination on all leases, contracts and loans in the Company's
portfolio. For example, if a receivable is over 90 days past due, the portion of
the receivable which is over 30 days past due will be placed in the 31-60 days
past due category, the portion of the receivable which is over 60 days past due
will be placed in the 61-90 days past due category and the portion of the
receivable which is over 90 days past due will be placed in the over 90 days
past due category. The Company historically has used this methodology of
calculating its delinquencies because of its experience that lessees who miss a
payment do not necessarily default on the entire lease. Accordingly, the Company
includes only the amount past due rather than the entire lease receivable in
each category.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 29, DECEMBER 31, AS OF
------------ ------------------- OCTOBER 2,
1995 1996 1997 1998
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Cumulative amount billed (in thousands)........ $122,065 $189,798 $260,958 $301,244
31-60 days past due............................ 1.0% 1.6% 1.6% 1.4%
61-90 days past due............................ 0.8 1.2 1.1 1.1
Over 90 days past due.......................... 5.7 6.6 7.0 8.0
-------- -------- -------- --------
Total past due............................ 7.5% 9.4% 9.7% 10.5%
</TABLE>
The following table sets forth, as of December 31, 1997 and October 2, 1998
(the dates on the Company's regular reporting schedule for calculating
delinquencies which are nearest to the final day of the corresponding fiscal
year and quarter), contractual delinquencies (including the entire lease
receivable with the exception of service contracts, as to which only the amount
of the invoices billed but not collected is included) in each category as a
percentage of the sum of receivables due in installments plus investment in
service contracts plus loans receivable on the Company's most recent balance
sheet.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, OCTOBER 2,
1997 1998
------------ -------------
<S> <C> <C>
Receivables due in installments plus investment in service
contracts plus loans receivable (in thousands)(1)......... $243,591 $262,987
31-60 days past due......................................... 3.2% 3.4%
61-90 days past due......................................... 2.4 2.5
Over 90 days past due....................................... 19.9 19.2
-------- --------
Total past due......................................... 25.5% 25.1%
</TABLE>
(1) As reported on the Company's balance sheet at December 31, 1997 and
September 30, 1998, respectively.
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<PAGE> 37
The following table sets forth the Company's allowance for credit losses as
of December 31, 1994, 1995, 1996 and 1997 and as of September 30, 1998 and the
related provisions, charge-offs and recoveries for the years ended December 31,
1995, 1996 and 1997 and for the nine months ended September 30, 1998 (in
thousands):
<TABLE>
<S> <C> <C>
Balance at December 31, 1994................................ $ 7,992
Provision for credit losses................................. 13,388
Charge-offs................................................. 5,964
Recoveries.................................................. 536
-------
Charge-offs, net of recoveries.............................. 5,428
-------
Balance at December 31, 1995................................ $15,952
Provision for credit losses................................. 19,822
Charge-offs................................................. 15,675
Recoveries.................................................. 3,727
-------
Charge-offs, net of recoveries.............................. 11,948
-------
Balance at December 31, 1996................................ $23,826
Provision for credit losses................................. 21,713
Charge-offs................................................. 24,290
Recoveries.................................................. 5,070
-------
Charge-offs, net of recoveries.............................. 19,220
-------
Balance at December 31, 1997................................ $26,319
Provision for credit losses................................. 12,568
Charge-offs................................................. 20,644
Recoveries.................................................. 6,180
-------
Charge-offs, net of recoveries.............................. 14,464
-------
Balance at September 30, 1998............................... $24,423
</TABLE>
The following table sets forth (i) for the indicated period the Company's
charge-offs and provision for credit losses as percentages of the sum of average
gross investment in leases and loans plus investment in service contracts and
(ii) at the end of the given period, the Company's allowance for credit losses
as a percentage of gross investment in leases and loans plus investment in
service contracts:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------- SEPTEMBER 30,
1995 1996 1997 1998(1)
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Average gross investment in leases and
loans and investment in service
contracts (in thousands)(2)............. $152,492 $218,666 $254,004 $270,468
Net charge-offs........................... 3.56% 5.46% 7.57% 7.13%
Provision for credit losses............... 8.78% 9.07% 8.55% 6.20%
Allowance for credit losses............... 8.41% 9.62% 10.19% 8.94%
</TABLE>
- ---------------
(1) Quarterly amounts are annualized.
(2) Consists of receivables due in installments, estimated residual value, loans
receivable and investment in service contracts.
Charge-offs in 1996 and 1997 were higher due to (i) an increase in
charge-offs by a total of approximately $5.0 million to replenish the allowance
for credit losses due to the change in the write-off period from 360 to 240
days, as more fully described below; (ii) $5.1 million in write-offs related to
satellite television equipment receivables in 1997; and (iii) a one-time
write-off of securitized receivables of $9.5 million in 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations." Cumulative net charge-offs after
recoveries from the Company's inception through December 31, 1997 were 6.78% of
total cumulative originations plus total billed fees over such period.
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<PAGE> 38
The Company historically took charge-offs against its receivables when such
receivables were 360 days past due. During this period, cumulative net
charge-offs from the Company's inception to September 30, 1998 were 7.45% of
total cumulative receivables plus total billed fees over such period. In
September and October 1996, the Company reduced the time period for charging off
its receivables from 360 to 240 days and, as a result, increased its charge-offs
by a total of approximately $5.0 million. As a result of this change, recoveries
increased significantly indicating that a 240-day charge-off period was too
early in the collection process to determine ultimate collectibility. As such,
during 1997, net charge-offs after recoveries were not significantly different
than the Company's historical net charge-off experience. For this reason, in
January 1998, the Company changed its charge-off policy for its receivables back
to 360 days to better reflect the Company's collection experience.
FUNDING SOURCES
The Company maintains a diverse mix of funding sources which include its
Credit Facilities, Subordinated Debt, and Securitizations. Historically, the
Company has fulfilled its liquidity needs by utilizing each of these three
sources. See "Description of Certain Indebtedness."
COMPETITION
The microticket leasing and financing industry is highly competitive. The
Company competes for customers with a number of national, regional and local
banks and finance companies. The Company's competitors also include equipment
manufacturers that lease or finance the sale of their own products. While the
market for microticket financing has traditionally been fragmented, the Company
could also be faced with competition from small- or large-ticket leasing
companies that could use their expertise in those markets to enter and compete
in the microticket financing market. The Company's competitors include larger,
more established companies, some of which may possess substantially greater
financial, marketing and operational resources than the Company, including a
lower cost of funds and access to capital markets and to other funding sources
which may be unavailable to the Company.
FACILITIES
The Company's corporate headquarters and operations center are located in
leased space of 34,851 square feet at 950 Winter Street, Waltham, Massachusetts
02151. The Company's telephone number is (781) 890-0177. The lease for this
space expires on June 30, 1999. The Company also leases 2,933 square feet of
office space for its West Coast office in Newark, California under a lease which
expires on August 31, 2001. As of September 30, 1998, the aggregate monthly rent
under these leases was approximately $76,964. The Company recently signed a
lease for 44,659 square feet of office space in Woburn, Massachusetts which
commenced on December 15, 1998 and expires on December 14, 2003. The monthly
rent under this lease is $57,099.
EMPLOYEES
As of September 30, 1998, the Company had 230 full-time employees, of which
45 were engaged in credit activities and Dealer service, 116 were engaged in
servicing and collection activities, 10 were engaged in marketing activities,
and 59 were engaged in general administrative activities. Management believes
that its relationship with its employees is good. No employees of the Company
are members of a collective bargaining unit in connection with their employment
by the Company.
LEGAL PROCEEDINGS
The Company and its subsidiaries are frequently parties to various claims,
lawsuits and administrative proceedings arising in the ordinary course of
business. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect such matters to have a material adverse
effect on the financial condition or results of operations of the Company.
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<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position with the Company
of each of the directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter R. Bleyleben(1)........................... 45 President, Chief Executive Officer and
Director
Brian E. Boyle(1)(2)............................ 50 Director
Torrence C. Harder(1)(2)........................ 55 Director
Jeffrey P. Parker(2)............................ 55 Director
Alan J. Zakon(1)(2)............................. 63 Director
Richard F. Latour............................... 45 Executive Vice President, Chief Operating
Officer, Chief Financial Officer, Treasurer,
Clerk and Secretary
J. Gregory Hines................................ 38 Vice President, Funding
John Plumlee.................................... 47 Vice President, MIS
Carol A. Salvo.................................. 32 Vice President, Legal
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.
PETER R. BLEYLEBEN has served as President, Chief Executive Officer and
Director of the Company or its predecessor since June 1987. Before joining the
Company, Dr. Bleyleben was Vice President and Director of the Boston Consulting
Group, Inc. ("BCG") in Boston. During his more than eight years with BCG, Dr.
Bleyleben focused his professional strategic consulting practice on the
financial services and telecommunications industries. Prior to joining BCG, Dr.
Bleyleben earned an M.B.A. with distinction and honors from the Harvard Business
School, an M.B.A. and a Ph.D. in Business Administration and Economics,
respectively, from the Vienna Business School in Vienna, Austria and a B.S. in
Computer Science from the Vienna Institute of Technology.
BRIAN E. BOYLE, the Chief Executive Officer of the Company from 1985 to
1987 and Chairman of the Board of Directors from 1985 to 1995, has served as a
Director of the Company or its predecessor since 1985. He is currently the Vice
Chairman and a Director of Boston Communications Group, Inc. ("Communications"),
a Boston-based provider of switch-based call processing to the global wireless
industry. Prior to joining Communications, Dr. Boyle was the Chairman and Chief
Executive Officer of Credit Technologies, Inc., a Massachusetts-based provider
of credit decision and customer acquisition software, from 1989 to 1993. He is
also a Director of Saville Systems, a global telecommunications billing software
company, with its United States headquarters in Burlington, Massachusetts, as
well as of several private companies. Dr. Boyle earned his A.B. in Mathematics
and Economics from Amherst College and a B.S. in Electrical Engineering and
Computer Science, an M.S. in Operations Research, an E.E. in Electrical
Engineering and Computer Science and a Ph.D. in Operations Research, all from
the Massachusetts Institute of Technology.
TORRENCE C. HARDER has served as a Director of the Company since 1986. He
has been the President and Director of Harder Management Company, Inc., a
registered investment advisory firm, since its establishment in 1971. He has
also been the President and Director of Entrepreneurial Ventures, Inc., a
venture capital investment firm, since its founding in 1986. Mr. Harder is a
Director of Lightbridge, Inc., a wireless industry software services provider,
Dent-A-Med, Inc., RentGrow, Inc., GWA Information Systems, Inc., Trade Credit
Corporation and UpToDate in Medicine, Inc. Mr. Harder earned an M.B.A. from the
Wharton School of the University of Pennsylvania, and a B.A. with honors in the
Philosophy of Economic Thought from Cornell University.
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<PAGE> 40
JEFFREY P. PARKER has served as a Director of the Company since 1992. He is
the founder and has served since 1997 as the Chief Executive Officer of
CCBN.COM, a world wide web information services company based in Boston. He is
also the founder and has served since 1991 as the managing director of Private
Equity Investments, a venture capital firm focusing on start-up and early stage
companies. Mr. Parker is a Director of Boston Treasury Systems, FaxNet
Corporation, Pacific Sun Industries, Vintage Partners and XcelleNet, Inc. Mr.
Parker earned a B.A., an M.A. in Engineering and an M.B.A. from Cornell
University.
ALAN J. ZAKON has served as a Director of the Company since 1988. Since
1995, he has been the Vice Chairman and a Director, and since November 1997,
Chairman of the Executive Committee, of Autotote Corporation, a New York-based
global gaming and simulcasting company. He served as Managing Director of
Bankers Trust Corporation from 1989 to 1995 where he was Chairman of the
Strategic Policy Committee. Dr. Zakon is a Director of Arkansas-Best Freight
Corporation, a nationwide commercial transportation and trucking company. Dr.
Zakon holds a B.A. from Harvard University, an M.S. in Industrial Management
from the Sloane School at the Massachusetts Institute of Technology and a Ph.D.
in Economics and Finance from the University of California at Los Angeles.
RICHARD F. LATOUR has served as Executive Vice President, Chief Operating
Officer, Chief Financial Officer, Treasurer, Clerk and Secretary of the Company
since 1995. From 1986 to 1995, Mr. Latour was Vice President of Finance and
Chief Financial Officer of the Company. Prior to joining the Company, Mr. Latour
was Vice President, Finance for TRAK, Incorporated, an international
manufacturer and distributor of consumer products, where he was responsible for
all financial and related administrative functions.
J. GREGORY HINES has served as Vice President, Funding since 1993. From the
time he joined the Company in 1992 until 1993, Mr. Hines served as funds manager
of the Company. Prior to joining the Company, Mr. Hines was an assistant vice
president in the Equipment Finance Division at the Bank of New England, N.A. and
Fleet National Bank.
JOHN PLUMLEE has served as Vice President, MIS, of the Company since 1990.
Prior to joining the Company, Mr. Plumlee was Vice President of M.M.C., Inc., a
firm focusing on the delivery of software services to local governments.
CAROL SALVO has served as Vice President, Legal, of the Company since 1996.
From 1992 to 1995, Ms. Salvo served as Litigation Supervisor of the Company.
From 1995 to 1996, Ms. Salvo served as Director of Legal Collection Services of
the Company. Prior to joining the Company, Ms. Salvo was a junior accountant
with InfoPlus Inc.
The directors of the Company have been divided, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, with the term of office of the first class to expire at the
1999 annual meeting of the stockholders of the Company, the term of office of
the second class to expire at the 2000 annual meeting of the stockholders of the
Company and the term of office of the third class to expire at the 2001 annual
meeting of the stockholders of the Company, with each director to hold office
until his or her successor shall have been duly elected and qualified or until
his or her earlier removal or resignation. At each annual meeting of
stockholders of the Company, commencing with the 1999 annual meeting, directors
elected to succeed those directors whose terms then expire shall be elected for
a term of office to expire at the third succeeding annual meeting of the
stockholders of the Company after their election. In accordance with the
foregoing, Peter Bleyleben's term as a director of the Company expires at the
2001 annual meeting of the stockholders of the Company, Brian Boyle and Alan
Zakon's respective terms as directors of the Company expire at the 2000 annual
meeting of the stockholders of the Company and Torrence Harder and Jeffrey
Parker's respective terms as directors of the Company expire at the 1999 annual
meeting of the stockholders of the Company.
COMPENSATION OF DIRECTORS
The Board of Directors of the Company is comprised of five Directors, one
of whom, Peter Bleyleben, is a salaried employee of the Company who receives no
additional compensation for services rendered as a Director. The members of the
Company's Board of Directors who are not employees of the Company ("Non-
39
<PAGE> 41
Employee Directors") receive compensation under the Company's Board of Directors
Stock Unit Compensation Plan (the "Stock Unit Plan") for their service on the
Board of Directors. Directors also are reimbursed for out-of-state travel
expenses incurred in connection with attendance at meetings of the Board of
Directors and committees thereof.
The Company adopted the Stock Unit Plan in February 1997. Under the Stock
Unit Plan, Non-Employee Directors who do not serve as committee chairpersons
receive up to $30,000 per year, payable $3,750 per meeting in cash and $3,750
per meeting in stock units (the "Stock Units"). Committee chairpersons receive
up to $35,000 per year, payable $4,375 per meeting in cash and $4,375 per
meeting in Stock Units. In addition, the Company pays for health care insurance
for each Non-Employee Director. Under the Stock Unit Plan, the Company pays the
participant the cash amount currently and credits Stock Units in the appropriate
amounts to a deferred fee account on the date of the Board of Directors or
Committee meeting. Each Stock Unit in the deferred fee account is valued at the
time each such credit is made at the then-current value of the Common Stock, as
that value is determined from time to time by the Board of Directors. The number
of Stock Units credited to each Non-Employee Director's deferred fee account and
the value placed on each Stock Unit is appropriately adjusted in the event of a
stock dividend, stock split or other similar change affecting the Common Stock.
If any person or group acquires the right to obtain beneficial ownership of
51% or more of the outstanding Common Stock, each Non-Employee Director may
elect to convert his or her Stock Units into cash at the per share price to be
paid by such person or group if such price is higher than the value at which the
Stock Unit was granted. A participant is not entitled to payment for any Stock
Unit with a value less than such per share price. If a Director dies prior to
the receipt of the distribution under the Stock Unit Plan, the distributable
balance thereunder shall be distributed to the Non-Employee Director's
designated beneficiary. The Board of Directors may terminate the Stock Unit Plan
at any time in its discretion. The Stock Unit Plan is automatically terminated
upon completion of all distributions required thereunder.
As of September 30, 1998, Dr. Boyle, Mr. Harder, Mr. Parker and Dr. Zakon
had 2,978.12, 3,474.48, 2,978.12 and 3,474.48 Stock Units in their respective
accounts.
The Board of Directors has voted to terminate the Stock Unit Plan effective
upon the closing of the Offering. Each Non-Employee Director will receive a cash
payment in an amount equal to the number of Stock Units in their respective
accounts multiplied by the price to public on the cover of this Prospectus.
40
<PAGE> 42
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth certain information
concerning the compensation payable by the Company to its Chief Executive
Officer and its other four most highly compensated executive officers for the
years ended December 31, 1998, 1997 and 1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND -------------------- ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION
------------------ ---- ------ -------- ------------
<S> <C> <C> <C> <C>
Peter R. Bleyleben............................... 1998 $250,888 $364,000 $65,245(3)
President, Chief Executive 1997 218,798 276,730 71,072
Officer and Director 1996 187,837 214,073 73,674
Richard F. Latour................................ 1998 198,446 244,568 45,690(4)
Executive Vice President, 1997 169,495 153,755(5) 49,680
Chief Operating Officer, 1996 134,535 43,000 44,381
Chief Financial Officer, Treasurer, Clerk and
Secretary
J. Gregory Hines................................. 1998 106,951 42,095 4,281(6)
Vice President, Funding 1997 87,348 26,950 3,206
1996 79,853 10,320 2,256
John Plumlee..................................... 1998 141,351 44,533 21,191(7)
Vice President, MIS 1997 124,624 29,769 20,687
1996 108,657 14,346 18,603
Carol Salvo...................................... 1998 84,677 34,734 4,022(8)
Vice President, Legal 1997 66,368 15,781 2,170
1996 47,190 3,817 1,502
</TABLE>
- ---------------
(1) Columns required by the Rules and regulations of the Securities and Exchange
Commission that contain no entries have been omitted.
(2) Bonuses are paid over a three-year period, with one-third payable each year.
The remaining two-thirds is subject to discretionary review by the Company
and, therefore, does not vest to the employee. The bonus amount set forth
for each fiscal year thus represents the amount actually paid for such
fiscal year, plus amounts relating to the prior two fiscal years.
(3) Amounts for Dr. Bleyleben include: (a) contributions by the Company under
the Company's 401(k) retirement/profit sharing plan in 1998 ($4,000), 1997
($4,470) and 1996 ($4,500); (b) split dollar life insurance premiums paid by
the Company in 1998 ($54,156), 1997 ($62,461) and 1996 ($60,515) (in the
event of the death of Dr. Bleyleben, the Company is entitled to the cash
value under such plan with the beneficiary receiving the life insurance
portion thereof); (c) executive disability insurance policy premiums paid by
the Company in 1998 ($7,089), 1997 ($3,546) and 1996($3,546); and (d) the
benefit to the executive of interest-free loans from the Company based on
the applicable federal rate in effect on the date of issuance of each such
loan, in 1997 ($595) and 1996 ($5,113).
(4) Amounts for Mr. Latour include: (a) contributions by the Company under the
Company's 401(k) retirement/profit sharing plan in 1998 ($4,000), 1997
($4,500) and 1996 ($4,435); (b) split dollar life insurance premiums paid by
the Company in 1998 ($34,917), 1997 ($40,501) and 1996 ($35,067) (in the
event of the death of Mr. Latour, the Company is entitled to the cash value
under such plan with the beneficiary receiving the life insurance portion
thereof); (c) executive disability insurance policy premiums paid by the
Company in 1998 ($3,028), 1997 ($1,586) and 1996 ($2,460); and (d) the
benefit to the executive of interest-free loans from the Company based on
the applicable federal rate in effect on the date of issuance of each such
loan, in 1998 ($3,745), 1997 ($3,093) and 1996 ($2,419).
(5) Does not include $179,745 which related to bonuses awarded in prior years
and deferred until 1997 at Mr. Latour's option.
(6) Amounts for Mr. Hines include: (a) contributions by the Company under the
Company's 401(k) retirement/profit sharing plan in 1998 ($2,738), 1997
($2,273) and 1996 ($1,963); (b) term life insurance premiums paid by the
Company in 1998 ($84), 1997 ($84) and 1996 ($76); (c) executive disability
insurance policy premiums paid by the Company in 1998 ($602), 1997 ($434)
and 1996 ($217); and (d) the benefit to the executive of interest-free loans
from the Company based on the applicable federal rate in effect on the date
of issuance of each such loan, in 1998 ($857) and 1997 ($415).
(7) Amounts for Mr. Plumlee include: (a) contributions by the Company under the
Company's 401(k) retirement/profit sharing plan in 1998 ($3,870), 1997
($3,722) and 1996 ($2,991); (b) split dollar life insurance premiums paid by
the Company in 1998 ($15,000), 1997 ($15,113) and 1996 ($15,104) (in the
event of the death of Mr. Plumlee, the Company is entitled to the cash value
under such plan with the beneficiary receiving the life insurance portion
thereof); (c) executive disability insurance policy premiums paid by the
Company in 1998 ($1,016), 1997 ($1,016) and 1996 ($508); and (d) the benefit
to the executive of interest-free loans from the Company based on the
applicable federal rate in effect on the date of issuance of each such loan,
in 1998 ($1,305) and 1997 ($836).
(8) Amounts for Ms. Salvo include: (a) contributions by the Company under the
Company's 401(k) retirement/profit sharing plan in 1998 ($2,597), 1997
($1,686) and 1996 ($1,447); (b) term life insurance premiums paid by the
Company in 1998 ($84), 1997 ($69) and 1996 ($55); (c) executive disability
insurance policy premiums paid by the Company in 1998 ($485); and (d) the
benefit to the executive of interest-free loans from the Company based on
the applicable federal rate in effect on the date of issuance of each such
loan, in 1998 ($857) and 1997 ($415).
41
<PAGE> 43
STOCK OPTION PLANS
1998 Equity Incentive Plan
The Company has adopted the 1998 Equity Incentive Plan (the "1998 Plan")
effective July 9, 1998 to attract and retain the best available talent and
encourage the highest level of performance by directors, employees and other
persons who perform services for the Company. The 1998 Plan permits the
Compensation Committee of the Board of Directors (or such other committee
designated by the Board) to make various long-term incentive awards as described
below ("Awards"), generally equity-based, to eligible persons. The Board of
Directors believes that by including various kinds of Awards in the 1998 Plan,
the Compensation Committee will have maximum flexibility in determining what
vehicle is best suited at any particular time to act as a long-term incentive.
The Company intends to reserve 2,000,000 shares of Common Stock for issuance
pursuant to the 1998 Plan.
The 1998 Plan is administered by the Compensation Committee. So long as it
acts consistently with the express provisions of the 1998 Plan, the Compensation
Committee has the authority to (a) grant Awards; (b) determine the persons to
whom Awards shall be granted; (c) determine the size of Awards; (d) determine
the terms and conditions applicable to Awards; (e) determine the terms and
provisions of Award agreements; (f) interpret the 1998 Plan; and (g) prescribe,
amend and rescind rules and regulations relating to the 1998 Plan.
The 1998 Plan provides for grants of Awards including, but not limited to
(a) options to purchase shares of Common Stock consisting of (i) incentive stock
options at not less than the fair market value on the date of grant (except in
the case of a shareholder possessing more than 10% of the total combined voting
power of all classes of Common Stock, in which case the exercise price shall be
not less than 110% of the fair market value on the date of grant); (ii)
non-qualified stock options at an exercise price determined by the Compensation
Committee; (b) stock appreciation rights (either tandem or freestanding) which
are rights to receive an amount equal to the increase, between the date of grant
and the date of exercise, in the fair market value of the number of shares of
Common Stock subject to the stock appreciation right; (c) shares of restricted
stock which are shares of Common Stock granted to an eligible person but which
have certain conditions attached to them which must be satisfied in order for
the holder to have unencumbered rights to the restricted stock; and (d)
performance Awards which are awards in shares of Common Stock or cash and which
may be awarded based on the extent to which the person achieves selected
performance objectives over a specified period of time. All material terms of
such Awards shall be determined by the Compensation Committee. At the discretion
of the Compensation Committee, in the event of a Change in Control (as
hereinafter defined), certain Awards may vest immediately.
"Change in Control" means (i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 50% or more of either the then outstanding shares of Common
Stock or the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors; (ii)
individuals who, as of the date of the 1998 Plan constitute the Board of
Directors, cease for any reason to constitute at least a majority of the Board
of Directors except with respect to any director who was approved by a vote of
at least a majority of the directors then comprising the Board of Directors;
(iii) approval by the shareholders of the Company of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, more than 60% of the then outstanding shares of Common Stock
continues to be owned by the shareholders who were the beneficial holders of
such stock prior to such transaction; or (iv) approval by the shareholders of
the Company of a complete liquidation or dissolution of the Company or the sale
or other disposition of all or substantially all of the assets of the Company.
The Board of Directors may suspend, terminate, modify or amend the 1998
Plan at any time without shareholder approval except to the extent that
shareholder approval is required by law or by the rules of the principal stock
exchange on which the Common Stock is listed. The Board of Directors may not,
however, without the consent of the person to whom an Award was previously
granted, adversely affect the rights of that person under the Award.
42
<PAGE> 44
1987 Stock Option Plan
The Company adopted the 1987 Stock Option Plan (the "1987 Stock Option
Plan" and together with the 1998 Plan, the "Stock Option Plans") effective July
1, 1987 to align the interests of the officers, employees, directors,
consultants and agents of the Company with those of its stockholders and to
encourage participants therein to acquire an ownership interest in the Company
through the granting of options. The 1987 Stock Option Plan provides that
options may be granted thereunder up to July 1, 1997. The Company reserved
1,220,000 shares of Common Stock for issuance pursuant to options granted under
the 1987 Stock Option Plan. Options for 508,000 shares of Common Stock were
granted under the 1987 Stock Option Plan, 371,166 of which have been exercised.
The 1987 Stock Option Plan is administered by the Board of Directors of the
Company. Pursuant to the terms and conditions of the 1987 Stock Option Plan, the
Board of Directors (or a committee designated by the Board of Directors)
effected the grant of options under the 1987 Stock Option Plan, determined the
form of options to be granted in each case, and has the right to make any other
determinations under, and interpretation of, any provision of the 1987 Stock
Option Plan. The Board of Directors may amend and make such changes in and to
the 1987 Stock Option Plan as it may deem proper and in the best interests of
the Company.
The 1987 Stock Option Plan provided for two separate forms of options to be
granted: incentive stock options pursuant to Section 422A of the Internal
Revenue Code of 1954, as amended (the "Code"), and non-qualified stock options.
Incentive stock options could only be granted to employees of the Company. Non-
qualified stock options could be granted to any officer, employee, director
(except a disinterested director, as defined in the 1987 Stock Option Plan),
consultant or agent of the Company. The Board of Directors of the Company,
acting by a majority of its disinterested directors, determined the persons to
be granted options, the number of shares subject to each option, whether the
options would be incentive stock options or non-qualified stock options, and the
terms of the options, consistent with the provisions of the 1987 Stock Option
Plan. The Board of Directors had the right to appoint from its disinterested
directors a committee of three or more persons who had the right to exercise the
powers of the Board of Directors in granting options under the 1987 Stock Option
Plan. A disinterested director is defined as a director who is not currently
eligible, and has not been eligible at any time within one year prior to the
granting of the options in question, to receive any option granted under the
1987 Stock Option Plan, or any stock, stock option or stock appreciation rights
under any other plan of the Company or its affiliates.
The exercise price for the shares of Common Stock which may be purchased
under each incentive stock option is at least equal to the fair market value per
share of the outstanding Common Stock of the Company at the time the option was
granted as determined by the Board of Directors in its discretion. The aggregate
fair market value (determined as of the time the option was granted) of the
Common Stock for which an individual could have been granted incentive stock
options in any calendar year was subject to the maximum permitted by the Code.
The exercise price for the shares of Common Stock which may be purchased under
each incentive stock option issued to a person who, immediately prior to the
grant of such option, owned (directly or indirectly) Common Stock possessing
more than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiaries (a "Restricted
Individual"), is at least equal to one hundred and ten percent (110%) of the
fair market value of the Common Stock subject to the option. The exercise price
for the shares of Common Stock which may be purchased under each non-qualified
stock option is at least equal to fifty percent (50%) of the fair market value
of the Common Stock subject to the option.
Each incentive stock option is exercisable at such time or times as are set
forth in the option agreement with respect to such option, but in no event after
the expiration of ten years from the date such option was granted. An incentive
stock option granted to a Restricted Individual is not exercisable after the
expiration of five years from the date such option was granted. A non-qualified
stock option is exercisable for such consideration, in such manner and at such
time or times as set forth in an option agreement containing such provisions as
the Board of Directors determined in granting such an option, and is exercisable
for a period of ten years and one day from the date such option was granted, but
in no event after such period.
43
<PAGE> 45
Each option granted under the 1987 Stock Option Plan is not transferable by
the optionee. The terms of the options and the number of shares of Common Stock
subject to the 1987 Stock Option Plan shall be equitably adjusted in such a
manner as to prevent dilution or enlargement of option rights in the event of a
declaration of a dividend payable to the holders of Common Stock in stock of the
same class; a split or a reverse split of the Common Stock; or a
recapitalization of the Company under which shares of one or more different
classes are distributed in exchange for or upon the Common Stock without payment
of any valuable consideration by the holders thereof. The Board of Directors
shall conclusively determine the terms of any such adjustment.
There were no stock options awarded in 1998 under the 1987 Stock Option
Plan. The following table indicates the aggregate option exercises in 1998 by
the Named Executive Officers and fiscal year-end option values:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
SHARES AT FISCAL YEAR-END YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Bleyleben.......... 0 $ 0 0 0 $ 0 $ 0
Richard F. Latour........... 40,262 354,244 0 38,778 0 395,835
J. Gregory Hines............ 13,420 116,842 0 14,920 0 153,719
John Plumlee................ 11,940 96,982 0 12,000 0 120,552
Carol Salvo................. 11,940 96,982 0 12,000 0 120,552
</TABLE>
- ---------------
(1) The amounts in these columns are calculated using the difference between the
fair market value of the Company's Common Stock at exercise or at the end of
the Company's 1998 fiscal year, as the case may be, and the option exercise
prices. The Board of Directors determines the fair market value of the
Company's Common Stock in connection with the Stock Unit Plan based on a
formula which values the Company at a multiple (determined by reference to
an index of publicly traded companies) of the Company's most recent four
quarters net income, multiplied by a discount factor to take into account
the illiquidity of the Common Stock. The most recent value as so determined
by the Board of Directors was used in such calculations.
PROFIT SHARING PLAN AND DISCRETIONARY BOARD OF DIRECTOR BONUS PROGRAMS
The Company pays annual bonuses and makes profit sharing payments as
determined by the Compensation Committee of the Board of Directors. These
payments are made under informal arrangements and are based on an employee's
performance during the prior fiscal year. Historically, the Board of Directors
has determined annual bonus and profit sharing payments for Dr. Bleyleben and
Mr. Latour. The Board of Directors also establishes a pool to be allocated by
Dr. Bleyleben and Mr. Latour on an annual basis among senior executives of the
Company. Each employee is paid one-third of his or her bonus and profit sharing
at the time such amount is determined. The remaining two-thirds is paid over the
next two years in the discretion of the Board of Directors or Dr. Bleyleben and
Mr. Latour based on Company and employee performance.
EMPLOYMENT AGREEMENTS
The Company has entered into Employment Agreements with Dr. Bleyleben and
Mr. Latour for a three-year period commencing June 12, 1998, subject to
automatic successive one-year renewals unless terminated pursuant to the terms
thereof. In the event of a termination of the Employment Agreements by the
Company without cause, or by Dr. Bleyleben or Mr. Latour for specified good
reason, the Employment Agreements provide for three years of severance payments
to Dr. Bleyleben and Mr. Latour, respectively, on the basis of their highest
base salary during the employment period. In addition, Dr. Bleyleben and Mr.
Latour would also be entitled to a prorated payment of base salary and bonus to
the date of termination, and the acceleration of deferred compensation and
accrued but unpaid amounts under the Company's bonus and/or profit sharing
44
<PAGE> 46
plans. Dr. Bleyleben's and Mr. Latour's current base salaries, respectively, are
$260,000 and $210,000. The bonus for the current fiscal year will be determined
by the Board of Directors. If, in connection with a payment under their
Employment Agreement, either Dr. Bleyleben or Mr. Latour shall incur any excise
tax liability on the receipt of "excess parachute payments" as defined in
Section 280G of the Internal Revenue Code of 1986, as amended, the Employment
Agreements provide for gross-up payments to return them to the after-tax
position they would have been in if no excise tax had been imposed. As used in
each Employment Agreement, "for good reason" means the assignment to the
executive of duties inconsistent with the executive's position, authority,
duties or responsibilities; the failure by the Company to pay the agreed base
salary and provide the executive with benefits; moving the executive to a
location outside of the metropolitan Boston, Massachusetts area; and the failure
by the Company to require a successor to assume all obligations under the
Employment Agreement.
The Company has also entered into separate employment agreements with each
of the remaining Named Executive Officers which are designed to provide an
incentive to each executive to remain with the Company pending and following a
Change in Control (as defined above). Each employment agreement has an initial
term of one year following a Change in Control, with automatic extensions upon
the expiration of the initial one-year term for successive one-month periods.
Pursuant to each employment agreement, the executive will be entitled to receive
an annual base salary of not less than twelve times the highest monthly base
salary paid or payable to the executive within the twelve months preceding the
Change in Control. If the employment agreement is terminated by the Board other
than for cause, death or disability, or is terminated by the executive for
specified good reason, the Company shall pay to the executive in a cash lump sum
within 30 days after the date of termination, the aggregate of the following
amounts: (i) the executive's annual base salary through the date of termination;
(ii) a special bonus in the amount of $575,000, $600,000 and $585,000 for
Messrs. Hines and Plumlee and Ms. Salvo, respectively; (iii) any other
compensation previously deferred by the executive, together with any accrued
interest or earnings thereon; and (iv) any accrued vacation pay.
45
<PAGE> 47
CERTAIN TRANSACTIONS
During 1995, 1997 and 1998, Richard F. Latour, Executive Vice President,
Chief Operating Officer and Chief Financial Officer of the Company, borrowed an
aggregate of $152,776 from the Company to exercise vested options to purchase
Common Stock (the "Exercised Options"). The loans are non-interest bearing
unless the principal amount thereof is not paid in full when due, at which time
interest accrues and is payable at a rate per annum equal to the prime rate
published by The Wall Street Journal plus 4.0%. The outstanding principal
balance of these loans is reduced by any dividends payable upon the stock
underlying the Exercised Options. All principal amounts outstanding under such
loans are due on the earlier of the end of employment or December 27, 2005. Mr.
Latour has agreed to repay all outstanding indebtedness to the Company upon the
closing of the Offering with the proceeds of shares of Common Stock sold by him.
During the fiscal year ended December 31, 1997, the largest aggregate amount
outstanding under this loan was $86,297, with $85,168 remaining outstanding at
September 30, 1998.
The Parker Family Limited Partnership, controlled by Jeffrey Parker, a
director of the Company, loaned the Company an aggregate of $2.4 million in the
form of Junior Subordinated Notes, $2.2 million of which was outstanding as of
December 31, 1998, as follows: $200,000 on September 1, 1994 at an interest rate
per annum equal to the higher of 12% or a bank prime rate plus 3% maturing
September 1, 1999; $200,000 on May 1, 1995 at an interest rate per annum equal
to 12% or a bank prime rate plus 4% maturing May 1, 2000; $500,000 on June 1,
1996 at an interest rate per annum equal to the higher of 12% or a bank prime
rate plus 3% maturing June 1, 2000; $250,000 on December 1, 1996 at an interest
rate per annum equal to the higher of 12% or a bank prime rate plus 3% maturing
December 1, 1999; $500,000 on December 1, 1996 at an interest rate per annum
equal to the higher of 12% or a bank prime rate plus 3% maturing December 1,
2002; $250,000 on December 1, 1996 at an interest rate per annum equal to the
higher of 12% or a bank prime rate plus 3% maturing December 1, 2001; $125,000
on September 1, 1997 at an interest rate per annum equal to 11% maturing
September 1, 2001; and $125,000 on September 1, 1997 at an interest rate per
annum equal to 11% maturing September 1, 2003.
Peter R. Bleyleben, the President and Chief Executive Officer and a
Director of the Company, loaned the Company an aggregate of $125,000 in the form
of Junior Subordinated Notes as follows: $100,000 on December 1, 1996 at 12%
interest per annum maturing December 1, 2001; and $25,000 on June 1, 1998 at
10.5% interest per annum maturing June 1, 2003. Mr. Bleyleben also loaned the
Company an aggregate of $200,000 in the form of demand notes as follows:
$100,000 on October 17, 1997 at an interest rate per annum equal to a bank prime
rate minus 1%; and $100,000 on December 1, 1998 at an interest rate per annum
equal to a bank prime rate minus 1%.
Alan J. Zakon, a director of the Company, loaned the Company an aggregate
of $200,000 in the form of Junior Subordinated Notes as follows: $100,000 on
February 1, 1995 at 12% interest per annum maturing February 1, 2000; and
$100,000 on March 18, 1998 at 10.5% interest per annum through his IRA maturing
April 1, 1999.
Ingrid R. Bleyleben, the mother of Peter R. Bleyleben, the President and
Chief Executive Officer and a Director of the Company, loaned the Company the
following amounts in the form of Junior Subordinated Notes: $120,000 on February
16, 1996 at an interest rate per annum equal to 11.5% maturing March 1, 2001;
$25,000 on December 17, 1996 at an interest rate per annum equal to 11.5%
maturing January 1, 2002; $20,000 on June 4, 1997 at an interest rate per annum
equal to 11.5% maturing May 1, 2002; and $25,000 on June 1, 1998 at an interest
rate per annum equal to 10% maturing June 1, 2003.
All of the foregoing transactions, with the exception of the loan to Mr.
Latour, are on terms similar to those that would have been obtained through
arms-length negotiations.
46
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of December 31, 1998 with
respect to the beneficial ownership of Common Stock of each person known by the
Company to be the beneficial owner of more than 5% of the 9,913,166 outstanding
shares of Common Stock, each director and executive officer of the Company and
all directors and executive officers of the Company (not including treasury
stock) as a group. Each person named has sole voting and investment power with
respect to the shares indicated, except as otherwise stated in the notes to the
table.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK
- ------------------------------------ --------------------- -------------------------
<S> <C> <C>
Peter R. Bleyleben(2)............................... 1,684,960 17.00%
Brian E. Boyle(3)................................... 2,240,000 22.60%
Torrence C. Harder(4)............................... 2,083,452 21.02%
Jeffrey P. Parker(5)................................ 340,840 3.44%
Alan J. Zakon....................................... 40,000 *
Richard F. Latour................................... 342,222 3.45%
J. Gregory Hines.................................... 25,080 *
John Plumlee........................................ 34,000 *
Carol Salvo......................................... 18,000 *
All directors and executive officers as a
group (9 persons)................................. 6,808,554 68.68%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated in the footnotes, each of the stockholders named
in this table has sole voting and investment power with respect to the
shares of Common Stock shown as beneficially owned by such stockholder,
except to the extent that authority is shared by spouses under applicable
law.
(2) Includes 19,600 shares of Common Stock owned by Dr. Bleyleben's mother for
which Dr. Bleyleben disclaims beneficial ownership.
(3) Includes 716,800 shares of Common Stock owned by Dr. Boyle's former spouse
over which Dr. Boyle retains voting control, for which Dr. Boyle disclaims
beneficial ownership.
(4) Includes 100,000 shares of Common Stock held in trust for Mr. Harder's
daughter, Lauren E. Harder, over which Mr. Harder retains sole voting and
investment power as the sole trustee and for which Mr. Harder disclaims
beneficial ownership; 100,000 shares of Common Stock held in trust for Mr.
Harder's daughter, Ashley J. Harder, over which Mr. Harder maintains voting
and investment power as the sole trustee and for which Mr. Harder disclaims
beneficial ownership; 375,572 shares of Common Stock owned by
Entrepreneurial Ventures, Inc. over which Mr. Harder retains shared voting
and investment power through his ownership in, and positions as President
and Director of, Entrepreneurial Ventures, Inc.; and 34,046 shares of Common
Stock owned by Lightbridge, Inc. over which Mr. Harder retains shared voting
and investment power through his ownership in, and position as Director of,
Lightbridge, Inc., for which Mr. Harder disclaims beneficial ownership.
(5) Owned by The Parker Family Limited Partnership over which Mr. Parker retains
shared voting and investment power through his ownership in, and position as
Director of, the general partner of the Parker Family Limited Partnership.
47
<PAGE> 49
SELLING STOCKHOLDERS
Set forth below is information as to each Selling Stockholder, the number
of shares of Common Stock of the Company beneficially owned prior to the
Offering, the number of shares of Common Stock which may be offered as set forth
on the cover of this Prospectus and the number and percentage (if one percent or
more) of shares of Common Stock to be beneficially owned after the Offering by
such Selling Stockholder assuming all offered shares are sold and assuming that
in each case that the Underwriters do not exercise their over-allotment option.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO BENEFICIALLY OWNED
THE OFFERING(1) SHARES AFTER THE OFFERING(1)
-------------------- BEING ----------------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------- --------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Peter R. Bleyleben(2).................... 1,665,360 16.80% 129,550 1,535,810 11.52%
Torrence C. Harder(3).................... 1,673,834 16.88 130,250 1,543,584 11.58
Brian E. Boyle(4)........................ 1,523,200 15.37 118,500 1,404,700 10.54
Rosemary Boyle(5)........................ 716,800 7.23 80,050 636,750 4.78
Entrepreneurial Ventures, Inc............ 375,572 3.79 29,200 346,372 2.60
Spindle Limited Partnership.............. 368,688 3.72 30,000 338,688 2.54
Richard F. Latour(6)..................... 342,222 3.45 35,450 306,772 2.30
Rock Creek Partnership................... 241,660 2.44 18,125 223,535 1.68
Arthur J. Epstein........................ 227,680 2.30 15,000 212,680 1.60
Maureen Curran(7)........................ 78,000 * 8,200 69,800 *
John Plumlee(8).......................... 34,000 * 3,725 30,275 *
Stephen Obana(9)......................... 18,000 * 1,950 16,050 *
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated in the footnotes, each of the stockholders named
in this table has sole voting and investment power with respect to the
shares of Common Stock shown as beneficially owned by such stockholder,
except to the extent that authority is shared by spouses under applicable
law.
(2) Excludes 19,600 shares of Common Stock owned by Dr. Bleyleben's mother for
which Dr. Bleyleben disclaims beneficial ownership. Dr. Bleyleben has
served as President, Chief Executive Officer and Director of the Company or
its predecessor since June 1987.
(3) Includes 100,000 shares of Common Stock held in trust for Mr. Harder's
daughter, Lauren E. Harder over which Mr. Harder retains sole voting and
investment power as the sole trustee and for which Mr. Harder disclaims
beneficial ownership; and 100,000 shares of Common Stock held in trust for
Mr. Harder's daughter, Ashley J. Harder over which Mr. Harder maintains
voting and investment power as the sole trustee and for which Mr. Harder
disclaims beneficial ownership. Excludes 34,046 shares of Common Stock
owned by Lightbridge, Inc. over which Mr. Harder retains shared voting and
investment power through his ownership in, and position as Director of,
Lightbridge, Inc., for which Mr. Harder disclaims beneficial ownership, and
375,572 shares of Common Stock owned by Entrepreneurial Ventures, Inc. over
which Mr. Harder retains shared voting and investment power through his
ownership in, and position as President and Director of, Entrepreneurial
Ventures, Inc. Mr. Harder has served as a Director of the Company since
1986.
(4) Includes 1,523,200 shares held in Dr. Boyle's individual retirement account
("IRA"). Excludes 716,800 shares of Common Stock owned by Rosemary Boyle,
Dr. Boyle's former spouse, over which Dr. Boyle retains voting control, for
which Dr. Boyle disclaims beneficial ownership. Dr. Boyle, Chairman of the
Board of Directors from 1985 to 1995, has served as a Director of the
Company or its predecessor since 1985.
(5) Held in Ms. Boyle's IRA.
(6) Mr. Latour has served as Executive Vice President, Chief Operating Officer,
Chief Financial Officer, Treasurer, Clerk and Secretary of the Company
since 1995.
(7) Includes 4,454 shares of Common Stock issuable under options granted to Ms.
Curran pursuant to the 1987 Stock Option Plan.
(8) John Plumlee has served as Vice President, MIS, of the Company since 1990.
(9) Stephen Obana has served as Vice President, Marketing--West Coast of
Leasecomm since January 1995.
48
<PAGE> 50
DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company maintains a diverse mix of funding sources which include its
Credit Facilities, Subordinated Debt, and an asset securitization program.
Historically, the Company has used each of these three sources to fulfill its
liquidity needs.
Credit Facilities. Leasecomm Corporation is the borrower (the "Borrower")
under agreements with two separate bank groups which provide revolving credit
and term loan facilities. The Borrower draws on its facilities regularly, using
them as principal sources of funds for its operations. The first facility, led
by Fleet Bank, N.A., is a $55 million revolving credit and term loan facility,
of which $39.3 million in revolving credit and term loans was outstanding as of
December 31, 1998 (the "Fleet Facility"). The second facility, led by
BankBoston, N.A., is a $55 million revolving credit and term loan facility, of
which $23.4 million in revolving credit and term loans was outstanding as of
December 31, 1998 (the "BankBoston Facility"). The Borrower and the lenders
under these facilities have entered into an intercreditor agreement which
governs the relationship among the lenders under each facility as secured
creditors of the Company.
The terms of the two facilities are substantially similar. Both are
two-year facilities, with the Borrower retaining the option to renew for one
year. All balances under the revolving lines of credit will be automatically
converted to term loans ("Conversion Term Loans") on September 30, 2000 in the
case of the BankBoston Facility and July 31, 2000 in the case of the Fleet
Facility (the "Commitment Termination Date"), provided the line of credit is not
renewed and no event of default exists at that date. All amounts outstanding
under the Conversion Term Loans under the Fleet Facility are payable in monthly
installments over the weighted average life of the underlying leases and
contracts relating to such loans, but in any case no later than the fourth
anniversary of the Commitment Termination Date. Amounts outstanding under the
Conversion Term Loan under the BankBoston Facility are payable in monthly
installments over the three-year period following the Commitment Termination
Date. Both facilities provide for a maximum borrowing amount equal to specified
percentages of the present value of the remaining scheduled payments due on the
leases and contracts funded with advances under such facilities or, in the case
of certain eligible contracts, the lesser of such specified percentage or 100%
of the adjusted cost basis of the equipment underlying such contract. Prior to
the Commitment Termination Date, amounts may be borrowed under the Fleet
Facility as revolving credit loans or term loans ("Fleet Credit Period Term
Loans"). Fleet Credit Period Term Loans are repaid in monthly installments over
the weighted average life of the underlying leases or contracts funded with such
loans, but in any event, no later than the fourth anniversary of the Commitment
Termination Date. Under the Fleet Facility, $3.7 million remains outstanding as
of December 31, 1998 as a term loan which is due and payable on August 2, 1999
and which bears interest at 7.75% per annum. Outstanding borrowings with respect
to the revolving lines of credit bear interest at LIBOR plus 1.75% or the
applicable agent's prime or base rate. Outstanding Fleet Credit Period Term
Loans and Conversion Term Loans bear interest at LIBOR plus 2.50% or the
applicable agent's prime or base rate plus 0.50%. Amounts outstanding under the
Fleet Facility also may bear interest at the federal funds rate plus 1.75%. All
loans may be prepaid at any time in whole or in part, subject to breakage fees
for termination of a LIBOR loan prior to the last day of the interest period for
such LIBOR loan. Borrowings are collateralized by pledged leases and service
contracts and are guaranteed by the Company.
Each of the facilities limits the payment of dividends in any fiscal year
to no more than 50% of Consolidated Net Income (as hereinafter defined) of the
Company and its subsidiaries for the immediately preceding fiscal year,
determined in accordance with generally accepted accounting principles ("GAAP").
Each of the facilities is also subject to covenants, events of default and
other standard terms and conditions usual in facilities of this nature,
including: the Company and its subsidiaries may not (i) permit the existence of
certain liens; (ii) guarantee certain obligations of other persons; (iii) merge
or consolidate with any other person, acquire all or substantially all of the
assets or stock of any other person or sell all or any substantial part of its
assets or create new subsidiaries; (iv) make any material change in its
business; (v) prepay any other indebtedness for borrowed money, including the
Subordinated Debt, except for prepayments made from the net proceeds of this
Offering so long as Consolidated Tangible Capital Funds (as hereinafter defined)
and Consolidated Tangible Net Worth (as hereinafter defined) are in excess of
the
49
<PAGE> 51
respective amounts thereof immediately prior to consummation of this Offering;
(vi) make capital expenditures in any year in excess of 20% of Consolidated
Tangible Net Worth (as hereinafter defined) as of the end of the immediately
preceding fiscal year; and (vii) enter into certain transactions with
affiliates. Further, the Company may not incur additional indebtedness, other
than (i) indebtedness under each Credit Facility; (ii) purchase money
indebtedness; (iii) unsecured indebtedness; (iv) certain existing indebtedness,
including Subordinated Debt; and (v) indebtedness under lender hedge agreements.
In addition, under the Fleet Facility, at any such time as the Company shall not
be subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, the Company may not issue any shares of its capital stock or any
security convertible into capital stock, if, after giving effect to such
issuance, Peter R. Bleyleben, Brian E. Boyle and Torrence C. Harder (the
"Principal Stockholders") own less than 45%, or own and/or control in the
aggregate less than 60%, of the issued and outstanding shares of capital stock
of the Company on a fully diluted basis (assuming the exercise of all
outstanding stock options), having ordinary voting rights for the election of
directors. Under the BankBoston Facility, both Peter R. Bleyleben and Richard F.
Latour must remain officers of the Company unless replacements acceptable to
BankBoston N.A. are named. Additionally, under the BankBoston Facility, not more
than one-third of the Company's directors may be replaced during the same year
without the consent of BankBoston N.A.
The Company is also required to maintain certain financial covenants,
including, among others, (i) to maintain at all times a ratio of Consolidated
Indebtedness (as hereinafter defined) to Consolidated Tangible Capital Funds of
not more than 6.5:1.0; (ii) to maintain at all times a Consolidated Tangible Net
Worth of not less than the sum of (a) 85% of Tangible Net Worth as of December
31, 1997 in the case of the Fleet Facility and $23,500,000 in the case of the
BankBoston Facility, plus (b) 50% of the aggregate amount of Consolidated Net
Income of the Company and its subsidiaries for each of the fiscal quarters
ending after March 31, 1998 in the case of the Fleet Facility and September 30,
1998 in the case of the BankBoston Facility, in each case without deducting
therefrom any amount of Consolidated Net Deficit (as hereinafter defined) for
any of such fiscal quarters; (iii) to maintain at all times an allowance for bad
debt of the Company and its subsidiaries of at least 7% of Gross Lease
Installments (as hereinafter defined); and (iv) to achieve as of the end of each
fiscal quarter a Fixed Charge Ratio (as hereinafter defined) of the Company and
its subsidiaries of not less than 1.25:1.00. As of September 30, 1998, the
Company was in compliance with all covenants under these facilities.
As used in each Credit Facility, the term "Consolidated Indebtedness" means
the consolidated Indebtedness (excluding Subordinated Debt but including
non-recourse indebtedness) of the Company and its subsidiaries determined in
accordance with GAAP; "Consolidated Net Income" and "Consolidated Net Deficit"
mean the consolidated net income (or deficit) of the Company and its
subsidiaries, determined in accordance with GAAP; provided, however, that
Consolidated Net Income and Consolidated Net Deficit shall not include amounts
added to such net income (or deficit) in respect of the write-up of any asset;
the term "Consolidated Tangible Capital Funds" means the sum, with respect to
the Company and its subsidiaries, on a consolidated basis, of (a) capital stock,
(b) additional paid-in capital, (c) retained earnings and (d) Subordinated Debt
less (x) organizational costs and good will, (y) treasury stock and (z) 25% of
debt issue costs determined in accordance with GAAP; the term "Consolidated
Tangible Net Worth" means the sum, with respect to the Company and its
subsidiaries on a consolidated basis, of (a) capital stock, (b) additional
paid-in capital and (c) retained earnings, less the sum of (x) organizational
costs and goodwill, (y) treasury stock and (z) 25% of debt issue costs
determined in accordance with GAAP; the term "Fixed Charge Ratio" means the
ratio of Consolidated Earnings, during any fixed period consisting of the
preceding four consecutive fiscal quarters, to Fixed Charges, payable during
such period; and the term "Gross Lease Installments" means the aggregate
receivables due to the Borrower from all leases of equipment. In addition,
"Consolidated Earnings" means the sum of Consolidated Net Income plus, on a
consolidated basis for the Company and its subsidiaries, (a) all provisions for
any deferred federal, state or other taxes plus (b) interest on indebtedness
(including payments on capitalized lease obligations in the nature of interest),
all as determined in accordance with GAAP; and "Fixed Charges" means on a
consolidated basis for the Company and its subsidiaries, the payments of
interest on all indebtedness (including payments on capitalized lease
obligations in the nature of interest).
