<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 1999.
REGISTRATION NO. 333-56339
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE(2)
<S> <C> <C>
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Common Stock, par value $.01 per share...................... $73,600,000 $21,712
</TABLE>
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(1) Estimated in accordance with Rule 457(o) of the Securities Act, assuming
exercise of the Underwriters' over-allotment option.
(2) Registration fee calculated on the basis of $295 per $1,000,000 or fraction
thereof of the proposed maximum offering price. $20,355 was previously paid
in connection with prior filings of this Registration Statement on Form S-1.
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 JANUARY 11, 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 7 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>
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
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Per Share................. $ $ $ $
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Total (3)................. $ $ $ $
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</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 $70.2 million of securitized receivables remained on the
Company's balance sheet as of November 30, 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 7 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).................. $ 42,760 $ 81,726 $129,873 $143,855 $126,542 $ 90,637 $107,164
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 10.11 8.78 8.71
</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 $5.0 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
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> 9
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
8
<PAGE> 10
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."
9
<PAGE> 11
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> 12
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
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<PAGE> 13
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> 14
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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<PAGE> 15
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 $1.4 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."
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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 N/A
</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."
15
<PAGE> 17
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.
16
<PAGE> 18
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.
17
<PAGE> 19
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
</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(6)........ $ 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>
18
<PAGE> 20
<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).... $ 42,760 $ 81,726 $129,873 $143,855 $126,542 $ 90,637 $107,164
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 10.11 8.78 8.71
</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 $5.0 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.
19
<PAGE> 21
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.
20
<PAGE> 22
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
21
<PAGE> 23
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. Income on leases and loans attributable to these acquired leases and
rental contracts represented approximately $2.3 million, or 4.1%, of total
income on leases and loans for 1996 and approximately $4.6 million, or 6.6%, of
total income on leases and loans for 1997.
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
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<PAGE> 24
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, $5.0
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
$5.0 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. Income on leases and loans attributable to these acquired leases
and rental contracts represented approximately $2.3 million, or 4.1%, of total
income on leases and loans 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> 25
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> 26
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> 27
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> 28
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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<PAGE> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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% 10.11% 8.71%
</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) $5.0 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> 37
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> 38
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 Parker(2)............................... 55 Director
Alan Zakon(1)(2)................................ 63 Director
Richard F. Latour............................... 45 Executive Vice President, Chief Operating
Officer, Chief Financial Officer, Treasurer
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> 39
JEFFREY 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 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 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-
38
<PAGE> 40
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.
39
<PAGE> 41
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 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).
40
<PAGE> 42
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.
41
<PAGE> 43
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.
42
<PAGE> 44
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
43
<PAGE> 45
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.
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.
44
<PAGE> 46
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.
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 9,886,516 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 17.04%
Brian E. Boyle(3)................................... 2,240,000 22.66%
Torrence C. Harder(4)............................... 2,083,452 21.07%
Jeffrey Parker(5)................................... 340,840 3.45%
Alan Zakon.......................................... 40,000 *
Richard F. Latour................................... 342,222 3.46%
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 68.87%
</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.
45
<PAGE> 47
(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; 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; 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.
(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.
46
<PAGE> 48
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 16.84% 129,550 1,535,810 11.52%
Torrence C. Harder(3).................... 1,673,834 16.93 130,250 1,543,584 11.58
Brian E. Boyle(4)........................ 1,523,200 15.41 118,500 1,404,700 10.54
Rosemary Boyle(5)........................ 716,800 7.25 80,050 636,750 4.78
Entrepreneurial Ventures, Inc............ 375,572 3.80 29,200 346,372 2.60
Spindle Limited Partnership.............. 368,688 3.73 30,000 338,688 2.54
Richard F. Latour(6)..................... 342,222 3.46 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 *
Steven 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 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. 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. 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 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) Steven Obana has served as Vice President, Marketing--West Coast of
Leasecomm since January 1995.
47
<PAGE> 49
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 $105 million revolving credit and term loan facility,
of which $67.4 million in revolving credit and term loans was outstanding as of
September 30, 1998 (the "Fleet Facility"). The second facility, led by
BankBoston, N.A., is a $35 million revolving credit and term loan facility, of
which $29.7 million in revolving credit and term loans was outstanding as of
September 30, 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 July 31, 1999 (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 two-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 leases, the lesser of such specified percentage or 100% of
the adjusted cost basis of the equipment underlying such lease. 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, $6.5 million was borrowed as a term loan, all of
which is due on the Commitment Termination Date, and the remaining availability
may be borrowed as revolving credit loans. Outstanding borrowings with respect
to the revolving lines of credit bear interest at LIBOR plus 1.85% 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 2.25%. 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; (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,
48
<PAGE> 50
including Subordinated Debt; and (v) indebtedness under lender hedge agreements.
In addition, under the Fleet Facility, 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 80%, 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.
The Company has obtained a permanent waiver of the covenants contained in
the Fleet Facility which prohibit the prepayment of any Subordinated Debt and
require the Principal Stockholders to continue to own at least 45%, or own
and/or control in the aggregate at least 80%, of the capital stock of the
Company.