50
<PAGE> 52
As of September 30, 1998, on a pro forma basis after giving effect to the
consummation of the Offering and the anticipated use of $10.3 million of the net
proceeds thereof to repay Junior Subordinated Notes, $9.5 million of the net
proceeds to repay indebtedness outstanding under the senior Subordinated Debt
and $26.4 million of the net proceeds to repay indebtedness outstanding under
the Credit Facilities, (i) the Company's ratio of Consolidated Indebtedness to
Consolidated Tangible Capital Funds would have been 1.85:1.0; and (ii)
Consolidated Tangible Net Worth would have been $73.5 million, which was $53.4
million in excess of the sum of the amount required under the Fleet Facility and
$50.0 million in excess of the amount required under the BankBoston Facility. As
of such date, the Company's allowance for bad debt was 9.3% of the Company's
Gross Lease Installments as of such date. On a pro forma basis, assuming that
the Offering and the repayment of indebtedness occurred on April 1, 1997, the
Company's Fixed Charge Ratio would have been 3.68:1.0.
Set forth below is a summary of the material terms of the Company's notes
payable under these facilities as of December 31, 1998.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
BANK OUTSTANDING FIXED/FLOATING RATE
- ---- ---------------- -------------- ----
<S> <C> <C> <C>
(dollars in millions)
Fleet Bank, N.A........................... $15.0 Floating 7.4068%(a)
Fleet Bank, N.A........................... 20.0 Floating 7.3939(a)
Fleet Bank, N.A........................... 3.7 Fixed 7.75
BankBoston, N.A........................... 10.0 Floating 7.1938(a)
BankBoston, N.A........................... 7.5 Floating 7.4103(a)
Fleet Bank, N.A./BankBoston............... 6.5 Floating Prime
-----
$62.7
=====
</TABLE>
- ---------------
(a) Based on LIBOR as of December 31, 1998 plus 1.85%. The Company periodically
enters into interest rate swaps to hedge its floating rate exposure. Rate
shown represents swapped fixed rate. LIBOR loans not renewed at maturity
automatically convert to prime rate loans.
SUBORDINATED DEBT
Since the Company's founding in 1986, Subordinated Debt has been an
important component of its funding program for two reasons. First, the Company's
Subordinated Debt is treated as equity in calculating the financial covenants
under the Company's Credit Facilities, allowing the Company to leverage its
common equity to a greater extent. Second, the Company uses its Subordinated
Debt program as a source of funding for leases, contracts and loans of certain
products which otherwise are not eligible for funding under the Credit
Facilities and for potential portfolio purchases. Over the last decade, the
Company has expanded its Subordinated Debt program by extending maturities,
increasing issuance frequency, and expanding its investor universe to include
banks, insurance companies, and individual investors. The table below sets forth
selected information as of December 31, 1998 with respect to the Company's
current outstanding issuances:
<TABLE>
<CAPTION>
DATE OF
PRINCIPAL AMOUNT ------------------------------------
OUTSTANDING RATE ISSUE MATURITY
(dollars in millions) ---------------- ---- --------- -----------
<S> <C> <C> <C> <C>
Massachusetts Mutual Life Insurance
Co.................................. $ 4.5 12.0% August 1, 1994 July 15, 2001(a)
Rothschild Inc........................ 4.6 12.25 October 17, 1996 October 1, 2001(b)
Aegon Insurance Group................. 5.0 12.6 October 15, 1996 October 15, 2003(c)
-----
14.1
Others(d)............................. 10.3
-----
$24.4
=====
</TABLE>
- ---------------
(a) Repayment schedule requires annual principal payments of $1.5 million,
commencing July 15, 1997, until the note matures.
(b) Repayment schedule requires monthly principal payments of $125,000 for the
period from November 1, 1998 through October 1, 2000, after which time
principal payments increase to $167,000 per month from
51
<PAGE> 53
November 1, 2000 until maturity. The Company made a principal payment of
$125,000 under the Rothschild Inc. subordinated note on January 1, 1999.
(c) Repayment schedule requires quarterly payments of $250,000 commencing March
15, 1999 until maturity.
(d) Issued in private placements to various individual investors at interest
rates ranging from 8.0% to 12.0% at December 31, 1998, with maturities
ranging from April 1, 1999 to December 1, 2003.
Other than as set forth above, the terms of the Note Agreements covering
the Massachusetts Mutual Life Insurance Co. subordinated notes (the "MassMutual
Agreement"), the Rothschild Inc. subordinated notes (the "Rothschild Agreement")
and the Aegon Insurance Group subordinated notes (the "Aegon Agreement", and
together with the MassMutual Agreement and the Rothschild Agreement,
collectively, the "Subordinated Note Agreements") are substantially similar. All
amounts outstanding under the Subordinated Note Agreements may be prepaid,
subject to the payment of a "Make-Whole Amount" equal to the excess of (i) the
present value of the remaining principal payments due and owing under each
agreement plus the amount of interest that would have been payable in respect of
such dollar amount, determined by discounting amounts at the Reinvestment Rate
from the respective dates on which they would have been payable over (ii) 100%
of the principal amount of the outstanding notes being prepaid. The
"Reinvestment Rate" is 2.00% plus the arithmetic mean of the treasury constant
maturity yields corresponding to the weighted average life to maturity of the
principal being repaid. In the case of the Aegon Note Agreement and the
MassMutual Agreement, if the Reinvestment Rate is equal to or higher than the
interest rate on the applicable note, the Make-Whole Amount would be zero.
Each Subordinated Note Agreement permits the payment of dividends on the
Common Stock so long as the aggregate amount paid during the period from January
1, 1994 (January 1, 1996 in the case of the Aegon Agreement) to and including
the date of the dividend payment would not exceed the sum of (A) 35% of
consolidated net income for such period, computed on a cumulative basis for the
entire period (or if such consolidated net income is a deficit figure, then
minus 100% of such deficit) plus (B) the net cash proceeds from the sale after
January 1, 1994 (January 1, 1996 in the case of the Aegon Agreement) of capital
stock of the Company plus (C) the aggregate principal amount of any debt of the
Company which has been converted after January 1, 1994 (January 1, 1996 in the
case of the Aegon Agreement) into capital stock of the Company minus (D) since
January 1, 1994 (January 1, 1996 in the case of the Aegon Agreement), the
aggregate amount of dividends paid on the Preferred Stock, prepayments of
principal under the subordinated notes listed under "Others" in the above table
("Junior Subordinated Notes") and amounts paid to purchase, redeem or retire any
shares of its capital stock. In addition, the Company is required to make an
offer of prepayment to holders of the notes outstanding under the Subordinated
Note Agreements upon a change of control, defined as any issue, sale or other
disposition of shares of capital stock of the Company which results in any
person or group of persons acting in concert (other than Dr. Bleyleben, Dr.
Boyle and Mr. Harder and their affiliates) owning more than 50% of the voting
stock of the Company.
Each of the Subordinated Note Agreements is also subject to covenants,
events of default and other standard terms and conditions usual in agreements of
this nature, including the following: the Company and its subsidiaries may not
(i) permit the existence of certain liens; (ii) guarantee certain obligations of
other persons; (iii) merge or consolidate with any other person, acquire all or
substantially all of the assets or stock of any other person or sell all or any
substantial part of its assets or create new subsidiaries; (iv) make any
material change in its business; (v) prepay the Junior Subordinated Notes,
except for limited principal amounts in any 12-month period; (vi) enter into
certain transactions with affiliates; and (vii) incur additional indebtedness,
other than certain permitted indebtedness. In addition, at all time while the
notes are outstanding under the Subordinated Note Agreements, the Company must
maintain a $1,500,000 key man life insurance policy on Dr. Bleyleben, and under
the Rothschild Agreement, Dr. Bleyleben must continue to serve as Chief
Executive Officer and hold at least 12.0% of the voting stock of the Company on
a diluted basis. The Company has obtained a permanent waiver of the prohibition
on prepayment of the Junior Subordinated Notes and the requirement that Dr.
Bleyleben hold at least 12.0% of the Common Stock.
52
<PAGE> 54
The Company is also required under the Subordinated Note Agreements to
maintain certain financial covenants, including, among others, (i) to maintain
at all times an allowance for bad debts reserve in an amount not less than 100%
of Delinquent Billed Lease Receivables (as hereinafter defined) (150% in the
Aegon Agreement for any period during which the Adjusted Interest Coverage Ratio
(as hereinafter defined) is less than 1.10 to 1.00); (ii) maintain at all times
consolidated net worth at least equal to the greater of (a) $9.0 million or (b)
the sum of stockholders' equity as of January 1, 1994 plus an amount equal to
65% of consolidated net income for the period from January 1, 1994 to the date
of any determination thereof, computed on a consolidated basis for the entire
period; and (iii) maintain for each period of four consecutive quarters a ratio
of Net Income Available for Interest Charges (as hereinafter defined) to
interest charges of 1.25 to 1.00. In addition, the Rothschild Agreement requires
the Company to maintain the following financial covenants, (i) to ensure at all
times that consolidated senior debt does not exceed 700% of Adjusted
Consolidated Net Worth (as hereinafter defined); (ii) to ensure at all times
that consolidated Subordinated Debt other than Junior Subordinated Notes does
not exceed 150% of Consolidated Net Worth (as hereinafter defined); and (iii) to
maintain at all time a ratio of senior debt plus consolidated Subordinated Debt
other than Junior Subordinated Notes to stockholders' equity of not more than
18.0:1.0.
As used herein, "Adjusted Consolidated Net Worth" means an amount equal to
the sum of (i) Consolidated Net Worth plus (ii) Senior Subordinated Debt;
"Adjusted Interest Coverage Ratio" means the ratio of Adjusted Net Income
Available for Interest Charges to interest charges; "Adjusted Net Income
Available for Interest Charges" means Net Income Available for Interest Charges
less the Bad Debts Reserve Deficiency; "Bad Debts Reserve Deficiency" means 150%
of Delinquent Billed Lease Receivables less the bad debts reserve; "Consolidated
Net Worth" means, as of the date of any determination thereof, the sum of (a)
stockholders' equity plus (b) the aggregate principal amount of the Junior
Subordinated Notes outstanding; "Delinquent Billed Lease Receivables" shall mean
receivables due in respect of leases of equipment which remain unpaid 90 or more
days after the due date thereof; and "Net Income Available for Interest Charges"
means, for any period, the sum of (i) consolidated net income during such period
plus (to the extent deducted in determining consolidated net income), (ii) all
provisions for any Federal, state or other income taxes made by the Company and
its subsidiaries during such period and (iii) interest charges of the Company
and its subsidiaries during such period.
As of September 30, 1998, on a pro forma basis after giving effect to the
consummation of the Offering and the anticipated use of $10.3 million of the net
proceeds thereof to repay Junior Subordinated Notes, $9.5 million of the net
proceeds to repay indebtedness outstanding under the senior Subordinated Debt
and $26.4 million of the net proceeds to repay indebtedness outstanding under
the Credit Facilities, (i) the Company's consolidated net worth would have been
$73.5 million, which was $50.6 million in excess of the greater of (a) $9.0
million and (b) the sum of stockholders' equity as of January 1, 1994 plus an
amount equal to 65% of consolidated net income for the period from January 1,
1994 to September 30, 1998 (assuming that the Offering and the repayment of
indebtedness occurred on January 1, 1994); (ii) consolidated senior debt would
have been 129% of Adjusted Consolidated Net Worth; (iii) consolidated
Subordinated Debt other than Junior Subordinated Notes would have been 6.8% of
Consolidated Net Worth; and (iv) the ratio of senior debt plus consolidated
Subordinated Debt other than Junior Subordinated Notes to stockholders' equity
would have been 1.61:1.0. As of September 30, 1998, the Company's allowance for
bad debts reserve was 101% of Delinquent Billed Lease Receivables. On a pro
forma basis, assuming that the Offering and the repayment of indebtedness
occurred on October 1, 1997, the ratio of Net Income Available for Interest
Charges to interest charges would have been 3.68:1.0.
SECURITIZATION PROGRAM
The Company has completed six private Securitizations since its inception
for an aggregate amount of $141.9 million. The securitized receivables remain on
the Company's balance sheet. As a result, the Company does not use gain-on-sale
accounting. MBIA, Inc. has provided credit enhancement for all Securitizations
except the first offering. Each Securitization except the first offering was
rated 'AAA' by Standard and Poor's and 'Aaa' by Moody's Investor Services, Inc.
The first securitization was rated 'AA' by Duff & Phelps.
53
<PAGE> 55
The table below sets forth selected information as of December 31, 1998
with respect to the Company's six Securitizations:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
--------------------- STATED
SERIES ORIGINAL REMAINING COUPON(a) MATURITY
- ------ -------- --------- --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1992-1............................. $ 7.9 -- 7.23% (b)
1993-1............................. 6.1 -- 5.17 (b)
1994-A............................. 18.9 -- 7.33 (b)
1996-A............................. 23.4 $ 5.3 6.69 May 16, 2000
1997-A............................. 44.8 23.4 6.42 January 16, 2003
1998-A............................. 40.8 38.7 6.03 May 17, 2004
------ -----
$141.9 $67.4
====== =====
</TABLE>
- ---------------
(a) Monthly equivalent.
(b) Repaid.
Each of the Indentures pursuant to which each of the Series 1996-A, 1997-A
and 1998-A Lease-Backed Term Notes were issued (the "1996-A Indenture", the
"1997-A Indenture" and the "1998-A Indenture," respectively) requires the
Company to repurchase leases from the respective trusts if the status of such
leases result in the Company breaching the representations and warranties made
by the Company at the time of the Securitization.
Each Indenture also contains "Trigger Events" which would have the effect
of increasing the amount of principal distributable to holder of each series of
notes on each payment date thereafter and which may cause the removal of the
Company as servicer under each pool of leases. A "Trigger Event" is defined as
the occurrence of any one of the following: (i) for any three consecutive due
periods, the average of the Annualized Default Rates (as hereinafter defined)
for such consecutive due periods shall be equal to or greater than the Maximum
Default Rate (as hereinafter defined); (ii) in any due period, the Annualized
Default Rate is equal to or greater than three times the Maximum Default Rate;
(iii) in any two consecutive due periods, the sum of the Annualized Default
Rates for such due periods is equal to or greater than three times the Maximum
Default Rate; (iv) for any three consecutive due periods, the average of the
Delinquency Rates (as hereinafter defined) is equal to or greater than the
Maximum Delinquency Rate (as hereinafter defined); (v) the Net Worth Requirement
(as hereinafter defined) is not met; (vi) both of Peter Bleyleben and Richard
Latour cease working for the Reported Companies (as hereinafter defined) or
become deceased or unable to work for six months or more; (vii) either (a) any
person or group of persons (within the meaning of Section 13(d) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) other than
Peter Bleyleben, Brian Boyle and Torrence Harder (the "Key Shareholders") shall
own, beneficially or of record, or control by contract or otherwise, more than
50% of the issued and outstanding shares of capital stock, on a fully diluted
basis, of the Company having ordinary voting rights for the election of
directors, (b) the Key Shareholders shall own, beneficially or of record, in the
aggregate less than 45%, or own, beneficially or of record, or control, by
contract or otherwise, in the aggregate less than 60% of the issued and
outstanding shares of capital stock, on a fully diluted basis, of the Company
having ordinary voting rights for the election of directors; provided, that this
clause (b) shall not apply if and for so long as the Company shall be subject to
the reporting requirements of the Exchange Act, or (c) the Company shall own,
beneficially or of record, or control, by contract or otherwise, in the
aggregate less than 100% of the issued and outstanding shares of capital stock
of Leasecomm; (viii) the issuer or the trust estate is required to register as
an "investment company" under the Investment Company Act of 1940, as amended;
(ix) an event of default occurs under the Indenture or certain events of
bankruptcy or insolvency occur with respect to the Company as servicer; (x) any
Reported Company shall be in default under the Fleet Facility or the BankBoston
Facility; or (xi) the Available Cash Requirement (as hereinafter defined) is not
met. Each of the Indentures permits the Company to repurchase leases that are
being prepaid, that are terminated early or that have defaulted or gone
delinquent and to deliver a substitute lease under certain circumstances in
order to prevent such Trigger Event from occurring.
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<PAGE> 56
As used herein, (i) "Annualized Default Rate" means, for any due period,
the sum of the Implicit Principal Balances (as hereinafter defined) as of the
calculation date occurring in such due period of leases that became defaulted
leases during such due period (including any leases that have been purchased or
substituted) minus the sum of recoveries, residual proceeds, and servicing
charges received during such due period, divided by the Aggregate IPB (as
hereinafter defined) on the calculation date immediately preceding such due
period, multiplied by twelve; (ii) "Available Cash Requirement" means that, as
of each calculation date and as reflected on each monthly report of the Company,
the sum of (a) unrestricted cash and (b) amounts available for borrowing by the
Reported Companies under their credit facilities is not less than $14,000,000;
(iii) "Delinquency Rate" means, for any due period, the sum of the Implicit
Principal Balances as of the calculation date occurring in such due period of
leases that are more than 30 days delinquent, as of such calculation date
(including any leases that have been purchased or substituted), divided by the
Aggregate IPB on such calculation date (including any leases that have been
purchased or substituted); (iv) "Implicit Principal Balance" of a lease
receivable is equal to, as of any date of determination, the present value of
the remaining stream of scheduled payments due with respect to such lease
receivable after the applicable calculation date at a specified formula; (v)
"Aggregate Implicit Principal Balance" as of any time is equal to the sum of the
Implicit Principal Balances for each series of notes outstanding at that time;
(vi) "Maximum Default Rate" equals 7%; (vii) "Maximum Delinquency Rate" equals
14.5%; (viii) "Minimum Net Worth Amount" means an amount equal to $24,950,000,
provided, however, that if the Company becomes subject to the reporting
requirements of the Exchange Act, such amount shall be reset to ninety percent
(90%) of the Tangible Net Worth (as hereinafter defined) of the Reported
Companies as of the close of the month in which such event occurs; (ix) "Net
Worth Requirement" means that the Tangible Net Worth of the Company, Leasecomm
and their affiliates (the "Reported Companies"), determined as of the close of
each fiscal quarter, is equal to at least the Minimum Net Worth Amount plus 60%
of the aggregate amount of consolidated net income of the Reported Companies for
each of the fiscal quarters ending after the last determination of the Minimum
Net Worth Amount, but without deducting therefrom any amount of consolidated net
losses for any of such fiscal quarters; provided however that all such amounts
shall be calculated in accordance with generally accepted accounting principles
as in effect on December 31, 1997; and (x) "Tangible Net Worth" means as of the
applicable date of determination, the sum, with respect to the Reported
Companies on a consolidated basis, of (a) capital stock, (b) additional paid-in
capital and (c) retained earnings, less the sum of (x) organizational costs and
good will, (y) treasury stock and (z) 25% of debt issuance costs.
The Company intends to use securitizations and other similar structured
finance transactions as vehicles for minimizing the Company's cost of funds
associated with financing its leases. While the Company currently intends to
keep its Securitizations on its balance sheet, the Company may in the future
securitize receivables which will not remain on its balance sheet.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 25,000,000 shares
of common stock, par value $.01 per share ("Common Stock"), and 5,000,000 shares
of Preferred Stock, par value $0.01 per share (the "Preferred Stock").
The following summary does not purport to be complete and is subject to the
detailed provisions of, and qualified in its entirety by reference to, the
Company's Restated Articles of Organization, as amended (the "Articles") and
By-Laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part, and to the applicable provisions
of the Massachusetts Business Corporations Act.
COMMON STOCK
As of December 31, 1998, 9,913,166 shares of Common Stock were outstanding
and held of record by 87 persons. Upon completion of the Offering and the
conversion of the Company's outstanding redeemable convertible preferred stock,
13,332,766 shares of Common Stock will be outstanding, excluding 120,380 shares
of Common Stock issuable upon exercise of options granted under the 1987 Stock
Option Plan and 142,590 shares held in the Company's treasury as of December 31,
1998.
55
<PAGE> 57
The holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of holders of Common Stock. The Common Stock
does not have cumulative voting rights, which means that the holders of a
majority of the voting power of shares of Common Stock outstanding are able to
elect all the directors and the holders of the remaining shares are not able to
elect any directors. Each share of Common Stock is entitled to participate
equally in dividends, if, as and when declared by the Company's Board of
Directors, and in the distribution of assets in the event of liquidation,
subject in all cases to any prior rights of outstanding shares of Preferred
Stock. The Company has paid cash dividends quarterly on its Common Stock since
August 1995. See "Risk Factors -- Change in Dividend Policy" and "Dividend
Policy." The shares of Common Stock have no preemptive rights, redemption
rights, or sinking fund provisions. The outstanding shares of Common Stock are,
and the shares of Common Stock offered hereby upon issuance and sale will be,
duly authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's authorized Preferred Stock consisted of 5,000,000 shares of
Preferred Stock, none of which is outstanding. Shares of Preferred Stock may be
issued from time to time in one or more series as may be determined by the Board
of Directors of the Company with such designations, voting powers, preferences
and relative participating optional or other special rights, and qualifications,
limitations and restrictions on such rights, as the Board of Directors of the
Company may authorize, including, but not limited to: (i) the number of shares
that will constitute such series; (ii) the voting rights, if any, of shares of
such series and whether the shares of any such series having voting rights shall
have multiple votes per share; (iii) the dividend rate on the shares of such
series, any restriction, limitation or condition upon the payment of such
dividends, whether dividends shall be cumulative and the dates on which
dividends are payable; (iv) the prices at which, and the terms and conditions on
which, the shares of such series may be redeemed, if such shares are redeemable;
(v) the purchase or sinking fund provisions, if any, for the purchase or
redemption of shares of such series; (vi) any preferential amount payable upon
shares of such series in the event of the liquidation, dissolution or winding-up
of the Company or the distribution of its assets; and (vii) the prices or rates
of conversion of which, and the terms and conditions on which, the shares are
convertible.
MASSACHUSETTS LAW AND CERTAIN CHARTER PROVISIONS
Following the Offering, the Company expects that it will have more than 200
stockholders, thus making it subject to Chapter 110F of the Massachusetts
General Laws, an anti-takeover law. This statute generally prohibits a
publicly-held Massachusetts corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person becomes an interested
stockholder, unless (i) the interested stockholder obtains the approval of the
Board of Directors prior to becoming an interested stockholder, (ii) the
interested stockholder acquires 90% of the outstanding voting stock of the
corporation (excluding shares held by certain affiliates of the corporation) at
the time it becomes an interested stockholder, or (iii) the business combination
is approved by both the Board of Directors and the holders of two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder). An "interested stockholder" is a person who, together
with affiliates and associates, owns (or at any time within the prior three
years did own) 5% or more of the outstanding voting stock of the corporation. A
"business combination" includes a merger, a stock or asset sale, and certain
other transactions resulting in a financial benefit to the interested
stockholder. By a vote of a majority of its stockholders, the Company may elect
not to be governed by Chapter 110F, but such an amendment would not be effective
for 12 months and would not apply to a business combination with any person who
became an interested stockholder prior to the adoption of the amendment. The
Company has not elected to opt out of this coverage.
Chapter 156B, Section 50A of the Massachusetts General Laws generally
requires that publicly-held Massachusetts corporations have a classified board
of directors consisting of three classes as nearly equal in size as possible,
unless the corporation elects to opt out of the statute's coverage. The
Company's Restated Articles of Organization provide for a classified board in
compliance with such statute and the Board of
56
<PAGE> 58
Directors of the Company has established a classified board consisting of three
classes as nearly equal in size as possible.
The Company is subject to Chapter 110D of the Massachusetts General Laws
which governs "control share acquisitions," which are certain acquisitions of
beneficial ownership of shares which raise the voting power of the acquiring
person (which can be a group of persons or entities sharing beneficial
ownership) above any one of three thresholds: one-fifth, one-third or one-half
of the total voting power. All shares acquired by the person making the control
share acquisition within the period beginning 90 days before and ending 90 days
after each threshold is crossed ("Affected Shares") obtain voting rights only
(i) upon authorization by a majority of the stockholders other than the holder
of the Affected Shares, officers of the Company and directors of the Company who
also are employees of the Company or (ii) when disposed of in non-control share
acquisitions. The Company's stockholders, at a duly constituted meeting, may, by
amendment to the By-Laws or the Articles of Incorporation, provide that the
provisions of Chapter 110D shall not apply to future control share acquisitions
of the Company. Management currently has no plans to propose such an amendment.
Chapter 110D may have the effect of delaying or preventing a change of control
of the Company at a premium price. In addition, because the number of shares of
Common Stock entitled to vote is substantially less than the total number of
outstanding shares of Common Stock, holders of shares of Common Stock purchased
in transactions which are not control share acquisitions, and which occur at a
time when there are Affected Shares outstanding, will obtain voting rights which
are disproportionate to the number of shares held as a percentage of all
outstanding shares (including Affected Shares), which may facilitate the
acquisition of shareholdings which may permit the exercise of a controlling
influence on the management or policies of the Company.
In certain circumstances in connection with a control share acquisition,
stockholders of the Company will be entitled to appraisal of their shares in
accordance with the provisions of Section 86 to 98, inclusive, of Chapter 156B
of the Massachusetts General Laws.
The Company's Articles and Bylaws contain certain provisions that may have
the effect of discouraging, delaying or preventing a change in control of the
Company or unsolicited acquisition proposals that a stockholder might consider
favorable, including provisions authorizing the issuance of "blank check"
preferred stock, providing for a Board of Directors with staggered terms,
requiring super-majority or class voting to effect certain amendments to the
Articles and Bylaws and to approve certain business combinations, limiting the
persons who may call special stockholders' meetings, and establishing advance
notice requirements for nominations for election to the Board of Directors or
for proposing matters that can be acted upon at stockholders' meetings.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is State Street Bank
and Trust Company.
57
<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 13,332,766 shares of
Common Stock outstanding without taking into account any outstanding options or
options which may be granted following consummation of the Offering. All of the
shares of Common Stock offered hereby will be freely tradeable without
restriction or further registration under the Securities Act, except for shares
sold by persons deemed to be "affiliates" of the Company ("Affiliates") or
acting as "underwriters," as those terms are defined in the Securities Act. All
of the Common Stock held by existing stockholders of the Company were issued and
sold by the Company in reliance on exemptions from the registration requirements
of the Securities Act ("Restricted Shares"). These shares may be sold in the
public market only if registered or pursuant to an exemption from registration
such as those afforded by Rules 144 and 701 under the Securities Act. Subject to
the lock-up period described below (See "Underwriting"), all of the remaining
outstanding shares of Common Stock and the shares of Common Stock issuable upon
conversion of the Series C Preferred Stock will be freely tradeable at the end
of the 90-day period after the date of this Prospectus under Rules 144 and 701,
subject to the restrictions on resale imposed upon Affiliates by Rule 144 under
the Securities Act.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company or other person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least one year, will be entitled to sell in any three-month period
a number of shares that does not exceed the greater of (i) 1% of the then
outstanding Common Stock or (ii) the average weekly trading volume of the Common
Stock on the NYSE during the four calendar weeks immediately preceding such
sale. Sales pursuant to Rule 144 are also subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an Affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned
Restricted Shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Under Rule 701, an employee of the Company who purchased shares of Common
Stock or was awarded options to purchase shares pursuant to a written
compensation plan or contract meeting the requirements of Rule 701 under the
Securities Act is entitled to rely on the resale provisions of Rule 701, which
permits Affiliates and non-Affiliates to sell their Rule 701 shares without
having to comply with the holding period restrictions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. In addition, non-
Affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
Subject to the lock-up period described below under "Underwriting" and the
restrictions imposed on Affiliates of the Company under Rule 144, all of the
Restricted Shares will be eligible for sale at the end of the 90-day period
after the date of this Prospectus pursuant to Rules 144 and 701 under the
Securities Act, without any restrictions imposed under those Rules.
An aggregate of 2,120,380 shares of Common Stock are reserved for issuance
to directors, executives, consultants and employees of the Company pursuant to
the Stock Option Plans. The Company intends to file a registration statement on
Form S-8 covering the issuance of shares of Common Stock pursuant to the Stock
Option Plans. Accordingly, shares issued pursuant to the Stock Option Plans will
be freely tradeable, subject to the restrictions on resale imposed on Affiliates
by Rule 144 under the Securities Act.
Prior to the Offering, there has been no public market for the Common
Stock. Trading of the Common Stock is expected to commence following the
completion of the Offering. There can be no assurance that an active trading
market will develop or continue after the completion of the Offering or that the
market price of the Common Stock will not decline below the initial public
offering price. No predictions can be made as to the effect, if any, that future
sales of shares of Common Stock, or the availability of such shares for sale,
will have on the market price prevailing from time to time. Sales of substantial
amounts of Common Stock in the public market, or the perception that such sales
could occur, could adversely affect the prevailing market price of the Common
Stock, or the ability of the Company to raise capital through the issuance of
additional equity securities.
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<PAGE> 60
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
A general discussion of certain United States federal income and estate tax
consequences of the acquisition, ownership and disposition of Common Stock
applicable to Non-U.S. Holders (as defined) of Common Stock is set forth below.
In general, a "Non U.S. Holder" is a person other than: (i) a citizen or
resident (as defined for United States federal income or estate tax purposes, as
the case may be) of the United States; (ii) a corporation or partnership
organized in or under the laws of the United States or a political subdivision
thereof; (iii) an estate the income of which is subject to United States federal
income taxation regardless of its source, or (iv) a trust if and only if (A) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (B) one or more United States trustees have the
authority to control all substantial decisions of the trust. The discussion is
based on current law and is provided for general information only. The
discussion does not address aspects of United States federal taxation other than
income and estate taxation and does not address all aspects of federal income
and estate taxation. The discussion does not consider any specific facts or
circumstances that may apply to a particular Non-U.S. Holder and does not
address all aspects of United States federal income and estate tax laws that may
be relevant to Non-U.S. Holders that may be subject to special treatment under
such laws (for example, insurance companies, tax-exempt organizations, financial
institutions or broker-dealers). This discussion is based on the Internal
Revenue Code of 1986, as amended, Treasury Regulations promulgated thereunder
and administrative and judicial interpretations thereof, all of which are
subject to change, possibly with retroactive effect. ACCORDINGLY, PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES OF
ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK.
DIVIDENDS
In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are (i) effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States and a Form 4224 is filed with the withholding agent or (ii) if a
tax treaty applies, are attributable to a United States permanent establishment
of the Non-U.S. Holder. If either exception applies, the dividend will be taxed
at ordinary U.S. federal income tax rates. A Non-U.S. Holder may be required to
satisfy certain certification requirements in order to claim the benefit of an
applicable treaty rate or otherwise claim a reduction of, or exemption from, the
withholding obligation pursuant to the above described rules. In the case of a
Non-U.S. Holder that is a corporation, effectively connected income may also be
subject to the branch profits tax, except to the extent that an applicable tax
treaty provides otherwise.
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of his Common Stock unless:
(i) the Company has been, is, or becomes a "U.S. real property holding
corporation" for federal income tax purposes and certain other requirements are
met; (ii) the gain is effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States; (iii) the Common Stock is
disposed of by an individual Non-U.S. Holder who holds the Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition or (iv) the Non-U.S. Holder is an individual who
lost his U.S. citizenship within the last 10 years and such loss had, as one of
its principle purposes, the avoidance of taxes, and the gains are considered
derived from sources within the United States. The Company believes that it has
not been, is not currently and, based upon its current business plans, is not
likely to become a U.S. real property holding corporation. Non-U.S. Holders
should consult applicable treaties, which may exempt from United States taxation
gains realized upon the disposition of Common Stock in certain cases.
59
<PAGE> 61
ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of his death will be includible in the individual's gross estate for
United States federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS
On October 14, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations were intended to be effective with respect
to payments made after December 31, 1998. The IRS has, however, recently issued
a notice stating that such Final Regulations will not be effective until January
1, 2000.
Except as provided below, this section describes rules applicable to
payments made on or before the Final Regulations take effect. Backup withholding
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish the information required under the
United States information reporting and backup withholding rules) generally will
not apply to (i) dividends paid to Non-U.S. Holders that are subject to the 30%
withholding discussed above (or that are not so subject because a tax treaty
applies that reduces or eliminates such 30% withholding) or (ii) dividends paid
on the Common Stock to a Non-U.S. Holder at an address outside the United
States. The Company will be required to report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld.
This information may also be made available to the tax authorities in the
Non-U.S. Holder's country of residence.
In the case of a Non-U.S. Holder that sells Common Stock to or though a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the holder certifies its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption. In the
case of a Non-U.S. Holder that sells Common Stock to or though the foreign
office of a United States broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the IRS
(but not backup withhold) unless the broker has documentary evidence in its
files that the seller is a Non-U.S. Holder or certain other conditions are met,
or the holder otherwise establishes an exemption. A Non-U.S. Holder will
generally not be subject to information reporting or backup withholding if such
Non-U.S. Holder sells the Common Stock to or through a foreign office of a
non-United States broker.
Any amount withheld under the backup withholding rules from a payment to a
Non-U.S. Holder is allowable as a credit against the holder's U.S. federal
income tax, which may entitle the Non-U.S. Holder to a refund, provided that the
holder furnishes the required information to the IRS. In addition, certain
penalties may be imposed by the IRS on a Non-U.S. Holder who is required to
supply information but does not do so in the proper manner.
The Final Regulations eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country. In addition, the Final Regulations impose certain certification and
documentation requirements on Non-U.S. Holders claiming the benefit of a reduced
withholding rate with respect to dividends under a tax treaty.
Prospective purchasers of Common Stock are urged to consult their tax
advisors as to the application of the current rules regarding backup withholding
and information reporting and as to the effect, if any, of the Final Regulations
on their purchase, ownership and disposition of the Common Stock.
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<PAGE> 62
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated , 1999, each of the Underwriters named below, for whom
Piper Jaffray Inc. and CIBC Oppenheimer Corp. are acting as representatives (the
"Representatives"), has severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell to each of the Underwriters, the number
of shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Piper Jaffray Inc...........................................
CIBC Oppenheimer Corp.......................................
---------
Total.................................................. 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters have advised the Company and the Selling Stockholders that
they propose to offer the shares directly to the public at the Price to Public
set forth on the cover page of this Prospectus and to selected dealers at such
price less a concession not in excess of $ per share. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per share to certain other brokers and dealers. After the Offering,
the initial public offering price and other selling terms may be changed by the
Underwriters.
The Selling Stockholders have granted to the Underwriters an option,
exercisable within the 30-day period after the date of this Prospectus, under
which the Underwriters may purchase up to an additional 600,000 shares of Common
Stock from the Company at the Price to Public less the Underwriting Discount set
forth on the cover page of this Prospectus. The Underwriters may exercise the
option solely for the purpose of covering over-allotments, if any, made in
connection with the distribution of the Common Stock offered hereby. To the
extent such option is exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares as it was obligated to purchase under the Underwriting
Agreement.
At the request of the Company, the Underwriters have reserved up to 200,000
shares of Common Stock to be issued by the Company and offered hereby for sale,
at the Price to Public, to directors, officers, employees, business associates
and other individuals and entities related to the Company. The number of shares
of Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject any order for the purchase of shares in whole or in part.
In connection with the Offering, the Company, the Selling Stockholders and
the executive officers and directors of the Company have agreed that they will
not sell any shares of Common Stock other than the shares to be sold in the
Offering without the prior consent of Piper Jaffray Inc., acting on behalf of
the Underwriters, for a period of 180 days after the date of this Prospectus.
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<PAGE> 63
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations between the Company, the Selling Stockholders and
the Underwriters. Among the factors to be considered in determining the initial
public offering price will be the Company's record of operations, the Company's
current financial position and future prospects, the experience of its
management, the economics of the equipment leasing industry in general, the
general condition of the securities markets and the price-earnings ratios,
market prices of securities and certain financial and operating information of
companies engaged in activities similar to those of the Company. The estimated
public offering price range set forth on the cover page of this Prospectus is
subject to change as a result of market conditions and other factors. See "Risk
Factors -- No Prior Market for Common Stock; Possible Volatility of Stock
Price."
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot or otherwise create
a short position in the Common Stock for their own account by selling more
shares of Common Stock than have been sold to them by the Company and the
Selling Stockholders. The Underwriters may elect to cover any such short
position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In connection
therewith, the Representatives may stabilize or maintain the price of the Common
Stock by imposing penalty bids on certain Underwriters, under which selling
commissions allowed to Underwriters or dealers participating in the Offering are
retained if shares of Common Stock previously distributed in the Offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price of
the Common Stock at a level above that which might otherwise prevail in the open
market. The imposition of a penalty bid may also affect the price of the Common
Stock to the extent that it discourages resales thereof. No representations are
made as to the magnitude or effect of any such stabilization or other
transactions. Such transactions may be effected on the New York Stock Exchange
or otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Edwards & Angell, LLP, Boston,
Massachusetts. The Underwriters have been represented by Cravath, Swaine &
Moore, New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1997 and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1997,
included in this Prospectus and elsewhere in the registration statement, have
been included herein in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given upon the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information pertaining to
the Company and the Common Stock offered by this Prospectus, reference is made
to the Registration
62
<PAGE> 64
Statement and to the exhibits filed as a part thereof. Statements contained in
this Prospectus concerning the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement are summaries of the
terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto may be inspected, without charge, and copies may be obtained
at prescribed rates, at the public reference facility maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1300, Chicago, Illinois 60661-2511. The Registration Statement and
other information filed by the Company with the Commission are also available at
the web site maintained by the Commission on the World Wide Web at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
63
<PAGE> 65
MICROFINANCIAL INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants........................... F-2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and
1997, and September 30, 1998 (unaudited).................. F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997, and for the nine months
ended September 30, 1997 (unaudited) and September 30,
1998 (unaudited).......................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997, and the nine
months ended September 30, 1998 (unaudited)............... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997, and for the nine months
ended September 30, 1997 (unaudited) and September 30,
1998 (unaudited).......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
MicroFinancial Incorporated:
We have audited the accompanying consolidated balance sheets of
MicroFinancial Incorporated as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1995, 1996 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MicroFinancial
Incorporated as of December 31, 1996 and 1997, and the consolidated results of
its operations and its cash flows for the years ended December 31, 1995, 1996
and 1997, in conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 1998
F-2
<PAGE> 67
MICROFINANCIAL INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1996 1997 1998
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Assets:
Net investment in financing leases and loans:
Receivables due in installments........................ $232,693 $238,979 $246,846
Estimated residual value............................... 14,702 16,784 17,573
Initial direct costs................................... 2,692 2,777 3,883
Loans receivable....................................... 238 2,467 8,729
Less:
Advance lease payments and deposits.................. (186) (334) (804)
Unearned income...................................... (76,951) (73,060) (73,742)
Allowance for credit losses.......................... (23,826) (26,319) (24,423)
-------- -------- --------
Net investment in financing leases and loans.............. 149,362 161,294 178,062
Investment in service contracts........................... -- 2,145 7,412
Cash and cash equivalents................................. 13,775 9,252 13,457
Property and equipment, net............................... 5,143 4,265 7,340
Other assets.............................................. 1,912 2,745 2,496
-------- -------- --------
Total assets...................................... $170,192 $179,701 $208,767
======== ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Notes payable............................................... $116,202 $116,830 $132,104
Subordinated notes payable.................................. 27,006 26,382 25,288
Capitalized lease obligations............................... 1,523 1,071 943
Accounts payable............................................ 561 89 35
Dividends payable........................................... 242 294 346
Other liabilities........................................... 5,801 5,300 6,040
Income taxes payable........................................ 606 -- --
Deferred income taxes....................................... 6,072 10,969 16,716
-------- -------- --------
Total liabilities................................. 158,013 160,935 181,472
-------- -------- --------
Commitments and contingencies (Note J)...................... -- -- --
Redeemable convertible preferred stock (liquidation
preference $12, at December 31, 1996 and 1997, and
September 30, 1998)....................................... -- -- --
Stockholders' equity:
Common stock.............................................. 97 98 99
Additional paid-in capital................................ 1,442 1,604 1,764
Retained earnings......................................... 10,841 17,366 25,838
Treasury stock, at cost................................... (100) (138) (138)
Notes receivable from officers and employees.............. (101) (164) (268)
-------- -------- --------
Total stockholders' equity........................ 12,179 18,766 27,295
-------- -------- --------
Total liabilities and stockholders' equity........ $170,192 $179,701 $208,767
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 68
MICROFINANCIAL INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
----------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Income on financing leases and loans... $27,011 $38,654 $45,634 $33,900 $35,285
Income on service contracts............ -- 6 501 87 1,557
Rental income.......................... 3,688 8,250 10,809 8,104 11,153
Loss and damage waiver fees............ 2,648 4,188 5,448 3,983 4,067
Service fees........................... 2,798 4,487 5,788 4,121 3,770
------- ------- ------- ------- -------
Total revenues................. 36,145 55,585 68,180 50,195 55,832
------- ------- ------- ------- -------
Expenses:
Selling, general and administrative.... 8,485 14,073 17,252 12,558 14,284
Provision for credit losses............ 13,388 19,822 21,713 15,601 12,568
Depreciation and amortization.......... 1,503 2,981 3,787 2,701 3,867
Interest............................... 8,560 10,163 11,890 8,891 9,198
------- ------- ------- ------- -------
Total expenses................. 31,936 47,039 54,642 39,751 39,917
Income before provision for income
taxes.................................. 4,209 8,546 13,538 10,444 15,915
Provision for income taxes............... 1,685 3,466 5,886 4,245 6,455
------- ------- ------- ------- -------
Net income............................... $ 2,524 $ 5,080 $ 7,652 $ 6,199 $ 9,460
======= ======= ======= ======= =======
Net income per common share -- basic..... $ 0.34 $ 0.52 $ 0.78 $ 0.63 $ 0.96
======= ======= ======= ======= =======
Net income per common share -- diluted... $ 0.27 $ 0.52 $ 0.76 $ 0.62 $ 0.94
======= ======= ======= ======= =======
Dividends per common share............... $ 0.06 $ 0.10 $ 0.12 $ 0.09 $ 0.10
======= ======= ======= ======= =======
</TABLE>
F-4
<PAGE> 69
MICROFINANCIAL INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1996 and 1997, and the nine months ended
September 30, 1998 (unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE TOTAL
------------------ PAID-IN RETAINED TREASURY FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK OFFICERS EQUITY
--------- ------ ---------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994...... 5,003,880 $50 $1,063 $ 4,737 $(100) $ 5,750
Exercise of stock options......... 1,399,400 14 326 340
Common stock dividends............ (580) (580)
Conversion of preferred stock to
common stock.................... 3,274,440 33 49 82
Notes receivable from officers.... $(205) (205)
Net income........................ 2,524 2,524
--------- --- ------ ------- ----- ----- -------
Balance at December 31, 1995...... 9,677,720 97 1,438 6,681 (100) (205) 7,911
Exercise of options............... 5,620 4 4
Common stock dividends............ (920) (920)
Notes receivable from officers.... 104 104
Net income........................ 5,080 5,080
--------- --- ------ ------- ----- ----- -------
Balance at December 31, 1996...... 9,683,340 97 1,442 10,841 (100) (101) 12,179
Exercise of stock options......... 120,910 1 162 163
Common stock dividends............ (1,127) (1,127)
Purchase of treasury stock........ (5,250) (38) (38)
Notes receivable from officers and
employees....................... (63) (63)
Net income........................ 7,652 7,652
--------- --- ------ ------- ----- ----- -------
Balance at December 31, 1997...... 9,799,000 98 1,604 17,366 (138) (164) 18,766
Exercise of options............... 87,516 1 160 161
Common stock dividends............ (988) (988)
Notes receivable from officers and
employees....................... (104) (104)
Net income........................ -- 9,460 9,460
--------- --- ------ ------- ----- ----- -------
Balance at September 30, 1998
(unaudited)..................... 9,886,516 $99 $1,764 $25,838 $(138) $(268) $27,295
========= === ====== ======= ===== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 70
MICROFINANCIAL INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- ---------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers.............................. $60,632 $ 87,130 $118,444 $ 84,604 $ 102,020
Cash paid to suppliers and employees...................... (10,710) (16,708) (29,113) (22,305) (24,435)
Interest paid............................................. (8,248) (10,724) (12,334) (9,516) (9,004)
Interest received......................................... 285 406 396 271 1,060
------- --------- -------- ---------- ---------
Net cash provided by operating activities........... 41,959 60,104 77,393 53,054 69,641
------- --------- -------- ---------- ---------
Cash flows from investing activities:
Investment in leased equipment............................ (70,498) (81,303) (71,943) (53,147) (62,218)
Investment in direct costs................................ (1,992) (2,186) (2,354) (1,666) (2,959)
Investment in service contracts........................... (3,635) (2,431) (2,972) (1,660) (6,298)
Investment in loans....................................... -- -- (2,538) (1,904) (7,657)
Purchase of property and equipment........................ (274) (628) (288) (216) (381)
Increase in notes receivable from officers and
employees............................................... -- -- (150) (150) (144)
Decrease in notes receivable from officers and
employees............................................... 46 104 87 79 40
Investment in notes receivable............................ -- (349) (160) -- --
Repayment of notes receivable............................. -- 111 191 131 1,395
------- --------- -------- ---------- ---------
Net cash used in investing activities............... (76,353) (86,682) (80,127) (58,533) (78,222)
------- --------- -------- ---------- ---------
Cash flows from financing activities:
Proceeds from secured debt................................ 87,881 181,006 56,639 47,254 70,485
Repayment of secured debt................................. (17,023) (29,946) (56,194) (44,370) (55,162)
Proceeds from refinancing of secured debt................. -- -- 203,580 115,000 185,000
Prepayment of secured debt................................ (33,390) (129,049) (203,580) (115,000) (185,000)
Proceeds from short-term demand notes payable............. 548 123 497 110 180
Repayment of short-term demand notes payable.............. (710) (833) (315) (116) (227)
Proceeds from issuance of subordinated debt............... 187 15,410 2,123 2,373 1,200
Repayment of subordinated debt............................ (619) (1,740) (2,891) (2,616) (2,374)
Proceeds from exercise of common stock options............ 90 4 162 152 160
Repayment of capital leases............................... (159) (393) (697) (511) (540)
Purchase of treasury stock................................ -- -- (38) -- --
Payment of dividends...................................... (650) (871) (1,075) (778) (936)
------- --------- -------- ---------- ---------
Net cash provided by (used in) financing
activities........................................ 36,155 33,711 (1,789) 1,498 12,786
------- --------- -------- ---------- ---------
Net increase (decrease) in cash and cash equivalents........ 1,761 7,133 (4,523) (3,981) 4,205
Cash and cash equivalents, beginning of period.............. 4,881 6,642 13,775 13,775 9,252
------- --------- -------- ---------- ---------
Cash and cash equivalents, end of period.................... $ 6,642 $ 13,775 $ 9,252 $ 9,794 $ 13,457
======= ========= ======== ========== =========
Reconciliation of net income to net cash provided by
operating activities:
Net income................................................ $ 2,524 $ 5,080 $ 7,652 $ 6,199 $ 9,460
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 1,503 2,981 3,787 2,701 3,867
Provision for credit losses............................. 13,388 19,822 21,713 15,601 12,568
Recovery of equipment cost and residual value, net of
revenue recognized.................................... 20,972 29,378 41,334 28,564 37,532
Increase (decrease) in current taxes.................... 985 (379) (1,266) (601) --
Increase in deferred income taxes....................... 701 1,892 4,897 2,601 6,407
Change in assets and liabilities:
Decrease (increase) in other assets..................... 317 (603) (173) (1,133) (414)
(Decrease) increase in accounts payable................. (11) 711 65 13 (55)
Increase (decrease) in accrued liabilities.............. 1,580 1,222 (616) (891) 276
------- --------- -------- ---------- ---------
Net cash provided by operating activities........... $41,959 $ 60,104 $ 77,393 $ 53,054 $ 69,641
======= ========= ======== ========== =========
Cash paid for income taxes.................................. $ 34 $ 1,954 $ 2,254 $ 2,282 $ 90
======= ========= ======== ========== =========
Supplemental disclosure of noncash activities:
Property acquired under capital leases.................... $ 849 $ 985 $ 246 $ 302 $ 412
Accrual of common stock dividends......................... $ 194 $ 242 $ 294 $ 559 $ 691
Conversion of preferred stock to common stock............. $ 82 -- -- -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 71
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(tables in thousands, except per share data)
A. NATURE OF BUSINESS:
MicroFinancial Incorporated (the "Company") which operates primarily
through its wholly-owned subsidiary, Leasecomm Corporation, is a specialized
commercial finance company that leases and rents "microticket" equipment and
provides other financing services in amounts generally ranging from $900 to
$2,500, with an average amount financed of approximately $1,400 and an average
lease term of 45 months. The Company does not market its services directly to
lessees but sources leasing transactions through a network of independent sales
organizations and other dealer-based origination networks nationwide. The
Company funds its operations primarily through borrowings under its credit
facilities, issuances of subordinated debt and securitizations. One dealer
accounted for 14% of originations in the year ended December 31, 1997. In July
1998, the Company changed its name from Boyle Leasing Technologies, Inc. to
MicroFinancial Incorporated.
In December 1992, May 1993 and November 1994, Leasecomm Corporation created
wholly-owned subsidiaries, BLT Finance Corporation I ("BLT I"), BLT Finance
Corporation II ("BLT II") and BLT Finance Corporation III ("BLT III"),
respectively, which are special purpose corporations for the securitization and
financing of lease receivables.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS No. 125"). SFAS
No. 125 is effective for transactions entered into after December 31, 1996.
Under SFAS No. 125, an entity will recognize the financial and servicing assets
it controls and the liabilities it has incurred, derecognize financial assets
when control has been surrendered and derecognize liabilities when extinguished.
Effective January 1997, the Company adopted SFAS No. 125.
While the Company generally does not sell its interests in leases, service
contracts or loans to third parties after origination, the Company does,
however, from time to time, contribute certain leases to special purpose
corporations for purposes of obtaining financing in connection with its lease
receivables. As these transfers do not result in a change in control over the
lease receivables, sale treatment and related gain recognition under SFAS No.
125 does not occur. Accordingly, the lease receivable and related liability
remain on the balance sheet.
If SFAS No. 125 were effective for transactions prior to 1997, there would
have been no change in the accounting for these financing transactions.
During 1997 and 1996, the credit facilities related to the securitization
on BLT I and BLT II were paid off, respectively. Both of these subsidiaries were
dissolved on December 31, 1997.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Unaudited Interim Financial Statements
The interim financial data as of September 30, 1998, and for the nine
months ended September 30, 1997 and 1998, is unaudited; however, in the opinion
of the Company, all adjustments necessary for a fair presentation of interim
results of operations (consisting only of normal recurring accruals and
adjustments) have been made to the interim consolidated financial statements.
The consolidated results of operations for interim periods are not necessarily
indicative of results of operations for the respective full year.
F-7
<PAGE> 72
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with initial
maturities of less than three months to be cash equivalents. Cash equivalents
consist principally of overnight investments.
Leases and Loans
The Company's lease contracts are accounted for as financing leases. At
origination, the Company records the gross lease receivable, the estimated
residual value of the leased equipment, initial direct costs incurred and the
unearned lease income. Unearned lease income is the amount by which the gross
lease receivable plus the estimated residual value exceeds the cost of the
equipment. Unearned lease income and initial direct costs incurred are amortized
over the related lease term using the interest method which results in a level
rate of return on the net investment in leases. Amortization of unearned lease
income and initial direct costs is suspended if, in the opinion of management,
the lease agreement is determined to be impaired. It is management's opinion
given the nature of its business and the large number of small balance lease
receivables that a lease is impaired when one of the following occur: (i) the
obligor files for bankruptcy; (ii) the obligor dies and the equipment is
returned; or (iii) when an account has become 360 days past due. It is also
management's policy to maintain an allowance for credit losses that will be
sufficient to provide adequate protection against losses in its portfolio.
Management regularly reviews the collectibility of its lease receivables based
upon all of its communications with the individual lessees through its extensive
collection efforts and through further review of the creditworthiness of the
lessee.