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 (as
hereinafter defined) of not more than 6.5:1.0; (ii) to maintain at all times a
Consolidated Tangible Net Worth (as hereinafter defined) of not less than the
sum of (a) $5,500,000 and (b) 50% of the aggregate amount of Consolidated Net
Income of the Company and its subsidiaries for each of the fiscal quarters
ending after December 31, 1994 but 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 5% 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 scheduled payments
of interest on all indebtedness (including payments on capitalized lease
obligations in the nature of interest).
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 $55.6
million in excess of the sum of (a) $5.5 million or (b) $17.9 million (which
amount constitutes $5.5 million plus 50% of the aggregate amount of Consolidated
Net Income of the Company and its subsidiaries for each of the fiscal quarters
ending after December 31, 1994 but without deducting therefrom any amount of
Consolidated Net Deficit for any of such fiscal quarters). As of such date, the
Company's allowance for bad debt was 9.3% of the
49
<PAGE> 51
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
---- ---------------- -------------- ----
(dollars in millions)
<S> <C> <C> <C>
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 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.
50
<PAGE> 52
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.
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
51
<PAGE> 53
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.
52
<PAGE> 54
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 von 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 von 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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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 86 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.
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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
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<PAGE> 57
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.
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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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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.
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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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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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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
61
<PAGE> 63
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.
62
<PAGE> 64
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> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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....................... 419,598 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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 14
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Consolidated Financial and
Operating Data...................... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 26
Management............................ 37
Certain Transactions.................. 44
Principal Stockholders................ 45
Selling Stockholders.................. 47
Description of Certain Indebtedness... 48
Description of Capital Stock.......... 54
Shares Eligible for Future Sale....... 57
Certain United States Tax Consequences
to Non-United States Holders........ 58
Underwriting.......................... 60
Legal Matters......................... 61
Experts............................... 61
Available Information................. 61
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
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> 87
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> 88
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> 89
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> 90
<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> 91
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement(1).
3.1 Restated Articles of Organization, as amended(2).
3.2 Bylaws(2).
4.1 Specimen of Common Stock Certificate(1).
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.
*10.13 Employment Agreement between the Company and Peter R.
Bleyleben.
*10.14 Employment Agreement between the Company and Richard F.
Latour.
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.
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.
10.20 Specimen 1997-A Note(2).
10.21 Specimen 1996-A Note(2).
*10.22 Specimen 1998-A Note.
</TABLE>
II-5
<PAGE> 92
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
*10.26 Amendment to Lease #1, dated November 3, 1998, between
Cummings Properties Management, Inc. and MicroFinancial
Incorporated.
*10.27 Employment Agreement between the Company and J. Gregory
Hines.
*10.28 Employment Agreement between the Company and John Plumlee.
*10.29 Employment Agreement between the Company and Carol Salvo.
*11.1 Statement regarding computation of per share earnings.
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.
</TABLE>
- ---------------
* 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
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-6
<PAGE> 93
(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> 94
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Amendment No. 2 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
11th day of January, 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. 2 to the Registration Statement on Form S-1 has been signed
below by the following persons in the capacities indicated as of the 11th day of
January, 1999.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ PETER R. BLEYLEBEN President, Chief Executive January 11, 1999
- --------------------------------------------------- Officer and Director
Peter R. Bleyleben
/s/ RICHARD F. LATOUR Executive Vice President, Chief January 11, 1999
- --------------------------------------------------- Operating Officer and Chief
Richard F. Latour Financial Officer
* Director January 11, 1999
- ---------------------------------------------------
Brian E. Boyle
* Director January 11, 1999
- ---------------------------------------------------
Torrence C. Harder
* Director January 11, 1999
- ---------------------------------------------------
Jeffrey Parker
* Director January 11, 1999
- ---------------------------------------------------
Alan Zakon
*BY: /s/ PETER R. BLEYLEBEN
---------------------------------------------
Peter R. Bleyleben
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement(1).
3.1 Restated Articles of Organization, as amended(2).
3.2 Bylaws(2).
4.1 Specimen of Common Stock Certificate(1).
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.
*10.13 Employment Agreement between the Company and Peter R.
Bleyleben.
*10.14 Employment Agreement between the Company and Richard F.
Latour.
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.
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.
10.20 Specimen 1997-A Note(2).
10.21 Specimen 1996-A Note(2).
*10.22 Specimen 1998-A Note.
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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.
*10.26 Amendment to Lease #1, dated November 3, 1998, between
Cummings Properties Management, Inc. and MicroFinancial
Incorporated.
*10.27 Employment Agreement between the Company and J. Gregory
Hines.
*10.28 Employment Agreement between the Company and John Plumlee.
*10.29 Employment Agreement between the Company and Carol Salvo.
*11.1 Statement regarding computation of per share earnings.
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.
</TABLE>
- ---------------
* Filed herewith.
(1) To be filed by amendment.
(2) Previously filed.
<PAGE> 1
EXHIBIT 10.12
MICROFINANCIAL INCORPORATED
1998 EQUITY INCENTIVE PLAN
<PAGE> 2
MICROFINANCIAL INCORPORATED
1998 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of the MicroFinancial Incorporated 1998 Equity Incentive Plan
(the "1998 Plan") is 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 MicroFinancial Incorporated (the "Company"). By
affording eligible persons the opportunity to acquire proprietary interests in
the Company and by providing them incentives to put forth maximum efforts for
the success of the Company's business, the 1998 Plan is intended to serve the
best interests of the Company and its stockholders.
2. DEFINITIONS
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by the Company, and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted Stock
Award, Performance Award or other Stock-Based Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Breach of Conduct" shall mean activities which constitute a serious breach
of conduct as determined by the Committee in its sole discretion, including, but
not limited to: (i) the disclosure or misuse of confidential information or
trade secrets; (ii) activities in violation of the policies of the Company or
any Affiliate, including without limitation, the Company's insider trading
policy; (iii) the violation or breach of any material provision in any
applicable employment contract or agreement; (iv) engaging in conduct relating
to the Participant's employment for which either criminal or civil penalties may
be sought; (v) engaging in activities which adversely affect or which are
contrary or harmful to the interests of the Company or Affiliate, or (vi)
engaging in competition with the Company or any Affiliate during employment or
within one (1) year following termination of employment with the Company or
Affiliate. The determination of Breach of Conduct shall be determined by the
Committee in good faith and in its sole discretion.
<PAGE> 3
"Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended [the "Exchange Act"]) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange act) of 50% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities") or;
(ii) the cessation for any reason of individuals who, as of the date
hereof, constitute the Board (the "Incumbent Board") to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(iii) the 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, respectively, the then outstanding
shares of common stock of the corporation resulting from such reorganization,
merger or consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the election
of directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be; or
(iv) the approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" shall mean the Compensation Committee of the Board or such
other committee consisting of not less than two Board members designated by the
Board to administer the 1998 Plan.
-2-
<PAGE> 4
"Common Shares" shall mean shares of the Class A common stock, $.01 par
value, of the Company, or such other securities of the Company as may be
designated by the Committee from time to time.
"Company" shall mean MicroFinancial Incorporated, a Massachusetts
corporation.
"Effective Date" means July 9, 1998.
"Employee" shall mean an employee of the Company or of any Affiliate, a
director of the Company, or any non-employee who provides services to the
Company or any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Fair Market Value" of the Common Shares shall mean the average of the high
and low prices of the Common Shares as reported by the New York Stock Exchange,
or the Fair Market Value of any other property or other item being valued as
determined by the Committee in its sole discretion.
"Freestanding Right" shall mean a Stock Appreciation Right awarded by the
Committee pursuant to Paragraph 7 of the 1998 Plan other than in connection with
an Option.
"Incentive Stock Option" shall mean the right to purchase Common Shares
from the Company that is granted under Section 6 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
"Insider" shall mean, at any time, an individual who is an officer,
director, or 10% stockholder of the Company within the meaning of Exchange Act
Rule 16a-1(f) as promulgated and interpreted by the SEC under the Exchange Act,
or any successor rule or regulation thereto as in effect from time to time.
"Non-Qualified Stock Option" shall mean a right to purchase Common Shares
from the Company that is granted under Section 6 of the Plan and that is not
intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section 10 of
the Plan.
"Participant" shall mean any Employee selected by the Committee to receive
an Award under the Plan.
"Performance Award" shall mean any right granted under Section 9 of the
Plan.
-3-
<PAGE> 5
"Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other equity.
"Plan" shall mean this MicroFinancial Incorporated 1998 Equity Incentive
Plan.
"QDRO" shall mean a domestic relations order meeting such requirements as
the Committee shall determine, in its sole discretion.
"Restricted Period" shall mean the period during which Restricted Stock and
Restricted Units may be forfeited to the Company.
"Restricted Stock" shall mean Common Shares granted under Paragraph 8 of
the 1998 Plan.
"Restricted Stock Unit" shall mean any unit granted under Paragraph 8 of
the 1998 Plan.
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the
SEC under the Exchange Act, or any successor rule or regulation thereto as in
effect from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Stock Appreciation Right" shall mean any Tandem Right or Freestanding
Right granted under Paragraph 7 of the 1998 Plan.
"Tandem Right" shall mean a Stock Appreciation Right awarded by the
Committee in connection with an Option pursuant to Paragraph 7 of the 1998 Plan.
"Total Disability" shall mean a determination by the Committee that the
Employee is unable to perform the duties required of him or her by the Company
as a result of any physical or mental condition.
3. SCOPE AND DURATION
Awards under the 1998 Plan may be granted in the form of Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Shares, Restricted Units, Performance Awards or Other Stock-Based Awards. The
maximum aggregate number of Common Shares as to which Awards may be granted from
time to time under the 1998 Plan is 1,000,000 shares, subject to adjustment as
provided in Paragraph 14. The Common Shares available may be in whole or in
part, as the Board shall from time to time determine, authorized but unissued
shares or issued shares re-acquired by the Company. Unless otherwise provided by
the Committee, Common Shares covered by expired, terminated or forfeited Awards,
Awards which are settled for cash or consideration other than the delivery of
Common Shares, or Common Shares which are used to exercise any Award or to
satisfy the withholding tax
-4-
<PAGE> 6
liabilities of any Award will be available for subsequent awards under the 1998
Plan. No Incentive Stock Option shall be granted more than 10 years after the
Effective Date.