In conjunction with the origination of leases, the Company may retain a
residual interest in the underlying equipment upon termination of the lease. The
value of such interests is estimated at inception of the lease and evaluated
periodically for impairment. An impairment is recognized when expected cash
flows to be realized subsequent to the end of the lease are expected to be less
than the residual value recorded. Other revenues such as loss and damage waiver
and service fees relating to the leases, contracts and loans and rental revenues
are recognized as they are earned.
Loans are reported at their outstanding principal balance. Interest income
on loans is recognized as it is earned.
Allowance for Credit Losses
The Company maintains an allowance for credit losses on its investment in
leases, service contracts and loans at an amount that it believes is sufficient
to provide adequate protection against losses in its portfolio. The allowance is
determined principally on the basis of the historical loss experience of the
Company and the level of recourse provided by such lease, service contract or
loan, if any, and reflects management's judgment of additional loss potential
considering future economic conditions and the nature and characteristics of the
underlying lease portfolio. The Company determines the necessary periodic
provision for credit losses taking into account actual and expected losses in
the portfolio as a whole and the relationship of the allowance to the net
investment in leases, service contracts and loans.
F-8
<PAGE> 73
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
Investment in Service Contracts
The Company's investments in cancelable service contracts are recorded at
cost and amortized over the expected life of the service period. Income on
service contracts from monthly billings is recognized as the related services
are provided. The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or recoverability of the
investment in service contracts.
Property and Equipment
Rental equipment is recorded at estimated residual value and depreciated
using the straight-line method over a period of twelve months.
Office furniture, equipment and capital leases are recorded at cost and
depreciated using the straight-line method over a period of three to five years.
Leasehold improvements are amortized over the shorter of the life of the lease
or the asset. Upon retirement or other disposition, the cost and related
accumulated depreciation of the assets are removed from the accounts and the
resulting gain or loss is reflected in income.
Fair Value of Financial Instruments
For financial instruments including cash and cash equivalents, investments
in financing leases and loans, accounts payable, and accrued expenses, it is
assumed that the carrying amount approximates fair value due to their short
maturity.
Interest-Rate Hedging Agreements
The Company enters into interest-rate hedging agreements to hedge against
potential increases in interest rates on the Company's outstanding borrowings.
The Company's policy is to accrue amounts receivable or payable under such
agreements as reductions or increases in interest expense, respectively.
Debt Issuance Costs
Debt issuance costs incurred in securing credit facility financing are
capitalized and subsequently amortized over the term of the credit facility.
Income Taxes
Deferred income taxes are determined under the liability method.
Differences between the financial statement and tax bases of assets and
liabilities are measured using the currently enacted tax rates expected to be in
effect when these differences reverse. Deferred tax expense is the result of
changes in the liability for deferred taxes. The principal differences between
assets and liabilities for financial statement and tax return purposes are the
treatment of leased assets, accumulated depreciation and provisions for doubtful
accounts. The deferred tax liability is reduced by loss carryforwards and
alternative minimum tax credits available to reduce future income taxes.
F-9
<PAGE> 74
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
Net Income Per Common Share
The Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," ("SFAS No. 128") which specifies the computation,
presentation and disclosure requirements for net income per common share. Basic
net income per common share is computed based on the weighted average number of
common shares outstanding during the period, adjusted for a 10-to-1 stock split
effected in 1997 and a 2-to-1 stock split to be effective in 1999, each as
described in Note H. Diluted net income per common share gives effect to all
dilutive potential common shares outstanding during the period. Under SFAS No.
128, the computation of diluted earnings per share does not assume the issuance
of common shares that have an antidilutive effect on net income per common
share.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income........................... $ 2,524 $ 5,080 $ 7,652 $ 6,199 $ 9,460
Shares used in computation:
Weighted average common shares
outstanding used in
computation of net income per
common share.................. 7,352,189 9,682,851 9,793,140 9,791,212 9,849,602
Dilutive effect of redeemable
convertible preferred stock... 1,676,420 39,200 19,600 19,600 19,600
Dilutive effect of common stock
options....................... 419,597 48,562 112,589 194,216 162,772
---------- ---------- ---------- ---------- ----------
Shares used in computation of net
income per common share -- assuming
dilution........................... 9,448,206 9,770,613 9,925,329 10,005,028 10,031,974
========== ========== ========== ========== ==========
Net income per common share.......... $ 0.34 $ 0.52 $ 0.78 $ 0.63 $ 0.96
========== ========== ========== ========== ==========
Net income per common share --
assuming dilution.................. $ 0.27 $ 0.52 $ 0.76 $ 0.62 $ 0.94
========== ========== ========== ========== ==========
</TABLE>
Options to purchase 4,246 shares of common stock were outstanding during
the year ended December 31, 1995, but were not included in the calculation of
diluted net income per common share because the option price was greater than
the average market price of the common shares during the period.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement requires that changes in comprehensive income be shown in a financial
statement that is displayed with the same prominence as other financial
statements. The statement is effective for fiscal years beginning after December
15, 1997 and the Company has adopted its provisions in 1998. The Company has
evaluated the impact this statement will have on its financial statements and
determined that no additional disclosure is required.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Internal Use Software," ("SOP 98-1") which
provides guidance on the accounting for the costs of software developed or
obtained for internal use. SOP 98-1 is effective for fiscal years beginning
after December 15, 1998. The Company does not expect the statement to have a
material impact on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133").
F-10
<PAGE> 75
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133 is effective for companies with fiscal years beginning after
June 15, 1999 and the Company will adopt its provisions in 2000. The Company has
not yet evaluated the impact this statement will have on its financial position
or results of operations.
Reclassification of Prior Year Balances
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current presentation.
C. LEASES AND LOANS:
At December 31, 1997, future minimum payments on the Company's lease
receivables are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
- ------------------------------------------------------------
<S> <C>
1998................................................... $110,801
1999................................................... 73,752
2000................................................... 42,500
2001................................................... 11,105
2002................................................... 669
Thereafter............................................. 152
--------
Total.................................................. $238,979
========
</TABLE>
At December 31, 1997, the weighted average remaining life of leases in the
Company's lease portfolio is approximately 28 months and the implicit rate of
interest is approximately 35%.
The Company's business is characterized by a high incidence of
delinquencies which in turn may lead to significant levels of defaults. The
Company evaluates the collectibility of leases originated and loans based on the
level of recourse provided, if any, delinquency statistics, historical lease
experience, current economic conditions and other relevant factors. The Company
provides an allowance for credit losses for leases which are considered
impaired.
The Company historically took charge-offs against its receivables when such
receivables were 360 days past due. During this period, cumulative net
charge-offs after recoveries from the Company's inception to September 30, 1998
have totaled 7.45% of total cumulative receivables plus total billed fees over
such period. In September and October 1996, the Company reduced the time period
for charging off its non-securitized receivables from 360 to 240 days and, as a
result, increased its charge-offs by a total of approximately $5.0 million. As a
result of this change, recoveries increased significantly, indicating that a
240-day charge-off period was too early in the collection process to determine
ultimate collectibility. As such, during 1997 net charge-offs after recoveries
were not significantly different than the Company's historical net charge-off
experience. For this reason, in January 1998, the Company changed its charge-off
policy for its receivables back to 360 days to better reflect the Company's
collection experience.
F-11
<PAGE> 76
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
The following table sets forth the Company's allowance for credit losses as
of December 31, 1994, 1995, 1996 and 1997 and as of September 30, 1998 and the
related provisions, charge-offs and recoveries for the years ended December 31,
1995, 1996 and 1997 and for the nine months ended September 30, 1998 (unaudited)
(in thousands):
<TABLE>
<S> <C> <C>
Balance at December 31, 1994................................ $ 7,992
Provision for credit losses................................. 13,388
Charge-offs................................................. 5,964
Recoveries.................................................. 536
-------
Charge-offs, net of recoveries.............................. 5,428
-------
Balance at December 31, 1995................................ $15,952
Provision for credit losses................................. 19,822
Charge-offs................................................. 15,675
Recoveries.................................................. 3,727
-------
Charge-offs, net of recoveries.............................. 11,948
-------
Balance at December 31, 1996................................ $23,826
Provision for credit losses................................. 21,713
Charge-offs................................................. 24,290
Recoveries.................................................. 5,070
-------
Charge-offs, net of recoveries.............................. 19,220
-------
Balance at December 31, 1997................................ $26,319
Provision for credit losses................................. 12,568
Charge-offs................................................. 20,644
Recoveries.................................................. 6,180
-------
Charge-offs, net of recoveries.............................. 14,464
-------
Balance at September 30, 1998 (unaudited)................... $24,423
=======
</TABLE>
F-12
<PAGE> 77
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
In conjunction with the origination of leases, the Company may retain a
residual interest in the underlying equipment upon termination of the lease. The
value of such interests is estimated at inception of the lease and evaluated
periodically for impairment. The following table sets forth the Company's
estimated residual value as of December 31, 1994, 1995, 1996 and 1997 and as of
September 30, 1998 (unaudited) and changes in the Company's estimated residual
value as a result of new originations and lease terminations for the years ended
December 31, 1995, 1996 and 1997 and for the nine months ended September 30,
1998 (unaudited) (in thousands):
<TABLE>
<S> <C> <C>
Balance of Estimated Residual Value at December 31, 1994.... $ 7,971
New Originations............................................ 5,338
Lease Terminations.......................................... 2,342
Balance of Estimated Residual Value at December 31, 1995.... $10,967
New Originations............................................ 6,335
Lease Terminations.......................................... 2,600
Balance of Estimated Residual Value at December 31, 1996.... $14,702
New Originations............................................ 6,056
Lease Terminations.......................................... 3,974
Balance of Estimated Residual Value at December 31, 1997.... $16,784
New Originations............................................ 4,992
Lease Terminations.......................................... 4,203
Balance of Estimated Residual Value at September 30, 1998
(unaudited)............................................... $17,573
</TABLE>
- ---------------
* New originations represent the residual value added to the Company's estimated
residual value upon origination of new leases. Lease terminations represent the
residual value deducted from the Company's estimated residual value upon the
termination of a lease (i) that is bought out during or at the end of the lease
term; (ii) upon expiration of the original lease term when the lease converts to
an extended rental contract and (iii) that has been charged off by the Company.
D. PROPERTY AND EQUIPMENT:
At December 31, 1996 and 1997, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
NINE MONTHS
DECEMBER 31, ENDED
---------------- SEPTEMBER 30,
1996 1997 1998
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment................................... $4,845 $5,588 $9,706
Computer equipment................................. 2,628 2,998 3,083
Office equipment................................... 571 634 628
Leasehold improvements............................. 224 224 219
------ ------ ------
8,268 9,444 13,636
Less accumulated depreciation and amortization..... 3,125 5,179 6,296
------ ------ ------
Total.............................................. $5,143 $4,265 $7,340
====== ====== ======
</TABLE>
Depreciation and amortization expense totaled $1,503,000, $2,981,000,
$3,787,000 and $3,867,000 for the years ended December 31, 1995, 1996 and 1997
and for the nine months ended September 30, 1998, respectively.
F-13
<PAGE> 78
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
At December 31, 1996 and 1997 and at September 30, 1998, computer equipment
includes $2,092,287, $2,339,000 and $2,141,000, respectively, under capital
leases. Accumulated amortization related to capital leases amounted to $611,000,
$1,306,000 and $1,226,000 at December 31, 1996 and 1997 and at September 30,
1998, respectively.
At December 31, 1997 and September 30, 1998, accumulated depreciation
related to rental equipment amounted to $3,060,000 and $4,040,937, respectively.
E. NOTES PAYABLE:
The Company has a revolving line of credit and term loan facility with a
group of financial institutions whereby it may borrow a maximum of $105,000,000
based upon qualified lease receivables. Outstanding borrowings with respect to
the revolving line of credit bear interest based either at prime for prime rate
loans or London Interbank Offered Rate (LIBOR) plus 1.85% for LIBOR loans. If
the LIBOR loans are not renewed upon their maturity then they automatically
convert into prime rate loans. The prime rates at September 30, 1998 and
December 31, 1997 and 1996 were 8.25%, 8.5% and 8.25%, respectively. The 90-day
LIBOR at September 30, 1998 and December 31, 1997 and 1996 was 5.31%, 5.91% and
5.78%, respectively.
At September 30, 1998, the Company had borrowings outstanding under the
agreement with the following terms (unaudited):
<TABLE>
<CAPTION>
TYPE RATE AMOUNT
---- ------ -----------
(UNAUDITED)
<S> <C> <C>
Prime................................................. 8.2500% $11,910
LIBOR................................................. 7.5375% 29,000
LIBOR................................................. 7.5375% 20,000
Fixed................................................. 8.3000% 1,449
Fixed................................................. 7.7500% 5,100
-------
Total $67,459
=======
</TABLE>
At December 31, 1997, the Company had borrowings outstanding under the
agreement with the following terms:
<TABLE>
<CAPTION>
TYPE RATE AMOUNT
---- ------ -------
<S> <C> <C>
Prime................................................... 8.5000% $ 6,634
LIBOR................................................... 7.7250% 12,000
Fixed................................................... 8.3000% 5,798
Fixed/99 7.7500% 9,273
-------
Total $33,705
=======
</TABLE>
At December 31, 1996, the Company had borrowings outstanding under the
agreement with the following terms:
<TABLE>
<CAPTION>
TYPE RATE AMOUNT
---- ------ -------
<S> <C> <C>
Prime................................................... 8.2500% $ 6,966
LIBOR................................................... 8.0976% 5,000
LIBOR................................................... 8.0000% 25,000
Fixed................................................... 8.0000% 5
Fixed................................................... 8.3000% 12,030
Fixed................................................... 7.7500% 15,054
-------
Total $64,055
=======
</TABLE>
F-14
<PAGE> 79
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
Outstanding borrowings are collateralized by leases and service contracts
pledged specifically to the financial institutions. All balances under the
revolving line of credit will be automatically converted to a term loan on July
31, 1999 provided the line of credit is not renewed and no event of default
exists at that date. All converted term loans are repayable over the term of the
underlying leases, but not in any event to exceed 48 monthly installments. The
most restrictive covenants of the agreement have minimum net worth and income
requirements and limit payment of dividends to no more than 50% of consolidated
net income, as defined, for the immediately preceding fiscal year.
The Company has an additional revolving credit agreement and term loan with
a group of financial institutions whereby it may borrow up to a maximum of
$35,000,000 based on qualified lease receivables. Outstanding borrowings with
respect to the revolving line of credit bear interest based either at prime for
prime rate loans or LIBOR plus 1.85% for LIBOR loans. If the LIBOR loans are not
renewed upon their maturity then they automatically convert into prime rate
loans.
At September 30, 1998, the Company had borrowings outstanding under the
agreement with the following terms (unaudited):
<TABLE>
<CAPTION>
TYPE RATE AMOUNT
---- ------ -----------
(UNAUDITED)
<S> <C> <C>
LIBOR................................................. 7.5375% $21,500
LIBOR................................................. 8.1875% 6,000
Prime................................................. 8.5000% 2,155
-------
Total $29,655
=======
</TABLE>
At December 31, 1997, the Company had borrowings outstanding under the
agreement with the following terms:
<TABLE>
<CAPTION>
TYPE RATE AMOUNT
---- ------ -------
<S> <C> <C>
Variable................................................ 8.5000% $ 2,816
LIBOR................................................... 7.5688% 17,500
LIBOR................................................... 8.4375% 5,000
LIBOR................................................... 7.6273% 3,000
Fixed................................................... 8.3000% 68
Fixed................................................... 7.7500% 797
-------
Total $29,181
=======
</TABLE>
At December 31, 1996, the Company had borrowings outstanding under the
agreement with the following terms:
<TABLE>
<CAPTION>
TYPE RATE AMOUNT
---- ------ -------
<S> <C> <C>
Prime................................................... 8.2500% $ 3,123
LIBOR................................................... 8.9770% 5,000
LIBOR................................................... 8.0313% 10,000
Fixed................................................... 8.3000% 605
Fixed................................................... 7.7500% 1,091
-------
Total $19,819
=======
</TABLE>
Outstanding borrowings are collateralized by leases and service contracts
pledged specifically to the financial institutions. All balances under the
revolving line of credit will be automatically converted to a term loan on July
31, 1999 provided the line of credit is not renewed and no event of default
exists at that date. All converted term loans are repayable over the term of the
underlying leases, but not in any event to exceed 24
F-15
<PAGE> 80
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
monthly installments. The most restrictive covenants of the agreement have
minimum net worth and income requirements and limit payment of dividends to no
more than 50% of consolidated net income, as defined, for the immediately
preceding fiscal year.
BLT I has one term facility with a group of financial institutions whereby
it borrowed $7,870,000 based upon qualified lease receivables. At December 31,
1996, the outstanding balance on this term facility was $614,000. The
outstanding borrowings bear interest at a fixed rate of 7.23%. At December 31,
1997, no amounts were outstanding on this term facility.
BLT III has four series of notes, the 1994-A Notes, the 1996-A Notes, the
1997-A Notes and the Warehouse Notes. In November 1994, BLT III issued the
1994-A Notes in aggregate principal amount of $18,885,000. In May 1996, BLT III
issued the 1996-A Notes in aggregate principal amount of $23,407,000, and in
August 1997, BLT III issued the 1997-A Notes in aggregate principal amount of
$44,763,000.
Pursuant to a Master Financing Indenture, the Company may issue one
additional series of Term Notes, the warehouse notes, with a maximum principal
amount of $20,000,000. At December 31, 1996, the Company had an outstanding
balance on the warehouse notes of $5,809,000. The warehouse notes expired in
August of 1997, at which time they were converted to BLT III 1997-A Notes.
At December 31, 1996 and 1997, BLT III had borrowings outstanding under the
three series of notes with the following terms:
<TABLE>
<CAPTION>
NOTE SERIES EXPIRATION RATE 1996 1997
----------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C>
1994-A Notes....................... 12/16/98 7.3300% $ 6,619 $ 721
1996-A Notes....................... 5/16/00 6.6900% 19,081 13,214
1997-A Notes....................... 1/16/03 6.4200% -- 39,620
Warehouse Notes.................... LIBOR + .45% 5,809 --
------- -------
Total $31,509 $53,555
======= =======
</TABLE>
Outstanding borrowings are collateralized by a specific pool of lease
receivables.
At December 31, 1996 and 1997, the Company also has other notes payable
which totaled $205,000 and $389,000, respectively. The notes are due on demand
and bear interest at a rate of prime less 1.00%. Other notes payable include
amounts due to stockholders of the Company at December 31, 1996 and 1997, of
$197,000 and $337,000, respectively. Interest paid to stockholders under such
notes was not material for the years ended December 31, 1995, 1996 and 1997.
Subordinated Notes Payable
At December 31, 1996 and 1997, the Company also has senior subordinated and
subordinated debt outstanding amounting to $27,006,000 and $26,382,000
respectively, net of unamortized discounts of $357,000 and $213,000,
respectively. This debt is subordinated in the rights to the Company's notes
payable to the primary lenders as described above. Outstanding borrowings bear
interest ranging from 9.5% to 14% for fixed rate financing and prime plus 3% to
4% for variable rate financing. These notes have maturity dates ranging from
January 1998 to October 2003. The Company has three senior subordinated notes.
The first was issued in August 1994 at 12% to a financial institution with an
aggregate principal amount of $7,500,000. Cash proceeds from this note were
$6,743,000 net of a discount of $757,000 which is being amortized over the life
of the note. This senior note requires annual payments of $1,500,000 commencing
on July 15, 1997 until the note matures in July 2001. The second senior
subordinated note was issued in October 1996 at 12.25% to a financial
institution with an aggregate principal amount of $5,000,000. This senior note
requires monthly payments of (i) $125,000 for the period November 1, 1998
through October 1, 2000 and (ii) $166,667 for the period November 1, 2000 until
the note matures in October 1, 2001. The third senior subordinated note was
issued in
F-16
<PAGE> 81
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
October 1996 at 12.60% to a financial institution with an aggregate principal
amount of $5,000,000. This senior note requires quarterly payments of $250,000
commencing on March 15, 1999 until the note matures in October 2003. The most
restrictive covenants of the senior subordinated note agreements consist of
minimum net worth and interest coverage ratio requirements and restrictions on
payment of dividends. Subordinated notes payable include $2,712,000 due to
stockholders. Interest paid to stockholders under such notes, at rates ranging
between 8% and 14%, amounted to $207,000, $183,000 and $472,000 for the years
ended December 31, 1995, 1996, and 1997, respectively.
At December 31, 1997, the repayment schedule, assuming conversion of the
revolving line of credit to a term loan, for outstanding notes and subordinated
notes is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
<S> <C>
1998........................................................ $ 62,512
1999........................................................ 52,576
2000........................................................ 17,269
2001........................................................ 7,372
2002........................................................ 2,345
Thereafter.................................................. 1,351
--------
143,425
Unamortized discount on senior subordinated debt............ (213)
--------
Total....................................................... $143,212
========
</TABLE>
It is estimated that the carrying amounts of the Company's borrowings under
its variable rate revolving credit agreements approximate their fair value. The
fair value of the Company's short-term and long-term fixed rate borrowings is
estimated using discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. At
December 31, 1996 and 1997, the aggregate carrying value of the Company's fixed
rate borrowings was approximately $82,500,000 and $96,900,000, respectively,
with an estimated fair value of approximately $75,700,000 and $92,900,000,
respectively.
F. NOTES RECEIVABLE FROM OFFICERS AND EMPLOYEES:
During 1995 and 1997, the Company issued notes to certain officers and
employees in connection with the exercise of common stock options amounting to
$251,000 and $63,000, respectively, in exchange for recourse loans with fixed
maturity dates prior to the expiration date of the original grant. The notes are
non-interest bearing unless the principal amount thereof is not paid in full
when due, at which time interest accrues and is payable at a rate per annum
equal to the prime rate plus 4.0%. The notes can be repaid from the application
of dividends paid on the common stock but in all cases are to be paid in full at
the maturity date or upon the employee leaving the Company. At December 31, 1996
and 1997, notes receivable outstanding from officers and employees were $101,000
and $164,000, respectively.
G. REDEEMABLE PREFERRED STOCK:
At December 31, 1996 and 1997, the Company had authorized 88,231 shares of
convertible preferred stock ("preferred stock") with a par value of $1.00, of
which 490 shares of the Series C Convertible Preferred Stock were issued and
outstanding, respectively, at December 31, 1996 and 1997.
Shares of preferred stock are convertible into shares of common stock at
the option of the holder according to a conversion formula (which would
currently result in a one-for-forty exchange) with mandatory conversion upon the
completion of a public offering meeting certain minimum proceeds, as defined.
Holders of
F-17
<PAGE> 82
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
the preferred stock are entitled to an annual cumulative dividend of $.765 per
share, if and when declared. The holder of the preferred stock has a liquidation
preference of $25.50 for preferred stock, plus earned and unpaid dividends. In
addition, the preferred shareholder is entitled to vote as a class, proportional
to the number of common shares into which his preferred shares are convertible.
H. STOCKHOLDERS' EQUITY:
Common Stock
The Company had 1,200,000 and 10,000,000 authorized shares of common stock
with a par value of $.01 per share of which 9,683,340 and 9,799,000 shares
(giving effect to the two stock splits referred to below) were issued and
outstanding at December 31, 1996 and 1997, respectively.
Treasury Stock
The Company had 137,340 and 142,590 shares of common stock in treasury at
December 31, 1996 and 1997, respectively, and 490 shares of preferred stock in
treasury at December 31, 1996 and 1997.
Stock Split
On June 16, 1997, the Company's Board of Directors authorized a ten-for-one
stock split. This resulted in the issuance of 4,471,353 additional shares of
common stock. On June 12, 1998, the Company's Board of Directors authorized a
two-for-one stock split to be effective with the Company's initial public
offering. This will result in the issuance of 5,007,813 additional shares of
common stock. All share and per share amounts have been restated to reflect
these stock splits.
Stock Options
In 1987, the Company adopted its 1987 Stock Option Plan (the "Plan") which
provides for the issuance of qualified or nonqualified options to purchase
shares of the Company's common stock. In 1997, the Company's Board of Directors
approved an amendment to the Plan, as a result of the stock split. The aggregate
number of shares issued shall not exceed 1,220,000 and the exercise price of any
outstanding options issued pursuant to the Plan shall be reduced by a factor of
ten and the number of outstanding options issued pursuant to the Plan shall be
increased by a factor of ten. Qualified stock options, which are intended to
qualify as "incentive stock options" under the Internal Revenue Code, may be
issued to employees at an exercise price per share not less than the fair value
of the common stock at the date granted as determined by the Board of Directors.
Nonqualified stock options may be issued to officers, employees and directors of
the Company as well as consultants and agents of the Company at an exercise
price per share not less than fifty percent of the fair value of the common
stock at the date of grant as determined by the Board. The vesting periods and
expiration dates of the grants are determined by the Board of Directors. The
option period may not exceed ten years.
F-18
<PAGE> 83
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
The following summarizes the stock option activity:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE PER SHARE EXERCISE PRICE
------ --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1994......... 1,466,680 $0.10625 to $0.6375 $ 0.275
Exercised................................ (1,399,400) $0.10625 to $0.6375 $ 0.260
Granted.................................. 320,000 $0.6375 to $1.95 $ 1.910
-----------
Outstanding at December 31, 1995......... 387,280 $0.6375 to $1.95 $ 1.690
Exercised................................ (5,620) $0.6375 $0.6375
-----------
Outstanding at December 31, 1996......... 381,660 $0.6375 to $1.95 $ 1.705
Exercised................................ (120,910) $0.6375 to $1.95 $ 0.975
Canceled................................. (9,750) $1.95 $ 1.950
-----------
Outstanding at December 31, 1997......... 251,000 $0.6375 to $1.95 $ 1.870
===========
</TABLE>
The options vest over five years and are exercisable only after they become
fully vested. At December 31, 1996 and 1997, 114,220 and 65,988 of the
outstanding options were fully vested.
At December 31, 1996 and 1997, 401,260 and 270,600 shares of common stock
were reserved for conversion of redeemable convertible preferred stock and
common stock option exercises.
Information relating to stock options at December 31, 1997, summarized by
exercise price is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE SHARES LIFE (YEARS) EXERCISE PRICE SHARES
---------------- ------- ------------ ---------------- ------
<S> <C> <C> <C> <C>
$0.6375 15,620 3.6 $0.6375 5,144
$1.95 235,380 5.0 $ 1.95 60,844
------- ------
$0.6375 to $1.95 251,000 4.9 $ 1.87 65,988
======= ======
</TABLE>
All stock options issued to employees have an exercise price not less than
the fair market value of the Company's common stock on the date of grant. In
accordance with accounting for such options utilizing the intrinsic value method
there is no related compensation expense recorded in the Company's financial
statements. Effective for fiscal 1996, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" ("SFAS No. 123"). SFAS No. 123 requires that
compensation under a fair value method be determined using a Black-Scholes
option pricing model and disclosed in a pro forma effect on earnings and
earnings per share. Had compensation cost for stock based compensation been
determined based on the fair value at the grant dates consistent with the method
of SFAS No. 123, the Company's pro forma net income applicable to common stock
for the years ended December 31, 1995, 1996 and 1997 would have been $2,516,000,
$5,072,000 and $7,644,000, respectively. Pro forma net income per common share
would not have been different than net income per common share as reported.
The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants in 1995: an expected life of the options of seven years,
a risk-free interest rate of approximately 5.5%, a dividend yield of 4%, and no
volatility. The weighted average fair value at date of grant for options granted
during 1995 approximated $.27 per option. There were no options granted in 1996
or 1997.
F-19
<PAGE> 84
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
I. INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................................... $ 985 $1,556 $ 898
State................................................. -- 18 91
------ ------ ------
985 1,574 989
------ ------ ------
Deferred:
Federal............................................... 299 1,100 3,703
State................................................. 401 792 1,194
------ ------ ------
700 1,892 4,897
------ ------ ------
Total............................................ $1,685 $3,466 $5,886
====== ====== ======
</TABLE>
At December 31, 1996 and 1997, the components of the net deferred tax
liability were as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Investment in leases, other than allowance.................. $ 61,832 $ 64,405
Allowance for credit losses................................. (9,478) (108)
Operating lease depreciation................................ (44,892) (45,001)
Debt issue costs............................................ 648 455
Other....................................................... 1,257 1,947
Alternative minimum tax..................................... (2,536) (3,983)
Loss carryforwards.......................................... (759) (6,746)
--------- --------
Total............................................. $ 6,072 $ 10,969
========= ========
</TABLE>
The following is a reconciliation between the effective income tax rate and
the applicable statutory federal income tax rate:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit.................. 6.3 6.3 6.7
Nondeductible expenses and other............................ 1.0 0.3 2.8
---- ---- ----
Effective income tax rate................................... 41.3% 40.6% 43.5%
==== ==== ====
</TABLE>
At December 31, 1997, the Company had passive loss carryforwards of
approximately $16,752,000 which may be used to offset future passive income.
These loss carryforwards are available indefinitely for use against future
passive income.
J. COMMITMENTS AND CONTINGENCIES:
The Company's lease for its facility in Waltham, Massachusetts expires in
1999. This lease contains one five-year renewal option with escalation clauses
for increases in the lessor's operating costs. The Company's lease for its
facilities in Newark, California expires in 2001.
F-20
<PAGE> 85
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
The Company has entered into various operating lease agreements ranging
from three to four years for additional office equipment. At December 31, 1997,
future minimum lease payments under noncancelable operating leases with
remaining terms in excess of one year are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31:
-------------------------------
<S> <C>
1998........................................................ $ 930
1999........................................................ 570
2000........................................................ 55
2001........................................................ 38
------
Total............................................. $1,593
======
</TABLE>
Rental expense under operating leases totaled $793,000, $788,000 and
$991,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company has entered into various capital lease agreements ranging from
three to four years for office equipment, computer equipment and
telecommunication systems. At December 31, 1997, future minimum lease payments
under capital leases were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31:
-------------------------------
<S> <C>
1998........................................................ $ 682
1999........................................................ 383
2000........................................................ 42
------
Total minimum lease payments................................ 1,107
Less amounts representing interest.......................... (36)
------
Total....................................................... $1,071
======
</TABLE>
The Company and its subsidiaries are frequently parties to various claims,
lawsuits and administrative proceedings arising in the ordinary course of
business. Although the outcome of these lawsuits cannot be predicted with
certainty, the Company does not expect such matters to have a material adverse
effect on the financial condition or results of operations of the Company.
K. EMPLOYEE BENEFIT PLAN:
The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code to provide retirement and profit sharing benefits covering
substantially all full-time employees. Employees are eligible to contribute up
to 15% of their gross salary. The Company will contribute $.50 for every $1.00
contributed by an employee up to 3% of the employee's salary. Vesting in the
Company contributions is over a five-year period based upon 20% per year. The
Company's contribution to the defined contribution plan were $52,000, $72,000
and $106,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
L. INTEREST RATE SWAP:
Interest rate swap contracts involve the exchange by the Company with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. The Company has entered into this contract to
reduce the impact of changes in interest rates on its floating rate debt.
The Company has entered into this interest rate swap agreement only on a
net basis, which means that the two payment streams are netted out, with the
Company receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount
F-21
<PAGE> 86
MICROFINANCIAL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(tables in thousands, except per share data)
of payments that the Company is contractually entitled to receive, if any.
Interest rate swaps entered into by the Company may not be readily marketable.
At December 31, 1997, the Company had outstanding one interest rate swap
agreement with one of its banks, having a total notional principal amount of
$17,500,000. The agreement effectively changes the Company's interest rate
exposure on $17,500,000 of its floating rate $35,000,000 revolving line of
credit due July 31, 1999 to a fixed 8.45%. The interest rate swap matures on
July 10, 2000. The interest differential paid or received on the swap agreement
is recognized as an adjustment to interest expense. Interest expense related to
the swap was $78,000 for the year ended December 31, 1997. At December 31, 1997,
the fair value of this interest rate swap, which represents the amount the
Company would receive or pay to terminate the agreement, is a net payable of
$333,000, based on dealer quotes.
The market risk exposure from the interest rate swap is assessed in light
of the underlying interest rate exposures. Credit risk exposure from the swap is
minimized as the agreement is with a major financial institution. The Company
monitors the creditworthiness of this financial institution and full performance
is anticipated.
M. CONCENTRATION OF CREDIT RISK:
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of lease and loan receivables and cash and cash
equivalent balances. To reduce the risk to the Company, stringent credit
policies are followed in approving leases and loans, and lease pools are closely
monitored by management. In addition, the cash and cash equivalents are
maintained with several high quality financial institutions.
N. SUBSEQUENT EVENTS (UNAUDITED):
Series 1998-A Notes
In November 1998, BLT III issued its 6.03% Lease-Backed Notes, Series
1998-A (the "1998-A Notes") in aggregate principal amount of $40,768,557. The
1998-A Notes mature on May 17, 2004.
Lease
The Company recently signed a lease for 44,659 square feet of office space
in Woburn, Massachusetts which lease commenced on December 15, 1998 and expires
on December 14, 2003. The monthly rent under this lease is $57,099.
1998 Plan
The Company has adopted the 1998 Equity Incentive Plan (the "1998 Plan")
effective July 9, 1998. The 1998 Plan permits the Compensation Committee of the
Company's Board of Directors to make various long-term incentive awards,
generally equity-based, to eligible persons. The Company intends to reserve
2,000,000 shares of the Company's common stock for issuance pursuant to the 1998
Plan.
F-22
<PAGE> 87
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Summary................................................................. 3
Risk Factors............................................................ 8
Use of Proceeds......................................................... 15
Dividend Policy......................................................... 16
Capitalization.......................................................... 17
Dilution................................................................ 18
Selected Consolidated Financial and Operating Data...................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................... 21
Business................................................................ 27
Management.............................................................. 38
Certain Transactions.................................................... 46
Principal Stockholders.................................................. 47
Selling Stockholders.................................................... 48
Description of Certain Indebtedness..................................... 49
Description of Capital Stock............................................ 55
Shares Eligible for Future Sale......................................... 58
Certain United States Tax Consequences to Non-United
States Holders........................................................ 59
Underwriting............................................................ 61
Legal Matters........................................................... 62
Experts................................................................. 62
Available Information................................................... 62
Index to Consolidated Financial Statements.............................. F-1
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
4,000,000 SHARES
[MICROFINANCIAL LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PIPER JAFFRAY INC.
CIBC OPPENHEIMER
, 1999
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the NYSE filing fee and the NYSE listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 21,712
NYSE fees................................................... 128,255
NASD filing fee............................................. 7,860
Transfer Agent fees and expenses............................ 10,000
Printing expenses........................................... 215,000
Legal fees and expenses..................................... 371,241
Accounting fees and expenses................................ 314,000
Directors and Officers insurance premiums................... 134,000
Miscellaneous............................................... 27,932
----------
Total....................................................... $1,230,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of Chapter 156B of the Massachusetts General Laws ("Section 67")
provides that a corporation may indemnify its directors and officers to the
extent specified in or authorized by (i) the articles of organization, (ii) a
by-law adopted by the stockholders, or (iii) a vote adopted by the holders of a
majority of the shares of stock entitled to vote on the election of directors.
In all instances, the extent to which a corporation provides indemnification to
its directors and officers under Section 67 is optional. The Company's by-laws
provide that the Company shall, to the extent legally permissible, indemnify any
person serving or who has served as a director or officer of the corporation
against all liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and counsel fees, reasonably
incurred by the director or officer in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
in which he or she may be involved or with which he or she may be threatened,
while serving or thereafter, by reason of being or having been such a director
or officer, except with respect to any matter as to which he or she shall have
been adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that his or her action was in the best interests of the
Company; provided, however, that as to any matter disposed of by a compromise
payment by such director or officer, no indemnification for said payment or
expenses shall be provided unless such compromise is approved as in the best
interests of the Company. Expenses reasonably incurred by any such director or
officer in connection with the defense or disposition of any such action, suit
or other proceeding may be paid from time to time by the Company in advance of
final disposition.
II-1
<PAGE> 89
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Except as set forth below, the Registrant did not sell any securities which
were not registered under the Securities Act during the three-year period ended
December 31, 1998.
COMMON STOCK
<TABLE>
<CAPTION>
NO. OF SHARES OF AGGREGATE EXEMPTION
PURCHASER ISSUANCE DATE COMMON STOCK CONSIDERATION CLAIMED*
--------- ------------- ---------------- ------------- ---------
<S> <C> <C> <C> <C>
Michael Lannon........................... January, 1996 4,620 2,945.25 Rule 701
J. Gregory Hines......................... June, 1996 1,000 637.50 Rule 701
J. Gregory Hines......................... January, 1997 6,060 11,817.00 Rule 701
John Plumlee............................. January, 1997 16,000 10,200.00 Rule 701
John Plumlee............................. January, 1997 6,060 11,817.00 Rule 701
Maureen Curran........................... January, 1997 10,000 6,375.00 Rule 701
Maureen Curran........................... January, 1997 6,060 11,817.00 Rule 701
Stephen Obana............................ January, 1997 6,060 11,817.00 Rule 701
James Anderson........................... January, 1997 6,060 11,817.00 Rule 701
Stephen Constantino...................... January, 1997 3,040 5,928.00 Rule 701
Carol Salvo.............................. January, 1997 6,060 11,817.00 Rule 701
Kerry Frost.............................. January, 1997 3,040 5,928.00 Rule 701
Richard F. Latour........................ January, 1997 17,180 33,501.00 Rule 701
J. Gregory Hines......................... March, 1997 3,020 1,925.25 Rule 701
Peter R. Bleyleben....................... March, 1997 8,200 5,227.50 Rule 701
Richard F. Latour........................ March, 1997 15,540 9,906.75 Rule 701
Richard F. Latour........................ March, 1997 3,280 2,091.00 Rule 701
Sabrina Abruzzese........................ October, 1997 15,000 29,250.00 Rule 701
Sabrina Abruzzese........................ October, 1997 5,250 10,237.50 Rule 701
Richard F. Latour........................ March, 1998 458 291.98 Rule 701
Richard F. Latour........................ March, 1998 21,198 41,336.10 Rule 701
Maureen Curran........................... March, 1998 7,486 14,597.70 Rule 701
John Plumlee............................. March, 1998 7,486 14,597.70 Rule 701
J. Gregory Hines......................... March, 1998 7,486 14,597.70 Rule 701
Stephen Obana............................ March, 1998 7,486 14,597.70 Rule 701
James Andersen........................... March, 1998 7,486 14,597.70 Rule 701
Stephen Constantino...................... March, 1998 3,732 7,277.40 Rule 701
Carol Salvo.............................. March, 1998 7,486 14,597.70 Rule 701
Kerry Frost.............................. March, 1998 3,732 7,277.40 Rule 701
Richard F. Latour........................ June, 1998 2,762 1,760.78 Rule 701
J. Gregory Hines......................... September, 1998 1,480 943.50 Rule 701
Richard F. Latour........................ September, 1998 3,222 2,054.03 Rule 701
John Plumlee............................. September, 1998 3,008 5,865.60 Rule 701
Carol Salvo.............................. September, 1998 3,008 5,865.60 Rule 701
Richard F. Latour........................ December, 1998 12,622 24,612.90 Rule 701
J. Gregory Hines......................... December, 1998 4,454 8,685.30 Rule 701
Stephen Obana............................ December, 1998 4,454 8,685.30 Rule 701
John Plumlee............................. December, 1998 1,446 2,819.70 Rule 701
Carol Salvo.............................. December, 1998 1,446 2,819.70 Rule 701
Stephen Constantino...................... December, 1998 2,228 4,344.60 Rule 701
</TABLE>
- ---------------
* Shares issued pursuant to exercises of options under the Company's 1987 Stock
Option Plan.
II-2
<PAGE> 90
SUBORDINATED DEBT
<TABLE>
<CAPTION>
ISSUE AGGREGATE EXEMPTION
PURCHASER DATE PRINCIPAL AMOUNT CLAIMED**
--------- ----- ---------------- ---------
<S> <C> <C> <C>
Ingrid R. Bleyleben.............................. February 16, 1996 $ 120,000 Section 4(2)
Dorothy B. Watkins............................... March 12, 1996 50,000 Section 4(2)
Parker Family Ltd. Partnership................... June 1, 1996 500,000 Section 4(2)
Joan S. Cushman.................................. July 1, 1996 50,000 Section 4(2)
Maud P. Barton................................... July 1, 1996 100,000 Section 4(2)
Richard M. Barton 1992 Trust..................... July 1, 1996 100,000 Section 4(2)
Sally Mann....................................... July 1, 1996 100,000 Section 4(2)
DKFM Fritz Froehlich............................. September 1, 1996 25,000 Section 4(2)
Laura Hentschel.................................. September 1, 1996 20,000 Section 4(2)
Aegon Insurance Group............................ October 15, 1996 5,000,000 Section 4(2)
Rothschild Inc................................... October 17, 1996 5,000,000 Section 4(2)
A. Harold Howell................................. November 1, 1996 260,000 Section 4(2)
Phyllis Pace..................................... November 18, 1996 50,000 Section 4(2)
Wakefield Management Inc......................... November 18, 1996 500,000 Section 4(2)
Alan & Virginia Jones............................ November 21, 1996 90,000 Section 4(2)
Carolyn G. Harder................................ November 21, 1996 50,000 Section 4(2)
Charles Everett MDPA............................. November 25, 1996 45,000 Section 4(2)
David D. Williams................................ November 26, 1996 45,000 Section 4(2)
The Planetary Trust.............................. November 26, 1996 45,000 Section 4(2)
Peter R. Bleyleben............................... December 1, 1996 100,000 Section 4(2)
Parker Family Ltd. Partnership................... December 2, 1996 1,250,000 Section 4(2)
Ken & Jill Duckman 1992 Char..................... December 3, 1996 45,000 Section 4(2)
Glimer Enterprises Ltd........................... December 5, 1996 45,000 Section 4(2)
Rosemary Broton Boyle............................ December 5, 1996 45,000 Section 4(2)
Harold P. Weintraub.............................. December 6, 1996 22,500 Section 4(2)
Mary H. Thomsen.................................. December 6, 1996 22,500 Section 4(2)
Webjake Partnership Ltd.......................... December 6, 1996 45,000 Section 4(2)
Virginia A. Santonelli........................... December 9, 1996 22,500 Section 4(2)
Bender Living Trust 12/3/96...................... December 13, 1996 45,000 Section 4(2)
Meredith Dickinson............................... December 13, 1996 22,500 Section 4(2)
Dean R. Wasserman Essex.......................... December 16, 1996 45,000 Section 4(2)
Dorothy R. Johns Living Trust.................... December 16, 1996 45,000 Section 4(2)
Charles E. Johns................................. December 17, 1996 67,500 Section 4(2)
Ingrid R. Bleyleben.............................. December 17, 1996 25,000 Section 4(2)
Elaine F. Shimberg............................... December 18, 1996 90,000 Section 4(2)
U/W/O Edward C. Mack 1973 Trust.................. December 18, 1996 45,000 Section 4(2)
Barnet Fain...................................... December 19, 1996 45,000 Section 4(2)
Judith Harper IRA 230-96X28...................... December 20, 1996 45,000 Section 4(2)
Mandell Shimberg IRA MLPFS....................... December 20, 1996 90,000 Section 4(2)
Marjorie & Mark Steinberg........................ December 20, 1996 45,000 Section 4(2)
MLPFS IRA BANK 23075R16.......................... December 20, 1996 45,000 Section 4(2)
MLPFS Sherwood IRA 23096W47...................... December 20, 1996 45,000 Section 4(2)
Barry W. Fain.................................... December 23, 1996 45,000 Section 4(2)
Elaine B. Fain................................... December 23, 1996 45,000 Section 4(2)
Max & Diane Weissberg............................ December 23, 1996 45,000 Section 4(2)
Sadelle Bernstein, TTE........................... December 23, 1996 54,000 Section 4(2)
SEFF Living Trust 2/1/89......................... December 23, 1996 45,000 Section 4(2)
Barnet Fain IRA.................................. December 24, 1996 45,000 Section 4(2)
David & Janet Handelman.......................... December 24, 1996 45,000 Section 4(2)
MLPFS Patricia B. McCord IRA..................... December 24, 1996 90,000 Section 4(2)
Foresight Foundation............................. December 27, 1996 45,000 Section 4(2)
- ---------------------------------------------------------------------------------------------------------
** Securities issued to (i) directors, executive officers or their immediate family members, (ii)
accredited investors or (iii) less than 35 non-accredited investors in any 12-month period.
</TABLE>
II-3
<PAGE> 91
<TABLE>
<CAPTION>
ISSUE AGGREGATE EXEMPTION
PURCHASER DATE PRINCIPAL AMOUNT CLAIMED**
--------- ----- ---------------- ---------
<S> <C> <C> <C>
Gretchen Ingram.................................. December 27, 1996 $ 45,000 Section 4(2)
Richard C. Warmer................................ December 27, 1996 90,000 Section 4(2)
Ann A. Groves.................................... January 2, 1997 50,000 Section 4(2)
Bishop Living Trust.............................. January 2, 1997 36,000 Section 4(2)
Edith Bishop..................................... January 2, 1997 18,000 Section 4(2)
Elizabeth B. Alvord Trust U/W.................... January 2, 1997 200,000 Section 4(2)
Harvey S. Stein.................................. January 2, 1997 45,000 Section 4(2)
Sheng Ren Trust.................................. January 2, 1997 45,000 Section 4(2)
John B. Power.................................... February 1, 1997 22,500 Section 4(2)
Ted L. Carelock.................................. February 26, 1997 90,000 Section 4(2)
The Riddle Foundation............................ March 20, 1997 90,000 Section 4(2)
Joanne T. Witt................................... March 27, 1997 22,500 Section 4(2)
Ted L. Carelock.................................. March 27, 1997 100,000 Section 4(2)
Ms. Ann Elkins................................... April 4, 1997 90,000 Section 4(2)
CPC Defined Benefit Trust........................ April 15, 1997 90,000 Section 4(2)
Charles T. Zwicker TTEE.......................... May 27, 1997 100,000 Section 4(2)
Ingrid R. Bleyleben.............................. June 4, 1997 20,000 Section 4(2)
Alan Goldfine Irrevocable Trust.................. July 1, 1997 300,000 Section 4(2)
Elie Rivollier Jr. IRA Rollover.................. July 1, 1997 100,000 Section 4(2)
Mary Rivollier JR IRA Rollover................... July 1, 1997 150,000 Section 4(2)
Mr. & Mrs. J. Bryan Mims......................... July 1, 1997 300,000 Section 4(2)
Steven Puskar.................................... August 18, 1997 30,000 Section 4(2)
Parker Family Ltd. Partnership................... September 1, 1997 250,000 Section 4(2)
George E. & Joanna Copoulos...................... September 9, 1997 20,000 Section 4(2)
Andrew Mills..................................... December 1, 1997 100,000 Section 4(2)
Gary L. Roubos & Terie A. Roubos................. January 23, 1998 1,000,000 Section 4(2)
Alan J. Zakon IRA Rollover....................... March 18, 1998 100,000 Section 4(2)
- ---------------------------------------------------------------------------------------------------------
** Securities issued to (i) directors, executive officers or their immediate family members, (ii)
accredited investors or (iii) less than 35 non-accredited investors in any 12-month period.
</TABLE>
II-4
<PAGE> 92
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Organization, as amended(2).
3.2 Bylaws(2).
*4.1 Specimen of Common Stock Certificate.
5.1 Opinion of Edwards & Angell, LLP(2).
10.1 Amended and Restated Revolving Credit Agreement among The
First National Bank of Boston, Commerzbank Bank AG, New York
Branch, and Leasecomm Corporation dated August 6, 1996(2).
10.2 Agreement and Amendment No. 1 to Amended and Restated
Revolving Credit Agreement among The First National Bank of
Boston, Commerzbank Bank AG, New York Branch, and Leasecomm
Corporation dated September 23, 1997(2).
10.3 Amended and Restated Loan Agreement between Leasecomm
Corporation and NatWest Bank N.A. dated July 28, 1995(2).
10.4 First Amendment to Amended and Restated Loan Agreement
between Leasecomm Corporation and NatWest Bank N.A. dated
October 30, 1995(2).
10.5 Second Amendment to Amended and Restated Loan Agreement
between Leasecomm Corporation and Fleet Bank, N.A. (formerly
NatWest Bank N.A.) dated August 6, 1996(2).
10.6 Third Amendment to Amended and Restated Loan Agreement
between Leasecomm Corporation and Fleet Bank, N.A. dated
August 11, 1997(2).
10.7 Office Lease Agreement by and between AJ Partners Limited
Partnership and Leasecomm Corporation dated July 12, 1993
for facilities in Newark, California(2).
10.8 Office Lease Agreement by and between MicroFinancial
Incorporated and Desmond Taljaard and Howard Friedman,
Trustees of London and Leeds Bay Colony I Realty Trust,
dated April 14, 1994 for facilities in Waltham,
Massachusetts(2).
10.9 1987 Stock Option Plan(2).
10.10 Forms of Grant under 1987 Stock Option Plan(2).
10.11 Board of Directors Stock Unit Compensation Plan(2).
10.12 1998 Equity Incentive Plan(2).
10.13 Employment Agreement between the Company and Peter R.
Bleyleben(2).
10.14 Employment Agreement between the Company and Richard F.
Latour(2).
10.15 Standard Terms and Condition of Indenture dated as of
November 1, 1994 governing the BLT Finance Corp. III 6.03%
Lease-Backed Notes, Series 1998-A (the "1998-A Notes"), the
BLT Finance Corp. III 6.42% Lease-Backed Notes, Series
1997-A (the "1997-A Notes") and the BLT Finance Corp. III
6.69% Lease-Backed Notes, Series 1996-A (the "1996-A
Notes")(2).
10.16 Second Amended and Restated Specific Terms and Conditions of
Indenture dated as of October 1, 1998, governing the 1996-A
Notes, the 1997-A Notes and the 1998-A Notes(2).
10.17 Supplement to Indenture dated May 1, 1996 governing the
1996-A Notes(2).
10.18 Supplement to Indenture dated August 1, 1997 governing the
1997-A Notes(2).
10.19 Supplement to Indenture dated as of October 1, 1998
governing the 1998-A Notes(2).
10.20 Specimen 1997-A Note(2).
10.21 Specimen 1996-A Note(2).
10.22 Specimen 1998-A Note(2).
</TABLE>
II-5
<PAGE> 93
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.23 Standard Terms and Conditions of Servicing governing the 1996-A Notes,
the 1997-A Notes and the 1998-A Notes (2).
10.24 Specific Terms and Conditions of Servicing governing the 1996-A Notes,
the 1997-A Notes and the 1998-A Notes (2).
10.25 Commercial Lease, dated November 3, 1998, between Cummings Properties
Management, Inc. and MicroFinancial Incorporated(2).
10.26 Amendment to Lease #1, dated November 3, 1998, between Cummings
Properties Management, Inc. and MicroFinancial Incorporated(2).
10.27 Employment Agreement between the Company and J. Gregory Hines(2).
10.28 Employment Agreement between the Company and John Plumlee(2).
10.29 Employment Agreement between the Company and Carol Salvo(2).
*10.30 Fourth Amendment to Amended and Restated Loan Agreement, dated July
31, 1998, among Leasecomm Corporation, the lenders parties thereto
and Fleet Bank, National Association, as agent.
*10.31 Fifth Amendment to Amended and Restated Loan Agreement, dated January
27, 1999, among Leasecomm Corporation, the lenders parties thereto
and Fleet Bank, National Association, as agent for such lenders.
*10.32 Second Amended and Restated Revolving Credit Agreement, dated January
27, 1999, among Leasecomm Corporation, the lenders parties thereto
and BankBoston, N.A., as agent.
11.1 Statement regarding computation of per share earnings(2).
21.1 Subsidiaries of Registrant(2).
*23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Edwards & Angell, LLP (see Exhibit 5.1).
24.1 Powers of Attorney(2).
27 Financial Data Schedule(2).
- ---------------
* Filed herewith.
(1) To be filed by amendment.
(2) Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as are required by the underwriters
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any arrangement, provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than that payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
II-6
<PAGE> 94
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement for the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-7
<PAGE> 95
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Waltham, Commonwealth of Massachusetts, on the
4th day of February, 1999.
MICROFINANCIAL INCORPORATED
BY: /s/ PETER R. BLEYLEBEN
--------------------------------------
Peter R. Bleyleben
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to the Registration Statement on Form S-1 has been signed
below by the following persons in the capacities indicated as of the 4th day of
February, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ PETER R. BLEYLEBEN President, Chief Executive February 4, 1999
- --------------------------------------------------- Officer and Director
Peter R. Bleyleben
/s/ RICHARD F. LATOUR Executive Vice President, Chief February 4, 1999
- --------------------------------------------------- Operating Officer and Chief
Richard F. Latour Financial Officer
* Director February 4, 1999
- ---------------------------------------------------
Brian E. Boyle
* Director February 4, 1999
- ---------------------------------------------------
Torrence C. Harder
* Director February 4, 1999
- ---------------------------------------------------
Jeffrey Parker
* Director February 4, 1999
- ---------------------------------------------------
Alan Zakon
*BY: /s/ PETER R. BLEYLEBEN
---------------------------------------------
Peter R. Bleyleben
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Organization, as amended(2).