4. ADMINISTRATION
The 1998 Plan shall be administered by the Committee. The Committee shall
have plenary authority in its discretion, subject to and not inconsistent with
the express provisions of the 1998 Plan, to grant Awards, to determine the terms
and conditions applicable to Awards, to determine the persons to whom, and the
time or times at which, Awards shall be granted and the number of Common Shares
to be covered by each grant; to determine the terms and provisions of the Award
Agreements entered into in connection with Awards under the 1998 Plan; to
interpret the 1998 Plan; to prescribe, amend and rescind rules and regulations
relating to the 1998 Plan; and to make all other determinations provided for in
the 1998 Plan, or deemed necessary or advisable for the administration of the
1998 Plan. To the extent permissible by law, the Committee may delegate to one
or more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Committee or any person to whom it has delegated
duties as aforesaid may employ one or more persons to render advice with respect
to any responsibility the Committee or such person may have under the 1998 Plan.
5. ELIGIBILITY; FACTORS TO BE CONSIDERED IN GRANTING AWARDS
Subject to the discretion of the Committee, Awards may be granted to any
Employee of the Company and its Affiliates, a director of the Company, or a
non-employee who provides service to the Company or its Affiliates, except that
a non-employee shall not be granted an Incentive Stock Option. In determining
the Employees to whom Awards shall be granted and the number of Common Shares or
units to be covered by each Award, the Committee shall take into account the
nature of the Employee's duties, the present and potential contributions to the
success of the Company, and such other factors as it shall deem relevant in
connection with accomplishing the purposes of the 1998 Plan.
No award of Incentive Stock Options shall result in the aggregate Fair
Market Value of Common Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year
(determined at the time the Incentive Stock Option is granted) exceeding
$100,000.
6. STOCK OPTIONS
(a) Exercise Price
The purchase price of the Common Shares covered by each Option shall be
determined by the Committee, but in the case of an Incentive Stock Option shall
not be less than 100% of the Fair Market Value (110% in the case of a
stockholder owning more than 10% of the combined voting power of all classes of
Company stock) of the Common Shares on the date the Option is
-5-
<PAGE> 7
granted, or if there are no sales on such date, on the next preceding day on
which there were sales.
(b) Terms of Options
The term of each Incentive Stock Option granted under the 1998 Plan shall
not be more than 10 years (5 years in the case of a stockholder of the Company
owning more than 10% of the combined voting power of all classes of Company
stock) from the date of grant, as the Committee shall determine, subject to
earlier termination as provided in PARAGRAPHS 11 and 12. The term of each
Non-Qualified Stock Option granted under the 1998 Plan shall be such period of
time as the Committee shall determine, subject to earlier termination as
provided in PARAGRAPHS 11 and 12.
(c) Exercise of Options
(i) Subject to the provisions provided herein, an Option granted under the
1998 Plan shall become vested as determined by the Committee. The Committee may,
in its discretion, determine as a condition of any Option, that all or a stated
percentage of the Option shall become exercisable, in installments or otherwise,
only after the completion of a specified service requirement, or the
satisfaction or occurrence of other conditions. The Committee may also, in its
discretion, accelerate the exercisability of any Option at any time and provide
in any Award Agreement that the Option shall become immediately exercisable as
to all Common Shares remaining subject to the Option upon a Change in Control.
(ii) Subject to applicable regulatory restrictions, an Option may be
exercised at any time or from time to time (further subject, in the case of an
Incentive Stock Option, to such restrictions as may be imposed by the Code), as
to any or all full shares as to which the Option has become exercisable.
Notwithstanding the foregoing provision, no Option may be exercised without the
prior consent of the Committee by an Insider until the expiration of six months
from the date of the grant of the Option.
(iii) Except as provided in Paragraphs 11, 12 and 13, no Option may be
exercised at any time unless the holder thereof is then an Employee of the
Company or one of its Affiliates.
(iv) The Committee, in its sole discretion, may elect, in lieu of
delivering all or a portion of the Common Shares as to which an Option has been
exercised, if the Fair Market Value of the Common Shares exceeds the exercise
price of the Option, (i) to pay the Employee in cash or in Common Shares, or a
combination of cash and Common Shares, an amount equal to the excess of (A) the
Fair Market Value on the exercise date of the Common Shares as to which such
Option has been exercised, or if there were no sales on such date, on the next
preceding day on which there were sales over (B) the Option price, or (ii) in
the case of a Non-Qualified Stock Option, to defer payment and to credit the
amount of such excess on the Company's books for the account of the Option and
either (a) to treat the amount in such account as if it had been invested in the
manner from time to time determined by the Committee, with dividends or other
income
-6-
<PAGE> 8
therein being deemed to have been so reinvested or (b) for the Company's
convenience, to contribute the amount credited to such account to a trust, which
may be revocable by the Company, for investment in the manner from time to time
determined by the Committee and set forth in the instrument creating such trust.
The Committee's election pursuant to this subparagraph (c)(iv) shall be made by
giving written notice of such election to the Employee (or other person
exercising the Option). Common Shares paid pursuant to this subparagraph (c)(iv)
will be valued at the Fair Market Value on the exercise date, or if there were
no sales on such date, on the next preceding day on which there were sales.
(d) Payment
The purchase price of the Common Shares as to which an Option is exercised
shall be paid in full at the time of exercise. Payment may be made (i) in cash,
which may be paid by check, or other instrument acceptable to the Company, (ii)
with the consent of the Committee or the Chief Executive Officer, in Common
Shares, valued at the Fair Market Value on the date prior to exercise, or if
there were no sales on such date, on the next preceding day on which there were
sales, (iii) with the consent of the Committee and subject to such terms and
conditions as it may determine, by surrender of outstanding Awards under the
1998 Plan, (iv) with the consent of the Committee, the delivery of a promissory
note containing such terms as deemed acceptable to the Committee, or (v) any
combination of the above. In addition, any amount necessary to satisfy
applicable federal, state or local tax requirements shall be paid promptly upon
notification of the amount due. The Committee may permit such amount to be paid
in Common Shares previously owned by the Employee, or a portion of the Common
Shares that otherwise would be distributed to such Employee upon exercise of the
Option, or a combination of cash and such Common Shares.
(e) Change in Control
In the event of a Change in Control while any Option remains outstanding,
all Options shall become immediately exercisable and fully vested. In lieu of
delivering all or any portion of the Common Shares as to which an Option has
been exercised within sixty (60) days of a Change in Control, the Committee may
elect to pay each holder of an Option, not later than the effective date of any
such transaction, an amount in cash equal to the excess of the Fair Market Value
of the Common Shares the Option holder would have received upon exercise of the
Option over the aggregate exercise price.
7. STOCK APPRECIATION RIGHTS
(a) Awards
The Committee may award Stock Appreciation Rights to Employees of the
Company or any of its Affiliates. Stock Appreciation Rights may be either Tandem
Rights or Freestanding Rights. Tandem Rights may be awarded either at the time
the Option is granted or at any time prior to the exercise of the Option.
-7-
<PAGE> 9
(b) Terms and Conditions
(i) Each Tandem Right shall be subject to the same terms and conditions as
the related Option and shall be exercisable only to the extent the Option is
exercisable.
(ii) The price per share specified in a Freestanding Right shall be
determined by the Committee, but in no event shall be less than the Fair Market
Value of the Common Shares as of the date of grant. The term of each
Freestanding Right shall be such period of time as the Committee shall
determine. Subject to the provisions of the 1998 Plan, each Freestanding Right
shall become vested as determined by the Committee. Prior to becoming 100%
vested, each Freestanding Right shall become exercisable, in installments or
otherwise, as the Committee shall determine. The Committee may also, in its
discretion, accelerate the exercisability of any Freestanding Right at any time,
including a Change in Control.
(c) Exercise
(i) Upon exercise of a Stock Appreciation Right, (subject, in the case of
a Tandem Right, to the surrender of the related Option or any unexercised
portion thereof which the Employee determines to surrender for this purpose) the
Employee shall be entitled to receive, subject to the provisions of the 1998
Plan and such rules and regulations as from time to time may be established by
the Committee, a payment having an aggregate value equal to (A) the excess of
(i) the Fair Market Value on the exercise date of one Common Share over (ii) the
Option price per share, in the case of a Tandem Right, or the price per share
specified in the terms of a Freestanding Right, times (B) the number of Common
Shares with respect to which the Stock Appreciation Right shall have been
exercised.
(ii) Upon exercise of a Tandem Right, the number of Common Shares subject
to exercise under the related Option shall automatically be reduced by the
number of Common Shares represented by the Option or portion thereof
surrendered.
(iii) A Tandem Right related to an Incentive Stock Option may only be
exercised if the Fair Market Value of a Common Share on the exercise date
exceeds the Option price.
(d) Payments
(i) The payment described in subparagraph (c)(i) above shall be made in
the form of cash, Common Shares, or a combination thereof, as elected by the
Employee, provided that the Committee shall have sole discretion to consent to
or disapprove the election of an officer or director to receive all or part of a
payment in cash.
(ii) If upon exercise of a Stock Appreciation Right the Employee is to
receive a portion of the payment in Common Shares, the number of shares received
shall be determined by dividing such portion by the Fair Market Value of a share
on the exercise date. The number of
-8-
<PAGE> 10
Common Shares received may not exceed the number of Common Shares covered by any
Option or portion thereof surrendered. Cash will be paid in lieu of any
fractional share.