3.2 Bylaws(2).
*4.1 Specimen of Common Stock Certificate.
5.1 Opinion of Edwards & Angell, LLP(2).
10.1 Amended and Restated Revolving Credit Agreement among The
First National Bank of Boston, Commerzbank Bank AG, New York
Branch, and Leasecomm Corporation dated August 6, 1996(2).
10.2 Agreement and Amendment No. 1 to Amended and Restated
Revolving Credit Agreement among The First National Bank of
Boston, Commerzbank Bank AG, New York Branch, and Leasecomm
Corporation dated September 23, 1997(2).
10.3 Amended and Restated Loan Agreement between Leasecomm
Corporation and NatWest Bank N.A. dated July 28, 1995(2).
10.4 First Amendment to Amended and Restated Loan Agreement
between Leasecomm Corporation and NatWest Bank N.A. dated
October 30, 1995(2).
10.5 Second Amendment to Amended and Restated Loan Agreement
between Leasecomm Corporation and Fleet Bank, N.A. (formerly
NatWest Bank N.A.) dated August 6, 1996(2).
10.6 Third Amendment to Amended and Restated Loan Agreement
between Leasecomm Corporation and Fleet Bank, N.A. dated
August 11, 1997(2).
10.7 Office Lease Agreement by and between AJ Partners Limited
Partnership and Leasecomm Corporation dated July 12, 1993
for facilities in Newark, California(2).
10.8 Office Lease Agreement by and between MicroFinancial
Incorporated and Desmond Taljaard and Howard Friedman,
Trustees of London and Leeds Bay Colony I Realty Trust,
dated April 14, 1994 for facilities in Waltham,
Massachusetts(2).
10.9 1987 Stock Option Plan(2).
10.10 Forms of Grant under 1987 Stock Option Plan(2).
10.11 Board of Directors Stock Unit Compensation Plan(2).
10.12 1998 Equity Incentive Plan(2).
10.13 Employment Agreement between the Company and Peter R.
Bleyleben(2).
10.14 Employment Agreement between the Company and Richard F.
Latour(2).
10.15 Standard Terms and Condition of Indenture dated as of
November 1, 1994 governing the BLT Finance Corp. III 6.03%
Lease-Backed Notes, Series 1998-A (the "1998-A Notes"), the
BLT Finance Corp. III 6.42% Lease-Backed Notes, Series
1997-A (the "1997-A Notes") and the BLT Finance Corp. III
6.69% Lease-Backed Notes, Series 1996-A (the "1996-A
Notes")(2).
10.16 Second Amended and Restated Specific Terms and Conditions of
Indenture dated as of October 1, 1998, governing the 1996-A
Notes, the 1997-A Notes and the 1998-A Notes(2).
10.17 Supplement to Indenture dated May 1, 1996 governing the
1996-A Notes(2).
10.18 Supplement to Indenture dated August 1, 1997 governing the
1997-A Notes(2).
10.19 Supplement to Indenture dated as of October 1, 1998
governing the 1998-A Notes(2).
10.20 Specimen 1997-A Note(2).
10.21 Specimen 1996-A Note(2).
10.22 Specimen 1998-A Note(2).
</TABLE>
<PAGE> 97
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.23 Standard Terms and Conditions of Servicing governing the 1996-A Notes,
the 1997-A Notes and the 1998-A Notes(2).
10.24 Specific Terms and Conditions of Servicing governing the 1996-A Notes,
the 1997-A Notes and the 1998-A Notes(2).
10.25 Commercial Lease, dated November 3, 1998, between Cummings Properties
Management, Inc. and MicroFinancial Incorporated(2).
10.26 Amendment to Lease #1, dated November 3, 1998, between Cummings
Properties Management, Inc. and MicroFinancial Incorporated(2).
10.27 Employment Agreement between the Company and J. Gregory Hines(2).
10.28 Employment Agreement between the Company and John Plumlee(2).
10.29 Employment Agreement between the Company and Carol Salvo(2).
*10.30 Fourth Amendment to Amended and Restated Loan Agreement, dated July
31, 1998, among Leasecomm Corporation, the lenders parties thereto
and Fleet Bank, National Association, as agent.
*10.31 Fifth Amendment to Amended and Restated Loan Agreement, dated January
27, 1999, among Leasecomm Corporation, the lenders parties thereto
and Fleet Bank, National Association, as agent for such lenders.
*10.32 Second Amended and Restated Revolving Credit Agreement, dated January
27, 1999, among Leasecomm Corporation, the lenders parties thereto
and BankBoston, N.A., as agent.
11.1 Statement regarding computation of per share earnings(2).
21.1 Subsidiaries of Registrant(2).
*23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Edwards & Angell, LLP (see Exhibit 5.1).
24.1 Powers of Attorney(2).
27 Financial Data Schedule(2).
- ---------------
* Filed herewith.
(1) To be filed by amendment.
(2) Previously filed.
<PAGE> 1
EXHIBIT 1.1
4,000,000 SHARES(1)
MICROFINANCIAL INCORPORATED
COMMON STOCK
FORM OF UNDERWRITING AGREEMENT
------------------------------
February __, 1999
PIPER JAFFRAY INC.
CIBC OPPENHEIMER CORP.
As Representatives of the several
Underwriters named in Schedule II hereto
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
MicroFinancial Incorporated, a Massachusetts corporation (the "Company"),
and the stockholders of the Company listed in Schedule I hereto (the "Selling
Stockholders") severally propose to sell to the several Underwriters named in
Schedule II hereto (the "Underwriters") an aggregate of 4,000,000 shares (the
"Firm Shares") of Common Stock, $.01 par value per share (the "Common Stock"),
of the Company. The Firm Shares consist of 3,400,000 authorized but unissued
shares of Common Stock to be issued and sold by the Company and 600,000
outstanding shares of Common Stock to be sold by the Selling Stockholders. The
Selling Stockholders have also granted to the several Underwriters an option to
purchase up to 600,000 additional shares of Common Stock, respectively, on the
terms and for the purposes set forth in Section 3 hereof (the "Option Shares").
The Firm Shares and any Option Shares purchased pursuant to this Purchase
Agreement are herein collectively called the "Securities."
The Company and the Selling Stockholders hereby confirm their agreement
with respect to the sale of the Securities to the several Underwriters, for whom
you are acting as Representatives (the "Representatives").
1. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement on Form
S-1 (Registration No. 333-56339) with respect to the Securities, including a
preliminary form of prospectus, has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations ("Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission; one or more amendments to such registration statement have also been
so prepared and have been, or will be, so filed; and, if the Company has elected
to
- ----------
(1)Plus an option to purchase up to 600,000 additional shares from the Selling
Stockholders to cover over-allotments.
<PAGE> 2
rely upon Rule 462(b) of the Rules and Regulations to increase the size of the
offering registered under the Act, the Company will prepare and file with the
Commission a registration statement with respect to such increase pursuant to
Rule 462(b). Copies of such registration statement(s) and amendments and each
related preliminary prospectus have been delivered to you.
If the Company has elected not to rely upon Rule 430A of the Rules and
Regulations, the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus (including a term sheet meeting
the requirements of Rule 434 of the Rules and Regulations). If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will prepare and
file a prospectus (or a term sheet meeting the requirements of Rule 434)
pursuant to Rule 424(b) that discloses the information previously omitted from
the prospectus in reliance upon Rule 430A. Such registration statement as
amended at the time it is or was declared effective by the Commission, and, in
the event of any amendment thereto after the effective date and prior to the
First Closing Date (as hereinafter defined), such registration statement as so
amended (but only from and after the effectiveness of such amendment), including
a registration statement (if any) filed pursuant to Rule 462(b) of the Rules and
Regulations increasing the size of the offering registered under the Act and
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rules 430A(b) and 434(d) of the Rules and
Regulations, is hereinafter called the "Registration Statement." The prospectus
included in the Registration Statement at the time it is or was declared
effective by the Commission is hereinafter called the "Prospectus," except that
if any prospectus (including any term sheet meeting the requirements of Rule 434
of the Rules and Regulations provided by the Company for use with a prospectus
subject to completion within the meaning of Rule 434 in order to meet the
requirements of Section 10(a) of the Rules and Regulations) filed by the Company
with the Commission pursuant to Rule 424(b) (and Rule 434, if applicable) of the
Rules and Regulations or any other such prospectus provided to the Underwriters
by the Company for use in connection with the offering of the Securities
(whether or not required to be filed by the Company with the Commission pursuant
to Rule 424(b) of the Rules and Regulations) differs from the prospectus on file
at the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 of the Rules and
Regulations) from and after the time such prospectus is filed with the
Commission or transmitted to the Commission for filing pursuant to such Rule
424(b) (and Rule 434, if applicable) or from and after the time it is first
provided to the Underwriters by the Company for such use. The term "Preliminary
Prospectus" as used herein means any preliminary prospectus included in the
Registration Statement prior to the time it becomes or became effective under
the Act and any prospectus subject to completion as described in Rule 430A or
434 of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and each Preliminary
Prospectus, at the time of filing thereof, did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; except that the foregoing shall not apply to statements in
or omissions from any Preliminary Prospectus in reliance upon, and in
conformity with, written information
-2-
<PAGE> 3
furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof.
(ii) As of the time the Registration Statement (or any
post-effective amendment thereto, including a registration statement
(if any) filed pursuant to Rule 462(b) of the Rules and Regulations
increasing the size of the offering registered under the Act) is or
was declared effective by the Commission, upon the filing or first
delivery to the Underwriters of the Prospectus (or any supplement to
the Prospectus (including any term sheet meeting the requirements of
Rule 434 of the Rules and Regulations)) and at the First Closing Date
and Second Closing Date (as hereinafter defined), (A) the Registration
Statement and Prospectus (in each case, as so amended and/or
supplemented) conformed or will conform in all material respects to
the requirements of the Act and the Rules and Regulations, (B) the
Registration Statement (as so amended) did not or will not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (C) the Prospectus (as so supplemented)
did not or will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they are or were made, not misleading; except
that the foregoing shall not apply to statements in or omissions from
any such document in reliance upon, and in conformity with, written
information furnished to the Company by you, or by any Underwriter
through you, specifically for inclusion in the Registration Statement.
If the Registration Statement has been declared effective by the
Commission, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that
purpose has been initiated or, to the Company's knowledge, threatened
by the Commission.
(iii) The financial statements of the Company, together with the
notes thereto, set forth in the Registration Statement and Prospectus
comply as to form with the requirements of the Act and fairly present
the financial condition of the Company as of the dates indicated and
the results of operations and changes in cash flows for the periods
therein specified in conformity with generally accepted accounting
principles consistently applied throughout the periods involved
(except as otherwise stated therein); and the supporting schedules
included in the Registration Statement present fairly the information
required to be stated therein. The selected financial data set forth
under the caption "Selected Consolidated Financial and Operating Data"
in the Prospectus and Registration Statement fairly present, on the
basis stated in the Prospectus and the Registration Statement, the
information included therein. No other financial statements or
schedules are required to be included in the Registration Statement or
Prospectus. PricewaterhouseCoopers LLP, which has expressed its
opinion with respect to the financial statements and schedules filed
as a part of the Registration Statement and included in the
Registration Statement and Prospectus, are independent public
accountants as required by the Act and the Rules and Regulations.
(iv) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation. Each of the
Company and its subsidiaries has full corporate power and authority to
own or lease, as the case may be, and to operate its properties and
conduct its business as currently being carried on and as described in
the Registration Statement and Prospectus, and is duly qualified to do
business as a foreign corporation in
-3-
<PAGE> 4
good standing in each jurisdiction in which it owns or leases real
property or in which the conduct of its business makes such
qualification necessary and in which the failure to so qualify would
have a material adverse effect upon the business, condition (financial
or otherwise) or properties of the Company and its subsidiaries, taken
as a whole.
(v) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor any of its
subsidiaries has incurred any material liabilities or obligations,
direct or contingent, or entered into any material transactions, or
declared or paid any dividends or made any distribution of any kind
with respect to its capital stock; and there has not been any change
in the capital stock (other than a change in the number of outstanding
shares of Common Stock due to the issuance of shares upon the exercise
of outstanding options or warrants), or any material change in the
short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase the capital stock,
of the Company or any of its subsidiaries, or any material adverse
change, or any development which would reasonably be expected to cause
a material adverse change in the business, condition (financial or
otherwise), key personnel or properties of the Company and its
subsidiaries, taken as a whole.
(vi) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened, any action, suit or
proceeding to which the Company or any of its subsidiaries is a party
before or by any court or governmental agency, authority or body, or
any arbitrator, which would be reasonably expected to (i) have a
material adverse effect on the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or (ii)
result in any material adverse change in the business, condition
(financial or otherwise), key personnel or properties of the Company
and its subsidiaries, taken as a whole.
(vii) There are no contracts or documents of the Company or any
of its subsidiaries that are required to be described in or filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations that have not been so described or filed; and the
statements in the Prospectus under the headings "Certain United States
Tax Consequences to Non-United States Holders", "Business--Legal
Proceedings" and "Risk Factors--Government Regulation" fairly
summarize the matters therein described.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company. The execution, delivery and performance of
this Agreement and the consummation of the transactions herein
contemplated will not conflict with, result in a breach or violation
of any of the terms and provisions of or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, or constitute a default under,
any statute, any agreement or instrument to which the Company or any
of its subsidiaries is a party, which conflict or breach of agreement
would be reasonably expected to have a material adverse effect on the
business, condition (financial or otherwise) , key personnel or
properties of the Company or its subsidiaries, taken as a whole or by
which any of them are bound or to which any of its property is
subject, the Company's or any of its subsidiaries' charter or by-laws,
or any order, rule, regulation or decree of any court or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties; no consent, approval,
authorization or order of, or filing with, any court or governmental
agency or body is required for the execution, delivery and performance
of
-4-
<PAGE> 5
this Agreement or for the consummation of the transactions
contemplated hereby, including the issuance or sale of the Securities
by the Company, except such as have been obtained under the Act and
such as may be required under state securities or blue sky laws; and
the Company has full power and authority to enter into this Agreement
and to authorize, issue and sell the Securities as contemplated by
this Agreement.
(ix) All of the issued and outstanding shares of capital stock of
the Company, including the outstanding shares of Common Stock, are
duly authorized and validly issued, fully paid and nonassessable, have
been issued in compliance with all Federal and state securities laws,
were not issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities, and the holders
thereof are not subject to personal liability by reason of being such
holders; the Securities which may be sold hereunder by the Company
have been duly and validly authorized and, when issued, delivered and
paid for in accordance with the terms hereof, will have been validly
issued and will be fully paid and nonassessable, and the holders
thereof will not be subject to personal liability by reason of being
such holders; and the capital stock of the Company, including the
Common Stock, conforms to the description thereof in the Registration
Statement and Prospectus. The Certificates for the Securities are in
valid and sufficient form. Except as otherwise stated in the
Registration Statement and Prospectus, there are no preemptive rights
or other rights to subscribe for or to purchase, or any restriction
upon the voting or transfer of, any shares of Common Stock pursuant to
the Company's charter, by-laws or any agreement or other instrument to
which the Company is a party or by which the Company is bound. Neither
the filing of the Registration Statement nor the offering or sale of
the Securities as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of Common
Stock or other securities of the Company. All of the issued and
outstanding shares of capital stock of each of the Company's
subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable, and, except as otherwise described in
the Registration Statement and Prospectus and except for any
directors' qualifying shares, the Company owns of record and
beneficially, free and clear of any security interests, claims, liens,
proxies, equities or other encumbrances, all of the issued and
outstanding shares of such stock. Except as described in the
Registration Statement and the Prospectus, there are no options,
warrants, agreements, contracts or other rights in existence to
purchase or acquire from the Company or any subsidiary of the Company
or rights to convert any obligations into or exchange any Securities
for, any shares of the capital stock of or ownership interests in the
Company or any subsidiary of the Company. The Company has an
authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus.
(x) The Company and each of its subsidiaries holds, and is
operating in compliance in all material respects with, all franchises,
grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any governmental or self-regulatory body
required for the conduct of its business and all such franchises,
grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect; and
the Company and each of its subsidiaries is in compliance in all
material respects with all applicable Federal, state, local and
foreign laws, regulations, orders and decrees.
(xi) The Company and its subsidiaries have good and marketable
title to all property described in the Registration Statement and
Prospectus as being
-5-
<PAGE> 6
owned by them, in each case free and clear of all liens, claims,
security interests or other encumbrances except such as are described
in the Registration Statement and the Prospectus; the property held
under lease by the Company and its subsidiaries is held by them under
valid, subsisting and enforceable leases with only such exceptions
with respect to any particular lease as do not interfere in any
material respect with the conduct of the business of the Company or
its subsidiaries; the Company and each of its subsidiaries owns or
possesses all patents, patent applications, trademarks, service marks,
tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and rights necessary
for the conduct of the business of the Company and its subsidiaries as
currently carried on and as described in the Registration Statement
and Prospectus; except as stated in the Registration Statement and
Prospectus, no name which the Company or any of its subsidiaries uses
and no other aspect of the business of the Company or any of its
subsidiaries will involve or give rise to any infringement of, or
license or similar fees for, any patents, patent applications,
trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade
secrets or other similar rights of others material to the business or
financial condition of the Company and neither the Company nor any of
its subsidiaries has received any notice alleging any such
infringement or fee.
(xii) Neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws. Except for such
breaches or defaults which would not have a material adverse effect on
the business, condition (financial or otherwise), key personnel or
properties of the Company and its subsidiaries, taken as a whole,
neither the Company nor any of its subsidiaries is in breach of or
otherwise in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note,
indenture, loan agreement or any other material contract, lease or
other instrument to which it is subject or by which any of them may be
bound, or to which any of the material property or assets of the
Company or any of its subsidiaries is subject.
(xiii) There are no transfer taxes or other similar fees or
charges under Federal law or the laws of any state, or any political
subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance by the
Company or sale by the Company of the Securities.
(xiv) The Company and its subsidiaries have filed all Federal,
state, local and foreign income and franchise tax returns required to
be filed or has requested extensions thereof (except in any case in
which the failure so to file would not have a material adverse effect
on the business, condition (financial or otherwise), key personnel or
properties of the Company and its subsidiaries, taken as a whole) and
are not in default in the payment of any taxes which were payable
pursuant to said returns or any assessments with respect thereto,
other than any which the Company or any of its subsidiaries is
contesting in good faith or as would not have a material adverse
effect on the business, condition (financial or otherwise), key
personnel or properties of the Company and its subsidiaries, taken as
a whole).
(xv) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering
and sale of the Securities other than any Preliminary Prospectus or
the Prospectus or other materials permitted by the Act to be
distributed by the Company.
-6-
<PAGE> 7
(xvi) The Securities have been approved for listing and admitted
and authorized for trading on the New York Stock Exchange, subject to
official notice of issuance and evidence of satisfactory distribution
and, on the date the Registration Statement became or becomes
effective, the Company's Registration Statement on Form 8-A or other
applicable form under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), became or will become effective.
(xvii) Other than the subsidiaries of the Company listed in
Exhibit 21.1 to the Registration Statement and a 50% interest in [ ],
LLC (which is not a "significant subsidiary" as such term is defined
in Rule 1-02 of Regulation S-X), the Company owns no capital stock or
other equity or ownership or proprietary interest in any corporation,
partnership, association, trust or other entity.
(xviii) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xix) Except for the underwriting discount contemplated by the
Prospectus and payable to the Underwriters, the Company has not
incurred any liability for any finder's or broker's fee or agent's
commission in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(xx) The Company is not and, after giving effect to the offering
and sale of the Securities and the application of the proceeds thereof
as described in the Registration Statement and Prospectus, will not be
an "investment company" as defined in the Investment Company Act of
1940, as amended.
(xxi) Except as described in the Registration Statement, no
holders of Securities of the Company have rights to the registration
of such Securities under the Registration Statement.
(xxii) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
business in which they are engaged; all policies of insurance and
fidelity or surety bonds insuring the Company or any of its
subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and
its subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the
Company or any of its subsidiaries under any such policy or instrument
as to which any insurance company is denying liability or defending
under a reservation of rights clause; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for, and neither the Company nor any such subsidiary has any
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<PAGE> 8
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a material adverse effect
on the business, condition (financial or otherwise), key personnel or
properties of the Company and its subsidiaries, taken as a whole,
except as set forth in or contemplated in the Prospectus.
(xxiii) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
repaying to the Company any loans or advances to such subsidiary from
the Company or from transferring any of such subsidiary's property or
assets to the Company or any other subsidiary of the Company, except
as described in or contemplated by the Prospectus.
(xxiv) The Company has not taken, directly or indirectly, any
action designed to or which has constituted or which might reasonably
be expected to cause or result, under the Exchange Act or otherwise,
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(xxv) Each of the Company and its subsidiaries has fulfilled its
obligations, if any, under the minimum funding standards of Section
302 of the United States Employee Retirement Income Security Act of
1974 ("ERISA") and the regulations and published interpretations
thereunder with respect to each "plan" (as defined in Section 3(3) of
ERISA and such regulations and published interpretations) in which
employees of the Company and its subsidiaries are eligible to
participate and each such plan is in compliance in all material
respects with the presently applicable provisions of ERISA and such
regulations and published interpretations. The Company and its
subsidiaries have not incurred any unpaid liability to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums
in the ordinary course) or to any such plan under Title IV of ERISA.
(xxvi) In the ordinary course of its business, the Company
periodically reviews the effect of environmental laws on the business,
operations and properties of the Company and its subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or
compliance with environmental laws, or any permit, license or
approval, any related constraints on operating activities and any
potential liabilities to third parties). On the basis of such review,
the Company has reasonably concluded that such associated costs and
liabilities would not, singly or in the aggregate, have a material
adverse effect on the business, condition (financial or otherwise),
key personnel or properties of the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions in the ordinary
course of business, except as set forth in or contemplated in the
Prospectus.
(xxvii) The Company and its subsidiaries have implemented a
comprehensive, detailed program to analyze and address the risk that
their computer hardware and software may be unable to recognize and
properly execute date-sensitive functions involving certain dates
prior to and any dates after December 31, 1999 (the "Year 2000
Problem") and has determined that their computer hardware and software
are and will be able to process all date information prior to and
after December 31, 1999
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<PAGE> 9
without any errors, aborts, delays or other interruptions in
operations associated with the Year 2000 Problem; and the Company
believes, after due inquiry, that each supplier, vendor, customer or
financial service organization used or serviced by the Company and its
subsidiaries has remedied or will remedy on a timely basis the Year
2000 Problem, except to the extent that a failure to remedy by any
such supplier, vendor, customer or financial service organization
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole. The Company is in compliance with the
Commission's staff legal bulletin No. 5 dated January 12, 1998 related
to Year 2000 compliance.
(b) Each Selling Stockholder represents and warrants to, and agrees
with, the several Underwriters as follows:
(i) Such Selling Stockholder is the record and beneficial owner
of, and has, and on the First Closing Date and/or the Second Closing
Date, as the case may be, will have, valid and marketable title to the
Securities to be sold by such Selling Stockholder, free and clear of
all security interests, claims, liens, restrictions on
transferability, legends, proxies, equities or other encumbrances; and
upon delivery of and payment for such Securities hereunder, the
several Underwriters will acquire valid and marketable title thereto,
free and clear of any security interests, claims, liens, restrictions
on transferability, legends, proxies, equities or other encumbrances.
Such Selling Stockholder is selling the Securities to be sold by such
Selling Stockholder for such Selling Stockholder's own account and is
not selling such Securities, directly or indirectly, for the benefit
of the Company, and no part of the proceeds of such sale received by
such Selling Stockholder will inure, either directly or indirectly, to
the benefit of the Company other than as described in the Registration
Statement and Prospectus.
(ii) Such Selling Stockholder has duly authorized, executed and
delivered a Letter of Transmittal and Custody Agreement ("Custody
Agreement"), which Custody Agreement is a valid and binding obligation
of such Selling Stockholder, to the Company as Custodian (the
"Custodian"); pursuant to the Custody Agreement the Selling
Stockholder has placed in custody with the Custodian, for delivery
under this Agreement, the certificates representing the Securities to
be sold by such Selling Stockholder; such certificates represent
validly issued, outstanding, fully paid and nonassessable shares of
Common Stock; and such certificates were duly and properly endorsed in
blank for transfer, or were accompanied by all documents duly and
properly executed that are necessary to validate the transfer of title
thereto, to the Underwriters, free of any legend, restriction on
transferability, proxy, lien or claim, whatsoever.
(iii) Such Selling Stockholder has the power and authority to
enter into this Agreement and to sell, transfer and deliver the
Securities to be sold by such Selling Stockholder; and such Selling
Stockholder has duly authorized, executed and delivered to Peter
Bleyleben and Richard Latour, as attorneys-in-fact (the
"Attorneys-in-Fact"), an irrevocable power of attorney (a "Power of
Attorney") authorizing and directing the Attorneys-in-Fact, or either
of them, to effect the sale and delivery of the Securities being sold
by such Selling Stockholder, to enter into this Agreement and to take
all such other action as may be necessary hereunder.
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<PAGE> 10
(iv) This Agreement, the Custody Agreement and the Power of
Attorney have each been duly authorized, executed and delivered by or
on behalf of such Selling Stockholder. The Custody Agreement
constitutes a valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as rights to
indemnity thereunder may be limited by Federal or state securities
laws and except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or laws affecting the rights of creditors
generally and subject to general principles of equity. The execution
and delivery of this Agreement, the Custody Agreement and the Power of
Attorney and the performance of the terms hereof and thereof and the
consummation of the transactions herein and therein contemplated will
not result in a breach or violation of any of the terms and provisions
of, or constitute a default under, any agreement or instrument to
which such Selling Stockholder is a party or by which such Selling
Stockholder is bound, or any law, regulation, order or decree
applicable to such Selling Stockholder; no consent, approval,
authorization or order of, or filing with, any court or governmental
agency or body is required for the execution, delivery and performance
of this Agreement, the Custody Agreement and the Power of Attorney or
for the consummation of the transactions contemplated hereby and
thereby, including the sale of the Securities being sold by such
Selling Stockholder, except such as may be required under the Act or
state securities laws or blue sky laws.
(v) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection
with the offering and sale of the Securities other than any
Preliminary Prospectus or the Prospectus or other materials permitted
by the Act to be distributed by such Selling Stockholder.
(vi) Such Selling Stockholder has reviewed the Registration
Statement and the Prospectus and to the best knowledge of such Selling
Stockholder neither the Registration Statement nor the Prospectus
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading regarding such Selling Stockholder,
the other Selling Stockholders, the Company or otherwise.
(vii) To the best knowledge of such Selling Stockholder, the
representations and warranties of the Company contained in paragraph
(a) of this Section 2 are true and correct.
(c) Any certificate signed by any officer of the Company and delivered
to you or to counsel for the Underwriters shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered thereby;
any certificate signed by or on behalf of any Selling Stockholder as such and
delivered to you or to counsel for the Underwriters shall be deemed a
representation and warranty by such Selling Stockholder to each Underwriter as
to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SECURITIES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell 3,400,000 Firm Shares, and each Selling
Stockholder agrees, severally and not jointly, to sell the number of Firm Shares
set forth opposite the name of such Selling Stockholder in Schedule I hereto, to
the several Underwriters, and each Underwriter agrees, severally and not
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<PAGE> 11
jointly, to purchase from the Company and the Selling Stockholders the number of
Firm Shares set forth opposite the name of such Underwriter in Schedule II
hereto. The purchase price for each Firm Share shall be $ per share. The
obligation of each Underwriter to each of the Company and the Selling
Stockholders shall be to purchase from each of the Company and the Selling
Stockholders that number of Firm Shares (to be adjusted by the Representatives
to avoid fractional shares) which represents the same proportion of the number
of Firm Shares to be sold by each of the Company and the Selling Stockholders
pursuant to this Agreement as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto represents to the total number of
Firm Shares to be purchased by all Underwriters pursuant to this Agreement. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraph (c) of this Section 3 and in Section 8
hereof, the agreement of each Underwriter is to purchase only the respective
number of Firm Shares specified in Schedule II.
The Firm Shares will be delivered by the Company and the Custodian to
you for the accounts of the several Underwriters against payment of the purchase
price therefor by certified or official bank check or other next day funds
payable to the order of the Company and the Custodian, as appropriate, at the
offices of Piper Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street,
Minneapolis, Minnesota, or such other location as may be mutually acceptable, at
9:00 a.m. Central time on the third (or if the Securities are priced, as
contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern
time, the fourth) full business day following the date hereof, or at such other
time and date as you and the Company determine pursuant to Rule 15c6-1(a) under
the Exchange Act, such time and date of delivery being herein referred to as the
"First Closing Date." If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives. Certificates
representing the Firm Shares, in definitive form and in such denominations and
registered in such names as you may request upon at least two business days'
prior notice to the Company and the Custodian, will be made available for
checking and packaging not later than 10:30 a.m., Central time, on the business
day next preceding the First Closing Date at the offices of Piper Jaffray Inc.,
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such
other location as may be mutually acceptable.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Selling Stockholders, with respect to the number of Option Shares set forth
opposite the name of such Selling Stockholder in Schedule I hereto, hereby grant
to the several Underwriters an option to purchase all or any portion of the
Option Shares at the same purchase price as the Firm Shares, for use solely in
covering any over-allotments made by the Underwriters in the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time (but not more than once) within 30 days after the effective date of
this Agreement upon notice (confirmed in writing) by the Representatives to the
Company and to the Attorneys-in-Fact setting forth the aggregate number of
Option Shares as to which the several Underwriters are exercising the option,
the names and denominations in which the certificates for the Option Shares are
to be registered and the date and time, as determined by you, when the Option
Shares are to be delivered, such time and date being herein referred to as the
"Second Closing" and "Second Closing Date", respectively; provided, however,
that the Second Closing Date shall not be earlier than the First Closing Date
nor earlier than the second business day after the date on which the option
shall have been exercised. If the option is exercised, the obligation of each
Underwriter shall be to purchase from the Selling Stockholders granting an
option to purchase the Option Shares, on a
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<PAGE> 12
pro rata basis up to 600,000 Option Shares, that number of Option Shares (to be
adjusted by the Representatives to avoid fractional shares) which represents the
same proportion that the number of Option Shares granted by each such Selling
Stockholder bears to the total number of Option Shares granted by all such
Selling Stockholders. The number of Option Shares to be purchased by each
Underwriter shall be the same percentage of the total number of Option Shares to
be purchased by the several Underwriters as the number of Firm Shares to be
purchased by such Underwriter is of the total number of Firm Shares to be
purchased by the several Underwriters, as adjusted by the Representatives in
such manner as the Representatives deem advisable to avoid fractional shares. No
Option Shares shall be sold and delivered unless the Firm Shares previously have
been, or simultaneously are, sold and delivered.
The Option Shares will be delivered by the Custodian and the Company,
as appropriate, to you for the accounts of the several Underwriters against
payment of the purchase price therefor by certified or official bank check or
other next day funds payable to the order of the Custodian or the Company, as
appropriate, at the offices of Piper Jaffray Inc., Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota, or such other location as may be
mutually acceptable at 9:00 a.m., Central time, on the Second Closing Date. If
the Representatives so elect, delivery of the Option Shares may be made by
credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives. Certificates representing the Option
Shares in definitive form and in such denominations and registered in such names
as you have set forth in your notice of option exercise, will be made available
for checking and packaging not later than 10:30 a.m., Central time, on the
business day next preceding the Second Closing Date at the office of Piper
Jaffray Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis,
Minnesota, or such other location as may be mutually acceptable.
(c) It is understood that you, individually and not as Representatives
of the several Underwriters, may (but shall not be obligated to) make payment to
the Company or the Selling Stockholders, on behalf of any Underwriter for the
Securities to be purchased by such Underwriter. Any such payment by you shall
not relieve any such Underwriter of any of its obligations hereunder. Nothing
herein contained shall constitute any of the Underwriters an unincorporated
association or partner with the Company or any Selling Stockholder.
4. COVENANTS.
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments
thereto to become effective as promptly as possible; the Company will
notify you promptly of the time when the Registration Statement or any
post-effective amendment to the Registration Statement has become
effective or any supplement to the Prospectus (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations) has
been filed and of any request by the Commission for any amendment or
supplement to the Registration Statement or Prospectus or additional
information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will prepare and file a Prospectus
(or term sheet within the meaning of Rule 434 of the Rules and
Regulations) containing the information omitted therefrom pursuant to
Rule 430A of the Rules and Regulations
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<PAGE> 13
with the Commission within the time period required by, and otherwise
in accordance with the provisions of, Rules 424(b), 430A and 434, if
applicable, of the Rules and Regulations; if the Company has elected
to rely upon Rule 462(b) of the Rules and Regulations to increase the
size of the offering registered under the Act, the Company will
prepare and file a registration statement with respect to such
increase with the Commission within the time period required by, and
otherwise in accordance with the provisions of, Rule 462(b); the
Company will prepare and file with the Commission, promptly upon your
request, any amendments or supplements to the Registration Statement
or Prospectus (including any term sheet within the meaning of Rule 434
of the Rules and Regulations) that, in your opinion, may be necessary
or advisable in connection with the distribution of the Securities by
the Underwriters; and the Company will not file any amendment or
supplement to the Registration Statement or Prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and
Regulations) to which you shall reasonably object by notice to the
Company after having been furnished a copy a reasonable time prior to
the filing.
(ii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement, of the suspension of the qualification of the Securities
for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceeding for any such purpose; and the Company
will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such a stop order should be
issued.
(iii) Within the time during which a prospectus (including any
term sheet within the meaning of Rule 434 of the Rules and
Regulations) relating to the Securities is required to be delivered
under the Act, the Company will comply as far as it is able with all
requirements imposed upon it by the Act, as now and hereafter amended,
and by the Rules and Regulations, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in
the Securities as contemplated by the provisions hereof and the
Prospectus. If during such period any event occurs as a result of
which the Prospectus would include an untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the
Act, the Company will promptly notify you and will amend the
Registration Statement or supplement the Prospectus (at the expense of
the Company) so as to correct such statement or omission or effect
such compliance.
(iv) The Company will use its best efforts to qualify the
Securities for sale under the securities laws of such jurisdictions as
you reasonably designate and to continue such qualifications in effect
so long as required for the distribution of the Securities, except
that the Company shall not be required in connection therewith to
qualify as a foreign corporation or to execute a general consent to
service of process in any state.
(v) The Company will furnish to the Underwriters copies of the
Registration Statement (three of which will be signed and will include
all exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements (including any term sheet within the
meaning of Rule 434 of the Rules and Regulations) to such
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<PAGE> 14
documents, in each case as soon as available and in such quantities as
you may from time to time reasonably request.
(vi) During a period of five years commencing with the date
hereof, the Company will furnish to the Representatives, and to each
Underwriter who may so request in writing, copies of all periodic and
special reports furnished to the stockholders of the Company and all
information, documents and reports filed with the Commission, the
National Association of Securities Dealers, Inc., NASDAQ or any
securities exchange.
(vii) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an
earnings statement (which need not be audited) covering a 12-month
period beginning after the effective date of the Registration
Statement that shall satisfy the provisions of Section 11(a) of the
Act and Rule 158 of the Rules and Regulations.
(viii) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming
effective under the provisions of Section 9(a) hereof or is
terminated, will pay or cause to be paid (A) all expenses (including
transfer taxes allocated to the respective transferees) incurred in
connection with the delivery to the Underwriters of the Securities,
(B) all expenses and fees (including, without limitation, fees and
expenses of the Company's accountants and counsel but, except as
otherwise provided below, not including fees of the Underwriters'
counsel) in connection with the preparation, printing, filing,
delivery, and shipping of the Registration Statement (including the
financial statements therein and all amendments, schedules, and
exhibits thereto), the Securities, each Preliminary Prospectus, the
Prospectus, and any amendment thereof or supplement thereto, and the
printing, delivery, and shipping of this Agreement and other
underwriting documents, including Blue Sky Memoranda, (C) all filing
fees and the reasonable fees and disbursements of the Underwriters'
counsel incurred in connection with the qualification of the
Securities for offering and sale by the Underwriters or by dealers
under the securities or blue sky laws of the states and other
jurisdictions which you shall designate in accordance with Section
4(d) hereof, (D) the fees and expenses of any transfer agent or
registrar, (E) the filing fees incident to any required review by the
National Association of Securities Dealers, Inc. of the terms of the
sale of the Securities, (F) listing fees, if any, and (G) all other
costs and expenses incident to the performance of its obligations
hereunder that are not otherwise specifically provided for herein. If
the sale of the Securities provided for herein is not consummated by
reason of action by the Company pursuant to Section 9(a) hereof which
prevents this Agreement from becoming effective, or by reason of any
failure, refusal or inability on the part of the Company or the
Selling Stockholders to perform any agreement on its or their part to
be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company or the
Selling Stockholders is not fulfilled, the Company will reimburse the
several Underwriters for all reasonable out-of-pocket disbursements
(including reasonable fees and disbursements of counsel) incurred by
the Underwriters in connection with their investigation, preparing to
market and marketing the Securities or in contemplation of performing
their obligations hereunder. The Company shall not in any event be
liable to any of the Underwriters for loss of anticipated profits from
the transactions covered by this Agreement.
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<PAGE> 15
(ix) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in
the Prospectus and will file such reports with the Commission with
respect to the sale of the Securities and the application of the
proceeds therefrom as may be required in accordance with Rule 463 of
the Rules and Regulations.
(x) [Except for granting options under the Company's option plans
and the issuance of shares of Common Stock upon the exercise of
options issued under the Company's option plans, the] Company will
not, without your prior written consent, offer for sale, sell,
contract to sell, grant any option for the sale of or otherwise issue
or dispose of any Common Stock or any securities convertible into or
exchangeable for, or any options or rights to purchase or acquire,
Common Stock, except to the Underwriters pursuant to this Agreement
for a period of 180 days after the commencement of the public offering
of the Securities by the Underwriters.
(xi) The Company either has caused to be delivered to you or will
cause to be delivered to you prior to the effective date of the
Registration Statement a letter in the form of Exhibit A hereto from
each of the Company's directors and officers stating that such person
agrees that he or she will not, without your prior written consent,
offer for sale, sell, contract to sell or otherwise dispose of any
shares of Common Stock or rights to purchase Common Stock, except to
the Underwriters pursuant to this Agreement, for a period of 180 days
after commencement of the public offering of the Securities by the
Underwriters.
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities, and has
not effected any sales of Common Stock which are required to be
disclosed in response to Item 701 of Regulation S-K under the Act
which have not been so disclosed in the Registration Statement.
(xiii) Except for the underwriting discount contemplated by the
Prospectus and payable to the Underwriters, the Company will not incur
any liability for any finder's or broker's fee or agent's commission
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
(b) Each Selling Stockholder covenants and agrees with the several
Underwriters as follows:
(i) Except as otherwise agreed to by the Company and the Selling
Stockholder, such Selling Stockholder will pay all taxes, if any, on
the transfer and sale, respectively, of the Securities being sold by
such Selling Stockholder, the fees of such Selling Stockholder's
counsel and such Selling Stockholder's proportionate share (based upon
the number of Securities being offered by such Selling Stockholder
pursuant to the Registration Statement) of all costs and expenses
(except for legal and accounting expenses and fees of the registrar
and transfer agent) incurred by the Company pursuant to the provisions
of Section 4(a)(viii) of this Agreement; provided, however, that each
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Selling Stockholder severally agrees to reimburse the Company for any
reimbursement made by the Company to the Underwriters pursuant to
Section 4(a)(viii) hereof to the extent such reimbursement resulted
from the failure or refusal on the part of such Selling Stockholder to
comply under the terms or fulfill any of the conditions of this
Agreement.
(ii) If this Agreement shall be terminated by the Underwriters
because of any failure, refusal or inability on the part of such
Selling Stockholder to perform any agreement on such Selling
Stockholder's part to be performed, or because any other condition of
the Underwriters' obligations hereunder required to be fulfilled by
such Selling Stockholder is not fulfilled, such Selling Stockholder
agrees to reimburse the several Underwriters for all out-of-pocket
disbursements (including reasonable fees and disbursements of counsel
for the Underwriters) incurred by the Underwriters in connection with
their investigation, preparing to market and marketing the Securities
or in contemplation of performing their obligations hereunder. The
Selling Stockholder shall not in any event be liable to any of the
Underwriters for loss of anticipated profits from the transactions
covered by this Agreement.
(iii) The Securities to be sold by such Selling Stockholder,
represented by the certificates on deposit with the Custodian pursuant
to the Custody Agreement of such Selling Stockholder, are subject to
the interest of the several Underwriters and the other Selling
Stockholders; the arrangements made for such custody are, except as
specifically provided in the Custody Agreement, irrevocable; and the
obligations of such Selling Stockholder hereunder shall not be
terminated, except as provided in this Agreement or in the Custody
Agreement, by any act of such Selling Stockholder, by operation of
law, whether by the liquidation, dissolution or merger of such Selling
Stockholder, by the death of such Selling Stockholder, or by the
occurrence of any other event. If any Selling Stockholder should
liquidate, dissolve or be a party to a merger or if any other such
event should occur before the delivery of the Securities hereunder,
certificates for the Securities deposited with the Custodian shall be
delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such liquidation, dissolution, merger or other
event had not occurred, whether or not the Custodian shall have
received notice thereof.
(iv) Such Selling Stockholder will not, without your prior
written consent, offer for sale, sell, contract to sell, grant any
option for the sale of or otherwise dispose of any Common Stock or any
securities convertible into or exchangeable for, or any options or
rights to purchase or acquire, Common Stock, except to the
Underwriters pursuant to this Agreement, for a period of 180 days
after the commencement of the public offering of the Securities by the
Underwriters.
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Securities, and has not effected any sales
of Common Stock which, if effected by the Company, would be required
to be disclosed in response to Item 701 of Regulation S-K.
(vi) Such Selling Stockholder shall immediately notify you if any
event occurs, or of any change in information relating to such Selling
Stockholder or the Company or any new information relating to the
Company or relating to any matter
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<PAGE> 17
stated in the Prospectus or any supplement thereto (including any term
sheet within the meaning of Rule 434 of the Rules and Regulations),
which results in the Prospectus (as supplemented) including an untrue
statement of a material fact or omitting to state any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the several
Underwriters hereunder are subject to the accuracy, as of the date hereof and at
each of the First Closing Date and the Second Closing Date (as if made at such
Closing Date), of and compliance with all representations, warranties and
agreements of the Company and the Selling Stockholders contained herein, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become
effective not later than 5:00 p.m., Central time, on the date of this Agreement,
or such later time and date as you, as Representatives of the several
Underwriters, shall approve and all filings required by Rules 424, 430A and 434
of the Rules and Regulations shall have been timely made; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereof shall have been issued; no proceedings for the issuance of such an order
shall have been initiated or threatened; and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
the Commission.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), contains an untrue statement of fact which, in your opinion,
is material, or omits to state a fact which, in your opinion, is material and is
required to be stated therein or necessary to make the statements therein not
misleading.
(c) Except as contemplated in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, neither the Company nor any of its subsidiaries shall have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transactions, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock; and there
shall not have been any change in the capital stock (other than a change in the
number of outstanding shares of Common Stock due to the issuance of shares upon
the exercise of outstanding options or warrants), or any material change in the
short-term or long-term debt of the Company, or any issuance of options,
warrants, convertible securities or other rights to purchase the capital stock
of the Company or any of its subsidiaries, or any material adverse change or any
development involving a prospective material adverse change (whether or not
arising in the ordinary course of business), in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects, net
worth or results of operations of the Company and its subsidiaries, taken as a
whole, that, in your judgment, makes it impractical or inadvisable to offer or
deliver the Securities on the terms and in the manner contemplated in the
Prospectus.
(d) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Edwards & Angell,
LLP, counsel for the Company, dated such Closing Date and addressed to you, to
the effect that:
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(i) Each of the Company and its subsidiaries is duly organized
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own or lease,
as the case may be, and to operate its properties and conduct its
business as currently being carried on and as described in the
Registration Statement and Prospectus.
(ii) The Company's authorized capital stock is as set forth in
the Prospectus under the heading "Description of Capital Stock." The
description of the Company's capital stock, as set forth in the
Prospectus under the heading "Description of Capital Stock," to the
extent such description constitutes matters of law, summaries of legal
matters or legal conclusions, has been reviewed by us and is correct
in all material respects. All of the issued and outstanding shares of
the capital stock of the Company (including the securities being sold
hereunder by the Selling Stockholders) have been duly authorized and
validly issued and are fully paid and nonassessable, and the holders
thereof are not subject to personal liability by reason of being such
holders. The Securities to be issued and sold by the Company hereunder
have been duly authorized and, when issued, delivered and paid for in
accordance with the terms of this Agreement, will have been validly
issued and will be fully paid and nonassessable. The form of
certificate for the Securities has been duly approved and adopted by
the Company and complies with the provisions of Massachusetts law.
Except as otherwise stated in the Registration Statement and
Prospectus, to the knowledge of such counsel, there are no preemptive
rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock
pursuant to the Company's charter, by-laws or any agreement or other
instrument known to such counsel to which the Company is a party or by
which the Company is bound. The Securities being sold hereunder by the
Company and the Selling Stockholders are duly authorized for listing,
subject to official notice of issuance and evidence of satisfactory
distribution, on the New York Stock Exchange. To the knowledge of such
counsel, except with respect to the Securities being sold hereunder,
neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to
any rights for or relating to the registration of any other shares of
Common Stock or other securities of the Company.
(iii) All of the issued and outstanding shares of capital stock
of each of the Company's subsidiaries have been duly authorized and
issued and are fully paid and nonassessable, and, to the knowledge of
such counsel, except as otherwise described in the Registration
Statement and Prospectus and except for directors' qualifying shares,
the Company owns of record and beneficially, free and clear of any
security interests, claims, liens, proxies, equities or other
encumbrances, all of the issued and outstanding shares of such stock.
To the knowledge of such counsel, except as described in the
Registration Statement and Prospectus, there are no options, warrants,
agreements, contracts or other rights in existence to purchase or
acquire from the Company or any subsidiary of the Company or rights to
convert any obligations into or exchange any Securities for, any
shares of the capital stock or ownership interests of the Company or
any subsidiary of the Company.
(iv) The Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements
thereto, pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b)
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<PAGE> 19
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or, to the knowledge
of such counsel, threatened by the Commission.
(v) The descriptions in the Registration Statement and Prospectus
of contracts and other documents, insofar as such descriptions purport
to summarize certain provisions thereof, provide a fair summary of
such provisions; and the statements in the Prospectus under the
headings "Certain United States Tax Consequences to Non-United States
Holders" and "Business--Legal Proceedings" and, in the case of the
laws of the Commonwealth of Massachusetts, "Risk Factors--Government
Regulation" fairly summarize the matters therein described, to the
extent such statements constitute matters of law, summaries of legal
matters or legal conclusions, have been reviewed by us and are correct
in all material respects and such counsel does not know of any
statutes or legal or governmental proceedings required to be described
in the Prospectus that are not described as required by the Act and
the rules thereunder, or of any contracts or documents of a character
required to be described in the Registration Statement or Prospectus
or included as exhibits to the Registration Statement that are not
described or included as required by the Act and the rules thereunder.
(vi) The Company has the corporate power and authority to enter
into this Agreement, and this Agreement has been duly authorized,
executed and delivered by the Company; the execution, delivery and
performance of this Agreement and the consummation by the Company as
of the applicable Closing Date of the transactions herein contemplated
will not conflict with, result in a breach or violation of any of the
terms and provisions of, or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or constitute a default under, any
Massachusetts or U.S. Federal statute, rule or regulation, any
agreement or instrument (in each case governed by the laws of the
Commonwealth of Massachusetts) known to such counsel to which the
Company or any of its subsidiaries is a party or by which any of them
are bound or to which any of their property is subject, the Company's
or any of its subsidiaries' charter or by-laws, or any order or decree
known to such counsel and binding on the Company or any of its
subsidiaries of any Massachusetts or U.S. Federal court or
Massachusetts or U.S. Federal governmental agency having jurisdiction
over the Company or any of its subsidiaries or any of their respective
properties; and no consent, approval, authorization or order of, or
filing with, any Massachusetts or U.S. Federal court or Massachusetts
or U.S. Federal governmental agency is required to be obtained by the
Company as of the applicable Closing Date under applicable
Massachusetts or U.S. Federal law for the execution, performance and
delivery of this Agreement or for the consummation of the transactions
contemplated hereby, including the issuance or sale of the Securities
by the Company, except such as have been obtained under the Act and
such as may be required under the blue sky or securities laws of any
State in the United States or by the securities laws of any
jurisdiction outside the United States, as to which such counsel
renders no opinion.
(vii) The Company is not, and, immediately after giving effect to
the offering and sale of the Securities and the application of the
proceeds thereof as described in the Registration Statement and the
Prospectus, will not be, an "investment company" as defined in the
Investment Company Act of 1940, as amended.
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<PAGE> 20
(viii) The Registration Statement and the Prospectus, and any
amendment thereof or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations but
excluding the financial statements and the other financial information
contained therein, as to which we express no opinion), comply as to
form in all material respects with the applicable requirements of the
Act and the Rules and Regulations; and on the basis of conferences
with representatives of the Underwriters, officers and other
representatives of the Company and its subsidiaries, the Selling
Stockholders and officers and other representatives of the Selling
Stockholders and representatives of the independent certified public
accountants of the Company and its subsidiaries, at which conferences
the contents of the foregoing were discussed, examination of documents
referred to in the Registration Statement and Prospectus and such
other procedures as such counsel deemed appropriate, and although such
counsel does not assume any responsibility for, or express any opinion
as to the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations (except
and only to the extent as set forth in such counsel's opinions
rendered pursuant to the first sentence of clause (ii) above and
pursuant to clause (v) above), on the basis of the foregoing, nothing
has come to the attention of such counsel that would lead such counsel
to believe that the Registration Statement or any amendment thereof,
at the time the Registration Statement became effective and as of such
Closing Date (including any Registration Statement filed under Rule
462(b) of the Rules and Regulations), contained any untrue statement
of a material fact or omitted to state any material fact required to
be stated therein or necessary in order to make the statements therein
not misleading or (b) that the Prospectus (as of its date and as of
such Closing Date), as amended or supplemented, includes any untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the
financial statements and schedules or other financial data included in
or omitted from any of the documents mentioned in this clause.
In rendering such opinion such counsel may rely (i) as to matters
of law other than Massachusetts and Federal law, to the extent they deem
appropriate and specified in such opinion, upon the opinion or opinions of local
counsel whom they believe to be reliable and who are satisfactory to counsel for
the Underwrites and (ii) as to matters of fact, to the extent such counsel deems
reasonable, upon certificates of officers of the Company and its subsidiaries
and certificates of public officials provided that the extent of such reliance
is specified in such opinion.
(e) On each Closing Date, there shall have been furnished to you,
as Representatives of the several Underwriters, the opinion of Edwards & Angell,
LLP counsel for the Selling Stockholders, dated such Closing Date and addressed
to you, to the effect that:
(i) The delivery on behalf on each Selling Stockholder by
the Attorney-in-Fact to the Underwriters of certificates for the
Securities being sold as of the applicable Closing Date pursuant
to this Agreement by such Selling Stockholder against payment
therefor as provided in this Agreement will (assuming the
Underwriters have purchased such Securities in good faith and
without notice of any adverse claim, and assuming that there are
no events or circumstances peculiar to any individual Underwriter
which might result in any adverse claim), to the knowledge of
such counsel,
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<PAGE> 21
pass good title to such Securities, free and clear of all liens,
security interests, claims and other encumbrances.
(ii) Each of the Selling Stockholders has the power and
authority to enter into the Custody Agreement, the Power of
Attorney and this Agreement and to perform and discharge such
Selling Stockholder's obligations thereunder and hereunder; and
this Agreement, the Custody Agreements and the Powers of Attorney
have been duly authorized, executed and delivered by (or by the
Attorneys-in-Fact, or either of them, on behalf of) the Selling
Stockholders and the Custody Agreement is a valid and binding
agreement of the Selling Stockholders, enforceable in accordance
with its respective terms (except as rights to indemnity
hereunder or thereunder may be limited by Federal or state
securities laws and except as such enforceability may be limited
by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally and subject to general
principles of equity).