(iii) Whether payments to Employees upon exercise of Tandem Rights or
Freestanding Rights are made in cash, Common Shares or a combination thereof,
the Committee shall have sole discretion as to timing of the payments, whether
in one lump sum or in annual installments or otherwise deferred, which deferred
payments may in the Committee's sole discretion (i) bear amounts equivalent to
interest or cash dividends, (ii) be treated as invested in the manner from time
to time determined by the Committee, with dividends or other income thereon
being deemed to have been so reinvested, or (iii) for the convenience of the
Company, contributed to a trust, which may be revocable by the Company or
subject to the claims of its creditors, for investment in the manner from time
to time determined by the Committee and set forth in the instrument creating
such trust, all as the Committee shall determine.
(iv) No payment will be required from the Employee upon exercise of a Stock
Appreciation Right, except that any amount necessary to satisfy applicable
federal, state or local tax requirements shall be withheld or paid promptly upon
notification of the amount due and prior to or concurrently with delivery of
cash or a certificate representing shares. The Committee may permit such amount
to be paid in (i) Common Shares previously owned by the Employee, (ii) a portion
of the Common Shares that otherwise would be distributed to such Employee upon
exercise of the right, or (iii) a combination of cash and Common Shares.
8. RESTRICTED SHARES OR RESTRICTED UNITS
(a) Awards
Restricted Stock or Restricted Stock Units may be awarded by the Committee
in its sole discretion. At the time an award of Restricted Shares or Restricted
Units is made, the Committee shall (i) establish a Restricted Period applicable
to such award, (ii) prescribe conditions for the incremental lapse of
restrictions during the Restricted Period, or for the lapse or termination of
restrictions upon the satisfaction or occurrence of other conditions in addition
to or other than the expiration of the Restricted Period, including a Change in
Control, and (iii) determine all other terms and conditions of such award,
including voting and dividend or dividend equivalent rights.
(b) Restrictions on Transfer
Upon the grant of Restricted Shares, a stock certificate representing the
number of Common Shares equal to the number of Restricted Shares granted to an
Employee shall be registered in the Employee's name but shall be held in custody
by the Company for the Employee's account. The Employee shall not be entitled to
delivery of the certificate or to sell, transfer, assign, pledge or otherwise
encumber the Restricted Shares until the expiration of the Restricted Period and
the satisfaction of any other conditions prescribed by the Committee. Upon the
forfeiture of any Restricted Shares, such forfeited Restricted Shares shall be
transferred to the Company without further action by the Employee.
-9-
<PAGE> 11
(c) Delivery of Shares
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in Paragraph 12, a stock certificate for the number
of Common Shares with respect to which the restrictions have lapsed, or one
Common Share for each Restricted Unit with respect to which the restrictions
have lapsed, shall be delivered, free of all such restrictions, except any that
may be imposed by law, to the Employee or the Employee's beneficiary or estate,
as the case may be. Fractional Shares will be paid in cash.
(d) Payment
No payment will be required from the Employee upon the issuance or delivery
of any Common Shares, except that any amount necessary to satisfy applicable
federal, state or local tax requirements shall be withheld or paid promptly upon
notification of the amount due and prior to or concurrently with the issuance or
delivery of a certificate representing such shares. The Committee may permit
such amount to be paid in (i) Common Shares previously owned by the Employee,
(ii) a portion of the Common Shares that otherwise would be distributed to such
Employee upon the lapse of the restrictions applicable to the Restricted Shares
or Restricted Units, or (iii) a combination of cash and Common Shares.
9. PERFORMANCE AWARDS
(a) Grant
Performance Awards may be granted to any Employee by the Committee in its
sole discretion. A Performance Award shall consist of a right that is (i)
denominated in cash or Common Shares, (ii) valued, as determined by the
Committee, in accordance with the achievement of such performance goals during
such performance periods as the Committee shall establish, and (iii) payable at
such time and in such form as the Committee shall determine.
(b) Terms and Conditions
Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall (i) determine the performance goals to be achieved during any
performance period, (ii) the length of any performance period, (iii) the amount
of any Performance Award, (iv) the amount and kind of any payment or transfer to
be made pursuant to any Performance Award, and (v) all other terms and
conditions of any Performance Award, including the consequences of death,
Disability, termination of employment and Change in Control.
(c) Payment of Performance Awards
-10-
<PAGE> 12
Performance Awards may be paid in a lump sum or in installments following
the close of the performance period or, in accordance with procedures
established by the Committee, on a current or deferred basis.
10. OTHER STOCK-BASED AWARDS
The Committee shall have authority to grant to eligible Employees an "Other
Stock-Based Award", which shall consist of any right that is an Award of Common
Shares or an Award denominated or payable in, valued in whole or in part by
reference to, or otherwise based on or related to, Common Shares (including,
without limitation, securities convertible into Common Shares), as deemed by the
Committee to be consistent with the purposes of the Plan, other than an Award
described in Paragraphs 6 through 9 above.
11. TERMINATION OF EMPLOYMENT
Unless otherwise determined by the Committee, and subject to such
restrictions as may be imposed by the Code in the case of any Incentive Stock
Options, in the event that the employment of an Employee to whom an Option or
Stock Appreciation Right has been granted under the 1998 Plan shall be
terminated (except as set forth in Paragraph 12), such Option or Stock
Appreciation Right may, subject to the provisions of the 1998 Plan, be
exercised, to the extent that the Employee was entitled to do so at the
termination of his employment, at any time within three months after such
termination, but in no case later than the date on which the Option or Stock
Appreciation Right terminates; PROVIDED, HOWEVER, that any Option or Stock
Appreciation Right held by an Employee whose employment is terminated for a
Breach of Conduct shall terminate immediately.
Unless otherwise determined by the Committee, if an Employee to whom
Restricted Shares or Restricted Units have been granted ceases to be an Employee
prior to the end of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee for any reason other than death or Total
Disability, the Employee shall immediately forfeit all Restricted Shares and
Restricted Units.
12. DEATH OR TOTAL DISABILITY OF EMPLOYEE
Unless otherwise determined by the Committee, if an Employee to whom an
Award has been granted under the 1998 Plan shall die or suffer a Disability
while employed by the Company, such Option or Stock Appreciation Right may be
exercised, to the extent it was exercisable at the date of termination, at any
time within one year after the date of the Employee's death or Total Disability,
but in no case later than the date on which the Option or Stock Appreciation
Right otherwise terminates.
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13. NON-TRANSFERABILITY OF AWARDS
Awards granted under the 1998 Plan shall not be transferable other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by Section 414(p) of the Code except to the
extent provided in any Award Agreement and permitted under applicable law.
14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(i) The existence of outstanding Options or other Awards shall not affect
in any way the right or ability of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Shares or the rights
hereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business or substantially all of
the outstanding stock of the Company, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If the Company shall effect a subdivision, consolidation or
reclassification of the Common Shares or other capital readjustment or
recapitalization, the payment of a stock dividend, or other increase or
reduction in the number of the Common Shares outstanding, without receiving
compensation therefor in money, services or property, then the number, class,
and per share price of Common Shares shall be appropriately adjusted in such a
manner as to entitle Employees to receive, for the same aggregate cash
consideration, if applicable, the same total number and class of shares as he
would have received as a result of the event requiring the adjustment.
(iii) Except as hereinbefore expressly provided, the issue by the Company
of shares of stock of any class, for cash or property, or for labor or services,
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of Common
Shares then subject to outstanding options.
15. BREACH OF CONDUCT
In the event of a Breach of Conduct by a Participant or former Participant
within two years of termination of employment, the Committee may, in its sole
discretion, (i) cancel any Award, whether vested or not, in whole or in part, as
of the date specified by the Committee, which shall thereafter be communicated
in writing to such Participant or former Participant, and/or (ii) upon written
notice to such Participant or former Participant, demand that any or all stock
certificates for Common Shares or Restricted Shares acquired under this Plan, or
any profit realized in connection with the sale or transfer of such Common
Shares or Restricted Shares, or any proceeds received upon the exercise or
settlement of a Stock Appreciation Right,
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Performance Award or other Stock-Based Award, be returned to the Company within
five (5) days of receipt of such notice. If the Participant or former
Participant shall have paid any consideration for the acquisition of Common
Shares or Restricted Shares, or the settlement or any Award, the Company shall
immediately thereafter return such consideration to the Participant or the
former Participant, without interest. The Company shall be entitled to
reimbursement of reasonable attorneys fees and expenses incurred in seeking to
enforce its rights under this Section 15.
16. EFFECTIVE DATE
The 1998 Plan shall be effective as of July 9, 1998, provided that the
adoption of the 1998 Plan shall have been approved by the stockholders of the
Company not later than 12 months after such date. The Committee may, in its
discretion, grant Awards under the 1998 Plan, the grant, exercise or payment of
which shall be expressly subject to the conditions that, to the extent required
at the time of grant, exercise or payment, (i) if the Company deems it necessary
or desirable, a Registration Statement under the Securities Act of 1933 with
respect to such Common Shares shall be effective, and (ii) any requisite
approval or consent of any governmental authority of any kind having
jurisdiction over Awards granted under the 1998 Plan shall be obtained.
17. TERMINATION AND AMENDMENT
The Board may suspend, terminate, modify or amend the 1998 Plan at any time
without stockholder approval except as may be required by the Company's articles
of incorporation, applicable laws, regulations and exchange requirements. If the
1998 Plan is terminated, the terms of the 1998 Plan shall, notwithstanding such
termination, continue to apply to Awards granted prior to such termination. In
addition, no suspension, termination, modification or amendment of the 1998 Plan
may, without the consent of the Employee to whom an Award shall theretofore have
been granted, adversely affect the rights of such Employee under such Award.
18. MISCELLANEOUS
(a) Written Agreements
Each Award hereunder shall be evidenced by an Award Agreement which shall
contain such restrictions, terms and conditions as the Committee may require.
(b) No Right to Employment
Nothing in the 1998 Plan or in any Award granted pursuant to the 1998 Plan
shall confer upon any Employee any right to continue in the employ of the
Company or any of its subsidiaries or interfere in any way with the right of the
Company or any such subsidiary to terminate such employment at any time.