(iii) To our knowledge the execution and delivery of this
Agreement, the Custody Agreement and the Power of Attorney by
each Selling Stockholder and the performance by such Selling
Stockholder of the terms hereof and thereof and the consummation
by such Selling Stockholder as of the applicable Closing Date of
the transactions herein and therein contemplated will not result
in a breach or violation of any of the terms and provisions of,
or constitute a default under, any Massachusetts or U.S. Federal
statute, or regulation, or any agreement or instrument (in each
case governed by the laws of the Commonwealth of Massachusetts)
known to such counsel to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound, or any order
or decree known to such counsel and binding on such Selling
Stockholder of any Massachusetts or U.S. Federal court or
Massachusetts or U.S. Federal government agency having
jurisdiction over such Selling Stockholder or any of its
respective properties; and to our knowledge no consent, approval,
authorization or order of, or filing with, any Massachusetts or
U.S. Federal court or Massachusetts or U.S. Federal governmental
agency is required to be obtained by such Selling Stockholder as
of the applicable Closing Date under applicable Massachusetts or
U.S. Federal law for the execution, performance and delivery of
this Agreement, the Custody Agreement and the Power of Attorney
or for the consummation by such Selling Stockholder of the
transactions contemplated hereby and thereby, including the sale
of the Securities being sold by such Selling Stockholder, except
such as may be required under the Act or the blue sky or
securities laws of any State in the United States or by the
securities laws of any jurisdiction outside the United States, as
to which such counsel renders no opinion.
In rendering such opinion such counsel may rely (i) as to matters of
law other than Massachusetts and Federal law, upon the opinion or opinions of
local counsel provided that the extent of such reliance is specified in such
opinion and that such counsel shall state that such opinion or opinions of local
counsel are satisfactory to them and that they believe they and you are
justified in relying thereon and (ii) as to matters of fact, to the extent such
counsel deems reasonable upon certificates of officers of the Selling
Stockholders provided that the extent of such reliance is specified in such
opinion.
(f) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Cravath, Swaine & Moore, counsel for the several Underwriters, dated such
Closing Date and addressed to you, with respect to the formation of the Company,
the validity of the Securities, the Registration
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<PAGE> 22
Statement, the Prospectus and other related matters as you reasonably may
request, and such counsel shall have received such papers and information as
they request to enable them to pass upon such matters.
(g) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of PricewaterhouseCoopers LLP, dated
such Closing Date and addressed to you, confirming that they are independent
public accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of such
letter), the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter.
(h) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, in all material respects, as if made
at and as of such Closing Date, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the
qualification of the Securities for offering or sale has been issued,
and no proceeding for that purpose has been instituted or, to their
knowledge, is contemplated by the Commission or any state or
regulatory body; and
(iii) Since the date of the most recent financial statements of
the Company included in the Prospectus (exclusive or any supplement
thereto), there has been no material adverse change in the business,
condition (financial or otherwise) or properties of the Company and
its subsidiaries taken as a whole, whether or not arising from
transactions in the ordinary course of business, except as set forth
in or contemplated by the Prospectus (exclusive of any supplement
thereto).
(i) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, a certificate or certificates,
dated such Closing Date and addressed to you, signed by each of the Selling
Stockholders or either of such Selling Stockholder's Attorneys-in-Fact to the
effect that the representations and warranties of such Selling Stockholder
contained in this Agreement are true and correct as if made at and as of such
Closing Date, and that such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on such Selling Stockholder's part
to be performed or satisfied at or prior to such Closing Date.
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(j) The Securities shall have been listed and admitted and authorized
for trading on the New York Stock Exchange, and satisfactory evidence of such
actions shall have been provided to the Representatives.
(k) The Company shall have furnished to you and counsel for the
Underwriters such additional documents, certificates and evidence as you or they
may have reasonably requested.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
6. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and each Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company and/or such Selling Stockholders, as the case may be), insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, including the information
deemed to be a part of the Registration Statement at the time of effectiveness
pursuant to Rules 430A and 434(d) of the Rules and Regulations, if applicable,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto (including any term sheet within the meaning of Rule 434 of the Rules
and Regulations), or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending against such loss, claim, damage,
liability or action; provided, however, that neither the Company nor any Selling
Stockholder shall be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
such amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you, or by any Underwriter through you,
specifically for use in the preparation thereof; and further provided, however,
that in no event shall any Selling Stockholder be liable under the provisions of
this Section 6 for any amount in excess of the aggregate amount of proceeds such
Selling Stockholder received from the sale of the Securities pursuant to this
Agreement.
In addition to their other obligations under this Section 6(a), the
Company and each Selling Stockholder, jointly and severally, agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any statement or omission, or
any alleged statement or omission, described in this Section 6(a), they will
reimburse each Underwriter on a monthly basis for all reasonable legal fees or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's and/or the Selling Stockholder's obligation to reimburse the
Underwriters for such expenses and the possibility that
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<PAGE> 24
such payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Underwriter that received such payment shall
promptly return it to the party or parties that made such payment, together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by ____________________ (the "Prime Rate"). Any such interim
reimbursement payments which are not made to an Underwriter within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request. This indemnity agreement shall be in addition to any liabilities
which the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company and
each Selling Stockholder against any losses, claims, damages or liabilities to
which the Company and the Selling Stockholders may become subject, under the Act
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto (including any term sheet
within the meaning of Rule 434 of the Rules and Regulations), or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any such amendment or supplement, in reliance upon and in conformity with
written information furnished to the Company by you, or by such Underwriter
through you, specifically for use in the preparation thereof, and will reimburse
the Company and the Selling Stockholders for any legal or other expenses
reasonably incurred by the Company or any such Selling Stockholder in connection
with investigating or defending against any such loss, claim, damage, liability
or action.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve the indemnifying party from any liability
that it may have to any indemnified party. In case any such action shall be
brought against any indemnified party, and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided, however,
that if, in the sole judgment of the Representatives, it is advisable for the
Underwriters to be represented as a group by separate counsel, the
Representatives shall have the right to employ a single counsel to represent the
Representatives and all Underwriters who may be subject to liability arising
from any claim in respect of which indemnity may be sought by the Underwriters
under subsection (a) of this Section 6, in which event the reasonable fees and
expenses of such separate counsel shall be
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<PAGE> 25
borne by the indemnifying party or parties and reimbursed to the Underwriters as
incurred (in accordance with the provisions of the second paragraph in
subsection (a) above). An indemnifying party shall not be obligated under any
settlement agreement relating to any action under this Section 6 to which it has
not agreed in writing.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) or (b) above, (i)
in such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Stockholders on the one hand and the Underwriters
on the other from the offering of the Securities or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and Selling Stockholders bear to the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relevant
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this subsection (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending against any
action or claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company and the Selling Stockholders under
this Section 6 shall be in addition to any liability which the Company and the
Selling Stockholders may otherwise have and shall extend, upon the same terms
and conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 6
shall be in addition to any liability that the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
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<PAGE> 26
director of the Company (including any person who, with his consent, is named in
the Registration Statement as about to become a director of the Company), to
each officer of the Company who has signed the Registration Statement and to
each person, if any, who controls the Company or any Selling Stockholder within
the meaning of the Act.
7. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations,
warranties, and agreements of the Company herein or in certificates delivered
pursuant hereto, and the agreements of the several Underwriters, the Company and
the Selling Stockholders contained in Section 6 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter or any controlling person thereof, or the Company or
any of its officers, directors, or controlling persons, or any Selling
Stockholders or any controlling person thereof, and shall survive delivery of,
and payment for, the Securities to and by the Underwriters hereunder.
8. SUBSTITUTION OF UNDERWRITERS.
(a) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased does not aggregate
more than 10% of the total amount of Firm Shares set forth in Schedule II
hereto, the remaining Underwriters shall be obligated to take up and pay for (in
proportion to their respective underwriting obligations hereunder as set forth
in Schedule II hereto except as may otherwise be determined by you) the Firm
Shares that the withdrawing or defaulting Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters shall fail to take up and pay
for the amount of Firm Shares agreed by such Underwriter or Underwriters to be
purchased hereunder, upon tender of such Firm Shares in accordance with the
terms hereof, and the amount of Firm Shares not purchased aggregates more than
10% of the total amount of Firm Shares set forth in Schedule II hereto, and
arrangements satisfactory to you for the purchase of such Firm Shares by other
persons are not made within 36 hours thereafter, this Agreement shall terminate.
In the event of any such termination neither the Company nor any Selling
Stockholder shall be under any liability to any Underwriter (except to the
extent provided in Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof)
nor shall any Underwriter (other than an Underwriter who shall have failed,
otherwise than for some reason permitted under this Agreement, to purchase the
amount of Firm Shares agreed by such Underwriter to be purchased hereunder) be
under any liability to the Company or the Selling Stockholders (except to the
extent provided in Section 6 hereof).
If Firm Shares to which a default relates are to be purchased by the
non-defaulting Underwriters or by any other party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 8.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at 10:00 a.m., Central time,
on the first full business day following the effective date of the Registration
Statement, or at such
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<PAGE> 27
earlier time after the effective time of the Registration Statement as you in
your discretion shall first release the Securities for sale to the public;
provided, that if the Registration Statement is effective at the time this
Agreement is executed, this Agreement shall become effective at such time as you
in your discretion shall first release the Securities for sale to the public.
For the purpose of this Section, the Securities shall be deemed to have been
released for sale to the public upon release by you of the publication of a
newspaper advertisement relating thereto or upon release by you of telexes
offering the Securities for sale to securities dealers, whichever shall first
occur. By giving notice as hereinafter specified before the time this Agreement
becomes effective, you, as Representatives of the several Underwriters, or the
Company may prevent this Agreement from becoming effective without liability of
any party to any other party, except that the provisions of Section 4(a)(viii),
Section 4(b)(ii) and Section 6 hereof shall at all times be effective.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be canceled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled, (iii) trading on the New York Stock Exchange or the
American Stock Exchange shall have been wholly suspended, (iv) minimum or
maximum prices for trading shall have been fixed, or maximum ranges for prices
for securities shall have been required, on the New York Stock Exchange or the
American Stock Exchange, by such Exchange or by order of the Commission or any
other governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by Federal, New York or Massachusetts authorities, or (vi)
there has occurred any material adverse change in the financial markets in the
United States or an outbreak of major hostilities (or an escalation thereof) in
which the United States is involved, a declaration of war by Congress, any other
substantial national or international calamity or any other event or occurrence
of a similar character shall have occurred since the execution of this Agreement
that, in your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 4(a)(viii), Section 4(b)(ii) and Section 6 hereof shall at
all times be effective.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company and an
Attorney-in-Fact, on behalf of the Selling Stockholders, shall be notified
promptly by you by telephone or telegram, confirmed by letter. If the Company
elects to prevent this Agreement from becoming effective, you and an
Attorney-in-Fact, on behalf of the Selling Stockholders, shall be notified by
the Company by telephone or telegram, confirmed by letter.
10. DEFAULT BY ONE OR MORE OF THE SELLING STOCKHOLDERS OR THE COMPANY. If
one or more of the Selling Stockholders shall fail at the First Closing Date to
sell and deliver the number of Securities which such Selling Stockholder or
Selling Stockholders are obligated to sell hereunder, and the remaining Selling
Stockholders do not exercise the right hereby granted to increase, pro rata or
otherwise, the number of Securities to be sold by them hereunder to the total
number of Securities to be sold by all Selling Stockholders as set forth in
Schedule I, then the Underwriters may at your option, by notice from you to the
Company and the non-defaulting Selling Stockholders, either (a) terminate this
Agreement without any liability on the part of any
-27-
<PAGE> 28
non-defaulting party or (b) elect to purchase the Securities which the Company
and the non-defaulting Selling Stockholders have agreed to sell hereunder.
In the event of a default by any Selling Stockholder as referred to in
this Section, either you or the Company or, by joint action only, the
non-defaulting Selling Stockholders shall have the right to postpone the First
Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
If the Company shall fail at the First Closing Date to sell and
deliver the number of Securities which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any
non-defaulting party.
No action taken pursuant to this Section shall relieve the Company or
any Selling Stockholders so defaulting from liability, if any, in respect of
such default.
11. INFORMATION FURNISHED BY UNDERWRITERS. The statements set forth in the
last paragraph of the cover page and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by or on behalf of the Underwriters referred to in Section 2 and
Section 6 hereof.
12. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o Piper Jaffray
Inc., Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota 55402,
except that notices given to an Underwriter pursuant to Section 6 hereof shall
be sent to such Underwriter at the address stated in the Underwriters'
Questionnaire furnished by such Underwriter in connection with this offering; if
to the Company, shall be mailed, telegraphed or delivered to it at 950 Winter
Street, Suite 41000, Waltham, MA 02154 Attention: Richard F. Latour; if to any
of the Selling Stockholders, at the address of the Attorneys-in-Fact as set
forth in the Powers of Attorney, or in each case to such other address as the
person to be notified may have requested in writing. All notices given by
telegram shall be promptly confirmed by letter. Any party to this Agreement may
change such address for notices by sending to the parties to this Agreement
written notice of a new address for such purpose.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
[Signature Page Follows]
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<PAGE> 29
Please sign and return to the Company the enclosed duplicates of this
letter whereupon this letter will become a binding agreement between the
Company, the Selling Stockholders and the several Underwriters in accordance
with its terms.
Very truly yours,
MICROFINANCIAL INCORPORATED
By.......................................
President and Chief Executive Officer
SELLING STOCKHOLDERS
By.......................................
Attorney-in-Fact
Confirmed as of the date first
above mentioned, on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
PIPER JAFFRAY INC.
By.............................
Managing Director
CIBC OPPENHEIMER CORP.
By.............................
Managing Director
-29-
<PAGE> 30
SCHEDULE I
Selling Stockholders
Number of Maximum Number of
Firm Shares Option Shares
Name to be Sold Subject to Option
- ---- ---------- -----------------
Peter R. Bleyleben 129,550 129,550
Torrence C. Harder 114,650 114,650
Trust for Ashley Jane Harder 7,800 7,800
Trust for Lauren E. Harder 7,800 7,800
Brian C. Boyle 118,500 118,500
Rosemary Boyle 80,050 80,050
Entrepreneurial Ventures, Inc. 29,200 29,200
Spindle Limited Partnership 30,000 30,000
Richard F. Latour 35,450 35,450
Rock Creek Partnership 18,125 18,125
Arthur J. Epstein 15,000 15,000
Maureen Curran 8,200 8,200
John Plumlee 3,725 3,725
Steven Obana 1,950 1,950
------- -------
Total. . . . . . . . . 600,000 600,000
======= =======
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<PAGE> 31
SCHEDULE II
Underwriter Number of Firm Shares (1)
- ----------- -------------------------
Piper Jaffray Inc.
CIBC Oppenheimer Corp.
--------
Total. . . . . . . . . . . . . . . . . . . . . . 4,000,000
=========
-----------------
(1) The Underwriters may purchase up to an additional 600,000 Option
Shares, to the extent the option described in Section 3(b) of the
Agreement is exercised, in the proportions and in the manner described
in the Agreement.
-31-
<PAGE> 32
EXHIBIT A
[Letterhead of officer, director or major stockholder of
MicroFinancial Incorporated]
MicroFinancial Incorporated
---------------------------
Public Offering of Common Stock
-------------------------------
, 19
Piper Jaffray Inc.
CIBC Oppenheimer Corp.
As Representatives of the several Underwriters,
c/o Piper Jaffray Inc.
Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Ladies and Gentlemen:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between MicroFinancial
Incorporated, a Massachusetts corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to the
underwritten public offering of Common Stock, $0.01 par value (the "Common
Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned will not, without the prior written
consent of Piper Jaffray Inc., offer, sell, contract to sell, pledge or
otherwise dispose of, or file (or participate in the filing of) a registration
statement with the Securities and Exchange Commission in respect of, or
establish or increase a put equivalent position or liquidate or decrease a call
equivalent position within the meaning of Section 16 of the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder with respect to, any shares of
capital stock of the Company or any securities convertible into exercisable or
exchangeable for such capital stock, or publicly announce an intention to effect
any such transaction, for a period of 180 days after the date of this Agreement,
other than shares of Common Stock disposed of as bona fide gifts approved by
Piper Jaffray Inc.
-32-
<PAGE> 33
If for any reason the Underwriting Agreement shall be terminated prior to
the Closing Dated (as defined in the Underwriting Agreement), the agreement set
forth above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or major
stockholder]
[Name and address of officer, director or
major stockholder]
-33-
<PAGE> 1
Exhibit 4.1
TEMPORARY CERTIFICATE - EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY
[Vignette showing a woman, keyboard, abacus and computer disc]
MicroFinancial Incorporated
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
THIS CERTIFICATE IS TRANSFERABLE COMMON STOCK CUSIP 595072 10 9
IN BOSTON, MA OR NEW YORK, NY
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
========================= MicroFinancial Incorporated ==========================
(hereinafter called the "Company") transferable upon the books of the Company by
the holder hereof in person or by duly authorized attorney upon surrender of
this certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be subject to all provisions of the Articles of
Organization and By-Laws of the Company as from time to time amended (copies of
which are on file with the Company) to all of which the holder, by acceptance
hereof, assents. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Company has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers and its facsimile
corporate seal to be hereunto affixed.
Dated:
/s/ /s/
EXECUTIVE VICE PRESIDENT, MICROFINANCIAL PRESIDENT AND CHIEF
CHIEF OPERATING OFFICER, INCORPORATED EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY INCORPORATED
1987
MASSACHUSETTS
*
COUNTERSIGNED AND REGISTERED:
STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
MicroFinancial Incorporated
THE COMPANY HAS MORE THAN ONE CLASS OF STOCK AUTHORIZED TO BE ISSUED. THE
COMPANY WILL FURNISH, WITHOUT CHARGE, TO THE HOLDER OF THIS CERTIFICATE UPON
WRITTEN REQUEST A COPY OF THE FULL TEXT OF THE PREFERENCES, POWERS,
QUALIFICATIONS AND RIGHTS OF THE SHARES OF EACH CLASS OF STOCK (AND ANY SERIES
THEREOF) AUTHORIZED TO BE ISSUED BY THE COMPANY.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -as tenants in common UNIF GIFT MIN ACT- ______ Custodian _______
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors
in common Act_____________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated _______________
_____________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed: _____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 10.30
FOURTH AMENDMENT
TO
AMENDED AND RESTATED
LOAN AGREEMENT
AMONG
LEASECOMM CORPORATION,
AS BORROWER,
THE LENDERS NAMED THEREIN
AND
FLEET BANK, NATIONAL ASSOCIATION, AS AGENT
JULY 31, 1998
<PAGE> 2
FOURTH AMENDMENT TO AMENDED AND RESTATED
LOAN AGREEMENT
FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this "Amendment")
made as of the 31st day of July, 1998 by and among LEASECOMM CORPORATION, a
Massachusetts corporation (the "Borrower"), FLEET BANK, NATIONAL ASSOCIATION, a
national banking association, in its individual corporate capacity, SANWA
BUSINESS CREDIT CORPORATION, a Delaware corporation, FIRST UNION NATIONAL BANK
(as successor to CORESTATES BANK, N.A.), a national banking association, PNC
BANK, NATIONAL ASSOCIATION, a national banking association, and STATE STREET
BANK AND TRUST COMPANY, a Massachusetts trust company (individually, a "Lender"
and, collectively, the "Lenders"), and FLEET BANK, NATIONAL ASSOCIATION, as
agent for the Lenders (the "Agent"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed thereto in the Loan
Agreement.
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Agent are parties to a Loan
Agreement dated as of July 29, 1993, as amended and restated as of July 28,
1995, as further amended by the First Amendment to Amended and Restated Loan
Agreement made as of October 30, 1995, the Second Amendment to Amended and
Restated Loan Agreement made as of August 6, 1996, and the Third Amendment to
Loan Agreement and Consent made as of the August 11, 1998 (the "Loan Agreement")
pursuant to which, INTER ALIA, the Lenders agreed to make available to the
Borrower a revolving credit and term loan facility;
WHEREAS, the Guarantor is proposing to register, offer to sell and sell its
shares of Common Stock, par value $.01 per share (the "Common Stock"), under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Form
S-1 Registration Statement under the Securities Act of 1933 (the offer and sale
of such shares pursuant to such Registration Statement being hereinafter
referred to as the "IPO"); and
WHEREAS, as in connection with the IPO, the Borrower has requested the
Lenders to agree to amend the Loan Agreement in certain respects, as hereinafter
provided, and the Lenders are willing to agree to such changes, subject to the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
1. AMENDMENTS. The Loan Agreement is hereby amended as follows:
(a) The definition of "PRINCIPAL OFFICE" in Section 1.1 of the Loan
Agreement is hereby amended and restated in its entirety as follows:
<PAGE> 3
"'PRINCIPAL OFFICE' - the principal office of the Agent, which office is
currently located at 1185 Avenue of the Americas, New York, New York
10036."
(b) The definition "IPO" is hereby added to Section 1.1 to read in its entirety
as follows:
"'IPO' - the initial public offering and sale of the shares of Common
Stock, par value $.01 per share, of the Guarantor pursuant to an effective
Form S-1 Registration Statement under the Securities Act of 1933, as
amended.
(c) Section 7.4 is hereby amended and restated to read in its entirety as
follows:
"SECTION 7.4 MERGERS, ACQUISITIONS.
Merge or consolidate with any Person (whether or not the Borrower is
the surviving entity) or acquire all or substantially all of the assets or
any of the capital stock of any Person or sell all or any substantial part
of its assets or create any Subsidiaries, whether wholly- or
partially-owned; provided that a Loan Party (the "Acquiring Entity") may,
upon prior written notice to the Agent and the Lenders, acquire any third
Person, whether by merger, consolidation or acquisition of assets, subject
to satisfaction of each of the following conditions: (i) if such
transaction shall constitute a merger or consolidation, the Acquiring
Entity shall be the surviving entity, (ii) the purchase price and other
consideration for such transaction or related series of transactions (which
shall include any assumption of indebtedness or issuance of capital stock
(valued at the fair market value thereof)) shall not in the aggregate
exceed the lesser of $10,000,000 or an amount equal to 15% of the
Consolidated Tangible Capital Funds (measured as of the most recently
available financial statements of the Guarantor) or, if the purchase price
and other consideration shall exceed such amount, the Majority Lenders
shall have given their prior written consent thereto, provided such consent
shall be deemed to have been given if: (x) the Borrower shall have
submitted directly to each of the Lenders and the Agent a written request
for consent which request shall be delivered in hard copy by commercial
messenger or courier service or by certified mail, return receipt
requested, (y) such request shall have been accompanied by all appropriate
supporting documentation, including, without limitation, pro forma
financial statements and a certificate from the chief financial officer of
the Guarantor setting forth a pro forma recalculation of the financial
covenants in Section 6.9 evidencing compliance with such covenants as at
and through the end of the period covered by
2
<PAGE> 4
the most recent financial statements delivered to the Agent and the Lenders
pursuant to the Loan Agreement, and other financial and other information
necessary to enable to the Lenders to provide an informed consent with
respect to such acquisition and (z) neither the Agent nor the Majority
Lenders shall have objected to such transaction, either by telephone,
facsimile or in writing, within ten (10) Business Days of actual receipt by
each of the Lenders and the Agent of the items described in preceding parts
(x) and (y), (iii) the business or assets acquired shall be in the same
line of business as the Borrower and the portfolio of leases, if any,
constituting such assets acquired shall satisfy the credit and risk
acceptance policies and criteria of the Borrower then generally applicable
to the Borrower's own leases and (iv) no Default or Event of Default shall
exist either before or after giving effect to such transaction."
(d) Section 7.6 is hereby deleted in its entirety.
(e) Section 7.7 is hereby amended to delete the following from where it appears
therein: "any shares of stock or".
(f) Section 7.8 is hereby amended to add the following immediately prior to the
end of the sentence: "and the Guarantor may prepay any Subordinated Debt
provided (x) such prepayment is made from the net proceeds of the initial public
offering of its Common Stock and (y) Consolidated Tangible Capital Funds and
Consolidated Tangible Net Worth shall be in excess of the respective amounts
thereof immediately prior to the IPO."
(g) Subsection (B) of Section 7.9 is hereby amended and restated to read in its
entirety as follows:
"(B) any other Investments, provided that the same are permitted
pursuant to Section 7.4.";
and the paragraph immediately succeeding subsection (B) is hereby deleted in its
entirety.
(h) Section 8.9 is hereby amended and restated to read in its entirety as
follows:
"SECTION 8.9 OWNERSHIP OF STOCK AND CONTROL OF BORROWER.
(a) The Guarantor shall at any time own, beneficially and of record,
less than 100% in the aggregate of all of the issued and outstanding shares
of capital stock of the Borrower, (b) any Person or group of Persons
(within the meaning of Section 13(d) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended) other than the Principals shall own and/or Control
more than 50% of the issued and outstanding shares of capital stock of the
Guarantor on a fully diluted basis (assuming the exercise of all
outstanding stock options) of the Guarantor having ordinary voting
3
<PAGE> 5
rights for the election of directors or (c) the Principals shall own in the
aggregate less than 45%, or own and/or Control in the aggregate less than
60%, of the issued and outstanding shares of capital stock, on a fully
diluted basis (assuming the exercise of all outstanding stock options), of
the Guarantor having ordinary voting rights for the election of directors;
PROVIDED that subpart (c) shall not apply if and for so long as the Common
Stock of the Guarantor shall be subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended."
(i) Section 11.9 is hereby amended to substitute the following for the address
for the Agent or, in its capacity as Lender, the Bank:
Fleet Bank, National Association
1185 Avenue of the Americas
New York, New York 10036
Attention: Leasing & Finance Companies
Telecopier: (212) 819-6212
2. CONDITIONS PRECEDENT. Prior to or simultaneously with the entry by the
Borrower into this Amendment and as a condition precedent to the effectiveness
of this Amendment:
(a) DOCUMENTS. The Agent shall have received with sufficient original
counterparts for each Lender (i) this Amendment duly executed by the
Borrower and each Lender and (ii) the Confirmation of Guaranty annexed to
this Amendment duly executed by the Guarantor and.
(b) IPO. The IPO shall have occurred and the Agent shall have received
evidence satisfactory to it to such effect.
(c) CORPORATE ACTION. The Borrower shall have taken all corporate action
required to be taken to authorize the execution, delivery and performance
of this Amendment, the agreements, documents and instruments referred to
herein and the transactions contemplated hereby and thereby.
(d) CORPORATE DOCUMENTS AND CERTIFICATES. The Borrower and the Guarantor
shall have delivered to the Agent, with sufficient original counterparts
for each Lender, an officer's certificate, in form and substance
satisfactory to the Agent, confirming the following:
(i) None of its organizational documents have been amended since the
date(s) as of which copies of said organizational documents were
certified to the Agent pursuant to the Third Amendment to Loan
Agreement and Consent made as of August 11, 1997;
(ii) Specimen signature(s) of the person(s) authorized to execute this
Amendment;
4
<PAGE> 6
(iii) The execution, delivery and performance of this Amendment has
been authorized by resolutions of the Board of Directors of the
Borrower and the Guarantor, copies of which shall be attached to such
officer's certificate; and
(iv) Each of the Borrower and the Guarantor remains in good standing
in its respective jurisdiction of incorporation and in each
jurisdiction in which it is qualified to do business.
(e) BANK OF BOSTON FACILITY. The Bank of Boston Facility shall have been
amended to reflect the amendments set forth herein (or shall be amended
subject only to effectiveness of the amendments set forth herein) to the
extent the provisions being amended pursuant to this Amendment are
contained therein, and the Agent shall have received evidence satisfactory
to it to such effect.
(f) PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident
thereto, including, without limitation, the Certificate of Incorporation
Amendments, shall be reasonably satisfactory in form and substance to the
Agent, and the Agent and each Lender, upon request by such Lender, shall
have received all information and such counterpart originals or certified
or other of such documents as the Agent may reasonably request prior to the
date hereof.
(g) COMPLIANCE.
(i) The Borrower and the Guarantor shall have complied and shall then
be in compliance with all of the terms, covenants and conditions of
the Loan Agreement as amended by this Amendment; and
(ii) The representations and warranties contained in Article 3 of the
Loan Agreement shall be true and correct on the date hereof; and
(iii) No Default or Event of Default shall have occurred, and the
Agent and each Lender shall have received a Compliance Certificate
dated the date hereof certifying, INTER ALIA, that the conditions set
forth in this Section 2 are satisfied on such date.
(h) LEGAL MATTERS. All legal matters incident to the effectiveness of this
Amendment shall be satisfactory to counsel to the Agent.
3. REAFFIRMATION OF SECURITY INTEREST.
The Borrower hereby reaffirms as of the date hereof each and every security
interest and lien granted in favor of the Agent and the Lenders under the
Loan Documents, and agrees and acknowledges that such security interests
and liens shall continue from and after the date hereof, in each case after
giving effect to the Loan Agreement as amended by this Amendment, and the
obligations secured thereby and thereunder shall include Borrower's
obligations under the Loan Agreement as amended by this Amendment. Each
such
5
<PAGE> 7
reaffirmed security interest and lien remains and shall continue to remain
in full force and effect and is hereby in all respects ratified and
confirmed.
4. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS.
(a) On and after the date hereof, each reference in the Loan Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words of like import,
and each reference in the other Loan Documents, shall mean and be a
reference to the Loan Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan Agreement shall remain
in full force and effect in accordance with its terms.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO ITS PRINCIPLES OF CONFLICT OF LAWS.
6. FURTHER ASSURANCES. Each of the parties hereto hereby agrees to do such
further acts and things and to execute, deliver and acknowledge such additional
agreements, powers and instruments as any other party hereto may reasonably
require to carry into effect the purposes of this Amendment.
7. COSTS AND EXPENSES. The Borrower hereby agrees to pay all reasonable costs
and expenses of the Agent (including reasonable attorneys' fees and expenses)
incurred in connection with the negotiation, preparation, execution and delivery
of this Amendment.
8. COUNTERPARTS; FACSIMILE SIGNATURES. This Amendment may be executed in any
number of counterparts and by different parties on different counterparts, but
all such counterparts shall together constitute but one agreement. Execution and
delivery of this Amendment by facsimile transmission shall constitute execution
and delivery of this Amendment for all purposes, with the same force and effect
as execution and delivery of an originally manually signed copy hereof.
9. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
or be given any substantive effect.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURES TO FOLLOW]
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
BORROWER:
LEASECOMM CORPORATION
By: /s/ Peter Bleyleben
-------------------------------
Name: Peter Bleyleben
Title: President and CEO
LENDERS:
FLEET BANK, NATIONAL ASSOCIATION
Address:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Attention: Mr. Harris C. Mehos
Vice President
Telecopier: (212) 819-6212
By: /s/ Harris C. Mehos
-------------------------------
Name: Harris C. Mehos
Title: Vice President
7
<PAGE> 9
SANWA BUSINESS CREDIT CORPORATION
Address:
Sanwa Business Credit Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attention: Mr. Jeff Griffor
Credit Manager
Telecopier: (312) 853-1335
By: /s/ Jeffrey A. Griffor
-------------------------------
Name: Jeffrey A. Griffor
Title: Credit Manager
FIRST UNION NATIONAL BANK (successor
to CORESTATES BANK, N.A.)
Address:
1339 Chestnut Street
Mailstop: PA4827
Philadelphia, Pennsylvania 19101-7618
Attention: Ms. Theresa Smith
Vice President
Telecopier: (215) 786-7704
By: /s/ Theresa Smith
-------------------------------
Name: Theresa Smith
Title: Vice President
8
<PAGE> 10
PNC BANK, NATIONAL ASSOCIATION
Address:
PNC Bank, National Association
1600 Market Street
Philadelphia, Pennsylvania 19103
Attention: Mr. Philip Jackson
Senior Vice President
Telecopier: (215) 585-4769
By: /s/ Philip C. Jackson
-------------------------------
Name: Philip C. Jackson
Title: Senior Vice President
STATE STREET BANK AND TRUST COMPANY
Address:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2804
Attention: F. Andrew Beise
Vice President,
Large Corporate Department
Telecopier: (617) 664-4971
By: /s/ F. Andrew Beise
-------------------------------
Name: F. Andrew Beise
Title: Vice President
9
<PAGE> 11
AGENT:
FLEET BANK, NATIONAL ASSOCIATION,
as Agent
By: /s/ Harris C. Mehos
--------------------------
Name: Harris C. Mehos
Title: Vice President
10
<PAGE> 12
CONFIRMATION OF GUARANTY
The undersigned Guarantor of the Obligations under the Loan Documents
hereby consents and agrees to the amendment on the date hereof, pursuant to the
Fourth Amendment to Amended and Restated Loan Agreement (the "Fourth
Amendment"), of the Amended and Restated Loan Agreement dated as of July 28,
1995, as amended by the First Amendment to Amended and Restated Loan Agreement
made as of October 30, 1995, the Second Amendment to Amended and Restated Loan
Agreement made as of August 6, 1996, and the Third Amendment to Loan Agreement
and Consent made as of August 11, 1997, acknowledges receipt of a copy of the
Fourth Amendment and agrees that its guaranty of the payment and performance of
the Obligations pursuant to the Guaranty dated as of July 29, 1993 remains in
full force and effect and shall continue to apply to the Obligations, after
giving effect to the Fourth Amendment. The undersigned hereby reaffirms as of
the date hereof each and every representation and warranty made pursuant to the
Guaranty, and confirms that each and every such representation and warranty is
true and correct on and as of the date hereof as if made on and as of such date.
Dated: as of July 31, 1998
BOYLE LEASING TECHNOLOGIES, INC.
By: /s/ Richard F. Latour
-------------------------------------
Name: Richard F. Latour
Title: Executive Vice President, COO/CFO
11
<PAGE> 1
EXHIBIT 10.31
FIFTH AMENDMENT
TO
AMENDED AND RESTATED
LOAN AGREEMENT
AMONG
LEASECOMM CORPORATION,
AS BORROWER,
THE LENDERS NAMED HEREIN
AND
FLEET BANK, NATIONAL ASSOCIATION, AS AGENT
JANUARY 27, 1999
<PAGE> 2
FIFTH AMENDMENT TO AMENDED AND RESTATED
LOAN AGREEMENT
FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Amendment") made as of the 27th day of January, 1999 by and among LEASECOMM
CORPORATION, a Massachusetts corporation (the "Borrower"), FLEET BANK, N.A., a
national banking association, in its individual corporate capacity, and FIRST
UNION NATIONAL BANK (as successor to CORESTATES BANK, N.A.), a national banking
association, (individually, a "Lender" and, collectively, the "Lenders"), and
FLEET BANK, N.A., as agent for the Lenders (the "Agent"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings ascribed thereto
in the Loan Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties
to a Loan Agreement dated as of July 29, 1993, as amended and restated as of
July 28, 1995, as further amended by the First Amendment to Amended and Restated
Loan Agreement made as of October 30, 1995, the Second Amendment to Amended and
Restated Loan Agreement made as of August 6, 1996, the Third Amendment to Loan
Agreement and Consent made as of the August 11, 1998, and the Fourth Amendment
to Amended and Restated Loan Agreement made as of July 31, 1998 (the "Loan
Agreement") pursuant to which, INTER ALIA, the Lenders agreed to make available
to the Borrower a revolving credit and term loan facility;
WHEREAS, PNC Bank, National Association, State Street Bank and
Trust Company and Sanwa Business Credit Corporation have determined to withdraw
as Lenders under the Loan Agreement;
WHEREAS, the Borrower has requested that the Loan Agreement be
amended as hereinafter set forth;
WHEREAS, the Lenders are willing to amend the Loan Agreement
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the parties hereto agree as follows:
1. AMENDMENTS. The Loan Agreement is hereby amended as follows:
(a) the definition of "BANK OF BOSTON FACILITY" set forth in Section
1.1 of the Loan Agreement is hereby amended by adding to the end
thereof before the "." the words ", as such facility shall be amended
from time to time."
(b) The definition of "BORROWING BASE" set forth in Section 1.1 of the
Loan Agreement is hereby amended by (i) deleting "50%" from part (iii)
of the first sentence thereof and substituting in lieu thereof "75%"
(ii) inserting the words "or (iii) with respect to Eligible Lease
Receivables relating to Federal Funds Rate Loans, the Borrowing Rate
applicable to each such Federal Funds Rate Loan as of such date" in the
second sentence thereof before the words "and (b) determination" and
(iii) inserting at the end of the first sentence thereof the words
"(iv) in the case of Eligible Installment Finance Contracts, an amount
equal to 75% of receivables then due and unpaid with respect to each
Eligible Installment Finance Contract"
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<PAGE> 3
(c) The definition of "COMMITMENT" set forth in Section 1.1 of the Loan
Agreement is hereby amended by deleting the names of the Lenders and
the amounts set forth opposite the Lenders' names at the end of such
definition and replacing such names and amounts with the following:
"Fleet Bank, N.A. $30,000,000
First Union National Bank $25,000,000"
(d) The definition "COMMITMENT TERMINATION DATE" set forth in Section
1.1 of the Loan Agreement is hereby amended to read in its entirety as
follows:
"COMMITMENT TERMINATION DATE" - July 31, 2000, unless
extended pursuant to Section 2.14 hereof."
(e) The definition "EQUIPMENT" set forth in Section 1.1 of the Loan
Agreement is hereby amended by (i) inserting the words "microticket
equipment leased to commercial end-users, restaurant equipment, other
equipment costing less than $15,000" after the words "office
equipment."
(f) The definition "INTEREST PERIOD" set forth in Section 1.1 of the
Loan Agreement is hereby amended by inserting the words "or Eligible
Installment Finance Contracts" after the words ""Eligible Rental
Contracts"
(g) The definition "LEASE" set forth in Section 1.1 of the Loan
Agreement is hereby amended by inserting the words "or installment
sales contract" after the words "any lease agreement"
(h) The following definitions shall be added to Section 1.1 of the Loan
Agreement in their correct alphabetical position:
'CONTRACTOR' - a Person who is engaged in the business of
selling and providing service related contracts.
'ELIGIBLE INSTALLMENT FINANCE CONTRACT' - an Installment
Finance Contract:
(a) Which is in full force and effect;
(b) Which is assignable by the Contractor thereunder;
(c) Which provides that the customer's obligations thereunder
are absolute and unconditional, and not subject to defense,
deduction, set-off or claim and as to which no defenses,
set-offs, claims or counterclaims exist or have been asserted;
(d) Which is not subject to any Lien other than that in favor
of the Agent on behalf of the Lenders and in which the Agent
has a duly perfected first priority security interest under
the UCC; and
(e) Under which no payment is more than 90 days past due.
`INSTALLMENT FINANCE CONTRACT' - an agreement between a
Contractor and a customer providing for the sales and/or the
performance of services by the Contractor and the payment by
the customer for such services over time.
2
<PAGE> 4
`FEDERAL FUNDS RATE' - for any day, a fluctuating interest
rate per annum equal to the weighted average of the rates on
seven-day 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 preceding 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 transactions received by the Agent from three
Federal funds brokers of recognized standing selected by the
Agent.
`FEDERAL FUNDS RATE LOAN' - a Loan the interest on which is
determined on the basis of the Federal Funds Rate.
(i) The second sentence of Section 2.1(a) of the Loan Agreement is
hereby amended by (i)deleting the phrase "parts (i) through (iv)" and
inserting in lieu thereof the phrase "parts (i) through (vi)" and (ii)
inserting new sub-parts (v) and (vi) after sub-part (iv) as follows:
"or (v) in the case of Loans based upon Eligible Rental
Contracts, the aggregate outstanding principal amount of all
such Loans exceed 20% of the Commitment;"
(j) Section 2.1(b) of the Loan Agreement is hereby amended by adding
the words ", Federal Funds Rate Loans" after the words "Prime Rate
Loans" and before the words "and Libor Loans" in each of the first and
third sentences thereof.
(k) Clause (x) of Section 2.1(c) of the Loan Agreement is hereby
amended by inserting the words "or Eligible Installment Finance
Contracts" after the words "Eligible Leases" both times such phrase
appears.
(l) Clause (x) of part(ii) of Section 2.1(d) of the Loan Agreement is
hereby amended by inserting the words "or Eligible Installment Finance
Contracts" after the words "Eligible Leases"
(m) Section 2.2 of the Loan Agreement is hereby amended by inserting
the words "or a Federal Funds Rate Loan" after the words "conversion of
a Prime Rate Loan" in the first sentence thereof and after the words
"borrowing of a Prime Rate Loan" in the second sentence thereof.
(n) Section 2.3(a) of the Loan Agreement is hereby amended by
renumbering sub-parts "(vi)" and "(vii)" to be "(vii)" and "(viii)",
respectively, and adding a new sub-part (vi) as follows:
"(vi) a statement that such Eligible Installment Finance
Contracts, subject to the acceptance by the Agent of the
applicable obligor thereunder, satisfy the conditions to
qualify as Eligible Installment Finance Contracts,"
(o) Section 2.3(b)(iii) of the Loan Agreement is hereby amended by (i)
deleting "50%" and substituting in lieu thereof "75%" and (ii) adding a
new subsection (v) thereof following sub-section (iv) thereof, which
shall read in its entirety as follows:
"(v) With respect to Loans based upon Eligible Installment
Finance Contracts, the amount of each such Loan shall be an
amount equal to 75% of the receivables then due and unpaid on
such Eligible Installment Finance Contracts, discounted to
present value (which calculation shall not take into account
payments due and payable under such Eligible Installment
Finance Contracts beyond 60 months after the commencement date
3
<PAGE> 5
of such Eligible Installment Finance Contracts) by a
percentage equal to the Borrowing Rate applicable to such Loan
as of the applicable Borrowing Date."
(p) Section 2.5(a) of the Loan Agreement is hereby amended by deleting
".25% per annum" and substituting in lieu thereof ".275% per annum."
(q) Section 2.5(b) of the Loan Agreement is hereby amended to read in
its entirety as follows:
"(b) The Borrower shall pay to the Agent $70,000 per year,
which fee shall be payable quarterly in advance on January
___, 1999 and on the First Business Day of each April, July,
October and January thereafter, for so long as the Loan
Agreement is in effect."
(r) Section 2.6(a) of the Loan Agreement is hereby amended by (i)
inserting at the beginning thereof before the words "The aggregate" the
subheading "(i)", (ii) inserting after the words "Eligible Equipment"
the words "and Eligible Installment Finance Sales Contracts" in subpart
(i) thereof, and (iii) adding three new subparts (ii), (iii) and (iv)
as follows:
"(ii) If the percentage of the Borrowing Base attributable to
Eligible Lease Receivables, Net Book Value and receivables due
and unpaid on Eligible Installment Finance Contracts of any
single obligor that is an end user under an Eligible Lease or
Eligible Rental Contract or direct obligor under an Eligible
Installment Finance Contract exceeds an amount equal to 5% of
the Borrowing Base as of the date of any Borrowing Base
Report, the Borrower shall immediately, but in any event not
later than the next due date for the Borrowing Base Report
required to be delivered to the Agent pursuant to Section 5.10
hereof, cause the Borrowing Base to be increased by granting
to the Agent, as agent for the Lenders pursuant to the
Security Agreement, a Lien pursuant to and as contemplated by
Section 2.22 hereof and the Security Documents on additional
Eligible Leases and Eligible Rental Contracts and Eligible
Equipment and Eligible Installment Finance Contracts or other
security acceptable to the Lenders, in their sole discretion,
such that, after giving effect to the grant of such Lien, such
percentage no longer exceeds an amount equal to 5% of the
Borrowing Base.
(iii) If the percentage of the Borrowing Base attributable to
Eligible Lease Receivables and Net Book Value for which the
Eligible Equipment is microticket equipment leased to consumer
end-users exceeds 20% of the Borrowing Base as of the date of
any Borrowing Base Report, the Borrower shall immediately, but
in any event not later than the next due date for the
Borrowing Base Report required to be delivered to the Agent
pursuant to Section 5.10 hereof, cause the Borrowing Base to
be increased by granting to the Agent, as agent for the
Lenders pursuant to the Security Agreement, a Lien pursuant to
and as contemplated by Section 2.22 hereof and the Security
Documents on additional Eligible Leases and Eligible Rental
Contracts and Eligible Equipment and Eligible Installment
Finance Contracts or other security acceptable to the Lenders,
in their sole discretion, such that, after giving effect to
the grant of such Lien, such percentage no longer exceeds an
amount equal to 20% of the Borrowing Base.
(iv) If the percentage of the Borrowing Base attributable to
Eligible Lease Receivables and Net Book Value regarding
Eligible Equipment located in a single state exceeds 20% of
the Borrowing Base as of the date of any Borrowing Base
4
<PAGE> 6
Report, the Borrower shall immediately, but in any event not
later than the next due date for the Borrowing Base Report
required to be delivered to the Agent pursuant to Section 5.10
hereof, cause the Borrowing Base to be increased by granting
the Agent, as agent for the Lenders pursuant to the Security
Agreement, a Lien pursuant to and as contemplated by Section
2.22 hereof and the Security Documents on additional Eligible
Leases and Eligible Rental Contracts and Eligible Equipment
and Eligible Installment Finance Contracts or other security
acceptable to the Lenders, in their sole discretion, such
that, after giving effect to the grant of such Lien, such
percentage no longer exceeds an amount equal to 20% of the
Borrowing Base."
(s) The last sentence of Section 2.6(b) of the Loan Agreement is hereby
amended by inserting after the words "Eligible Rental Contracts" the
words "and Eligible Installment Finance Contracts"
(t) Section 2.7 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"SECTION 2.7 CONVERSION OF LOANS.
Subject to Sections 2.17 and 2.19 hereof, the
Borrower shall have the option to convert any Prime Rate Loan,
into a Federal Funds Rate Loan or Libor Loan, any Federal
Funds Rate Loan into a Prime Rate Loan or Libor Loan, or any
Libor Loan into any Prime Rate Loan or Federal Funds Rate
Loan; provided, however, that in the case of any conversion of
such Loan, (a) the Borrower shall give to the Agent notice of
each such conversion as provided in Section 2.2; and (b) no
Loan may be converted if, on the proposed date of conversion,
an Event of Default or Default has occurred and is
continuing."
(u) Section 2.8 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"SECTION 2.8 USE OF PROCEEDS OF LOANS.
The proceeds of each Loan hereunder may be used by
the Borrower solely to finance or refinance (i) Eligible
Equipment covered by Eligible Leases and Eligible Rental
Contracts or (ii) Eligible Installment Finance Contracts
referred to in the Borrowing Computation relating to such
Loan, and for no other purpose whatsoever."
(v) Subsections (i) and (ii) of Section 2.9(a) of the Loan Agreement
are hereby amended and restated in their entirety as follows:
"(i) with respect to any Revolving Credit Loan, (x) during
such periods that such Loan (or any portion thereof) is a
Prime Rate Loan, the Prime Rate; (y) during such periods that
such Loan (or any portion thereof) is a Libor Loan, Libor plus
1.75%; and (z) during such periods that such Loan (or any
portion thereof) is a Federal Funds Rate Loan, the Federal
Funds Rate plus 1.75%; and
(ii) with respect to any Term Loan, (x) during such periods
that such Loan (or any portion thereof) is a Prime Rate Loan,
the Prime Rate plus .50%; and (y) during such periods that
such Loan (or any portion thereof) is a Libor Loan, Libor plus
2.50%; PROVIDED, HOWEVER, that any Term Loans outstanding on
August 6, 1996 that are Libor Loans shall bear interest at the
rate established and in effect with respect thereto as of such
date; and (z) during such periods that such Loan (or any
portion thereof) is a Federal Funds Rate Loan, the Federal
Funds Rate plus 1.75%"
5
<PAGE> 7
(w) Section 2.9(d) of the Loan Agreement is hereby amended to read
in its entirety as follows:
"(d) Subject to Section 2.7 hereof, the Borrower shall be
permitted to convert any Loan, or any portion thereof, in an
amount equal to or exceeding $500,000."
(x) Section 2.13(a) of the Loan Agreement is hereby amended by adding a
new subpart (iii) after subpart (ii) as follows:
"and (iii) each borrowing of a Federal Funds Rate Loan (other
than a Conversion Term Loan) and each prepayment of a Federal
Funds Rate Loan shall be in an amount at least equal to
$500,000 or some greater integral multiple of $100,000."
(y) Section 2.16(b) of the Loan Agreement is hereby amended by adding
the words "or Federal Funds Rate Loan" after the words "Prime Rate
Loans" therein.
(z) Section 2.17 of the Loan Agreement is hereby amended by adding the
words "or Federal Funds Rate Loan" after the words "Prime Rate Loans"
therein.
(aa) Section 2.18 of the Loan Agreement is hereby amended by adding the
words "or Federal Funds Rate Loan" after the words "Prime Rate Loans"
each time such phrase occurs therein.
(ab) The fourth sentence of Section 2.21 of the Loan Agreement is
hereby amended and restated in its entirety as follows:
"Notwithstanding the foregoing, in the event the Agent shall
have made an advance on behalf of a Lender without prior
notice not to do so, the Borrower shall, on demand from the
Agent, repay to the Agent that amount so made available with
interest thereon, in respect of each day during the period
commencing on and including the date such advance was made by
the Agent until the date the Agent recovers such amount at a
rate per annum equal to (i) with respect to any Revolving
Credit Loan, (x) during such periods that such Loan (or any
portion thereof) is a Prime Rate Loan, the Prime Rate; (y)
during such periods that such Loan (or any portion thereof) is
a Libor Loan, Libor plus 1.75%; and (z) during such periods
that such Loan (or any portion thereof) is a Federal Funds
Rate Loan, the Federal Funds Rate plus 1.75% or (ii) with
respect to any Term Loan, (x) during such periods that such
Loan (or any portion thereof) is a Prime Rate Loan, the Prime
Rate plus .50%; and (y) during such periods that such Loan (or
any portion thereof) is a Libor Loan, Libor plus 2.50%;"
(ac) Section 2.22(a)(ii) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"(ii) subject to the provisions of the Security Agreement, the
Borrower shall hold, as collateral custodian for the Agent,
all originally executed Leases included in the Collateral."
(ad) Section 2.22(a) of the Loan Agreement by adding a new subsection
"(v)" at the end thereof as follows:
"(v) if the Borrowing Base value attributable to Eligible
Lease Receivables or Net Asset Value for any installment sale
contract (x) is greater than $10,000, then the Borrower shall
file appropriate UCC financing statements against the obligor
of such installment
6
<PAGE> 8
sale contract or (y) is greater than $35,000, then the
Borrower shall name the Agent as assignee of such security
interest."
(ae) Section 4.2(f) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"(f) Reserved."
(af) Section 6.9(a)(ii) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"(ii) a Consolidated Tangible Net Worth of not less than the
sum of (i) 85% of the Consolidated Tangible Net Worth as of
December 31, 1997, and (ii) 50% of the aggregate amount of
Consolidated Net Income of the Guarantor and its Subsidiaries,
including the Borrower, for each of the fiscal quarters ending
on or after March 31, 1998 but without deducting therefrom any
amount of Consolidated Net Deficit for any of such fiscal
quarters;"
(ag) Section 6.9(a)(iii) of the Loan Agreement is hereby amended and
restated in its entirety as follows:
"(iii) an allowance for bad debt of the Guarantor and
its Subsidiaries, including the Borrower, of at least 7%
of Gross Lease Installments;"
(ah) Section 6.12 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"SECTION 6.12 BORROWING BASE.
Make such prepayments or pledge such additional
security, from time to time, as required by Section 2.6
hereof."
(ai) Section 7.4 of the Loan Agreement is hereby amended by (A)
inserting after the words "surviving entity, (ii)" the words "the total
consideration paid by the Borrower (x) in connection with any single
such transaction shall not exceed $10,000,000 and (y) in connection
with all such transactions during any fiscal year shall not exceed
$20,000,000 in the aggregate, (iii)", (B) deleting "(iii)" and
inserting in lieu thereof "(iv)" and (C) deleting "(iv)" and inserting
in lieu thereof "(v)".
(aj) Section 7.7(b) of the Loan Agreement is hereby amended by
inserting after the words "Eligible Equipment" the words "or Eligible
Installment Finance Contracts"
(ak) Exhibit H to the Loan Agreement is hereby deleted in its entirety
and Exhibit B attached hereto is hereby substituted in lieu thereof.
2. CONDITIONS PRECEDENT. Prior to or simultaneously with the entry by the
Borrower into this Amendment and as a condition precedent to the effectiveness
of this Amendment:
(a) DOCUMENTS. The Agent shall have received with sufficient original
counterparts for each Lender (i) this Amendment duly executed by the
Borrower and each Lender, (ii) the Confirmation of Guaranty annexed to
this Amendment duly executed by the Guarantor, (iii) an amendment to
the Security Agreement in form and substance satisfactory to the Agent
and (iv) such UCC financing statements and related documents as the
Agent shall require in connection therewith.
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<PAGE> 9
(b) CORPORATE ACTION. The Borrower shall have taken all corporate
action required to be taken to authorize the execution, delivery and
performance of this Amendment, the agreements, documents and
instruments referred to herein and the transactions contemplated hereby
and thereby.
(c) CORPORATE DOCUMENTS AND CERTIFICATES. The Borrower and the
Guarantor shall have delivered to the Agent, with sufficient original
counterparts for each Lender, an officer's certificate, in form and
substance satisfactory to the Agent, confirming the following:
(i) None of its organizational documents have been amended
since the date(s) as of which copies of said organizational
documents were certified to the Agent pursuant to the Fourth
Amendment to Loan Agreement and Consent made as of July 31,
1998 except that the name of the Guarantor has been changed
from Boyle Leasing Technologies, Inc. to Micro Financial,
Inc.;
(ii) Specimen signature(s) of the person(s) authorized to
execute this Amendment;
(iii) The execution, delivery and performance of this
Amendment has been authorized by resolutions of the Board of
Directors of the Borrower and the Guarantor, copies of which
shall be attached to such officer's certificate; and
(iv) Each of the Borrower and the Guarantor remains in good
standing in its respective jurisdiction of incorporation and
in each jurisdiction in which it is qualified to do business.
(d) BANK OF BOSTON FACILITY. The Bank of Boston Facility shall have
been amended to reflect the amendments set forth herein (or shall be
amended subject only to effectiveness of the amendments set forth
herein) to the extent the provisions being amended pursuant to this
Amendment are contained therein, and the Agent shall have received
evidence satisfactory to it to such effect.
(e) PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the
transactions contemplated by this Amendment and all documents incident
thereto, including, without limitation, the Certificate of
Incorporation Amendments, shall be reasonably satisfactory in form and
substance to the Agent, and the Agent and each Lender, upon request by
such Lender, shall have received all information and such counterpart
originals or certified or other of such documents as the Agent may
reasonably request prior to the date hereof.
(f) COMPLIANCE.
(i) The Borrower and the Guarantor shall have complied and
shall then be in compliance with all of the terms, covenants
and conditions of the Loan Agreement as amended by this
Amendment; and
(ii) The representations and warranties contained in Article 3
of the Loan Agreement shall be true and correct on the date
hereof; and
(iii) No Default or Event of Default shall have occurred, and
the Agent and each Lender shall have received a Compliance
Certificate dated the date hereof certifying, INTER ALIA, that
the conditions set forth in this Section 2 are satisfied on
such date.
(g) LEGAL MATTERS. All legal matters incident to the effectiveness of
this Amendment shall be satisfactory to counsel to the Agent.
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<PAGE> 10
(h) LETTERS OF WITHDRAWAL.
(i) The Agent shall have received a letter of withdrawal duly
executed and delivered by Sanwa Business Credit Corporation
("Sanwa"), evidencing Sanwa's agreement to withdraw as a
Lender under the Loan Agreement; provided that Sanwa shall
remain as a Lender under the Loan Agreement only with respect
to existing Libor Loans and only until the end of the current
Interest Period for each such Loan.
(ii) The Agent shall have received a letter of withdrawal duly
executed and delivered by State Street Bank and Trust Company
("State Street"), evidencing State Street's agreement to
withdraw as a Lender under the Loan Agreement; provided that
State Street shall remain as a Lender under the Loan Agreement
only with respect to existing Libor Loans and only until the
end of the current Interest Period for each such Loan.
(iii) The Agent shall have received a letter of withdrawal
duly executed and delivered by PNC Bank, National Association
("PNC"), evidencing PNC's agreement to withdraw as a Lender
under the Loan Agreement; provided that PNC shall remain as a
Lender under the Loan Agreement only with respect to existing
Libor Loans and only until the end of the current Interest
Period for each such Loan.
3. REAFFIRMATION OF SECURITY INTEREST.
The Borrower hereby reaffirms as of the date hereof each and every security
interest and lien granted in favor of the Agent and the Lenders under the Loan
Documents, and agrees and acknowledges that such security interests and liens
shall continue from and after the date hereof, in each case after giving effect
to the Loan Agreement as amended by this Amendment, and the obligations secured
thereby and thereunder shall include Borrower's obligations under the Loan
Agreement as amended by this Amendment. Each such reaffirmed security interest
and lien remains and shall continue to remain in full force and effect and is
hereby in all respects ratified and confirmed.
4. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS.
(a) On and after the date hereof, each reference in the Loan Agreement
to "this Agreement", "hereunder", "hereof", "herein" or words of like
import, and each reference in the other Loan Documents, shall mean and
be a reference to the Loan Agreement as amended hereby.
(b) Except as specifically amended herein, the Loan Agreement shall
remain in full force and effect in accordance with its terms.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE
TO ITS PRINCIPLES OF CONFLICT OF LAWS.
6. FURTHER ASSURANCES. Each of the parties hereto hereby agrees to do such
further acts and things and to execute, deliver and acknowledge such additional
agreements, powers and instruments as any other party hereto may reasonably
require to carry into effect the purposes of this Amendment.
7. COSTS AND EXPENSES. The Borrower hereby agrees to pay all reasonable
costs and expenses of the Agent (including reasonable attorneys' fees and
expenses) incurred in connection with the negotiation, preparation, execution
and delivery of this Amendment.
9
<PAGE> 11
8. COUNTERPARTS; FACSIMILE SIGNATURES. This Amendment may be executed in
any number of counterparts and by different parties on different counterparts,
but all such counterparts shall together constitute but one agreement. Execution
and delivery of this Amendment by facsimile transmission shall constitute
execution and delivery of this Amendment for all purposes, with the same force
and effect as execution and delivery of an originally manually signed copy
hereof.
9. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
or be given any substantive effect.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK; SIGNATURES TO FOLLOW]
10
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first above written.
BORROWER:
LEASECOMM CORPORATION
By: /s/ Peter R. Bleyleben
----------------------------------
Name: Peter R. Bleyleben
Title: Authorized Signatory
LENDERS:
FLEET BANK, NATIONAL ASSOCIATION
Address:
Fleet Bank, N.A.
1185 Avenue of the Americas
New York, New York 10036
Attention: Mr. Harris C. Mehos
Vice President
Telecopier: (212) 819-6212
By: /s/ James Fox
----------------------------------
Name: James Fox
Title: Authorized Signatory
11
<PAGE> 13
FIRST UNION NATIONAL BANK
(successor to CORESTATES BANK, N.A.)
Address:
1339 Chestnut Street
Mailstop: PA4827
Philadelphia, Pennsylvania 19101-7618
Attention: Ms. Theresa Smith
Vice President
Telecopier: (215) 786-7704
By: /s/ S. Scott Gates
-----------------------------------
Name: S. Scott Gates
Title: Authorized Signatory
AGENT:
FLEET BANK, NATIONAL ASSOCIATION,
as Agent
By: /s/ James Fox
-----------------------------------
Name: James fox
Title: Authorized Signatory
12
<PAGE> 14
CONFIRMATION OF GUARANTY
The undersigned Guarantor of the Obligations under the Loan
Documents hereby consents and agrees to the amendment on the date hereof,
pursuant to the Fifth Amendment to Amended and Restated Loan Agreement (the
"Fifth Amendment"), of the Amended and Restated Loan Agreement dated as of July
28, 1995, as amended by the First Amendment to Amended and Restated Loan
Agreement made as of October 30, 1995, the Second Amendment to Amended and
Restated Loan Agreement made as of August 6, 1996, the Third Amendment to Loan
Agreement and Consent made as of August 11, 1997, and the Fourth Amendment to
Amended and Restated Loan Agreement made as of July 31, 1998, acknowledges
receipt of a copy of the Fifth Amendment and agrees that its guaranty of the
payment and performance of the Obligations pursuant to the Guaranty dated as of
July 29, 1993 remains in full force and effect and shall continue to apply to
the Obligations, after giving effect to the Fifth Amendment. The undersigned
hereby reaffirms as of the date hereof each and every representation and
warranty made pursuant to the Guaranty, and confirms that each and every such
representation and warranty is true and correct on and as of the date hereof as
if made on and as of such date.
Dated: as of January 27, 1999
MicroFinancial, Inc. (formerly known as
Boyle Leasing Technologies, Inc.)
By: /s/ Peter R. Bleyleben
--------------------------------
Name: Peter R. Bleyleben
Title: Authorized Signatory
13
<PAGE> 1
EXHIBIT 10.32
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
AMONG
THE LENDERS PARTY HERETO
BANKBOSTON, N.A., AS AGENT
AND
LEASECOMM CORPORATION
Dated: January 27, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
DEFINITIONS.......................................................................................................1
1.1 Definitions.........................................................................................1
1.2 Rules of Interpretation............................................................................24
DESCRIPTION OF CREDIT............................................................................................25
2.1 Revolving Credit Loans.............................................................................25
2.2 Swing Line Advances................................................................................26
2.3 The Notes..........................................................................................27
2.4 Notice and Manner of Borrowing or Conversion of Loans..............................................28
2.5 Funding of Loans...................................................................................30
2.6 Interest Rates and Payments of Interest............................................................32
2.7 Fees...............................................................................................34
2.8 Payments and Prepayments of the Loans; Conversion Term Loan........................................35
2.9 Method of Payment and Allocation of Payments.......................................................36
2.10 Indemnity..........................................................................................38
2.11 Computation of Interest and Fees...................................................................38
2.12 Changed Circumstances; Illegality..................................................................39
2.13 Increased Costs....................................................................................40
2.14 Capital Requirements...............................................................................41
CONDITIONS OF LOANS..............................................................................................42
3.1 Conditions Precedent to Initial Loans..............................................................42
3.2 Conditions Precedent to all Loans..................................................................43
REPRESENTATIONS AND WARRANTIES...................................................................................44
4.1 Organization; Qualification; Business..............................................................44
4.2 Corporate Authority................................................................................44
4.3 Valid Obligations..................................................................................45
4.4 Consents or Approvals..............................................................................45
4.5 Title to Properties; Absence of Encumbrances.......................................................45
4.6 Financial Statements...............................................................................45
4.7 Changes............................................................................................46
4.8 Solvency...........................................................................................46
4.9 Defaults...........................................................................................47
4.10 Taxes..............................................................................................47
4.11 Litigation.........................................................................................47
4.12 Subsidiaries.......................................................................................47
4.13 Investment Company Act.............................................................................48
4.14 Compliance.........................................................................................48
4.15 ERISA..............................................................................................48
4.16 Environmental Matters..............................................................................49
4.17 Restrictions on the Borrower.......................................................................50
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
4.18 Labor Relations....................................................................................50
4.19 Margin Rules.......................................................................................51
4.20 Disclosure.........................................................................................51
4.21 Year 2000 Compliance...............................................................................51
AFFIRMATIVE COVENANTS............................................................................................52
5.1 Financial Statements...............................................................................52
5.2 Conduct of Business................................................................................54
5.3 Maintenance and Insurance..........................................................................54
5.4 Taxes..............................................................................................55
5.5 Inspection.........................................................................................55
5.6 Maintenance of Books and Records...................................................................55
5.7 Use of Proceeds....................................................................................56
5.8 Further Assurances.................................................................................56
5.9 Notification Requirements...........................................................................56
5.10 ERISA Reports......................................................................................57
5.11 Environmental Compliance...........................................................................58
5.12 Year 2000 Compliance...............................................................................58
FINANCIAL COVENANTS..............................................................................................59
6.1 Debt to Worth Ratio................................................................................59
6.2 Consolidated Tangible Net Worth....................................................................59
6.3 Bad Debt Allowance.................................................................................59
6.4 Fixed Charge Ratio.................................................................................59
NEGATIVE COVENANTS...............................................................................................59
7.1 Indebtedness.......................................................................................60
7.2 Contingent Liabilities.............................................................................61
7.3 Encumbrances.......................................................................................61
7.4 Merger; Consolidation; Sale or Lease of Assets.....................................................62
7.5 Subsidiary Stock...................................................................................63
7.6 Restricted Payments................................................................................63
7.7 Payments on Subordinated Debt......................................................................64
7.8 Investments; Purchases of Assets...................................................................64
7.9 ERISA Compliance...................................................................................66
7.10 Transactions with Affiliates.......................................................................66
7.11 Fiscal Year........................................................................................66
7.12 Underwriting Procedures. ..........................................................................67
DEFAULTS 67
8.1 Events of Default..................................................................................67
8.2 Remedies...........................................................................................70
ASSIGNMENT; PARTICIPATION........................................................................................71
9.1 Assignment.........................................................................................71
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
9.2 Participations.....................................................................................73
THE AGENT........................................................................................................75
10.1 Appointment of Agent; Powers and Immunities.......................................................75
10.2 Actions by Agent..................................................................................77
10.3 Indemnification...................................................................................78
10.4 Reimbursement.....................................................................................78
10.5 Non-Reliance on Agent and Other Lenders...........................................................79
10.6 Resignation or Removal of Agent...................................................................79
MISCELLANEOUS....................................................................................................80
11.1 Notices...........................................................................................80
11.2 Expenses..........................................................................................81
11.3 Indemnification...................................................................................81
11.4 Survival of Covenants, Etc........................................................................82
11.5 Set-Off...........................................................................................82
11.6 No Waivers........................................................................................83
11.7 Amendments, Waivers, Etc..........................................................................83
11.8 Binding Effect of Agreement.......................................................................84
11.9 Captions; Counterparts............................................................................84
11.10 Entire Agreement, Etc.............................................................................85
11.11 Waiver of Jury Trial..............................................................................85
11.12 Governing Law.....................................................................................85
11.13 Severability......................................................................................86
11.14 Confidentiality...................................................................................86
</TABLE>
EXHIBITS
EXHIBIT A - Form of Revolving Credit Note
EXHIBIT B - Form of Notice of Borrowing or Conversion
EXHIBIT C - Disclosure
EXHIBIT D - Form of Report of Chief Financial Officer
EXHIBIT E - Assignment and Joinder Agreement
EXHIBIT F-1 - Form of Dealer Agreement
EXHIBIT F-2 - Form of Security Monitoring Agreement
EXHIBIT G - Instrument of Adherence
iii
<PAGE> 5
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT is made as
of January 27, 1999 by and among LEASECOMM CORPORATION, a Massachusetts
corporation having its chief executive office at 950 Winter Street, Waltham,
Massachusetts 02154 (the "BORROWER"); BANKBOSTON, N.A., a national bank having
its head office at 100 Federal Street, Boston, Massachusetts 02110 ("BKB"); the
other financial institutions from time to time party hereto (together with BKB,
the "LENDERS"); and BANKBOSTON, N.A., as agent for the Lenders (in such
capacity, the "AGENT").
WHEREAS, the Borrower and BKB are parties to an Amended and Restated
Revolving Credit Agreement dated as of August 6, 1996, as amended (the "EXISTING
AGREEMENT").
WHEREAS, certain financial institutions wish to become parties to the
Existing Agreement, as amended and restated hereby.
WHEREAS, the parties hereto wish to amend the Existing Agreement and to
restate the Existing Agreement as so amended.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree that the Existing Agreement is hereby
amended and restated in its entirety to read as follows:
SECTION 1
DEFINITIONS
1.1 DEFINITIONS.
All capitalized terms used in this Agreement or in the Notes or in any
certificate, report or other document made or delivered pursuant to this
Agreement (unless otherwise defined therein) shall have the meanings assigned to
them below:
ADJUSTED COST. The Original Cost less any dealer reserve, hold backs
and discounts to the Borrower, sales taxes, insurance, shipping, delivery,
handling and other similar charges applicable to any Equipment or Security
Monitoring Agreement.
AFFECTED LOANS. See Section 2.12(a).
AFFILIATE. With reference to any Person, (including an individual, a
corporation, a partnership, a trust and a governmental agency or
instrumentality), (i) any director, officer or employee of that Person, (ii) any
other person controlling, controlled by or under direct or indirect common
control of that person, (iii) any other Person directly or indirectly holding 5%
1
<PAGE> 6
or more of any class of the capital stock or other equity interests (including
options, warrants, convertible securities and similar rights) of that Person and
(iv) any other Person 5% or more of any class of whose capital stock or other
equity interests (including options, warrants, convertible securities and
similar rights) is held directly or indirectly by that Person. For purposes of
Sections 4.15, 5.10 and 7.9 hereof, "Affiliate" shall mean, within the meaning
of Section 414(b), (c), (m) or (o) of the Code (i) any member of a controlled
group of corporations which includes the Borrower, (ii) any trade or business,
whether or not incorporated, under common control with the Borrower, (iii) any
member of an affiliated service group which includes the Borrower, and (iv) any
member of a group treated as a single employer by regulation.
AGENT. See Preamble.
AGREEMENT. This Second Amended and Restated Revolving Credit Agreement,
including the Exhibits and Schedules hereto, as the same may be supplemented or
amended from time to time.
ASSIGNEE. See Section 9.1.
BASE RATE. The greater of (i) the rate of interest announced from time
to time by the Agent at its head office as its Base Rate, and (ii) the Federal
Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if necessary, to
the next 1/8 Of 1%).
BASE RATE LOAN. Any Loan bearing interest determined with reference
to the Base Rate.
BORROWER. See Preamble.
BORROWER'S ACCOUNTANTS. Coopers & Lybrand or such other independent
certified public accountants as are selected by the Borrower and reasonably
acceptable to the Agent.
BORROWING BASE. As at the date of any determination thereof, an amount
equal to the sum of:
(a) in the case of Eligible Leases which are Finance Leases
(other than Eligible Security Monitoring Agreements) or in the case of Eligible
Installment Sales Contracts, the lesser of (x) 100% of the Adjusted Cost of the
Eligible Equipment subject to such Eligible Leases or Eligible Installment Sales
Contracts, or (y) 75% of the aggregate amount of all Eligible Lease Receivables
relating to all such Eligible Leases or Eligible Installment Sales Contracts,
discounted to present value by a percentage equal to the Discount Rate (which
calculation shall not take into account rental payments due or payable under
such Eligible Leases or Eligible Installment Sales Contracts beyond 60 months
after the commencement date of such Eligible Leases or Eligible Installment
Sales Contracts); PLUS
(b) in the case of Eligible Leases which are Operating Leases
(other than Rental Contracts or Eligible Security Monitoring Agreements), the
lesser of (x) 75% of the aggregate Net Book Value of the Eligible Equipment
subject to such Operating Leases or (y) 75% of the
2
<PAGE> 7
aggregate amount of all Eligible Lease Receivables relating to all such Eligible
Leases, discounted to present value by a percentage equal to the Discount Rate
(which calculation shall not take into account rental payments due or payable
under such Eligible Leases beyond 60 months after the commencement date of such
Eligible Leases); PLUS
(c) in the case of Eligible Rental Contracts (other than
Eligible Security Monitoring Agreements), an amount equal to 75% of the
aggregate Net Book Value of all Eligible Equipment subject to such Eligible
Rental Contracts, PROVIDED that the portion of the Borrowing Base determined
pursuant to this subparagraph (c) shall not exceed the lesser of (i) $14,000,000
and (ii) 20% of the Total Commitment; PLUS
(d) in the case of Eligible Security Monitoring Agreements, an
amount equal to 75% of the Adjusted Cost of the security system and/or
monitoring services subject to such Agreement, PROVIDED that solely for purposes
of the foregoing calculation the Adjusted Cost shall not, unless otherwise
approved by the Agent, exceed 35 times the so-called "recurring monthly
revenues" from any such Agreement; PLUS
(e) in the case of Eligible Installment Finance Contracts, an
amount equal to 75% of the aggregate amount of all Eligible Lease Receivables
relating to all such Eligible Installment Finance Contracts, discounted to
present value by a percentage equal to the Discount Rate (which calculation
shall not take into account payments due or payable under such Eligible
Installment Finance Contracts beyond 48 months after the commencement date of
such Eligible Installment Finance Contracts); MINUS
(f) Borrowing Base Reserves, if any, at the date of
determination of the Borrowing Base;
PROVIDED, HOWEVER, that notwithstanding the foregoing, there shall be excluded
from the Borrowing Base (x) any Lease or Eligible Installment Finance Contract
to the extent that the Receivables due pursuant to such Lease or Eligible
Installment Finance Contract, when added to the Receivables due pursuant to all
other Leases and Eligible Installment Finance Contracts with lessees and account
debtors in the same state would exceed 20% of Gross Lease Installments, and (y)
any Lease or Eligible Installment Finance Contract to the extent that the
Receivables due pursuant to such Lease or Eligible Installment Finance Contract,
when added to all other Receivables due from the same account debtor, would
exceed the lesser of (i) $3,500,000, or (ii) five percent (5%) of the
Commitments at such time. For purposes hereof, determination of the calculation
shall be made on a lease by lease and contract by contract basis but the
Borrowing Base shall include the aggregate of all such calculations.
BORROWING BASE MATURITY DATE. September 30, 2000.
BORROWING BASE REPORT. A report of a Borrowing Computation in form
satisfactory to the Agent and signed by any Responsible Officer.
3
<PAGE> 8
BORROWING BASE RESERVES. At the time of any determination of the
Borrowing Base, such reserves as the Agent may from time to time determine to
establish, in the exercise of its reasonable credit judgment based upon its
review of the financial information delivered pursuant to Section 5.1, the
results of inspection and reviews of books and records as contemplated by
Section 5.5 and other information concerning the business, operations and
prospects of the Borrower.
BORROWING COMPUTATION. See Section 2.4(c).
BUSINESS DAY. (i) For all purposes other than as covered by clause (ii)
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts are open for the conduct of a substantial part of their
commercial banking business; and (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
Eurodollar Loans, any day that is a Business Day described in clause (i) and
that is also a day for trading by and between banks in U.S. Dollar deposits in
the interbank Eurodollar market.
CAPITAL EXPENDITURES. For any period, the aggregate amount of all
payments made by any Person directly or indirectly for the purpose of acquiring,
constructing or maintaining fixed assets, real property or equipment which, in
accordance with GAAP, would be added as a debit to the fixed asset account of
such Person, including, without limitation, Capitalized Lease Obligations, but
excluding therefrom the purchase of Equipment as inventory for the purpose of
being leased under an Operating Lease.
CAPITALIZED LEASE OBLIGATIONS. As to any Person, the obligations of
such Person to pay rent or other amounts under lease of (or other agreement
conveying the right to use) real and/or personal property which obligations are
required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP and, for purposes of this Agreement, the amount
of such obligations shall be the capitalized amount thereof, determined in
accordance with GAAP, consistently applied.
CLOSING DATE. The first date on which the conditions set forth in
Sections 3.1 and 3.2 have been satisfied and any Loans are to be made hereunder.
CODE. The Internal Revenue Code of 1986 and the rules and regulations
thereunder, collectively, as the same may from time to time be supplemented or
amended and remain in effect.
COLLATERAL. All of the property, rights and interests of the Borrower
and its Subsidiaries that are or are intended to be subject to the security
interests and liens created by the Security Documents.
COMMITMENT. With respect to any Lender, the maximum dollar amount which
such Lender has agreed to loan to the Borrower upon the terms and subject to the
conditions of this Agreement, initially as set forth on SCHEDULE 1 attached
hereto, as such Lender's Commitment
4
<PAGE> 9
may be modified from time to time as provided in this Agreement, including
termination or reduction of such Commitment in accordance with Sections 2.1 and
8.2 hereof. SCHEDULE 1 shall be amended from time to time to reflect any changes
in the Commitments of the Lenders.
COMMITMENT FEE. See Section 2.7(a).
CONSOLIDATED EARNINGS. The sum of Consolidated Net Income plus, on a
consolidated basis for the Parent and its Subsidiaries, including the Borrower,
(a) all provisions for any deferred federal, state or other taxes plus (b)
interest on Indebtedness (including payments on Capitalized Lease Obligations in
the nature of interest), all as determined in accordance with GAAP.
CONSOLIDATED INDEBTEDNESS. The consolidated Indebtedness (excluding
Subordinated Debt but including Non-Recourse Indebtedness) of the Parent and its
Subsidiaries, including the Borrower, determined in accordance with GAAP.
CONSOLIDATED NET INCOME (DEFICIT). The consolidated net income (or
deficit) of the Parent and its Subsidiaries, including the Borrower, determined
in accordance with GAAP; PROVIDED, HOWEVER, that Consolidated Net Income shall
not include amounts added to such net income (or deficit) in respect of the
write-up of any asset.
CONSOLIDATED TANGIBLE CAPITAL FUNDS. The sum, with respect to the
Parent and its Subsidiaries, including the Borrower, on a consolidated basis, of
(a) the capital stock, (b) additional paid-in capital, (c) retained earnings and
(d) Subordinated Debt LESS (x) organizational costs and good will, (y) treasury
stock and (z) 25% of Debt Issue Costs.
CONSOLIDATED TANGIBLE NET WORTH. The sum, with respect to the Parent
and its Subsidiaries, including the Borrower, on a consolidated basis, of (a)
capital stock, (b) additional paid-in capital and (c) retained earnings, LESS
the sum of (x) organizational costs and good will, (y) treasury stock and (z)
25% of Debt Issue Costs.
CONSUMER FINANCE LEASE. A Finance Lease between the Borrower, as
lessor, and a lessee who is an individual and who takes under the Lease
primarily for personal, family or household purposes.
CONVERSION TERM LOAN. See Section 2.8(a).
CONVERSION TERM LOAN MATURITY DATE. If the Revolving Credit Loans are
converted into the Conversion Term Loan, as provided in Section 2.8(a), the date
which is the third anniversary of the Borrowing Base Maturity Date.
DEALER. A Person who (i) is domiciled in the United States of America,
(ii) is not the subject of and has not taken any action described in subsections
(f) and (g) of Section 8.1 and (iii) is engaged in the business of selling,
servicing and installing security/alarm monitoring and related equipment in the
United States of America.
5
<PAGE> 10
DEALER AGREEMENT. An agreement between the Borrower and a Dealer,
substantially in the form of EXHIBIT F-1 hereto, setting forth the rights and
obligations of each with respect to a Security Monitoring Agreement or other
agreement that has been assigned by such Dealer to the Borrower and which has
not been modified, amended, restated or otherwise rewritten in any material
respect more than two times.
DEBT ISSUE COSTS. Those amounts characterized as "debt issue costs" in
accordance with GAAP on the Initial Financial Statements or the most recent
financial statements delivered pursuant to Section 5.1(a) or (b) hereof.
DEFAULT. An Event of Default or event or condition that, but for the
requirement that time elapse or notice be given, or both, would constitute an
Event of Default.
DERIVATIVE EXPOSURE. The aggregate potential exposure of a Lender under
all outstanding Eligible Interest Rate Contracts, as determined by such Lender
in its reasonable discretion. Such Lender shall determine its potential exposure
under each Eligible Interest Rate Contract and notify the Agent and the Borrower
of such determination at the time the Borrower enters into such Eligible
Interest Rate Contract and such determination shall not be changed so long as
such Eligible Interest Rate Contract remains in effect.
DISCOUNT RATE. The Base Rate, which rate shall change contemporaneously
with any change in the Base Rate.
DRAWDOWN DATE. The Business Day on which any Loan is made or is to be
made.
ELIGIBLE EQUIPMENT. Equipment:
(a) To which the Borrower has good and marketable title;
(b) Which is not subject to any Encumbrance other than that in
favor of the Agent for the benefit of the Lenders and in which
(other than with respect to security systems subject to a
Security Monitoring Agreement) the Agent has a duly perfected
first priority security interest under the UCC or other
similar law if (x) required under the Security Documents, or
(y) required by the Agent by written notice to the Borrower in
the case of any Equipment with an Original Cost of more than
$35,000;
(c) Which is to be used primarily for personal, family or
household purposes or in the ordinary course of business by
the Borrower's lessees;
(d) Which is subject to an Eligible Lease or Eligible Rental
Contract; and
(e) Which is insured by either the Borrower in accordance with
current practice or the lessee thereof in accordance with
industry standards.
6
<PAGE> 11
ELIGIBLE INSTALLMENT SALES CONTRACT. Any installment sales contract,
purchase money security agreement or other similar chattel paper (including any
and all schedules, supplements and amendments thereto and modifications thereof)
entered into by the Borrower or its predecessor in interest as seller and a
third party as buyer in connection with a sale of Equipment.
ELIGIBLE INSTALLMENT FINANCE CONTRACT. An Installment Finance
Contract:
(a) which is in full force and effect;
(b) the creditor under which is the Borrower;
(c) to which the Borrower has good and marketable title, and
which is assignable by the Borrower;
(d) which is non-cancelable and provides that the third party
obligor's obligations thereunder are absolute and unconditional, and not subject
to defense, deduction, setoff or claim and as to which no defenses, setoffs,
claims or counterclaims exist or have been asserted;
(e) which is not subject to any Encumbrance other than that in
favor of the Agent for the benefit of the Lenders and in which the Agent has a
duly perfected first priority security interest under the UCC;
(f) the third party obligor under which (i) is domiciled in
the United States of America, (ii) is not the subject of and has not taken any
action described in subsections (f) and (g) of Section 8.1 and (iii) is not
otherwise been determined by the Agent to be unacceptable;
(g) which is in a form approved by the Agent;
(h) under which no payment is more than 90 days past due;
(i) under which no default has occurred other than to the
extent permissible under clause (h) immediately above; and
(j) which has not been modified, amended, restated or
otherwise rewritten more than two times.
ELIGIBLE INTEREST RATE CONTRACTS. Interest rate swap agreements,
interest rate collar agreements, options on any of the foregoing and any other
agreements or arrangements designed to provide protection against fluctuations
in interest rates, in each case purchased by the Borrower from a Lender with
respect to Loans and approved by the Agent.
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ELIGIBLE LEASE. A Lease:
(a) Which is in full force and effect;
(b) The lessor under which is the Borrower;
(c) Which is assignable by the lessor thereunder;
(d) Which is non-cancelable and provides that the lessee's
obligations thereunder are absolute and unconditional, and not
subject to defense, deduction, set-off or claim and as to
which no defenses, set-offs, claims or counterclaims exist or
have been asserted;
(e) Which is not subject to any Encumbrance other than that in
favor of the Agent for the benefit of the Lenders and in which
the Agent has a duly perfected first priority security
interest under the UCC;
(f) Which is a Finance Lease or Operating Lease;
(g) The lessee under which (i) is domiciled in the United States
of America, (ii) is not the subject of and has not taken any
action described in subsections (f) and (g) of Section 8.1 and
(iii) has not otherwise been determined by the Agent to be
unacceptable;
(h) Which is in a form approved by the Agent;
(i) Under which no payment is more than 90 days past due;
(j) Under which no default has occurred other than to the extent
permissible under clause (i) immediately above;
(k) Which covers Eligible Equipment;
(l) Which, if an Operating Lease, has a present value of all Fixed
Rentals thereunder as of the date such Operating Lease is to
be included in the Borrowing Base of at least 70% of the
Original Cost of the Equipment leased thereunder; or which is
an Eligible Security Monitoring Agreement; and
(m) which has not been modified, amended, restated or otherwise
rewritten with respect to terms of payment or in any other
material respect more than two times.
ELIGIBLE LEASE RECEIVABLES. As at the date of determination thereof,
Receivables then due and unpaid with respect to an Eligible Lease, an Eligible
Installment Sales Contract or an Eligible Installment Finance Contract.
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ELIGIBLE RENTAL CONTRACT. A Rental Contract:
(a) Which is in full force and effect;
(b) The lessor under which is the Borrower;
(c) Which is assignable by the lessor thereunder;
(d) Which provides that the lessee's obligations thereunder are
absolute and unconditional, and not subject to defense,
deduction, set-off or claim and as to which no defenses,
set-offs, claims or counterclaims exist or have been asserted;
(e) Which is not subject to any Encumbrance other than that in
favor of the Agent for the benefit of the Lenders and in which
the Agent has a duly perfected first priority security
interest under the UCC;
(f) The lessee under which (i) is domiciled in the United States
of America, (ii) is not the subject of and has not taken any
action described in subsections (f) and (g) of Section 8.1 and
(iii) has not otherwise been determined by the Agent to be
unacceptable;
(g) Which is in a form approved by the Agent;
(h) Under which no payment is more than 90 days past due;
(i) Under which no default has occurred other than to the extent
permissible under clause (h) immediately above;
(j) Which covers Eligible Equipment; and
(k) Which has not been modified, amended, restated or otherwise
rewritten with respect to terms of payment or in any other
material respect more than two times.
ELIGIBLE SECURITY MONITORING AGREEMENT. A Security Monitoring
Agreement:
(a) Which is in full force and effect;
(b) Which is assignable by the Dealer thereunder;
(c) Which provides that the customer's obligations thereunder
(solely as to any equipment covered thereby) are absolute and
unconditional, and not subject to defense, deduction, set-off
or claim and as to which no defenses, set-offs, claims or
counterclaims exist or have been asserted;
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(d) Which is not subject to any Encumbrance other than that in
favor of the Agent on behalf of the Lenders and in which the
Agent has a duly perfected first priority security interest
under the UCC;
(e) Under which no payment is more than 90 days past due;
(f) Under which no default has occurred other than to the extent
permissible under clause (e) immediately above;
(g) Which is the subject of a Dealer Agreement which is in full
force and effect, under which no default shall have occurred
by either party thereto and which is not subject to any
Encumbrance other than in favor of the Agent on behalf of the
Lenders and in which the Agent has a duly perfected first
priority security interest under the UCC; and
(h) With respect to which the monitoring services are being
provided by the Dealer under the applicable Dealer Agreement
or by a Servicer which is acceptable to the Agent, which
acceptance shall not be unreasonably withheld.
ENCUMBRANCES. See Section 7.3.
ENVIRONMENTAL LAWS. Any and all applicable federal, state and local
environmental, health or safety statutes, laws, regulations, rules and
ordinances (whether now existing or hereafter enacted or promulgated), of all
governmental agencies, bureaus or departments to the extent the foregoing may
now or hereafter have jurisdiction over the Borrower or any of its Subsidiaries
and all applicable judicial and administrative and regulatory decrees, judgments
and orders, including common law rulings and determinations, relating to injury
to, or the protection of, real or personal property or human health or the
environment, including, without limitation, all requirements pertaining to
reporting, licensing, permitting, investigation, remediation and removal of
emissions, discharges, releases or threatened releases of Hazardous Materials
into the environment or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of such Hazardous
Materials.
EQUIPMENT. Tangible equipment having an Original Cost not exceeding
$75,000 and reasonably acceptable to the Agent, whether now or hereafter owned
and leased to third party users by the Borrower; PROVIDED, HOWEVER, that in no
event shall Equipment include (i) stand-alone software, (ii) fixtures (other
than electronic signs or security systems subject to a Security Monitoring
Agreement), or (iii) any equipment (other than electronic signs subject to a
Security Monitoring Agreement) custom designed for any Person.
ERISA. The Employee Retirement Income Security Act of 1974 and the
rules and regulations thereunder, collectively, as the same may from time to
time be supplemented or amended and remain in effect.
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EURODOLLAR LOAN. Any Loan bearing interest at a rate determined with
reference to the Eurodollar Rate.
EURODOLLAR RATE. With respect to any Eurodollar Loan for any Interest
Period, the rate of interest determined by the Agent to be the prevailing rate
per annum at which deposits in U.S. Dollars are offered to the Agent by
first-class banks in the interbank Eurodollar market in which it regularly
participates on or about 12:00 noon (Boston time) two Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Eurodollar Loan to which such Interest Period is to
apply for a period of time approximately equal to such Interest Period.
EURODOLLAR RESERVE PERCENTAGE. For any Interest Period, the aggregate
of the maximum reserve percentages (including any marginal, special, emergency
or supplemental reserves), expressed as a decimal, established by the Board of
Governors of the Federal Reserve System and any other banking authority,
domestic or foreign, to which any Lender is subject with respect to
"Eurocurrency Liabilities" (as defined in regulations issued from time to time
by such Board of Governors). The Eurodollar Reserve Percentage shall be adjusted
automatically on and as of the effective date of any change in any such reserve
percentage.
EVENT OF DEFAULT. Any event described in Section 8.1.
EXISTING AGREEMENT. See Preamble.
FEDERAL FUNDS EFFECTIVE RATE. For any day, a fluctuating interest rate
per annum equal to the weighted average of the rates on 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 preceding 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 transactions received by the
Agent from three Federal funds brokers of recognized standing selected by the
Agent.
FINANCE LEASE. A Lease characterized as a "finance lease" in
accordance with GAAP.
FIXED CHARGE RATIO. The ratio of Consolidated Earnings for any fiscal
quarter to Fixed Charges payable during such quarter.
FIXED CHARGES. On a consolidated basis for the Parent and its
Subsidiaries, including the Borrower, all payments of interest on all
Indebtedness (including all payments on capitalized lease obligations in the
nature of interest).
FIXED RENTALS. The periodic rental payments under a Lease, the amounts
of which are fixed and do not vary from time to time based on usage, cash flow
or any other factor.
FLEET FACILITY. That certain revolving credit facility established
pursuant to that certain Loan Agreement dated as of July 29, 1993, as amended
and restated as of July 28, 1995 and as
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subsequently amended as of the date hereof, by and among the Borrower, Fleet
Bank, N.A. (successor by merger to NatWest Bank, N.A.) and the other banks named
therein, as the same may be further amended, supplemented and in effect from
time to time.
GAAP. Generally accepted accounting principles, consistently applied.
GROSS LEASE INSTALLMENTS. The aggregate Receivables due to the
Borrower from all leases of equipment.
GUARANTEES. As applied to the Parent and its Subsidiaries, all
guarantees, endorsements or other contingent or surety obligations with respect
to obligations of others whether or not reflected on the consolidated balance
sheet of the Borrower and their Subsidiaries, including any obligation to
furnish funds, directly or indirectly (whether by virtue of partnership
arrangements, by agreement to keep-well or otherwise), through the purchase of
goods, supplies or services, or by way of stock purchase, capital contribution,
advance or loan, or to enter into a contract for any of the foregoing, for the
purpose of payment of obligations of any other Person.
HAZARDOUS MATERIAL. Any substance (i) the presence of which requires or
may hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste",
"hazardous material" or "hazardous substance" or "pollutant" or "contaminant"
under any present or future Environmental Law or amendments thereto including,
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 ET SEQ.) and any applicable local statutes
and the regulations promulgated thereunder; (iii) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous and which is or becomes regulated pursuant to any
Environmental Law by any governmental authority, agency, department, commission,
board, agency or instrumentality of the United States, any state of the United
States, or any political subdivision thereof to the extent any of the foregoing
has or had jurisdiction over the Borrower; or (iv) without limitation, which
contains gasoline, diesel fuel or other petroleum products, asbestos or
polychlorinated biphenyls ("PCB's").
INDEBTEDNESS. As applied to any Person, all (i) liabilities or
obligations, direct and contingent, which in accordance with GAAP would be
included in determining total liabilities as shown on the liability side of a
balance sheet of such Person at the date as of which Indebtedness is to be
determined, including, without limitation, lease obligations required to be
shown as a liability on the balance sheet of the lessee in accordance with
generally accepted accounting principles; (ii) liabilities or obligations of
others for which such Person is directly or indirectly liable, by way of
guaranty (whether by direct guaranty, suretyship, discount, endorsement,
take-or-pay agreement, agreement to purchase or advance or keep in funds or
other agreement having the effect of a guaranty) or otherwise; (iii) liabilities
or obligations secured by liens on any assets of such person, whether or not
such liabilities or obligations shall have been assumed by it; and (iv)
non-cancelable liabilities under all Operating Leases.
INITIAL FINANCIAL STATEMENTS. See Section 4.6.
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INSTALLMENT FINANCE CONTRACT. Any agreement (including any and all
schedules, supplements and amendments thereto and modifications thereof) entered
into by the Borrower or its predecessor in interest as a service provider and a
third party as buyer in connection with the rendering of services to such third
party.
INTERCREDITOR AGREEMENT. The Second Amended and Restated Intercreditor
Agreement dated as of the Closing Date between the Agent and Fleet Bank. N.A.
(successor by merger to NatWest Bank N.A.), as agent.
INTEREST EXPENSE. For any period, the consolidated interest expense
(including imputed interest on capitalized lease obligations) and amortized debt
discount on Indebtedness of the Parent and its Subsidiaries for such period.
INTEREST PERIOD. With respect to (a) each Eurodollar Loan, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending one (1), two (2), three (3), six (6) or twelve (12)
months thereafter, as the Borrower may elect in the applicable Notice of
Borrowing or Conversion, and (b) each Money Market Loan, the period commencing
on the date of the making such Money Market Loan and ending not more than seven
(7) days thereafter, as the Borrower may elect (subject to availability) in the
applicable Notice of Borrowing or Conversion; PROVIDED that:
(i) any Interest Period (other than an Interest Period
determined pursuant to clause (iii) below) that would otherwise end on
a day that is not a Business Day shall be extended to the next
succeeding Business Day, except that with respect to any Interest
Period for a Eurodollar Loan, if such Business Day falls in the next
calendar month, such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period for a Eurodollar Loan that begins on
the last 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 Interest Period) shall, subject to clause (iii) below, end on the
last Business Day of a calendar month;
(iii) any Interest Period that would otherwise end after the
Borrowing Base Maturity Date shall end on the Borrowing Base Maturity
Date; and
(iv) notwithstanding clause (iii) above, no Interest Period
for a Eurodollar Loan shall have a duration of less than one month, and
if any Interest Period applicable to a Eurodollar Loan would be for a
shorter period, such Interest Period shall not be available hereunder.
INVESTMENT. As applied to the Borrower and its Subsidiaries, the
purchase or acquisition of any share of capital stock, partnership interest,
evidence of indebtedness or other equity security of any other Person (including
any Subsidiary), any loan, advance or extension of credit (excluding Accounts
Receivable arising in the ordinary course of business) to, or contribution to
the capital of, any other Person (including any Subsidiary), any real estate
held for sale or
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investment, any securities or commodities futures contracts held, any other
investment in any other Person (including any other Borrower or any Subsidiary),
and the making of any commitment or acquisition of any option to make an
Investment.
LEASE. Any lease agreement, installment sales contract or other
agreement (including any and all schedules, supplements and amendments thereon
and modifications thereof) entered into by the Borrower as lessor or seller with
respect to Equipment.
LENDER. BKB, the other financial institutions listed on Schedule 1
attached hereto and each other Person that may after the date hereof become a
party to this Agreement as a "Lender" hereunder.
LOAN DOCUMENTS. This Agreement, the Notes, the Security Documents, the
Parent Guarantee and the Intercreditor Agreement, together with any agreements,
instruments or documents executed and delivered pursuant to or in connection
with any of the foregoing.
LOANS. The Loans made or to be made by the Lenders to the Borrower
pursuant to Section II of this Agreement, including Revolving Credit Loans,
Swing Line Advances and the Conversion Term Loan.
MAJORITY LENDERS. As of any date, the holders of sixty percent (60%)
of the Total Commitment.
MONEY MARKET LOAN. Subject to availability, any Swing Line Advance
bearing interest at a rate
determined with reference to the Money Market Rate.
MONEY MARKET RATE. With respect to any Swing Line Advance, subject to
availability, the interest rate per annum determined by BKB in its sole and
absolute discretion plus 2.00%.
NET BOOK VALUE. At a particular date, as to any Eligible Equipment, the
Original Cost of such Eligible Equipment less aggregate depreciation thereon
calculated from the date of acquisition thereof in accordance with the
Borrower's standard accounting and depreciation practices using the straight
line method over the estimated life of such Eligible Equipment, with salvage
value determined by the Borrower in accordance with such practices.
NON-RECOURSE INDEBTEDNESS. Indebtedness of the Borrower or the Parent,
as the case may be, for which the remedy for nonpayment or non-performance of
any obligation or any default in respect thereof is strictly and absolutely
limited to any collateral securing such Indebtedness and in respect of which
neither the Borrower nor the Parent is subject to any personal liability.
NOTE RECORD. Any internal record, including a computer record,
maintained by any Lender with respect to any Loan.
NOTES. The Revolving Credit Notes.
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NOTICE OF BORROWING OR CONVERSION. The notice, substantially in the
form of Exhibit B hereto, to be given by the Borrower to the Agent to request a
Loan or to convert an outstanding Loan of one Type into a Loan of another Type,
in accordance with Section 2.4.
OBLIGATIONS. Any and all obligations of the Borrower to the Agent and
the Lenders of every kind and description pursuant to or in connection with the
Loan Documents (including, without limitation, in connection with Revolving
Credit Loans and the Conversion Term Loan) and Eligible Interest Rate Contracts,
direct or indirect, absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising, regardless of how they arise or
by what agreement or instrument, if any, and including obligations to perform
acts and refrain from taking action as well as obligations to pay money.
OPERATING LEASE. A Lease characterized as an "operating lease" in
accordance with GAAP.
ORIGINAL COST. The Borrower's purchase price for (i) any Equipment as
invoiced by the supplier thereof or (ii) for any Security Monitoring Agreement
or for the security system and/or monitoring services subject thereto.
PARENT. MicroFinancial Incorporated (f/k/a Boyle Leasing Technologies,
Inc.), a Massachusetts corporation, and the sole stockholder of the Borrower.
PARENT GUARANTEE. The amended and restated unlimited guarantee made by
the Parent in favor of the Agent for the benefit of the Lenders, dated the
Closing Date and guaranteeing all Obligations.
PARTICIPANT. See Section 9.2.
PBGC. The Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
PENSION PLAN. Any Plan which is an "employee pension benefit plan" (as
defined in ERISA).
PERMITTED ACQUISITIONS. See Section 7.8.
PERMITTED ENCUMBRANCES. See Section 7.3.
PERSON. Any individual, corporation, partnership, trust, unincorporated
association, business or other legal entity, any government or governmental
agency or political subdivision thereof, a court, and any other legal entity,
whether acting in an individual, fiduciary or other capacity.
PLAN. Any "employee pension benefit plan" or "employee welfare benefit
plan" (each as defined in ERISA) maintained by Borrower or Subsidiary.
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PROHIBITED TRANSACTION. Any "prohibited transaction" as defined in
ERISA and the Code.
QUALIFIED INVESTMENTS. As applied to the Borrower and its Subsidiaries,
investments in (i) notes, bonds or other obligations of the United States of
America or any agency thereof that as to principal and interest constitute
direct obligations of or are guaranteed by the United States of America; (ii)
certificates of deposit, demand deposit accounts or other deposit instruments or
accounts maintained in the ordinary course of business with banks or trust
companies organized under the laws of the United States or any state thereof
that have capital and surplus of at least $100,000,000, (iii) commercial paper
that is rated not less than prime-one or A-1 or their equivalents by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively, or their
successors, (iv) any repurchase agreement secured by any one or more of the
foregoing, and (v) advances to employees for business related expenses to be
incurred in the ordinary course of business and consistent with past practices
in an amount not to exceed $500,000 in the aggregate outstanding at any one
time, PROVIDED that no advances to any single employee shall exceed $100,000 in
the aggregate.
RECEIVABLES. Any of the Borrower's accounts, accounts receivable,
notes, bills, drafts, acceptances, instruments, documents, chattel paper and
other debts, obligations and liabilities in whatever form owing to the Borrower
from any Person for goods sold or leased or for services rendered by the
Borrower or its predecessor in interest, or however otherwise established or
created, all guaranties and security therefor, any right, title and interest of
the Borrower in the goods or services which gave rise thereto, including rights
to reclamation and stoppage in transit and any rights of an unpaid seller of
goods or services; whether any of the foregoing be now existing or hereafter
arising, now or hereafter received by or owing or belonging to the Borrower.
RENTAL CONTRACT. An Operating Lease which is month-to-month and which
is cancelable.
RESPONSIBLE OFFICER. The chief financial officer of the Borrower, the
vice president of funding operations of the Borrower and any other officer of
the Borrower designated by the chief financial officer to sign Borrowing Base
Reports and Notices of Borrowing or Conversion.
RESTRICTED PAYMENT. Any dividend, distribution, loan, advance,
guaranty, extension of credit or other payment, whether in cash or property to
or for the benefit of any Person who holds an equity interest in the Borrower or
any of its Subsidiaries, whether or not such interest is evidenced by a
security, and any purchase, redemption, retirement or other acquisition for
value of any capital stock of the Borrower or any of its Subsidiaries, whether
now or hereafter outstanding, or of any options, warrants or similar rights to
purchase such capital stock or any security convertible into or exchangeable for
such capital stock.
REVOLVING CREDIT ASSIGNMENT OF LEASES. A second amended and restated
assignment of leases, dated the Closing Date, by the Borrower in favor of the
Agent for the benefit of the Lenders, as amended, supplemented and in effect
from time to time, and any supplement thereto in the form of Exhibit A to the
Revolving Credit Assignment of Leases as executed and delivered by the Borrower
and the Agent from time to time.
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REVOLVING CREDIT LOAN. See Section 2.1(a) hereof.
REVOLVING CREDIT NOTES. See Section 2.3(a).
SECURITY AGREEMENT. A second amended and restated security agreement,
dated the Closing Date, between the Borrower and the Agent, as amended,
supplemented and in effect from time to time, and any supplement thereto in the
form of Exhibit A to the Security Agreement as executed and delivered by the
Borrower and the Agent from time to time.
SECURITY DOCUMENTS. The Revolving Credit Assignment of Leases, the
Security Agreement and any additional documents evidencing or perfecting the
Agent's lien on the Collateral.
SECURITY MONITORING AGREEMENT. An agreement between a Dealer and a
customer, substantially in the form of EXHIBIT F-2 hereto, which provides for
(i) the selling, servicing and installation by the Dealer of central station
security/alarm monitoring equipment and related monitoring services or (ii) only
monitoring services with respect to such equipment.
SERVICER. A Person engaged in the business of providing monitoring
services for central alarm systems.
SUBORDINATED DEBT. Indebtedness of the Parent or any of its
Subsidiaries, including the Borrower, which is expressly subordinated and made
junior to the payment and performance in full of the Obligations and the
Guaranteed Obligations (as defined in the Parent Guaranty) on terms and
conditions satisfactory to the Agent and the Majority Lenders.
SUBSIDIARY. Any corporation, association, joint stock company, business
trust or other similar organization of which 50% or more of the ordinary voting
power for the election of a majority of the members of the board of directors or
other governing body of such entity is held or controlled by the Parent, the
Borrower or a Subsidiary of the Parent or Borrower; or any other such
organization the management of which is directly or indirectly controlled by the
Parent, the Borrower or a Subsidiary of the Parent or Borrower through the
exercise of voting power or otherwise; or any joint venture, whether
incorporated or not, in which the Parent or Borrower has a 50% ownership
interest.
SWING LINE ADVANCES. See Section 2.2.
TOTAL COMMITMENT. The sum of the Commitments of the Lenders as in
effect from time to time, which as of the Closing Date shall be $55,000,000 and
which may be increased from time to time to an amount not to exceed $70,000,000
in accordance with the provisions of Section 9.3 hereof, and which may be any
lesser amount, including zero, resulting from a termination or reduction of such
amount in accordance with Sections 2.1 and 8.2 hereof.
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TOTAL OUTSTANDINGS. At any time, the aggregate outstanding principal
balance of the Revolving Credit Loans at the time.
TYPE. A Base Rate Loan, a Eurodollar Loan or a Money Market Loan.
UCC. The Uniform Commercial Code as enacted in any state of the United
States or in the District of Columbia or the United States Virgin Islands
insofar as any such statute, as in effect from time to time, may be relevant to
the creation, perfection, continuation and enforcement of Encumbrances on
Collateral.
YEAR 2000 COMPLIANT. With respect to any Person, all software, embedded
microchips and other processing capabilities and equipment utilized by and
material to the business operations or financial condition of such Person that
are able to interpret and manipulate data involving all calendar dates correctly
and without causing any abnormal ending scenario, including, without limitation,
in the case of dates or time periods occurring or ending after December 31,
1999, the ability to function at least as effectively as in the case of time
periods occurring or ending prior to January 1, 2000.
1.2 RULES OF INTERPRETATION.
(1) All terms of an accounting character used herein but not
defined herein shall have the meanings assigned thereto by GAAP applied on a
consistent basis. All calculations for the purposes of Section VI hereof shall
be made in accordance with GAAP.
(2) A reference to any document or agreement shall include
such document or agreement as amended, modified or supplemented and in effect
from time to time in accordance with its terms and the terms of this Agreement.
(3) The singular includes the plural and the plural includes
the singular. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
(4) A reference to any Person includes its permitted
successors and permitted assigns.
(5) The words "include", "includes" and "including" are not
limiting.
(6) The words "herein", "hereof", "hereunder" and words of
like import shall refer to this Agreement as a whole and not to any particular
section or subdivision of this Agreement.
(7) All terms not specifically defined herein or by GAAP,
which terms are defined in the Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts, have the meanings assigned to them in such
Uniform Commercial Code.
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SECTION 2.
DESCRIPTION OF CREDIT
2.1 REVOLVING CREDIT LOANS.
(1) Upon the terms and subject to the conditions set forth in
this Agreement, and in reliance upon the representations, warranties and
covenants of the Borrower herein, each of the Lenders agrees, severally and not
jointly, to make revolving credit loans (the "REVOLVING CREDIT LOANS") to the
Borrower at the Borrower's request from time to time from and after the Closing
Date and prior to the Borrowing Base Maturity Date, PROVIDED that the Total
Outstandings (after giving effect to all requested Revolving Credit Loans and
Swing Line Advances) shall not at any time exceed the lesser of (i) the
Borrowing Base and (ii) the Total Commitment, and PROVIDED, FURTHER that the sum
of the aggregate principal amount of outstanding Revolving Credit Loans made by
each Lender shall not at any time (after giving effect to all requested
Revolving Credit Loans and Swing Line Advances) exceed such Lender's Commitment,
and PROVIDED, FURTHER, that the sum of the aggregate principal amount of
outstanding Revolving Credit Loans based on Eligible Leases having original
terms of more than 60 months shall not at any time (after giving effect to all
requested Revolving Credit Loans) exceed 10% of the aggregate principal amount
of all outstanding Revolving Credit Loans. Subject to the terms and conditions
of this Agreement, the Borrower may borrow, repay and prepay amounts, up to the
limits imposed by this Section 2.1, from time to time between the Closing Date
and the Borrowing Base Maturity Date upon request given to the Agent pursuant to
Section 2.4. Each request for a Revolving Credit Loan hereunder shall constitute
a representation and warranty by the Borrower that the conditions set forth in
Section 3.1, in the case of the initial Revolving Credit Loans to be made on the
Closing Date, and Section 3.2 in the case of all other Revolving Credit Loans,
have been satisfied as of the date of such request.
(2) No Eurodollar Loan shall be requested or made for less
than $500,000 in principal amount and in integral multiples of $100,000 in
excess of such minimum amount. No more than 8 Eurodollar Loans may be
outstanding at any time.
(3) Upon the terms and subject to the conditions of this
Agreement, the Borrower may convert all or any part (in integral multiples of
$500,000) of any outstanding Loan into a Loan of another Type on any Business
Day (which, in the case of a conversion of an outstanding Eurodollar Loan shall
be the last day of the Interest Period applicable to such Eurodollar Loan),
PROVIDED, HOWEVER that only Swing Line Advances may be made as or converted into
Money Market Loans. The Borrower shall give the Agent prior notice of each such
conversion (which notice shall be effective upon receipt) in accordance with
Section 2.4.
(4) All Commitments shall automatically terminate at 2:30 p.m.
Boston time on the Borrowing Base Maturity Date. Subject to the provisions of
Section 2.8 regarding mandatory payments, the Borrower shall have the right at
any time and from time to time upon five (5) Business Days' prior written notice
to the Agent to reduce by $5,000,000, and in integral multiples of $1,000,000 if
in excess thereof, the Total Commitment or to terminate entirely the
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Lenders' Commitments to make Revolving Credit Loans hereunder, whereupon the
Commitments of the Lenders shall be reduced pro rata in accordance with their
respective Commitments by the aggregate amount specified in such notice or
shall, as the case may be, be terminated entirely. No such reduction or
termination of any Commitment may be reinstated.
2.2 SWING LINE ADVANCES.
(1) Upon the terms and subject to the conditions set forth in this
Agreement, and in reliance upon the representations, warranties and covenants of
the Borrower herein, BKB may, in its sole discretion, make short term advances
("SWING LINE ADVANCES") to the Borrower from time to time from and after the
Closing Date and prior to the Borrowing Base Maturity Date, provided that the
Total Outstandings (after giving effect to all requested Revolving Credit Loans
and Swing Line Advances) shall not at any time exceed the lesser of (i) the
Borrowing Base and (ii) the Total Commitment, PROVIDED, FURTHER that the
aggregate outstanding principal amount of Swing Line Advances shall not exceed
$5,000,000, and PROVIDED, FURTHER that the aggregate principal amount of
Revolving Credit Loans and Swing Line Advances made by BKB shall not at any time
exceed BKB's Commitment. Each Swing Line Advance shall be due and payable on
such Business Day (not more than seven (7) days after the making thereof) as the
Borrower shall specify in the Notice of Borrowing or Conversion requesting such
Swing Line Advance. Each request for a Swing Line Advance hereunder shall
constitute a representation and warranty by the Borrowers that the conditions
set forth in Section 3.1, in the case of any Swing Line Advance to be made on
the Closing Date, and Section 3.2 in the case of all other Swing Line Advances,
have been satisfied as of the date of such request.
(2) Each Swing Line Advance shall be either a Base Rate Loan or,
subject to availability, a Money Market Loan; no Swing Line Advance shall be a
Eurodollar Loan. No Swing Line Advance shall be requested or made for less than
$100,000 in principal amount.
(3) Subject to the limitations set forth above, Swing Line
Advances of one Type may be converted into a Loan of another Type in accordance
with Section 2.4. No Revolving Credit Loan may be converted into a Swing Line
Advance.
2.3 THE NOTES. The Revolving Credit Loans shall be evidenced by
separate promissory notes for each Lender, each such note to be in substantially
the form of EXHIBIT A hereto, dated as of the Closing Date and completed with
appropriate insertions (each such note being referred to herein as a "REVOLVING
CREDIT NOTE" and collectively as the "REVOLVING CREDIT NOTES"). One Revolving
Credit Note shall be payable to the order of each Lender in a principal amount
equal to such Lender's highest possible Commitment. The Borrower irrevocably
authorizes each of the Lenders to make or cause to be made, at or about the time
of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of
any payment of principal on the Revolving Credit Notes, an appropriate notation
on its Note Record reflecting the making of such Revolving Credit Loan or (as
the case may be) the receipt of such payment. The outstanding amount of the
Revolving Credit Loans set forth on the Note Records shall be PRIMA FACIE
evidence of the principal amount thereof owing and unpaid to such Lenders, but
the failure to record, or any error in so recording, any such amount on any
Lender's Note Record
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shall not limit or otherwise affect the obligations of the Borrower hereunder or
under any Revolving Credit Note to make payments of principal of or interest on
any Revolving Credit Note when due.
2.4 NOTICE AND MANNER OF BORROWING OR CONVERSION OF LOANS.
(1) Whenever the Borrower desires to obtain or continue a Loan
hereunder or convert an outstanding Loan of one Type into a Loan of another
Type, the Borrower shall give the Agent a written Notice of Borrowing or
Conversion (or a telephonic notice promptly confirmed by a written Notice of
Borrowing or Conversion), which Notice shall be irrevocable and which must be
received no later than 2:00 p.m. Boston time (i) one Business Day before the day
on which the requested Loan is to be made or continued as or converted to a Base
Rate Loan, (ii) three Business Days before the day on which the requested Loan
is to be made or continued as or converted to a Eurodollar Loan, and (iii) the
same Business Day on which a requested Swing Line Advance is to be made. Such
Notice shall specify (A) the effective date and amount of each such Loan or
portion thereof requested to be made, continued or converted, subject to the
limitations set forth in this Agreement, (B) the interest rate option requested
to be applicable thereto, (C) the duration of the applicable Interest Period, if
any (subject to the provisions of the definition of the term "Interest Period")
and (D) in the case of a requested Swing Line Advance, the maturity date thereof
(which maturity date shall be a Business Day no later than seven (7) days after
the date such Swing Line Advance is requested to be made). If such Notice fails
to specify the interest rate option to be applicable to the requested Loan, then
the Borrower shall be deemed to have requested a Base Rate Loan. If such written
confirmation of any telephonic notification differs in any material respect from
the action taken by the Agent, the records of the Agent shall control absent
manifest error, and shall be accompanied by a Borrowing Base Report. If the
Agent receives a Notice of Borrowing or Conversion after the time specified in
subsection (a) above, such Notice shall not be effective.
(2) Subject to the provisions of the definition of the term
"Interest Period" herein, the duration of each Interest Period for a Eurodollar
Loan shall be as specified in the applicable Notice of Borrowing or Conversion.
If no Interest Period is specified in a Notice of Borrowing or Conversion with
respect to a requested Eurodollar Loan or Money Market Loan, then the Borrower
shall be deemed to have selected an Interest Period of one month's duration for
a requested Eurodollar Loan or one day's duration for a Money Market Loan. If
the Agent does not receive an effective Notice of Borrowing or Conversion with
respect to an outstanding Eurodollar Loan, or if, when such Notice must be given
prior to the end of the Interest Period applicable to such outstanding Loan, the
Borrower shall have failed to satisfy any of the conditions hereof, the Borrower
shall be deemed to have elected to convert such outstanding Eurodollar Loan in
whole into a Base Rate Loan on the last day of the then current Interest Period
with respect thereto.
(3) Each Notice of Borrowing or Conversion requesting
borrowing of a Revolving Credit Loan shall be accompanied by a Borrowing Base
Report containing a computation by the Borrower in form satisfactory to the
Agent (hereinafter referred to as a "BORROWING COMPUTATION") certified by a
Responsible Officer, setting forth (i) a complete description of the Equipment
to be acquired or financed with respect to which such Revolving
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Credit Loan has been requested, (ii) the Original Cost and Adjusted Cost of such
Equipment, (iii) a complete description of the Leases covering such Equipment,
(iv) the name of the lessees under such Leases, (v) a statement that such
Equipment and Leases, subject to the acceptance by the Agent of such Equipment
or the applicable lessee, satisfy the conditions to qualify as Eligible
Equipment Leases or Eligible Rental Contracts, respectively, and (vi) such other
information with respect to such Equipment and Leases as is requested by the
Agent in the Borrowing Computation or otherwise. Within two Business Days after
receipt of such information in the form indicated above, the Agent shall notify
the Borrower if any of such Equipment or lessees are unacceptable to the Agent.
In the event the Agent does not so notify the Borrower, the Agent shall be
deemed to have accepted such Equipment and lessees. The acceptance or deemed
acceptance of any lessee under any Lease at any one time by the Agent shall not
operate as an acceptance of such lessee at any future time.
2.5 FUNDING OF LOANS.
(1) PRO RATA FUNDING. Revolving Credit Loans shall be made by
the Lenders PRO RATA in accordance with their respective Commitments, PROVIDED,
HOWEVER that the failure of any Lender to make any Loan shall not relieve any
other Lender of its obligation to lend hereunder (it being understood, however,
that no Lender shall be responsible for the failure of any other Lender to make
any Loan required to be made by such other Lender). ..
(2) NOTICE. The Agent shall promptly notify the Lenders of
each Notice of Borrowing or Conversion received pursuant to Section 2.4 (other
than a Notice requesting a Swing Line Advance) and of each Lender's portion of
the requested Loan. Not later than 1:00 p.m. (Boston time) on the proposed
Drawdown Date of such Loan, each Lender will make available to the Agent, at its
head office, in immediately available funds, the amount of such Lender's PRO
RATA share of the amount of such requested Loan. Upon receipt by the Agent of
such amount, and upon receipt of the documents required by Section 3 and the
satisfaction of the other conditions set forth therein (to the extent
applicable) the Agent may first pay to BKB on behalf of the Borrower, out of
such funds, an amount equal to the aggregate principal balance of any
outstanding Swing Line Advances, and then shall make available to the Borrower
the balance of such Loan. The failure or refusal of any Lender to make available
to the Agent at the aforesaid time and place on any Drawdown Date the amount of
its PRO RATA share of any requested Loans shall not relieve any other Lender
from its several obligation hereunder to make available to the Agent the amount
of such other Lender's PRO RATA share of any requested Loans.
(3) ADVANCE BY AGENT. The Agent may, unless notified to the
contrary by any Lender prior to a Drawdown Date, assume that each Lender has
made available to the Agent on such Drawdown Date the amount of such Lender's
PRO RATA share of the Loans to be made on such Drawdown Date, and the Agent may
(but it shall not be required to), in reliance upon such assumption, make
available to the Borrower a corresponding amount. If any Lender makes available
to the Agent such amount on a date after such Drawdown Date, such Lender shall
pay to the Agent on demand an amount equal to the product of (i) the average,
computed for the period referred to in clause (iii) below, of the weighted
average interest rate paid by the Agent for federal funds acquired by the Agent
during each day included in such period, TIMES (ii) the
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amount of such Lender's PRO RATA share of any such Loans TIMES (iii) a fraction,
the numerator of which is the number of days that elapse from and including such
Drawdown Date to the date on which the amount of such Lender's pro rata share of
such Loans shall become immediately available to the Agent, and the denominator
of which is 365. A statement of the Agent submitted to such Lender with respect
to any amounts owing under this paragraph shall be PRIMA FACIE evidence of the
amount due and owing to the Agent by such Lender. If the amount of such Lender's
PRO RATA share of such Loans is not made available to the Agent by such Lender
within three (3) Business Days following such Drawdown Date, the Agent shall be
entitled to recover such amount from the Borrower on demand, with interest
thereon at the rate per annum applicable to the Revolving Credit Loans made on
such Drawdown Date.
(4) SWING LINE ADVANCES. Upon the satisfaction of the
conditions set forth in Section 3, to the extent applicable, BKB will make
available to the Borrower the amount of any Swing Line Advance that BKB
determines, in its sole discretion, to make. If any Swing Line Advance is not
repaid when due, upon written demand by BKB given to the Agent and each other
Lender, each other Lender shall purchase from BKB, and BKB shall sell and assign
to each such Lender, such other Lender's PRO RATA share (based on its
Commitment) of such unpaid Swing Line Advance as of the date of such advance, by
making available to the Agent, at its head office, in immediately available
funds, an amount equal to the PRO RATA portion of outstanding principal amount
of such Swing Line Advance to be purchased by such other Lender. The Borrowers
hereby agree to each such sale and assignment. Each such Lender agrees to make
such purchase of its share of the unpaid Swing Line Advance on (i) the Business
Day on which such demand is made by BKB, PROVIDED that notice of such demand is
given not later than 12:00 noon (Boston time) on such Business Day, or (ii) the
first Business Day next succeeding such demand if notice of such demand is given
after such time. Upon any such assignment, BKB represents and warrants to each
such other Lender that BKB is the legal and beneficial owner of the interest in
such Swing Line Advance being assigned by it, but makes no other representation
or warranty and assumes no responsibility with respect to such Swing Line
Advance. If any such other Lender makes available to the Agent such amount on a
date after the date such interest is to be assigned to it, such Lender shall pay
to BKB on demand an amount equal to the product of (i) the average, computed for
the period referred to in clause (iii) below, of the weighted average interest
rate paid by BKB for federal funds acquired by BKB during each day included in
such period, TIMES (ii) the amount to have been paid by such Lender on such
purchase date, TIMES (iii) a fraction, the numerator of which is the number of
days that elapse from and including the date scheduled for such purchase to the
date on which the amount of such Lender's Commitment Percentage of such unpaid
Swing Line Advance shall become immediately available to the Agent, and the
denominator of which is 365. A statement of the Agent submitted to such Lender
with respect to any amounts owing under this paragraph shall be PRIMA FACIE
evidence of the amount due and owing to BKB by such Lender, absent manifest
error. When such Lender shall pay such amount to the Agent for the account of
BKB, such amount so paid in respect of principal shall constitute a Revolving
Credit Loan which is a Base Rate Loan made by such Lender on such date for
purposes of this Agreement.
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2.6 INTEREST RATES AND PAYMENTS OF INTEREST.
(1) BASE RATE LOANS. Each Revolving Credit Loan which is a
Base Rate Loan shall bear interest on the outstanding principal amount thereof
at a rate per annum equal to the Base Rate, which rate shall change
contemporaneously with any change in the Base Rate. Such interest shall be
payable monthly in arrears on the first Business Day of each month, commencing
January 4, 1999, and when such Loan is due (whether at maturity, by reason of
acceleration or otherwise).
(2) EURODOLLAR LOANS. Each Revolving Credit Loan which is a
Eurodollar Loan shall bear interest on the outstanding principal amount thereof,
for each Interest Period applicable thereto, at a rate per annum equal to the
Eurodollar Rate plus 1.75%. Such interest shall be payable for such Interest
Period on the last day thereof and, if such Interest Period is longer than three
months, at intervals of three months after the first day thereof.
(3) MONEY MARKET LOANS. Each Revolving Credit Loan which is a
Money Market Loan shall bear interest on the outstanding principal amount
thereof at the Money Market Rate. Interest on each Money Market Loan shall be
payable at the end of the Interest Period applicable thereto.
(4) CONVERSION TERM LOAN. Any Conversion Term Loan shall bear
interest on the outstanding principal amount thereof at the following rates: (x)
to the extent such Loan is a Base Rate Loan, at a rate per annum equal to the
Base Rate, plus .50% and (y) to the extent such Loan is a Eurodollar Loan, at a
rate per annum equal to the Eurodollar Rate, plus 2.50%.
(5) DEFAULT INTEREST. If a material Event of Default shall
occur, then at the option of the Agent the unpaid balance of Loans shall bear
interest, to the extent permitted by law, compounded daily at an interest rate
equal to 2% per annum above the interest rate applicable to each such Loan in
effect on the day such Event of Default occurs, until such Event of Default is
cured or waived.
(6) ADDITIONAL INTEREST. So long as any Lender shall be
required under regulations of the Board of Governors of the Federal Reserve
System (or any other banking authority, domestic or foreign, to which such
Lender is subject) to maintain reserves with respect to liabilities or assets
consisting of or including "Eurocurrency Liabilities" (as defined in regulations
issued from time to time by such Board of Governors), the Borrower shall pay to
the Agent for the account of each such Lender additional interest on the unpaid
principal amount of each Eurodollar Loan made by such Lender from the date of
such Loan until such principal amount is paid in full, at an interest rate per
annum equal at all times to the remainder (rounded upwards, if necessary, to the
next higher 1/8 of 1%) obtained by subtracting (i) the Eurodollar Rate for the
Interest Period for such Eurodollar Loan from (ii) the rate obtained by dividing
such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Reserve
Percentage of such Lender for such Interest Period. Such additional interest
shall be determined by such Lender and notified to the Borrower through the
Agent, and shall be payable on each date on which interest is payable on such
Eurodollar Loan.
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2.7 FEES.
(1) The Borrower shall pay to the Agent for the benefit of the
Lenders a commitment fee (the "COMMITMENT FEE"), computed on a daily basis and
payable quarterly in arrears on the first Business Day of each quarter, equal to
0.275% per annum of the excess of (i) the Total Commitment at the time over (ii)
the Total Outstandings from time to time, PROVIDED, HOWEVER that for purposes of
the foregoing, Total Outstandings shall not include outstanding Swing Line
Advances.
(2) On the Closing Date the Borrower shall pay to the Agent
for the pro rata benefit of the Lenders an administrative and transactional fee
of $25,000.
(3) Without limiting any of the Lenders' other rights
hereunder or by law, if any Loan or any portion thereof or any interest thereon
is not paid within fifteen (15) days after its due date, the Borrower shall pay
to the Agent for the benefit of the Lenders on demand a late payment charge
equal to 5% of the amount of the total payment due.
(4) The Borrower shall pay to the Lenders such other standard
charges imposed by the Lenders on the Borrower as are customarily imposed by the
Lenders in the ordinary course of business on borrowers generally (e.g., charges
for returned checks, cashier's checks, wire transfers, letters of credit,
foreign exchange transactions, and other operational services).
(5) The Borrower shall pay to the Agent, solely for the
account of the Agent, such other fees as the Borrower and the Agent shall agree.
(6) The Borrower authorizes the Agent and the Lenders to
charge to their Note Records or to any deposit account which the Borrower may
maintain with any of them the interest, fees, charges, taxes and expenses
provided for in this Agreement, the other Loan Documents or any other document
executed or delivered in connection herewith or therewith.
2.8 PAYMENTS AND PREPAYMENTS OF THE LOANS; CONVERSION TERM LOAN.
(1) On the Borrowing Base Maturity Date, if the Lenders shall
not have offered to extend such date and if no Default shall have occurred and
be continuing, then at the option of the Borrower the unpaid principal balance
of the Revolving Credit Loans shall be converted into a term loan (the
"CONVERSION TERM LOAN") which shall be payable in thirty six (36) equal
consecutive monthly installments on the first day of each calendar month,
commencing with the first day of the month following the Borrowing Base Maturity
Date, with the unpaid principal balance of the Conversion Term Loan, together
with all unpaid interest thereon and all fees and other amounts due with respect
thereto, due and payable in full on the Conversion Term Loan Maturity Date. If
the Lenders shall have offered to extend the Borrowing Base Maturity Date but
the Borrower shall not have agreed to such extension or if any Default shall
have occurred and be continuing on such date, then notwithstanding the existence
of any
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Eurodollar or Money Market Loan and notwithstanding any other provision of the
Loan Documents, the Borrower shall pay in full on such date the unpaid principal
balance of the Revolving Credit Loans, together with all unpaid interest thereon
and all fees and other amounts due with respect thereto.
(2) Eurodollar Loans may be paid, without premium or penalty,
on the last day of any Interest Period applicable thereto, upon three Business
Days' notice. Money Market Loans may be paid, without premium or penalty, on the
last day of any Interest Period applicable thereto, and Base Rate Loans may be
prepaid at any time, without premium or penalty, upon one Business Day's notice.
Upon the written request of the Borrower in conjunction with any such prepayment
of a Revolving Credit Loan, the Agent shall, simultaneously with receipt of such
prepayment, release the Eligible Equipment, Eligible Leases and Eligible Rental
Contracts to which such prepaid Loan relates from the Agent's Encumbrance on
such items of Collateral granted to the Agent pursuant to the Security
Documents, PROVIDED that (i) no Default shall have occurred and be continuing,
(ii) the Agent shall have received from the Borrower a Borrowing Base Report
demonstrating that upon such release the Borrower shall be in compliance with
the terms of Section 2.1 hereof, and (iii) the Agent shall have received a
certification from a Responsible Officer certifying that no Default has occurred
and is continuing, that the Borrower has complied with the provisions of Section
7.4 hereof and Section 2(b)(ii) of the Security Agreement and that upon such
release and after giving effect thereto the Borrower shall be in compliance with
Section 2.1 hereof and no Default shall have occurred and be continuing.
(3) If at any time the Total Outstandings exceed the lesser of
(i) the Borrowing Base and (ii) the Total Commitment, then the Borrower shall
immediately pay the amount of any such excess to the Agent for application to
the Loans.
2.9 METHOD OF PAYMENT AND ALLOCATION OF PAYMENTS.
(1) All payments by the Borrower hereunder and under any of
the other Loan Documents shall be made without set-off or counterclaim and free
and clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction
or any political subdivision thereof or taxing or other authority therein unless
the Borrower is compelled by law to make such deduction or withholding. If any
such obligation is imposed upon the Borrower with respect to any amount payable
by it hereunder or under any of the other Loan Documents, the Borrower will pay
to each Lender such additional amount in Dollars as shall be necessary to enable
such Lender to receive the same net amount which such Lender would have received
on such due date had no such obligation been imposed upon the Borrower. The
Borrower will deliver promptly to each Lender certificates or other valid
vouchers or other evidence of payment reasonably satisfactory to the Agent for
all taxes or other charges deducted from or paid with respect to payments made
by the Borrower hereunder or under such other Loan Document. The Lenders may,
and the Borrower hereby authorizes the Lenders to, debit the amount of any
payment not made by such time to the demand deposit accounts of the Borrower
with the Lenders or to their Note Records.
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(2) All payments of principal of and interest in respect of
Revolving Credit Loans, the Conversion Term Loan and the Commitment Fee shall be
made to the Agent, for the benefit of the Lenders, PRO RATA in accordance with
their respective Commitments, and payments of any other amounts due hereunder
shall be made to the Agent to be allocated among the Agent and the Lenders as
their respective interests appear. All such payments shall be made at the
Agent's head office or at such other location that the Agent may from time to
time designate, in each case in immediately available funds.
(3) If the Commitments shall have been terminated or the
Obligations shall have been declared immediately due and payable pursuant to
Section 8.2, all funds received from or on behalf of the Borrower (including as
proceeds of Collateral) by any Lender in respect of Obligations (except funds
received by any Lender as a result of a purchase of a participant interest
pursuant to Section 2.9(d) below) shall be remitted to the Agent, and all such
funds, together with all other funds received by the Agent from or on behalf of
the Borrower (including proceeds of Collateral) in respect of Obligations, shall
be applied by the Agent in the following manner and order: (i) first, to
reimburse the Agent and the Lenders, in that order, for any amounts payable
pursuant to Sections 11.2 and 11.3 hereof; (ii) second, to the payment of the
Commitment Fee and any other fees payable hereunder; (iii) third, to the payment
of interest due on the Revolving Credit Loans and the Conversion Term Loan; (iv)
fourth, to the payment of the outstanding principal balance of any Swing Line
Advances; (v) fifth, to the payment of the outstanding principal balance of the
Revolving Credit Loans and the Conversion Term Loan; (vi) sixth, to the payment
of any other Obligations payable by the Borrower; and (vii) any remaining funds
shall be paid to whoever shall be entitled thereto or as a court of competent
jurisdiction shall direct.
(4) Each of the Lenders and the Agent hereby agrees that if it
should receive any amount (whether by voluntary payment, by realization upon
security, by the exercise of the right of set-off or banker's lien, by
counterclaim or cross action, by the enforcement of any right under the Loan
Documents, or otherwise) in respect of principal of, or interest on, the
Revolving Credit Loans or the Conversion Term Loan or any fees which are to be
shared PRO RATA among the Lenders, which, as compared to the amounts theretofore
received by the other Lenders with respect to such principal, interest or fees,
is in excess of such Lender's PRO RATA share of such principal, interest or
fees, such Lender shall share such excess, less the costs and expenses
(including, reasonable attorneys' fees and disbursements) incurred by such
Lender in connection with such realization, exercise, claim or action, PRO RATA
with all other Lenders in proportion to their respective Commitments, and such
sharing shall be deemed a purchase (without recourse) by such sharing party of
participant interests in the Loans or such fees, as the case may be, owed to the
recipients of such shared payments to the extent of such shared payments;
provided, however, that if all or any portion of such excess amount is
thereafter recovered from such Lender, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
2.10 INDEMNITY. If the Borrower for any reason (including, without
limitation, pursuant to Sections 2.8(b), 2.12 and 8.2 hereof) makes any payment
of principal with respect to any Eurodollar Loan or Money Market Loan on any day
other than the last day of an Interest
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Period applicable to such Loan, or fails to borrow or continue or convert to a
Eurodollar Loan or Money Market Loan, as the case may be, after giving a Notice
of Borrowing or Conversion thereof pursuant to Section 2.4, or fails to prepay a
Eurodollar Loan after having given notice thereof, the Borrower shall pay to the
Agent for the benefit of the Lenders any amount required to compensate the
Lenders for any additional losses, costs or expenses which they may reasonably
incur as a result of such payment or failure, including, without limitation, any
loss (including loss of anticipated profits), costs or expense incurred by
reason of the liquidation or re-employment of deposits or other funds required
by the Lenders to fund or maintain such Loan. The Borrower shall pay such amount
upon presentation by the Agent of a statement setting forth the amount and the
Agent's (or the affected Lenders') calculation thereof pursuant hereto, which
statement shall be deemed true and correct absent manifest error.
2.11 COMPUTATION OF INTEREST AND FEES. Interest and all fees
payable hereunder shall be computed daily on the basis of a year of 360 days and
paid for the actual number of days for which due. If the due date for any
payment of principal is extended by operation of law, interest shall be payable
for such extended time. If any payment required by this Agreement becomes due on
a day that is not a Business Day such payment may be made on the next succeeding
Business Day (subject to clause (i) of the definition of the term "Interest Rate
Period"), and such extension shall be included in computing interest in
connection with such payment.
2.12 CHANGED CIRCUMSTANCES; ILLEGALITY.
(1) Notwithstanding any other provision of this Agreement, in
the event that:
(1) on any date on which the Eurodollar Rate would otherwise
be set the Agent shall have determined in good faith (which
determination shall be final and conclusive) that adequate and fair
means do not exist for ascertaining the Eurodollar Rate, or
(2) at any time the Agent or any Lender shall have determined
in good faith (which determination shall be final and conclusive and,
if made by any Lender, shall have been communicated to the Agent in
writing) that:
(A) the making or continuation of or conversion of any Loan to
a Eurodollar Loan has been made impracticable or unlawful by (1) the
occurrence of a contingency that materially and adversely affects the
interbank Eurodollar market or (2) compliance by the Agent or such
Lender in good faith with any applicable law or governmental
regulation, guideline or order or interpretation or change thereof by
any governmental authority charged with the interpretation or
administration thereof or with any request or directive of any such
governmental authority (whether or not having the force of law); or
(B) the Eurodollar Rate shall no longer represent the
effective cost to the Agent or such Lender for U.S. dollar deposits in
the interbank market for deposits in which it regularly participates;
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then, and in any such event, the Agent shall forthwith so notify the Borrower
thereof. Until the Agent notifies the Borrower that the circumstances giving
rise to such notice no longer apply, the obligation of the Lenders to allow
selection by the Borrower of the Type of Loan affected by the contingencies
described in this Section (herein called "AFFECTED LOANS") shall be suspended.
If, at the time the Agent so notifies the Borrower, the Borrower has previously
given the Agent a Notice of Borrowing or Conversion with respect to one or more
Affected Loans but such Loans have not yet gone into effect, such notification
shall be deemed to be a request for Base Rate Loans.
(2) In the event of a determination of illegality pursuant to
subsection (a)(ii)(A) above, the Borrower shall, with respect to the outstanding
Affected Loans, prepay the same, together with interest thereon and any amounts
required to be paid pursuant to Section 2.10, on such date as shall be specified
in such notice (which shall not be earlier than the date such notice is given)
and may, subject to the conditions of this Agreement, borrow a Loan of another
Type in accordance with Section 2.1 hereof by giving a Notice of Borrowing or
Conversion pursuant to Section 2.4 hereof.
2.13 INCREASED COSTS. In case any change in law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or by any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(1) subjects any Lender to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by the
Borrower or otherwise with respect to the transactions contemplated
hereby (except for taxes on the overall net income of such Lender
imposed by the United States of America or any political subdivision
thereof), or
(2) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, any
Lender (other than such requirements as are already included in the
determination of the Eurodollar Rate), or
(iii) imposes upon any Lender any other condition with respect
to its obligations or performance under this Agreement,
and the result of any of the foregoing is to increase the cost to the Lender,
reduce the income receivable by such Lender or impose any expense upon such
Lender with respect to any Loans or its obligations under this Agreement, such
Lender shall notify the Borrower and the Agent thereof. The Borrower agrees to
pay to such Lender the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by such Lender of a statement in the amount and
setting forth in reasonable detail such Lender's calculation thereof and the
assumptions upon which such calculation was based, which statement shall be
deemed true and correct absent manifest error.
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2.14 CAPITAL REQUIREMENTS. If after the date hereof any Lender
reasonably determines that (i) the adoption of or change in any law, rule,
regulation or guideline regarding capital requirements for banks or bank holding
companies, or any change in the interpretation or application thereof by any
governmental authority charged with the administration thereof, or (ii)
compliance by such Lender or its parent bank holding company with any guideline,
request or directive of any such entity regarding capital adequacy (whether or
not having the force of law), has the effect of reducing the return on such
Lender's or such holding company's capital as a consequence of such Lender's
commitment to make Loans hereunder to a level below that which such Lender or
such holding company could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such holding company's
then existing policies with respect to capital adequacy and assuming the full
utilization of such entity's capital) by any amount deemed by such Lender to be
material, then such Lender shall notify the Borrower thereof. The Borrower
agrees to pay to such Lender the amount of such reduction of capital as and when
such reduction is determined, payable within 30 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail such
Lender's calculation thereof and the assumptions upon which such calculation was
based (which statement shall be deemed true and correct absent manifest error)
unless within such 30 day period the Borrower shall have prepaid in full all
obligations to such Lender, in which event no amount shall be payable to such
Lender under this Section. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.
SECTION 3.
CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of the
Lenders to make any additional Revolving Credit Loans is subject to the
satisfaction, on or prior to the Closing Date, of the condition that the Agent
shall have received the following agreements, documents, certificates and
opinions in form and substance satisfactory to the Agent and duly executed and
delivered by the parties thereto:
(1) This Agreement;
(2) The Revolving Credit Notes;
(3) The Security Documents;
(4) The Parent Guarantee;
(5) The Intercreditor Agreement;
(6) UCC-1 Financing Statements and UCC-3 Financing
Statement Amendments;
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(7) Borrowing Base Report as of a date within five (5)
Business Days of the Closing Date;
(8) Notice of Borrowing or Conversion as of the Closing
Date;
(9) A certificate of the Clerk or an Assistant Clerk of the
Borrower with respect to resolutions of the Board of Directors
authorizing the execution and delivery of the Loan Documents and
identifying the officer(s) authorized to execute, deliver and take all
other actions required under this Agreement, and providing specimen
signatures of such officers, and certifying that neither the Articles
of Organization nor the Bylaws of the Borrower has been amended since
the date the same were delivered to BKB pursuant to the Existing Credit
Agreement;
(10) A certificate of the Secretary of State of the Borrower's
jurisdiction of incorporation as to legal existence and good standing
of the Borrower in such state;
(11) An opinion addressed to the Lenders from Edwards &
Angell, counsel to the Borrower; and
(12) Such other documents, instruments, opinions and
certificates and completion of such other matters, as the Agent may
reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the
Lenders to make any Loan, including the initial Loans, or continue or convert
Loans of one Type to Loans of another Type is further subject to the following
conditions:
(1) timely receipt by the Agent of the Notice of Borrowing or
Conversion and a Borrowing Base Report with respect to any Loan;
(2) the representations and warranties contained in Section IV
shall be true and accurate in all material respects on and as of the date of
such Notice of Borrowing or Conversion and on the effective date of the making,
continuation or conversion of each Loan as though made at and as of each such
date (except to the extent that such representations and warranties expressly
relate to an earlier date);
(3) no Default shall have occurred and be continuing, or would
result from the making of such requested Loan;
(4) the resolutions referred to in Section 3.1 shall remain in
full force and effect; and
(5) no change shall have occurred in any law or regulation or
interpretation thereof that, in the opinion of counsel for any Lender, would
make it illegal or against the policy of any governmental agency or authority
for such Lender to make Loans hereunder.
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The making, continuation or conversion of each Loan shall be deemed to
be a representation and warranty by the Borrower on the date of the making,
continuation or conversion of such Loan as to the accuracy of the facts referred
to in subsection (b) of this Section 3.2 and of the satisfaction of all of the
conditions set forth in this Section 3.2.
SECTION 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make Loans hereunder, the Borrower represents and warrants to
the Agent and the Lenders that except as set forth on EXHIBIT C attached hereto:
4.1 ORGANIZATION; QUALIFICATION; BUSINESS.
(1) Each of the Borrower and its Subsidiaries (i) is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation, (ii) has all requisite corporate power to
own its property and conduct its business as now conducted and as presently
contemplated and (iii) is duly qualified and in good standing as a foreign
corporation and is duly authorized to do business in each jurisdiction (all of
which are listed on EXHIBIT C attached hereto) where the nature of its
properties or business requires such qualification, except where the failure to
be so qualified would not have a material adverse effect on the business,
financial condition, assets or properties of the Borrower or of the Borrower and
its Subsidiaries taken as a whole.
(2) Since the date of the Initial Financial Statements, the
Borrower has continued to engage in substantially the same business as that in
which it was then engaged and is engaged in no unrelated business.
4.2 CORPORATE AUTHORITY. The execution, delivery and performance
of the Loan Documents and the transactions contemplated hereby are within the
corporate power and authority of the Borrower and have been authorized by all
necessary corporate proceedings, and do not and will not (a) contravene any
provision of the charter documents or by-laws of the Borrower or any law, rule
or regulation applicable to the Borrower, (b) contravene any provision of, or
constitute an event of default or event that, but for the requirement that time
elapse or notice be given, or both, would constitute an event of default under,
any other agreement, instrument, order or undertaking binding on the Borrower,
or (c) result in or require the imposition of any Encumbrance on any of the
properties, assets or rights of the Borrower, except in favor of the Agent and
the Lenders.
4.3 VALID OBLIGATIONS. The Loan Documents and all of their
respective terms and provisions are the legal, valid and binding obligations of
the Borrower, enforceable in accordance with their respective terms except as
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally, and except as
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the remedy of specific performance or of injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought. The
Security Documents have effectively created in favor of the Agent and the
Lenders legal, valid and enforceable security interests in the Collateral and
such security interests are fully perfected first priority security interests.
4.4 CONSENTS OR APPROVALS. The execution, delivery and performance
of the Loan Documents and the transactions contemplated herein do not require
any approval or consent of, or filing or registration with, any governmental or
other agency or authority, or any other Person, except under or as contemplated
by the Security Documents.
4.5 TITLE TO PROPERTIES; ABSENCE OF ENCUMBRANCES. Each of the
Borrower and its Subsidiaries has good and marketable title to all of the
properties, assets and rights of every name and nature now purported to be owned
by it, including, without limitation, such properties, assets and rights as are
reflected in the Initial Financial Statements (except such properties, assets or
rights as have been disposed of in the ordinary course of business since the
date thereof), free from all Encumbrances except Permitted Encumbrances, and,
except as so disclosed, free from all defects of title that might materially
adversely affect such properties, assets or rights, taken as a whole. All real
property owned or leased by the Borrower is described in EXHIBIT C hereto.
4.6 FINANCIAL STATEMENTS. The Borrower has furnished to the
Lenders the Parent's consolidated and consolidating balance sheets as of
December 31, 1997 and its consolidated and consolidating statements of income,
changes in stockholders' equity and cash flow for the fiscal year then ended and
related footnotes, audited and certified by the Borrower's Accountants. The
Borrower has also furnished to the Lenders the Parent's unaudited consolidated
balance sheet as of September 30, 1998 and consolidated statement of income for
the nine months ended September 30, 1998 (the "INITIAL FINANCIAL STATEMENTS") in
each case certified by the principal financial officer of the Borrower, subject
to normal, recurring year-end adjustments that shall not in the aggregate be
material in amount. All such financial statements were prepared in accordance
with GAAP applied on a consistent basis throughout the periods specified and
present fairly the financial position of the Parent and its Subsidiaries as of
such dates and the results of the operations of the Parent and its Subsidiaries
for such periods. At the date hereof, the Borrower has no Indebtedness or other
material liabilities, debts or obligations, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, including, but not
limited to, liabilities or obligations on account of taxes or other governmental
charges, that are not set forth on the Initial Financial Statements or on
EXHIBIT C hereto.
4.7 CHANGES. Since the date of the Initial Financial Statements,
there have been no changes in the assets, liabilities, financial condition,
business or prospects of the Parent or any of its Subsidiaries other than
changes in the ordinary course of business, the effect of which has not, in the
aggregate, been materially adverse to the Parent and its Subsidiaries taken as a
whole.
4.8 SOLVENCY. The Borrower has and, after giving effect to the
Loans, will have, assets (both tangible and intangible) having a fair saleable
value in excess of the amount required to pay the probable liability on its
then-existing debts (whether matured or unmatured, liquidated or unliquidated,
fixed or contingent); the Borrower has and will have access to adequate capital
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for the conduct of its business and the discharge of its debts incurred in
connection therewith as such debts mature; the Borrower was not insolvent
immediately prior to the making of the Loans and immediately after giving effect
thereto, the Borrower will not be insolvent.
4.9 DEFAULTS. As of the date of this Agreement, no Default exists.
4.10 TAXES. The Borrower and each Subsidiary has filed all federal,
state and other tax returns required to be filed, and all taxes, assessments and
other governmental charges due from the Borrower and each Subsidiary have been
fully paid, except for such taxes, assessments or charges that are being
contested in good faith by appropriate proceedings and with respect to which (a)
adequate reserves have been established and are being maintained in accordance
with GAAP and (b) no lien has been filed to secure such taxes, assessments or
charges. All such contests at the date hereof are described on EXHIBIT C hereto.
The Borrower and its Subsidiaries have not executed any waiver that would have
the effect of extending the applicable statute of limitations in respect of tax
liabilities. The federal and state income tax returns of the Borrower and each
Subsidiary have not been audited or otherwise examined by any federal or state
taxing authority. The Borrower and each Subsidiary have established on their
books reserves adequate for the payment of all federal, state and other tax
liabilities.
4.11 LITIGATION. There is no litigation, arbitration, proceeding or
investigation pending, or, to the knowledge of the Borrower's or any
Subsidiary's officers, threatened, against the Borrower or any Subsidiary that,
if adversely determined, may reasonably be expected to result in a material
judgment not fully covered by insurance, may reasonably be expected to result in
a forfeiture of all or any substantial part of the property of the Borrower or
their Subsidiaries, or may reasonably be expected to have a material adverse
effect on the assets, business or prospects of the Borrower and its Subsidiaries
taken as a whole.
4.12 SUBSIDIARIES. As of the date of this Agreement, all the
Subsidiaries of the Borrower are listed on EXHIBIT C hereto. The Borrower or a
Subsidiary of the Borrower is the owner, free and clear of all liens and
encumbrances, of all of the issued and outstanding stock of each Subsidiary. All
shares of such stock have been validly issued and are fully paid and
nonassessable, and no rights to subscribe to any additional shares have been
granted, and no options, warrants or similar rights are outstanding.
4.13 INVESTMENT COMPANY ACT ACT. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Investment Company Act of 1940,
as amended.
4.14 COMPLIANCE. The Borrower has all necessary permits, approvals,
authorizations, consents, licenses, franchises, registrations and other rights
and privileges (including patents, trademarks, trade names and copyrights) to
allow it to own and operate its business without any violation of law or the
rights of others except to the extent that any such violation would not have a
material adverse effect on the business, financial condition or operation of the
Borrower and its Subsidiaries taken as a whole; and the Borrower and each
Subsidiary are duly authorized, qualified and licensed under and in compliance
with all applicable laws, regulations, authorizations and orders of public
authorities, including, without limitation, Environmental
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Laws, except to the extent that any such failure to be so authorized, qualified,
licensed or in compliance would not have a material adverse effect on the
business, financial condition or operation of the Borrower and its Subsidiaries
taken as a whole. The Borrower and each Subsidiary have performed all
obligations required to be performed by it under, and is not in default under or
in violation of, its Certificate of Incorporation or By-Laws, or any agreement,
lease, mortgage, note, bond, indenture, license or other instrument or
undertaking to which it is a party or by which any of it or any of its
properties are bound, except for violations none of which, either individually
or in the aggregate, would have any material adverse effect on the business,
condition (financial or otherwise) or assets of the Borrower and its
Subsidiaries taken as a whole.
4.15 ERISA. The Borrower and each of its Affiliates are in
compliance in all material respects with ERISA and the provisions of the Code
applicable to the Plans; neither the Borrower nor any of its Affiliates have
engaged in a Prohibited Transaction which would subject the Borrower, any of its
Affiliates or any Plan to a material tax or penalty imposed on a Prohibited
Transaction; no Plan has incurred any "accumulated funding deficiency" (as
defined in ERISA); except as set forth in the Initial Financial Statements, the
aggregate fair market value of all assets of the Plans which are single-employer
plans is at least equal to the aggregate present value of all accrued benefits
under such Plans, both as determined in the most recent actuarial reports for
such Plans using the actuarial assumptions used for funding purposes therein;
neither the Borrower nor any of its Affiliates has incurred any liability to the
Pension Benefit Guaranty Corporation over and above premiums required by law;
and neither the Borrower nor any of its Affiliates has terminated any Plan in a
manner which could result in the imposition of a lien on the property of the
Borrower or any of its Affiliates.
4.16 ENVIRONMENTAL MATTERS.
(1) The Borrower and each of its Subsidiaries have obtained
all permits, licenses and other authorizations which are required under all
Environmental Laws, except to the extent failure to have any such permit,
license or authorization would not have a material adverse effect on the
business, financial condition or operations of the Borrower or any of its
Subsidiaries. The Borrower and each of its Subsidiaries are in compliance with
the terms and conditions of all such permits, licenses and authorizations, and
are also in compliance with all applicable orders, decrees, judgments and
injunctions, issued, entered, promulgated or approved under any Environmental
Law, except to the extent failure to comply would not have a material adverse
effect on the business, financial condition or operations of the Borrower and
its Subsidiaries.
(2) No written notice, notification, demand, request for
information, citation, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is pending
or, to the best of the Borrower's knowledge, threatened by any governmental or
other entity with respect to any alleged failure by the Borrower or any of its
Subsidiaries to have any permit, license or authorization required in connection
with the conduct of its business or to comply with any Environmental Laws.
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(3) To the best of the Borrower's knowledge no material oral
or written notification of a release of a Hazardous Material has been filed by
or on behalf of the Borrower or any of its Subsidiaries and no property now or
previously owned, leased or used by the Borrower or any of its Subsidiaries is
listed or proposed for listing on the National Priorities List under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, or on any similar state list of sites requiring investigation or
clean-up.
(4) There are no liens or Encumbrances arising under or
pursuant to any Environmental Laws on any of the real property or properties
owned, leased or used by the Borrower or any of its Subsidiaries and no
governmental actions have been taken or, to the best of the Borrower's
knowledge, are in process which could subject any of such properties to such
liens or Encumbrances or, as a result of which the Borrower or any of its
Subsidiaries would be required to place any notice or restriction relating to
the presence of Hazardous Materials at any property owned by it in any deed to
such property.
4.17 RESTRICTIONS ON THE BORROWER. The Borrower is not party to or
bound by any contract, agreement or instrument, nor subject to any charter or
other corporate restriction which will, under current or foreseeable conditions,
materially and adversely affect the business, property, assets, operations or
conditions, financial or otherwise of the Borrower or any of its Subsidiaries.
4.18 LABOR RELATIONS. There is (i) no unfair labor practice
complaint pending against the Borrower or any of its Subsidiaries or, to the
best knowledge of the Borrower, threatened, before the National Labor Relations
Board, and no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Borrower or any of its
Subsidiaries or, to the best knowledge of the Borrower, threatened, except for
such complaints, grievances and arbitration proceedings which, if adversely
decided, would not have a material and adverse effect on the condition
(financial or otherwise), properties, business or results of operations of the
Borrower or any of its Subsidiaries, (ii) no strike, labor dispute, slowdown or
stoppage pending against the Borrower or any of its Subsidiaries or, to the best
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries, except for any such labor action as would not have a material and
adverse effect on the condition (financial or otherwise), properties, business
or results of operations of the Borrower or any of its Subsidiaries and (iii) to
the best knowledge of the Borrower, no union representation question existing
with respect to the employees of the Borrower or any of its Subsidiaries and, to
the best knowledge of the Borrower, no union organizing activities are taking
place, except for any such question or activities as would not have a material
and adverse effect on the condition (financial or otherwise), properties,
business or results of operations the Borrower or any of its Subsidiaries.
4.19 MARGIN RULES. The Borrower does not own or have any present
intention of purchasing or carrying, and no portion of any Loan shall be used
for purchasing or carrying, any "margin security" or "margin stock" as such
terms are used in Regulations G, U or X of the Board of Governor's of the
Federal Reserve System.
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4.20 DISCLOSURE. No representation or warranty made by the Borrower
in any Loan Document and no document or information furnished to the Lenders by
or on behalf of or at the request of the Borrower in connection with any of the
transactions contemplated by the Loan Documents contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements contained therein not misleading in light of the circumstances in
which they are made.
4.21 YEAR 2000 COMPLIANCE.
(1) The Borrower and its Subsidiaries have (i) undertaken a
detailed inventory, review and assessment of all areas within their business and
operations that could be adversely affected by the failure of the Borrower or
its Subsidiaries to be Year 2000 Compliant on a timely basis, (ii) developed a
detailed plan and timetable for becoming Year 2000 Compliant on a timely basis,
and (iii) are implementing that plan in accordance with that timetable in all
material respects.
(2) The Borrower and its Subsidiaries have developed a plan
and timetable for making written inquiry of their key suppliers and vendors as
to whether such persons will be Year 2000 Compliant in all material respects and
are implementing that plan in accordance with that timetable in all material
respects. For purposes hereof, "key suppliers and vendors" refers to those
suppliers and vendors of the Borrower and its Subsidiaries whose business
failure or significant disruption would, with reasonable probability, result in
a material adverse change in the business, properties or financial condition of
the Borrower and its Subsidiaries taken as a whole.
SECTION 5
AFFIRMATIVE COVENANTS
So long as the Lenders have any obligation to lend hereunder or any
Loan or other Obligation remains outstanding, the Borrower covenants as follows:
5.1 FINANCIAL STATEMENTS. The Borrower shall furnish to the
Lenders:
(1) as soon as available to the Borrower, but in any event
within 90 days after the end of each of fiscal year, the Parent's consolidated
and consolidating balance sheets as of the end of, and related consolidated and
consolidating statements of income and retained earnings and consolidated
statement of cash flow for, such year, audited and certified by the Borrower's
Accountants in the case of such consolidated statements, and certified by the
chief financial officer of the Borrower in the case of such consolidating
statements; and, concurrently with such financial statements, a copy of the
Borrower's Accountants management report and a written statement by the
Borrower's Accountants that, in the making of the audit necessary for their
report and opinion upon such financial statements they have obtained no
knowledge of any Default or, if in the opinion of such accountants any such
Default exists, they shall disclose in such written statement the nature and
status thereof;
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(2) as soon as available to the Borrower, but in any event
within 45 days after the end of each quarter, the Parent's consolidated balance
sheet as of the end of, and related consolidated statements of income, retained
earnings and cash flow for, the quarter then ended and portion of the year then
ended, certified by a Responsible Officer of the Borrower, subject to normal,
recurring year-end adjustments that shall not in the aggregate be material in
amount;
(3) as soon as available, but in any event within 15 days
after the end of each month, a Borrowing Base Report, together with such other
information regarding Eligible Lease Receivables as the Agent may require;
(4) at least 30 days prior to the first day of each fiscal
year, the Parent's and the Borrower's projections for such fiscal year, prepared
on a monthly basis and including consolidated and consolidating balance sheets
and statements of income, retained earnings and cash flows;
(5) concurrently with the delivery of each financial statement
pursuant to subsections (a) and (b) of this Section 5.1, a report in
substantially the form of EXHIBIT D hereto signed on behalf of the Borrower by a
Responsible Officer;
(6) promptly after the receipt thereof by the Parent or the
Borrower, copies of any reports (including any so-called management letters)
submitted to the Parent or the Borrower by independent public accountants in
connection with any annual or interim review of the accounts of the Parent or
the Borrower made by such accountants;
(7) promptly after the same are delivered to its stockholders
or the Securities and Exchange Commission, copies of all proxy statements,
financial statements and reports as the Parent or the Borrower shall send to its
stockholders or as the Parent or the Borrower may file with the Securities and
Exchange Commission or any governmental authority at any time having
jurisdiction over the Parent or the Borrower or their Subsidiaries;
(8) at least 30 days prior to the date any amendments or
modifications are made to the agreements and other instruments evidencing
Indebtedness for borrowed money of the Borrower (other than Obligations) which
is not Subordinated Debt, notification setting forth in detail the proposed
amendments or modifications;
(9) promptly after the date on which the aggregate amount of
Receivables due from any individual account debtor exceeds the lesser of (i)
three percent (3%) of the of the Total Commitment at such time or (ii)
$2,100,000, a detailed breakdown of the obligations due from such account debtor
in form satisfactory to the Agent; and
(10) from time to time, such other financial data and
information about the Parent, the Borrower or their Subsidiaries (including,
without limitation, a report in substantially the form of EXHIBIT D hereto) as
the Agent or the Lenders may reasonably request.
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5.2 CONDUCT OF BUSINESS. The Borrower and each of its Subsidiaries
shall:
(1) duly observe and comply in all material respects with all
applicable laws, regulations, decrees, orders, judgments and valid requirements
of any governmental authorities relative to its corporate existence, rights and
franchises, to the conduct of its business and to its property and assets
(including without limitation all Environmental Laws and ERISA), and shall
maintain and keep in full force and effect and comply with all licenses and
permits necessary in any material respect to the proper conduct of its business;
(2) maintain its corporate existence and remain or engage
substantially in the same business as that in which it is now engaged and in no
unrelated business.
5.3 MAINTENANCE AND INSURANCE. The Borrower shall maintain its
properties in good repair, working order and condition as required for the
normal conduct of its business. The Borrower shall maintain, or cause its
lessees to maintain, with responsible insurance companies such insurance on such
of its properties, in such amounts and against such risks as are customarily
maintained by similar businesses; PROVIDED, that the Borrower may continue to
self-insure Equipment in the manner in which it is currently conducting its
business until the Agent notifies the Borrower otherwise; and PROVIDED, FURTHER,
that the Borrower shall (x) not materially change the manner in which it
self-insures Equipment without the prior written consent of the Agent; (y) file
with the Agent upon the request of the Agent a detailed list of the insurance
then in effect, stating, as applicable, the names of the insurance companies,
the amounts and rates of the insurance, dates of expiration thereof and the
properties and risks covered thereby; and (z) within 45 days after notice in
writing from the Agent, obtain such additional insurance as the Agent may
reasonably request.
5.4 TAXES. The Borrower shall pay or cause to be paid all taxes,
assessments or governmental charges on or against it or any of its Subsidiaries
or its or their properties on or prior to the time when they become due; except
for any tax, assessment or charge that is being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
established and are being maintained in accordance with GAAP if no Encumbrance
shall have been filed to secure such tax, assessment or charge.
5.5 INSPECTION. The Borrower shall permit the Agent, any Lender
and their designees, at any reasonable time and at reasonable intervals of time,
and upon reasonable notice (or if a Default shall have occurred and is
continuing, at any time and without prior notice), to (i) visit and inspect the
properties of the Borrower and its Subsidiaries, (ii) examine and make copies of
and take abstracts from the books and records of the Borrower and its
Subsidiaries, and (iii) discuss the affairs, finances and accounts of the
Borrower and its Subsidiaries with their appropriate officers and (following the
occurrence and during the continuance of a Default hereunder) accountants, all
at the reasonable expense of the Borrower. Without limiting the generality of
the foregoing, the Borrower will permit periodic reviews (as determined by the
Agent) of the books and records of the Borrower and its Subsidiaries to be
carried out by the Agent's commercial finance examiners, provided that in the
absence of a Default or unless requested or required by regulatory authorities
or by official policy of any Lender, such reviews
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shall not be conducted more than once per year; and the Agent may, in its sole
discretion, in lieu of such reviews by its own commercial finance examiners
accept reports of examinations of such books and records performed by commercial
finance examiners acting on behalf of other lenders to the Borrower to minimize
examination expense. The Borrower shall also permit the Agent to arrange for
verification of Eligible Lease Receivables, under reasonable procedures,
directly with any account debtors or by other methods.
5.6 MAINTENANCE OF BOOKS AND RECORDS. The Borrower and each of its
Subsidiaries shall keep adequate books and records of account, in which true and
complete entries will be made reflecting all of its business and financial
transactions, and such entries will be made in accordance with GAAP consistently
applied and applicable law.
5.7 USE OF PROCEEDS.
(1) The Borrower will use the proceeds of Loans solely to
finance or refinance Receivables arising from Eligible Leases and Eligible
Rental Contracts, refinance existing Indebtedness of the Borrower, for the
working capital needs of the Borrower, to finance Permitted Acquisitions and for
ongoing general corporate purposes.
(2) No portion of any Loan shall be used for the "purpose of
purchasing or carrying" any "margin stock" or "margin security" as such terms
are used in Regulations G, U and X of the Board of Governors of the Federal
Reserve System, or otherwise in violation of such regulations.
5.8 FURTHER ASSURANCES. At any time and from time to time the
Borrower shall, and shall cause each of its Subsidiaries to, execute and deliver
such further instruments and take such further action as may reasonably be
requested by the Agent to effect the purposes of the Loan Documents.
5.9 NOTIFICATION REQUIREMENTS. The Borrower shall furnish to the
Agent:
(1) immediately upon becoming aware of the existence of any
condition or event that constitutes a Default, written notice thereof specifying
the nature and duration thereof and the action being or proposed to be taken
with respect thereto;
(2) promptly upon becoming aware of any material litigation
seeking damages in excess of $250,000 or of any investigative proceedings by a
governmental agency or authority commenced or threatened against the Borrower or
any of its Subsidiaries of which they have notice, the outcome of which would or
might have a materially adverse effect on the assets, business or prospects of
the Borrower alone or the Borrower and its Subsidiaries on a consolidated basis,
written notice thereof and the action being or proposed to be taken with respect
thereto;
(3) promptly upon becoming aware of any investigative
proceedings by a governmental agency or authority commenced or threatened
against the Borrower or any of its
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Subsidiaries regarding any potential violation of Environmental Laws or any
spill, release, discharge or disposal of any Hazardous Material and promptly
after receipt of any notice of the type referred to in Section 4.16, written
notice thereof (together with a copy of any such notice) and the action being or
proposed to be taken with respect thereto; and
(4) promptly after any occurrence or after becoming aware of
any condition affecting the Borrower or any Subsidiary which might constitute a
material adverse change in or which might have a material adverse effect on the
business, properties or condition (financial or otherwise) of the Borrower alone
or the Borrower and its Subsidiaries, taken as a whole, written notice thereof.
5.10 ERISA REPORTS. With respect to any Plan, the Borrower shall,
or shall cause its Affiliates to, furnish to the Agent promptly (i) written
notice of the occurrence of a "reportable event" (as defined in Section 4043 of
ERISA), excluding any such event notice of which has been waived by regulation,
(ii) a copy of any request for a waiver of the funding standards or an extension
of the amortization periods required under Section 412 of the Code and Section
302 of ERISA, (iii) a copy of any notice of intent to terminate any Pension
Plan, (iv) notice that the Borrower or any Affiliate will or may incur any
liability to or on account of a Plan under Section 4062, 4063, 4064, 4201 or
4204 of ERISA, and (v) a copy of the annual report of each Pension Plan (Form
5500 or comparable form) required to be filed with the Internal Revenue Service
and/or the Department of Labor. Any notice to be provided to the Agent under
this Section shall include a certificate of the chief financial officer of the
Borrower setting forth details as to such occurrence and the action, if any,
which the Borrower or the Affiliate is required or proposes to take, together
with any notices required or proposed to be filed with or by the Borrower, any
Affiliate, the PBGC, the Internal Revenue Service, the trustee or the plan
administrator with respect thereto. Promptly after the adoption of any Pension
Plan, the Borrower shall notify the Agent of such adoption.
5.11 ENVIRONMENTAL COMPLIANCE.
(1) The Borrower and its Subsidiaries will comply in all
material respects with all applicable Environmental Laws in all jurisdictions in
which any of them operates now or in the future, and the Borrower and its
Subsidiaries will comply in all material respects with all such Environmental
Laws that may in the future be applicable to the Borrower's or any Subsidiary's
business, properties and assets.
(2) If the Borrower or any Subsidiary shall (i) receive notice
that any material violation of any Environmental Law may have been committed or
is about to be committed by the Borrower or any Subsidiary, (ii) receive notice
that any administrative or judicial complaint or order has been filed or is
about to be filed against the Borrower or any Subsidiary alleging a material
violation of any Environmental Law requiring the Borrower or any Subsidiary to
take any action in connection with the release of Hazardous Materials into the
environment or (iii) receive any notice from a federal, state or local
government agency or private party alleging that the Borrower or any Subsidiary
may be liable or responsible for any material amount of costs associated with a
response to or cleanup of a release of Hazardous Materials into the environment
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or any damages caused thereby, the Borrower or such Subsidiary shall provide the
Agent with a copy of such notice within five (5) days after the Borrower or such
Subsidiary's receipt thereof. Within fifteen (15) days after the Borrower or any
Subsidiary has learned of the enactment or promulgation of any Environmental Law
which may result in any material adverse change in the condition, financial or
otherwise, of the Borrower or any Subsidiary, the Borrower or such Subsidiary
shall provide the Agent with notice thereof.
5.12 YEAR 2000 COMPLIANCE. The Borrower and its Subsidiaries shall
be Year 2000 Compliant on or before April 30, 1999 and at all times thereafter,
and shall so certify to the Agent in writing on or before May 31, 1999.
SECTION 6
FINANCIAL COVENANTS
So long as any Loan or other Obligation remains outstanding or the
Lenders have any obligation to make any Loan hereunder, the Borrower covenants
as follows:
6.1 DEBT TO WORTH RATIO. The ratio of Consolidated Indebtedness to
Consolidated Tangible Capital Funds shall not exceed five (5) to one (1) at any
time; PROVIDED, HOWEVER that in the event the Borrower shall amend Section 5.10
(a)(4)(i) of the Note Agreement dated as of July 1, 1994 with respect to the
Parent's 12% Senior Subordinated Notes solely to increase the percentage set
forth therein to 650% or greater, then the ratio in this Section 6.1 shall,
effective as of the date of such amendment, but provided no Default or Event of
Default shall have occurred and be continuing, increase to six and one-half
(6.5) to one (1).
6.2 CONSOLIDATED TANGIBLE NET WORTH. The Borrower shall at all
times maintain a Consolidated Tangible Net Worth of not less than the sum of (i)
$23,500,000 and (ii) 50% of the aggregate amount of Consolidated Net Income of
the Parent and its Subsidiaries, including the Borrower, for each of the fiscal
quarters ending after September 30, 1998 but without deducting therefrom any
amount of Consolidated Net Deficit for any of such fiscal quarters;
6.3 BAD DEBT ALLOWANCE. The Borrower shall at all times maintain an
allowance for bad debt of the Parent and its Subsidiaries, including the
Borrower, of at least 7% of Gross Lease Installments.
6.4 FIXED CHARGE RATIO. The Borrower shall have as of the end of
each fiscal quarter a Fixed Charge Ratio of the Parent and its Subsidiaries,
including the Borrower, of not less than 1.25 to 1.00.
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SECTION 7
NEGATIVE COVENANTS
So long as any Loan or other Obligation remains outstanding or the
Lenders have any obligation to make any Loan hereunder, the Borrower covenants
as follows:
7.1 INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries
shall create, incur, assume, guarantee or be or remain liable with respect to
any Indebtedness other than the following:
(a) Obligations;
(b) Indebtedness (other than pursuant to the Fleet Facility)
existing as of the date of this Agreement and disclosed on EXHIBIT C hereto and
renewals and refinancings thereof, but not any increase in the principal amounts
thereof;
(c) Indebtedness for taxes, assessments or governmental
charges to the extent that payment therefor shall at the time not be required to
be made in accordance with Section 5.4;
(d) current liabilities on open account for the purchase price
of services, materials and supplies incurred by the Borrower in the ordinary
course of business (not as a result of borrowing), so long as all of such open
account Indebtedness shall be promptly paid and discharged when due or in
conformity with customary trade terms and practices, except for any such open
account Indebtedness which is being contested in good faith by the Borrower, as
to which adequate reserves required by GAAP have been established and are being
maintained and as to which no Encumbrance has been placed on any property of the
Borrower or any of its Subsidiaries;
(e) Guarantees permitted under Section 7.2 hereof;
(f) Subordinated Debt;
(g) Indebtedness pursuant to the Fleet Facility not exceeding
$70,000,000 in principal amount outstanding at any time;
(h) Indebtedness of a Subsidiary of the Borrower secured by
Leases, Equipment and Receivables relating to such Leases and Equipment, none of
which constitutes any part of the Collateral; and
(i) Indebtedness in connection with Permitted Acquisitions to
the extent permitted by Section 7.8(f)(iii).
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7.2 CONTINGENT LIABILITIES. Neither the Borrower nor any of its
Subsidiaries shall create, incur, assume, guarantee or be or remain liable with
respect to any Guarantees other than (i) Guarantees existing on the date of this
Agreement and disclosed on EXHIBIT C hereto, and (ii) Guarantees resulting from
the endorsement of negotiable instruments for deposit or collection in the
ordinary course of business.
7.3 ENCUMBRANCES. Neither the Borrower nor any of its Subsidiaries
shall create, incur, assume or suffer to exist any mortgage, pledge, security
interest, lien or other charge or encumbrance, including the lien or retained
security title of a conditional vendor upon or with respect to any of its
property or assets ("ENCUMBRANCES"), or assign or otherwise convey any right to
receive income, including the sale or discount of accounts receivable with or
without recourse, except the following ("PERMITTED ENCUMBRANCES"):
(1) Encumbrances in favor of the Agent or any of the Lenders
to secure Obligations;
(2) Encumbrances (other than Encumbrances arising under the
Fleet Facility) existing as of the date of this Agreement and disclosed in
EXHIBIT C hereto;
(3) liens for taxes, fees, assessments and other governmental
charges to the extent that payment of the same may be postponed or is not
required in accordance with the provisions of Section 5.4;
(4) landlords' and lessors' liens in respect of rent not in
default or liens in respect of pledges or deposits under workmen's compensation,
unemployment insurance, social security laws, or similar legislation (other than
ERISA) or in connection with appeal and similar bonds incidental to litigation;
mechanics', warehouseman's, laborers' and materialmen's and similar liens, if
the obligations secured by such liens are not then delinquent; liens securing
the performance of bids, tenders, contracts (other than for the payment of
money); and liens securing statutory obligations or surety, indemnity,
performance, or other similar bonds incidental to the conduct of the Borrower's
or a Subsidiary's business in the ordinary course and that do not in the
aggregate materially detract from the value of its property or materially impair
the use thereof in the operation of its business;
(5) judgment liens securing judgments that (i) are not fully
covered by insurance, and (ii) shall not have been in existence for a period
longer than 10 days after the creation thereof or, if a stay of execution shall
have been obtained, for a period longer than 10 days after the expiration of
such stay;
(6) rights of lessors under capital leases;
(7) easements, rights of way, restrictions and other similar
charges or Encumbrances relating to real property and not interfering in a
material way with the ordinary conduct of the Borrower' business;
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(8) any Encumbrance on any Eligible Lease, Eligible Rental
Contract and Eligible Equipment created by the sale, transfer, assignment or
disposition of such Eligible Lease, Eligible Rental Contract or Eligible
Equipment in compliance with Section 7.4(ii) hereof;
(9) liens constituting a renewal, extension or replacement of
any Permitted Encumbrance;
(10) Encumbrances arising under the Fleet Facility, PROVIDED
that no such Encumbrance attaches to any part of the Collateral; and
(11) Encumbrances granted with respect to any Indebtedness
permitted under Section 7.1(h), PROVIDED that no such Encumbrance attaches to
any part of the Collateral.
7.4 MERGER; CONSOLIDATION; SALE OR LEASE OF ASSETS. Without the
prior written consent of the Agent, neither the Borrower nor any of its
Subsidiaries shall liquidate, merge or consolidate into or with any other person
or entity, or sell, lease or otherwise dispose of any assets or properties,
other than
(i) the disposition of scrap, waste and obsolete or unusable
items and Qualified Investments, in each case in the ordinary course of
business;
(ii) the sale, transfer, assignment or disposition of any
Eligible Leases, Eligible Rental Contracts and Eligible Equipment,
PROVIDED that the net proceeds thereof are sufficient to prepay and are
applied simultaneously to prepay any related Revolving Credit Loan or
Conversion Term Loan in accordance with Section 2.9 hereof; and
(iii) Permitted Acquisitions.
7.5 SUBSIDIARY STOCK. The Borrower shall not permit any of its
Subsidiaries to issue any additional shares of its capital stock or other equity
securities, any options therefor or any securities convertible thereto other
than to the Borrower. Neither the Borrower nor any of its Subsidiaries shall
sell, transfer or otherwise dispose of any of the capital stock or other equity
securities of a Subsidiary, except to the Borrower or any of its wholly-owned
Subsidiaries.
7.6 RESTRICTED PAYMENTS. Neither the Borrower nor any of its
Subsidiaries shall pay, make, declare or authorize any Restricted Payment other
than:
(1) compensation paid to employees, officers and directors in
the ordinary course of business and consistent with prudent business practices;
(2) dividends payable solely in common stock;
(3) dividends paid by any Subsidiary to the Borrower;
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(4) cash dividends paid by the Borrower to the Parent not to
exceed, in the aggregate in any fiscal year, an amount equal to fifty percent
(50%) of Consolidated Net Income for the immediately preceding fiscal year,
PROVIDED that both at the time such cash dividend is declared or paid, and after
giving effect to the payment thereof, no Default shall have occurred and be
continuing.
7.7 PAYMENTS ON SUBORDINATED DEBT. The Borrower shall not make any
payment or prepayment of principal of or interest on or any other payment in
respect of Subordinated Debt, except (i) regularly scheduled payments of
principal and interest thereon at the rates and times specified in the
instruments evidencing the Subordinated Debt as delivered to the Agent along
with the agreements pursuant to which such Indebtedness is subordinated to the
Obligations (but not any amendments thereof without the consent of the Majority
Lenders) and (ii) prepayments of principal of, and accrued and unpaid interest
on, any Subordinated Debt, provided that the aggregate principal amount of all
Subordinated Debt so prepaid by the Borrower during any fiscal year of the
Borrower may not exceed $100,000; PROVIDED that in the case of both clause (i)
and clause (ii), both immediately prior to making any such payment and after
giving effect thereto there shall not have occurred and be continuing any
Default.
7.8 INVESTMENTS; PURCHASES OF ASSETS. Neither the Borrower nor any
of its Subsidiaries shall make or maintain any Investments or purchase or
otherwise acquire any material amount of assets other than:
(1) Investments existing on the date hereof in Subsidiaries;
(2) Qualified Investments;
(3) Capital Expenditures;
(4) purchases of Equipment, Installment Finance Contracts,
Leases, Security Monitoring Agreements and inventory in the ordinary course of
business;
(5) normal trade credit extended in the ordinary course of
business and consistent with prudent business practice;
(6) the purchase of all or substantially all of the assets or
outstanding equity securities of any other Person and the merger or
consolidation of any other Person with or into the Borrower or a Subsidiary of
the Borrower, in each case if all of the following conditions are satisfied (a
"PERMITTED ACQUISITION"):
(1) if the proposed transaction involves a merger or
consolidation, at the completion of such merger or consolidation the
surviving party shall be the Borrower or a wholly-owned Subsidiary of
the Borrower;
(2) the total consideration (excluding assumed Indebtedness)
paid by the Borrower (x) in connection with any single Permitted
Acquisition shall not exceed
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$10,000,000 and (y) in connection with all Permitted Acquisitions
during any fiscal year shall not exceed $20,000,000 in the aggregate;
(3) the total Indebtedness (other than Subordinated Debt)
assumed or incurred by the Borrower in connection with all Permitted
Acquisitions (including any Indebtedness to which any Permitted
Acquisition is subject) during any fiscal year shall not exceed
$30,000,000 in the aggregate unless the Majority Lenders otherwise
approve;
(4) the assets, business or Person acquired in any Permitted
Acquisition must be in the same or a substantially similar line of
business as that of the Borrower;
(5) both immediately before and immediately after the
consummation of any Permitted Acquisition no Default shall have
occurred and be continuing; and
(6) immediately after consummation of each Permitted
Acquisition, the Borrowing Base shall exceed Total Outstandings by at
least $7,000,000; and
(7) Investments in outstanding equity securities of any other
Person, PROVIDED that (i) the total consideration paid by the Borrower in
connection with all such Investments during any fiscal year shall not exceed
$5,000,000 in the aggregate, (ii) after giving effect to any such Investment,
the Borrower and/or its Subsidiaries and Affiliates would not have a majority or
controlling interest in such Person, and (iii) both immediately before and
immediately after giving effect to any such Investment, no Default shall have
occurred and be continuing.
7.9 ERISA COMPLIANCE. Neither the Borrower nor any of its
Affiliates nor any Plan shall (i) engage in any Prohibited Transaction which
would have a material adverse effect on the business, financial condition or
operations of the Borrower and its Subsidiaries taken as a whole, (ii) incur any
"accumulated funding deficiency" (as defined in Section 412(a) of the Code and
Section 302 of ERISA) whether or not waived which would have a material adverse
effect on the business, financial condition or operations of the Borrower and
its Subsidiaries taken as a whole, (iii) fail to satisfy any additional funding
requirements set forth in Section 412 of the Code and Section 302 of ERISA which
,would have a material adverse effect on the business, financial condition or
operations of the Borrower and its Subsidiaries taken as a whole, or (iv)
terminate any Pension Plan in a manner which could result in the imposition of a
lien on any property of the Borrower or any of its Subsidiaries. Each Plan shall
comply in all material respects with ERISA, except to the extent failure to
comply in any instance would not have a material adverse effect on the business,
financial condition or operations of the Borrower and its Subsidiaries taken as
a whole.
7.10 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into any
purchase, sale, lease or other transaction with any Affiliate except (i)
transactions in the ordinary course of business on terms that are no less
favorable to the Borrower than those which might be obtained at the time in a
comparable arm's-length transaction with any Person who is not an Affiliate and
(ii) employment contracts with senior management of the Borrower entered into in
the ordinary course of business and
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consistent with prudent business practices. Notwithstanding the foregoing, the
Borrower will not, and will not permit any Subsidiary to, directly or
indirectly, pay any management, consulting, overhead, indemnity, guarantee or
other similar fee or charge to any Affiliate.
7.11 FISCAL YEAR. The Borrower and its Subsidiaries shall not
change their fiscal years without the prior written consent of the Agent.
7.12 UNDERWRITING PROCEDURES. The Borrower shall not make any
material change in its underwriting and credit approval procedures without the
prior written consent of the Majority Lenders.
SECTION 8
DEFAULTS
8.1 EVENTS OF DEFAULT. There shall be an Event of Default
hereunder if any of the following events occurs:
(1) the Borrower shall fail to pay any principal of any Loan,
or any interest, fees or other amounts owing under any Loan Document or in
respect of any Obligation when the same shall become due and payable, whether at
maturity or at any accelerated date of maturity or at any other date fixed for
payment;
(2) the Borrower shall fail to perform or comply with any
term, covenant or agreement applicable to it contained in Sections 5.1, 5.2(b),
5.5, 5.6, 5.7, 5.9, 5.11, 5.12, 6 and 7 of this Agreement; or
(3) the Borrower shall fail to perform any term, covenant or
agreement (other than as specified in subsections 8.1(a) or (b) hereof)
contained in this Agreement or any other Loan Document and such default shall
continue for 30 days; or
(4) any representation or warranty of the Borrower made in
this Agreement or any other Loan Document or in any certificate delivered
hereunder or thereunder shall prove to have been false in any material respect
upon the date when made deemed to have been made; or
(5) the Borrower or any of its Subsidiaries shall fail to pay
when due (after any applicable period of grace) any amount payable under any
Indebtedness exceeding $100,000 in principal amount or under any agreement for
the use of real or personal property requiring aggregate payments in excess of
$100,000 in any twelve month period, or fail to observe or perform any term,
covenant or agreement evidencing or securing such Indebtedness or relating to
such agreement for the use of real or personal property; or
(6) the Borrower, the Parent or any of its Subsidiaries shall
(i) apply for or consent to the appointment of, or the taking of possession by,
a receiver, custodian, trustee, liquidator or similar official of itself or of
all or a substantial part of its property, (ii) be generally
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not paying its debts as such debts become due, (iii) make a general assignment
for the benefit of its creditors, (iv) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect), (v) take any
action or commence any case or proceeding under any law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or adjustment of debts, or
any other law providing for the relief of debtors, (vi) fail to contest in a
timely or appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the United States Bankruptcy Code or
other law, (vii) take any action under the laws of its jurisdiction of
incorporation or organization similar to any of the foregoing, or (viii) take
any corporate action for the purpose of effecting any of the foregoing; or
(7) a proceeding or case shall be commenced against the
Borrower, the Parent or any of its Subsidiaries, without the application or
consent of the Borrower, the Parent or such Subsidiary in any court or competent
jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets, or (iii) similar relief in respect of it, under
any law relating to bankruptcy, insolvency, reorganization, winding-up or
composition or adjustment of debts or any other law providing for the relief of
debtors, and such proceeding or case shall continue undismissed, or unstayed and
in effect, for a period of 30 days; or an order for relief shall be entered in
an involuntary case under the Federal Bankruptcy Code, against the Borrower, the
Parent or such Subsidiary; or action under the laws of the jurisdiction of
incorporation or organization of the Borrower, the Parent or any of its
Subsidiaries similar to any of the foregoing shall be taken with respect to the
Borrower, the Parent or such Subsidiary and shall continue unstayed and in
effect for a period of 30 days; or
(8) a judgment or order for the payment of money shall be
entered against the Borrower or any of its Subsidiaries by any court, or a
warrant of attachment or execution or similar process shall be issued or levied
against property of the Borrower or such Subsidiary, that in the aggregate
exceeds $500,000 in value, the payment of which is not fully covered by
insurance in excess of any deductibles not exceeding $500,000 in the aggregate,
and such judgment, order, warrant or process shall continue undischarged or
unstayed for 30 days; or
(9) the Borrower or any Affiliate shall fail to pay when due
any material amount that they shall have become liable to pay to the PBGC or to
a Plan under Title IV of ERISA, unless such liability is being contested in good
faith by appropriate proceedings, the Borrower or the Affiliate, as the case may
be, has established and is maintaining adequate reserves in accordance with GAAP
and no lien shall have been filed to secure such liability; or the PBGC shall
institute proceedings under Title IV of ERISA to terminate or to cause a trustee
to be appointed to administer any such Plan or Plans; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree adjudicating
that any such Plan or Plans must be terminated; or
(10) any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded otherwise then in accordance with the express terms thereof
or with the express prior written agreement, consent or approval of the Lenders,
or any action at law or in equity or other legal proceeding to cancel, revoke or
rescind any Loan Document shall be commenced by or on
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behalf of the Borrower, or any court or other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination that,
or shall issue a judgment, order, decree or ruling to the effect that, any one
or more of the Loan Documents is illegal, invalid or unenforceable in accordance
with the terms thereof; or
(11) the occurrence of any material change in the condition or
affairs (financial or otherwise) of the Borrower or any of its Subsidiaries or
of any endorser, guarantor or surety for any Obligation which causes the Lenders
to deem themselves insecure; or
(12) any failure of Peter R. von Bleyleben to be at all times
the duly elected and acting chief executive officer of the Borrower or the
imposition of any material restriction on his right to exercise the powers and
authority of such office and to manage the business of the Borrower in a manner
consistent with past practices, unless, in the event of his ceasing to act as
such chief executive officer, a replacement reasonably acceptable to the Agent
is appointed within 60 days of such cessation; or
(13) any failure of Richard F. Latour to be at all times the
duly elected and acting chief operating officer and chief financial officer of
the Borrower or the imposition of any material restriction on his right to
exercise the powers and authority of such office and to manage the financial
affairs of the Borrower in a manner consistent with past practices, unless, in
the event of his ceasing to act as such chief financial officer, a replacement
reasonably acceptable to the Agent is appointed within 60 days of such
cessation; or
(14) more than one-third of the members of the Board of
Directors of the Parent or of the Borrower at the beginning of any year fail to
remain in office throughout such year, unless such former members of the Board
of Directors are replaced with Persons reasonably acceptable to the Agent within
60 days.
8.2 REMEDIES. Upon the occurrence of an Event of Default described
in subsections 8.1(f) and (g), immediately and automatically, and upon the
occurrence of any other Event of Default, at any time thereafter while such
Event of Default is continuing, at the option of the Agent or the Majority
Lenders and upon the Agent's declaration:
(1) the obligation of the Lenders to make any further Loans
shall terminate;
(2) the unpaid principal amount of the Loans together with
accrued interest and all other Obligations shall become immediately due and
payable without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived; and
(3) the Agent and the Lenders may exercise any and all rights
they have under this Agreement, the other Loan Documents or at law or in equity,
and proceed to protect and enforce their respective rights by any action at law
or in equity or by any other appropriate proceeding.
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No remedy conferred upon the Agent and the Lenders in the Loan Documents is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be an addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or by any other
provision of law. Without limiting the generality of the foregoing or of any of
the terms and provisions of any of the Security Documents, (i) if and when the
Agent exercises remedies under the Security Documents with respect to the
Collateral, the Agent may, in its sole discretion, determine which items and
types of Collateral to dispose of and in what order and may dispose of
Collateral in any order the Agent shall select in its sole discretion, and the
Borrower consents to the foregoing and waives all rights of marshalling with
respect to all Collateral.
SECTION 9
ASSIGNMENT; PARTICIPATION; INCREASED COMMITMENT
9.1 ASSIGNMENT.
(1) Each Lender shall have the right to assign at any time any
portion of its Commitment hereunder and its interests in the risk relating to
any Revolving Credit Loans or the Conversion Term Loan Participations in an
amount equal to or greater than $5,000,000 to other Lenders or to banks or
financial institutions approved by the Agent (such approval not to be
unreasonably withheld or delayed) (each an "ASSIGNEE"), provided that any Lender
which proposes to assign less than its Total Commitment must retain a Commitment
of at least $5,000,000, and provided, further, that if no Default or Event of
Default shall have occurred and be continuing, each such Assignee which is not a
Lender, an Affiliate of a Lender or a Federal Reserve Bank shall be subject to
prior approval by the Borrower (such approval not to be unreasonably withheld or
delayed). Each such Assignee shall execute and deliver to the Agent and the
Borrower a counterpart joinder in the form of EXHIBIT E hereto and shall pay to
the Agent, solely for the account of the Agent, an assignment fee of $3,500.
Upon the execution and delivery of such counterpart joinder, (a) such Assignee
shall, on the date and to the extent provided in such counterpart joinder,
become a "Lender" party to this Agreement and the other Loan Documents for all
purposes of this Agreement and such other Loan Documents and shall have all
rights and obligations of a "Lender" with a Commitment as set forth in such
counterpart joinder, and the transferor Lender shall, on the date and to the
extent provided in such counterpart joinder, be released from its obligations
hereunder and under the other Loan Documents to a corresponding extent (and, in
the case of an assignment covering all of the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such transferor shall
cease to be a party hereto but shall continue to be entitled to the benefits of
Section 11.3 and to any fees accrued for its account hereunder and not yet
paid); (b) the assigning Lender, if it holds any Revolving Credit Notes, shall
promptly surrender such Revolving Credit Notes to the Agent for cancellation and
delivery to the Borrower, provided that if the assigning Lender has retained any
Commitment, the Borrower shall execute and deliver to the Agent for delivery to
such assigning Lender a new Revolving Credit Note in the amount of the assigning
Lender's retained Commitment; (c) the Borrower shall issue to such Assignee a
Revolving Credit Note in the amount of such Assignee's Commitment dated the
Closing Date or such other date as
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may be specified by such Assignee and otherwise completed in substantially the
form of EXHIBIT A; (d) this Agreement shall be deemed appropriately amended to
reflect (i) the status of such Assignee as a party hereto and (ii) the status
and rights of the Lenders hereunder; and (e) the Borrower shall take such action
as the Agent may reasonably request to perfect any security interests or
mortgages in favor of the Lenders, including any Assignee which becomes a party
to this Agreement.
(2) If the Assignee, or any Participant pursuant to Section
9.2 hereof, is organized under the laws of a jurisdiction other than the United
States or any state thereof, such Assignee shall execute and deliver to the
Borrower, simultaneously with or prior to such Assignee's execution and delivery
of the counterpart joinder described above in Section 9.1(a), and such
Participant shall execute and deliver to the Lender granting the participation,
a United States Internal Revenue Service Form 4224 or Form 1001 (or any
successor form), appropriately completed, wherein such Assignee or Participant
claims entitlement to complete exemption from United States Federal Withholding
Tax on all interest payments hereunder and all fees payable pursuant to any of
the Loan Documents. The Borrower shall not be required to pay any increased
amount to any Assignee or other Lender on account of taxes to the extent such
taxes would not have been payable if the Assignee or Participant had furnished
one of the Forms referenced in this Section 9.1(b) unless the failure to furnish
such a Form results from (i) a condition or event affecting the Borrower or an
act or failure to act of the Borrower or (ii) the adoption of or change in any
law, rule, regulation or guideline affecting such Assignee or Participant
occurring (x) after the date on which any such Assignee executes and delivers
the counterpart joinder, or (y) after the date such Assignee shall otherwise
comply with the provisions of Section 9.1(a), or (z) after the date a
Participant is granted its participation.
9.2 PARTICIPATIONS. Each Lender shall have the right to grant
participations to one or more banks or other financial institutions (each a
"PARTICIPANT") in all or any part of any Loans owing to such Lender and the Note
held by such Lender. Each Lender shall retain the sole right to approve, without
the consent of any Participant, any amendment, modification or waiver of any
provision of the Loan Documents, PROVIDED that the documents evidencing any such
participation may provide that, except with the consent of such Participant,
such Lender will not consent to (a) the reduction in or forgiveness of the
stated principal of or rate of interest on or commitment fee with respect to the
portion of any Loan subject to such participation, (b) the extension or
postponement of any stated date fixed for payment of principal or interest or
commitment fee with respect to the portion of any Loan subject to such
participation, (c) the waiver or reduction of any right to indemnification of
such Lender hereunder, or (d) except as otherwise permitted hereunder, the
release of any Collateral. Notwithstanding the foregoing, no participation shall
operate to increase the Total Commitment hereunder or otherwise alter the
substantive terms of this Agreement. In the event of any such sale by a Lender
of participating interests to a Participant, such Lender's obligations under
this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
such Note for all purposes under this Agreement and the Borrower and Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement.
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9.3 INCREASED TOTAL COMMITMENT.
(1) The Borrower may, at any time prior to the Maturity Date
by written notice to the Agent, provided no Default shall have occurred and be
continuing, request an increase in the Total Commitment to such amount (in
integral multiples of $5,000,000 up to a maximum of $70,000,000) as the Borrower
shall request. The Agent shall promptly notify the existing Lenders of such
requests and each existing Lender shall have the option, but not the obligation,
to increase its Commitment by its PRO RATA share (based on the proportion of its
Commitment to the Total Commitment) of the requested increase in the Total
Commitment. To the extent that any existing Lender declines to exercise such
option, the remaining existing Lenders shall have the additional options to
increase their respective Commitments by their PRO RATA shares of the portion of
the increase in the Total Commitment which such existing Lender has declined
(each existing Lender who so increases its Commitment is herein referred to as
an "INCREASING LENDER").
(2) To the extent that the entire requested increase in the
Total Commitment is not provided by the Increasing Lenders pursuant to Section
9.3(a), any other bank or financial institution selected by the Agent with the
approval of the Borrower (such approval not to be unreasonably withheld) may,
prior to the Maturity Date, become a "Lender" party to this Agreement for all
purposes of this Agreement and the other Loan Documents with respect to a
specified additional Commitment hereunder (each such Lender being referred to
herein as a "NEW LENDER"), PROVIDED that the sum of the aggregate Commitments of
the existing Lenders (after giving effect to any increases in such Commitments
pursuant to Section 9.3(a)) and the aggregate Commitments of the New Lenders do
not exceed the lesser of (i) the increased amount of the Total Commitment as
requested by the Borrower and (ii) $70,000,000.
(3) Each Increasing Lender, each New Lender, the Agent and the
Borrower shall execute and deliver to the Agent an instrument of adherence in
the form of EXHIBIT G hereto (the "INSTRUMENT OF ADHERENCE"), which Instrument
of Adherence shall specify the new Commitment of each Increasing Lender or New
Lender, as the case may be, and pursuant to which each New Lender, if any, shall
agree to be bound as a Lender by the terms and conditions hereof and the other
Loan Documents. Upon the execution and delivery of such Instrument of Adherence,
(a) each New Lender shall, on the effective date thereof, become a "Lender"
party to this Agreement and the other Loan Documents and shall have all rights
and obligations of a "Lender" with a Commitment as set forth in such Instrument
of Adherence , (b) each Increasing Lender shall have a new Commitment as
specified in such Instrument of Adherence, (c) the Total Commitment shall be
increased accordingly, (d) each Lender shall be deemed to have consented to such
increase in the Total Commitment, such increases in the Commitments of the
Increasing Lenders and the addition of such new Lender or Lenders as parties to
this Agreement and the other Loan Documents with such new Commitments, (e) this
Agreement (including Schedule 1 hereto) shall be deemed appropriately amended to
reflect such changes in Commitments and the status and rights of the Lenders
hereunder, (f) the Agent shall notify the Lenders of such increases and shall
furnish the Lenders and the Borrower with a new Schedule 1 hereto, (g) the
Borrower shall receive any Notes surrendered pursuant to the Instrument of
Adherence, and (h) the Borrower shall issue replacement Notes to the Increasing
Lenders and new Notes to the New
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Lenders, in each case in the amount of such Lender's Commitment, dated the
Closing Date or such other date as may be specified by such Lender and otherwise
completed in substantially the form of EXHIBIT A hereto. In addition, concurrent
with the execution and delivery of such Instrument of Adherence and as a
condition to the effectiveness thereof, the Borrower shall deliver to the Agent
such evidence of corporate proceedings, opinions of counsel and other
certificates, instruments and documents as the Agent shall reasonably request.
SECTION 10
THE AGENT
10.1 APPOINTMENT OF AGENT; POWERS AND IMMUNITIES.
(1) Each Lender hereby irrevocably appoints and authorizes the
Agent to act as its agent hereunder and under the other Loan Documents and to
execute such Loan Documents (other than this Agreement) and all other
instruments relating thereto. Each Lender irrevocably authorizes the Agent to
take such action on behalf of each of the Lenders and to exercise all such
powers as are expressly delegated to the Agent hereunder and in the other Loan
Documents and all related documents, together with such other powers as are
reasonably incidental thereto. The obligations of the Agent hereunder are only
those expressly set forth herein. The Agent shall not have any duties or
responsibilities or any fiduciary relationship with any Lender except those
expressly set forth in this Agreement.
(2) Neither the Agent nor any of its directors, officers,
employees or agents shall be responsible for any action taken or omitted to be
taken by any of them hereunder or in connection herewith, except for their own
gross negligence or willful misconduct. Without limiting the generality of the
foregoing, neither the Agent nor any of its Affiliates shall be responsible to
the Lenders for or have any duty to ascertain, inquire into or verify: (i) any
recitals, statements, representations or warranties made by the Borrower or any
of its Subsidiaries or any other Person whether contained herein or otherwise;
(ii) the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement, the other Loan Documents or any other document
referred to or provided for herein or therein; (iii) any failure by the Borrower
or any of its Subsidiaries or any other Person to perform its obligations under
any of the Loan Documents; (iv) the satisfaction of any conditions specified in
Section III hereof, other than receipt of the documents, certificates and
opinions specified in Section 3.1 hereof; (v) the existence, value,
collectibility or adequacy of the Collateral or any part thereof or the
validity, effectiveness, perfection or relative priority of the liens and
security interests of the Lenders therein; or (vi) the filing, recording,
refiling, continuing or re-recording of any financing statement or other
document or instrument evidencing or relating to the security interests or liens
of the Lenders in the Collateral.
(3) The Agent may employ agents, attorneys and other experts,
shall not be responsible to any Lender for the negligence or misconduct of any
such agents, attorneys or experts selected by it with reasonable care and shall
not be liable to any Lender for any action
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taken, omitted to be taken or suffered in good faith by it in accordance with
the advice of such agents, attorneys and other experts. BKB, in its separate
capacity as a Lender shall have the same rights and powers under the Loan
Documents as any other Lender and may exercise or refrain from exercising the
same as though it were not the Agent, and BKB and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower as if it were not the Agent.
10.2 ACTIONS BY AGENT.
(1) The Agent shall be fully justified in failing or refusing
to take any action under this Agreement as it reasonably deems appropriate
unless it shall first have received such advice or concurrence of the Lenders
and shall be indemnified to its reasonable satisfaction by the Lenders against
any and all liability and expense which may be incurred by it by reason of
taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any of the Loan Documents in accordance with a request of the Lenders, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon the Lenders and all future holders of the Notes.
(2) Whether or not an Event of Default shall have occurred,
the Agent may from time to time exercise such rights of the Agent and the
Lenders under the Loan Documents as it determines may be necessary or desirable
to protect the Collateral and the interests of the Agent and the Lenders therein
and under such Loan Documents. In addition, the Agent may, without the consent
of the Lenders, release Collateral valued by the Agent, in its sole discretion,
of not more than $1,000,000 in any fiscal year.
(3) Neither the Agent nor any of its directors, officers,
employees or agents shall incur any liability by acting in reliance on any
notice, consent, certificate, statement or other writing (which may be a bank
wire, telex, facsimile or similar writing) reasonably believed by any of them to
be genuine or to be signed by the proper party or parties. (1)
10.3 INDEMNIFICATION. Without limiting the obligations of the
Borrower hereunder or under any other Loan Document, the Lenders agree to
indemnify the Agent ratably in accordance with their respective Commitments, for
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may at any time 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 documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or the enforcement of any of
the terms hereof or thereof or of any such other documents; PROVIDED, THAT no
Lender shall be liable for any of the foregoing to the extent they result from
the gross negligence or willful misconduct of the Agent.
10.4 REIMBURSEMENT. Without limiting the provisions of Section
10.3, the Lenders and the Agent hereby agree that the Agent shall not be obliged
to make available to any Person any sum which the Agent is expecting to receive
for the account of that Person until the Agent has determined that it has
received that sum. The Agent may, however, disburse funds prior to
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determining that the sums which the Agent expects to receive have been finally
and unconditionally paid to the Agent if the Agent wishes to do so. If and to
the extent that the Agent does disburse funds and it later becomes apparent that
the Agent did not then receive a payment in an amount equal to the sum paid out,
then any Person to whom the Agent made the funds available shall, on demand from
the Agent refund to the Agent the sum paid to that Person. If the Agent in good
faith reasonably concludes that the distribution of any amount received by it in
such capacity hereunder or under the other Loan Documents might involve it in
liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent jurisdiction.
If a court of competent jurisdiction shall adjudge that any amount received and
distributed by the Agent is to be repaid, each Person to whom any such
distribution shall have been made shall either repay to the Agent its
proportionate share of the amount so adjudged to be repaid or shall pay over the
same in such manner and to such Persons as shall be determined by such court.
10.5 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender
represents that it has, independently and without reliance on the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of the financial condition and affairs of
the Borrower and decision to enter into this Agreement and the other Loan
Documents and agrees that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own appraisals and
decision in taking or not taking action under this Agreement or any other Loan
Document. The Agent shall not be required to keep informed as to the performance
or observance by the Borrower of this Agreement, the other Loan Documents or any
other document referred to or provided for herein or therein or by any other
Person of any other agreement or to make inquiry of, or to inspect the
properties or books of, any Person. Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning any Person
which may come into the possession of the Agent or any of its affiliates. Each
Lender shall have access to all documents relating to the Agent's performance of
its duties hereunder at such Lender's request. Unless any Lender shall promptly
object to any action taken by the Agent hereunder (other than actions to which
the provisions of Section 11.7(b) are applicable and other than actions which
constitute gross negligence or willful misconduct by the Agent), such Lender
shall conclusively be presumed to have approved the same.
10.6 RESIGNATION OR REMOVAL OF AGENT. The Agent may resign at any
time by giving 30 days prior written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Lenders shall have the right to appoint
a successor Agent which, provided that no Default or Event of Default has
occurred and is continuing, shall be reasonably acceptable to the Borrower and
shall be a financial institution having a combined capital and surplus in excess
of $150,000,000. If no successor Agent shall have been so appointed by the
Lenders and shall have accepted such appointment within 30 days after the
retiring Agent's giving of notice of resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which, provided that no
Default or Event of Default has occurred and is continuing, shall be reasonably
acceptable to the Borrower and shall be a financial institution having a
combined
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capital and surplus in excess of $150,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation, the provisions of this Agreement shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
SECTION 11
MISCELLANEOUS
11.1 NOTICES. Unless otherwise specified herein, all notices
hereunder to any party hereto shall be in writing and shall be deemed to have
been given when delivered by hand, or when sent by electronic facsimile
transmission or by telex, answer back received, or on the first Business Day
after delivery to any overnight delivery service, freight pre-paid, or three
days after being sent by certified or registered mail, return receipt requested,
postage pre-paid, and addressed to such party at its address indicated below:
If to the Borrower, at
Leasecomm Corporation
950 Winter Street
Waltham, Massachusetts 02154
Attention: J. Gregory Hines, Vice President of Funding
Operations
with a copy to:
Gerald P. Hendrick, Esq.
Edwards & Angell
101 Federal Street
Boston, MA 02110
Facsimile: (617) 439-4170
If to Agent or BKB, at
100 Federal Street
Boston, Massachusetts 02110
Attention: Jeffrey G. Millman, Vice President,
or Division Executive
(New England Corporate Banking)
Facsimile: (617) 434-8102
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with a copy to:
William A. Levine, Esq.
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Facsimile: (617) 338-2880
if to any other Lender, to its address set forth on Schedule 1 attached hereto;
or at any other address specified by such party in writing.
11.2 EXPENSES. Whether or not the transactions contemplated herein
shall be consummated, the Borrower hereby promises to reimburse the Agent and
the Lenders for all reasonable out-of-pocket fees and disbursements (including
all reasonable attorneys' fees and collateral evaluation costs) incurred or
expended in connection with the preparation, filing or recording, or
interpretation of this Agreement and the other Loan Documents, or any amendment,
modification, approval, consent or waiver hereof or thereof, or with the
enforcement of any Obligations or the satisfaction of any indebtedness of the
Borrower hereunder or thereunder, or in connection with any litigation,
proceeding or dispute in any way related to the credit hereunder. The Borrower
will pay any taxes (including any interest and penalties in respect thereof)
other than the Lenders' federal and state income taxes, payable on or with
respect to the transactions contemplated by the Loan Documents (the Borrower
hereby agreeing to indemnify the Agent and the Lenders with respect thereto).
11.3 INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Agent and the Lenders, as well as their respective shareholders,
directors, agents, officers, subsidiaries and affiliates, from and against all
damages, losses, settlement payments, obligations, liabilities, claims, suits,
penalties, assessments, citations, directives, demands, judgments, actions or
causes of action, whether statutorily created or under the common law, and
reasonable costs and expenses incurred, suffered, sustained or required to be
paid by an indemnified party by reason of or resulting from the transactions
contemplated hereby, except any of the foregoing which result from the gross
negligence or willful misconduct of the indemnified party. In any investigation,
proceeding or litigation, or the preparation therefor, the Lenders shall select
their own counsel and, in addition to the foregoing indemnity, the Borrower
agrees to pay promptly the reasonable fees and expenses of such counsel. In the
event of the commencement of any such proceeding or litigation, the Borrower
shall be entitled to participate in such proceeding or litigation with counsel
of its choice at its own expense, provided that such counsel shall be reasonably
satisfactory to the Agent. The covenants of this Section 11.3 shall survive
payment or satisfaction of payment of all amounts owing with respect to the
Notes or any other Loan Document.
11.4 SURVIVAL OF COVENANTS, ETC. Unless otherwise stated herein,
all covenants, agreements, representations and warranties made herein, in the
other Loan Documents or in any documents or other papers delivered by or on
behalf of the Borrower pursuant hereto shall be
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deemed to have been relied upon by the Agent and the Lenders, notwithstanding
any investigation heretofore or hereafter made by any of them, and shall survive
the making by the Lenders of the Loans as herein contemplated, and shall
continue in full force and effect so long as any amount due under any Loan
Document remains outstanding and unpaid or any Lender has any obligation to make
any Loans hereunder. All statements contained in any certificate or other paper
delivered by or on behalf of the Borrower pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by the Borrower hereunder.
11.5 SET-OFF. Regardless of the adequacy of any Collateral or other
means of obtaining repayment of the Obligations, any deposits, balances or other
sums credited by or due from the head office of any Lender or any of its branch
offices to the Borrower may, at any time and from time to time after the
occurrence of an Event of Default hereunder, without notice to the Borrower or
compliance with any other condition precedent now or hereafter imposed by
statute, rule of law, or otherwise (all of which are hereby expressly waived) be
set off, appropriated, and applied by such Lender against any and all
Obligations of the Borrower to such Lender or any of its affiliates in such
manner as the head office of such Lender or any of its branch offices in its
sole discretion may determine, and the Borrower hereby grants each such Lender a
continuing security interest in such deposits, balances or other sums for the
payment and performance of all such Obligations.
11.6 NO WAIVERS. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege hereunder or under the Notes or under
any other Loan Documents shall operate as a waiver thereof; nor shall any single
or partial exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. No waiver shall extend to
or affect any Obligation not expressly waived or impair any right consequent
thereon. No course of dealing or omission on the part of the Agent or the
Lenders in exercising any right shall operate as a waiver thereof or otherwise
be prejudicial thereto. No notice to or demand upon the Borrower shall entitle
the Borrower to other or further notice or demand in similar or other
circumstances. The rights and remedies herein and in the Notes and the other
Loan Documents are cumulative and not exclusive of any rights or remedies
otherwise provided by agreement or law.
11.7 AMENDMENTS, WAIVERS, ETC.
(1) Neither this Agreement nor the Revolving Credit Notes nor
any other Loan Documents nor any provision hereof or thereof may be amended,
waived, discharged or terminated except by a written instrument signed by the
Agent on behalf of the Lenders or, as the case may be, by the Lenders or the
Majority Lenders, and, in the case of amendments, by the Borrower.
(2) Except where this Agreement or any of the other Loan
Documents authorizes or permits the Agent to act alone and except as otherwise
expressly provided in this Section 11.7(b), any action to be taken (including
the giving of notice) by the Lenders may be taken, and any consent or approval
required or permitted by this Agreement or any other Loan
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Document to be given by the Lenders may be given, and any term of this
Agreement, any other Loan Document or any other instrument, document or
agreement related to this Agreement or such other Loan Documents or mentioned
therein may be amended, and the performance or observance by any of the Borrower
or any other Person of any of the terms thereof and any Default or Event of
Default (as defined in any of the above-referenced documents or instruments) may
be waived (either generally or in a particular instance and either retroactively
or prospectively), in each case only with the written consent of the Majority
Lenders; PROVIDED, HOWEVER, that no such consent or amendment which affects the
rights, duties or liabilities of the Agent shall be effective without the
written consent of the Agent. Notwithstanding the foregoing, no amendment,
waiver or consent shall do any of the following unless in writing and signed by
ALL of the Lenders: (i) increase the Total Commitment (or subject the Lenders to
any additional obligations) (ii) reduce the principal of or interest on any of
the Revolving Credit Notes (including, without limitation, interest on overdue
amounts) or any fees payable hereunder, (iii) postpone any date (including the
Borrowing Base Maturity Date) fixed for any payment in respect of principal of
or interest (including, without limitation, interest on overdue amounts) on the
Revolving Credit Notes, or any fees payable hereunder, (iv) change the
definition of "Majority Lenders" or the number of Lenders which shall be
required for the Lenders or any of them to take any action under the Loan
Documents; (v) change the definition of "Borrowing Base" set forth in Section
1.1, amend Section 2.1(a) or waive the limitations set forth in Section 2.1(a);
(vi) amend this Section 11.7(b); (vii) change the Commitment of any Lender,
except as permitted under Section IX hereof; (viii) except as permitted by
Section 10.2(b) hereunder, release any Collateral; or (ix) amend Sections 2.6 or
2.7 hereof.
11.8 BINDING EFFECT OF AGREEMENT. This Agreement shall be binding
upon and inure to the benefit of the Borrower, the Lenders and their respective
successors and assigns; PROVIDED that the Borrower may not assign or transfer
its rights or obligations hereunder.
11.9 CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
convenience of reference only and shall not define or limit the provisions
hereof. This Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, but all of which together shall
constitute one instrument. In proving this Agreement it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against whom enforcement is sought.
11.10 ENTIRE AGREEMENT, ETC. The Loan Documents and any other
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER THE LENDERS HEREBY
WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT
OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER
LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, EACH OF
THE
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BORROWER AND THE LENDERS HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. THE BORROWER (a) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE LENDERS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE
LENDERS WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS AND (b) ACKNOWLEDGES THAT THE LENDERS HAVE BEEN INDUCED TO ENTER INTO
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH EACH IS A PARTY BECAUSE OF,
AMONG OTHER THINGS, THE BORROWER'S WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
11.12 GOVERNING LAW. THIS AGREEMENT AND EACH OF THE OTHER LOAN
DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF SAID COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW). THE BORROWER CONSENTS TO THE JURISDICTION OF ANY OF THE FEDERAL OR STATE
COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS IN CONNECTION WITH ANY SUIT
TO ENFORCE THE RIGHTS OF THE LENDERS UNDER THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH ACTION BROUGHT IN THE
COURTS REFERRED TO IN THE PRECEDING SENTENCE AND IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY SUCH ACTION THAT SUCH ACTION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
11.13 SEVERABILITY. The provisions of this Agreement are severable
and if any one clause or provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.
11.14 CONFIDENTIALITY. The Agent and the Lenders shall hold all
confidential information delivered by the Borrower to the Agent or any Lender
pursuant to this Agreement relating to the Borrower or its business in
accordance with such entity's customary procedures for handling confidential
information of this nature and in accordance with safe and sound business
practices and in any event may make disclosure to such of its respective
Affiliates, officers, directors, employees, agents and representatives as need
to know such information in connection with the Loans. If the Agent or any
Lender is otherwise a creditor of Borrower, the Agent or such Lender, as the
case may be, may use the information in connection with its other credits. The
Agent or any Lender may also make disclosure reasonably required by any bona
fide Participant, potential Assignee or potential Participant (each, a
"TRANSFEREE"), or as required or requested by any governmental authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other advisors, and shall require any Transferee to agree, in a
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writing to which the Borrower shall be the third party beneficiary, to hold all
such information as confidential to the extent required by the first sentence of
this Section 11.14.
[Remainder of Page Intentionally Blank]
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IN WITNESS WHEREOF, the undersigned have duly executed this Second
Amended and Restated Revolving Credit Agreement under seal as of the date first
set above.
LEASECOMM CORPORATION
By: /s/ Richard F. Latour
----------------------------------------
Title: Vice President
BANKBOSTON, N.A., individually and as Agent
By: /s/ Jeffrey G. Millman
----------------------------------------
Name : Jeffrey G. Millman
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ F. Andrew Beise
-------------------------------------------
Name: F. Andrew Beise
Title: Vice President
63
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 3 to the Registration
Statement on Form S-1 (File No. 333-56339) of our report dated February 27,
1998, on our audits of the consolidated financial statements of MicroFinancial
Incorporated. We also consent to the references to our firm under the captions
"Experts," "Summary Consolidated Financial and Operating Data" and "Selected
Consolidated Financial and Operating Data."
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 4, 1999