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(c) Governing Law
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall be determined in
accordance with the laws of the Commonwealth of Massachusetts.
(d) Severability
If any provision of the Plan or any Award is or becomes or is deemed to be
invalid, illegal, or unenforceable in any jurisdiction or as to any Employee or
Award, or would disqualify the Plan or any Award under any law or regulations
deemed applicable, or the compliance with which is deemed desirable, including
any accounting rules or regulations, by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, rules or
regulations, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Award, such provision shall be stricken as to such jurisdiction, Employee or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(e) Other Laws
The Committee may refuse to issue or transfer any Common Shares or other
consideration under an Award if, acting in its sole discretion, it determines
that the issuance or transfer of such Common Shares or such other consideration
might violate any applicable law or regulation or entitle the Company to recover
the same under Section 16(b) of the Exchange Act, and any payment tendered to
the Company by an Employee, other holder or beneficiary in connection with the
exercise of such Award shall be promptly refunded to the relevant Employee,
holder, or beneficiary.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer to
execute this Plan as of the 9th day of July, 1998.
MICROFINANCIAL INCORPORATED
/s/ Peter R. Bleyleben
Peter R. Bleyleben, President
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EXHIBIT 10.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 12, 1998 by and between Boyle
Leasing Technologies, Inc., a Massachusetts corporation, (the "Company") and
Peter R. Bleyleben, (the "Executive") residing at 66 Norfolk Road, Chestnut
Hill, MA 02167.
WHEREAS Executive has served as President and Chief Executive Officer of
the Company pursuant to an Employment Agreement dated September 26, 1997 (the
"Original Employment Agreement"); and
WHEREAS the Company desires to continue to employ Executive and to enter
into this Agreement embodying the terms of such continued employment (the
"Agreement"); and
WHEREAS Executive desires to accept such continued employment and enter
into this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. TERM OF EMPLOYMENT. Subject to the provisions of Section 7, Executive
shall be employed by the Company pursuant to the terms and conditions of this
Agreement for a period commencing on June 12, 1998 (the "Commencement Date")
and ending June 12, 2001; PROVIDED that such period shall be automatically
extended for one year on June 12, 2001 and June 12 of any succeeding year
unless a minimum of six months prior notice is given by either party to the
other. The period beginning on the Commencement Date and ending June 12, 2001,
or upon the expiration of any renewal period, in either case in accordance with
the foregoing provision, shall be referred to as the "Employment Term".
<PAGE> 2
2. POSITION. (a) The Executive shall continue to serve as President and
Chief Executive Officer of the Company and in the event of an internal corporate
restructuring, shall serve in a position or positions of comparable authority
and responsibility in any resulting entity. In such positions, Executive shall
have such duties and authority as shall be determined from time to time by the
Board of Directors of the Company (the "Board") or its designee which shall not
be less than that assigned to him on the Commencement Date.
(b) During the term of his employment hereunder, Executive will
devote substantially all of his business time and best efforts to the
performance of his duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict with
the rendition of such services either directly or indirectly, without the prior
written consent of the Board.
3. BASE SALARY. The Company shall pay Executive an annual base salary
(the "Base Salary") at the initial rate of $250,000 payable in arrears in
substantially equal installments not less frequently than monthly in accordance
with the Company's payroll practices during the Employment Term. The Company
shall increase (but not decrease) the Base Salary on each January 1 which
occurs during the Employment Term after June 12, 1998 by a percentage equal to
the percentage increase in the Consumer Price Index for all Urban Consumers for
the Northeast Region, class B metropolitan area, for the twelve (12) month
period ending on each such January 1. In addition to any automatic increases
hereunder, the Company, at any time, may in its sole discretion increase
Executive's Base Salary.
4. INCENTIVE COMPENSATION. (a) With respect to each fiscal year during
all of which Executive is employed with the Company, including the fiscal year
beginning January 1, 1998,
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he shall also be eligible to participate in the Company's annual bonus program
as such program may be modified by the Board of Directors.
(b) With respect to each performance period during which Executive is
employed by the Company, including the performance period beginning January 1,
1998, the Executive shall also be eligible to participate in the Company's
profit-sharing plan as such plan may be modified by the Board of Directors.
(c) Executive shall be eligible to participate in the 1987 Stock
Option Plan, the 1998 Equity Incentive Plan, and any other equity plan adopted
by the Company (collectively "Option Plans"), at a level consistent with his
position and responsibilities.
5. EMPLOYEE BENEFITS. (a) Executive shall continue to be provided
employee benefits (including fringe benefits and other perquisites, profit
sharing plan participation and life, health, accident and disability insurance)
(collectively "Employee Benefits") on terms no less favorable in the aggregate
(except for any changes thereto required to comply with changes in applicable
law) than those benefits which were provided to Executive by the Company
immediately prior to the Commencement Date, except as otherwise required
hereunder.
(b) The Board of Directors shall determine the amount of the
payments, if any, to be awarded to the Executive under the Company's annual
bonus program and/or profit-sharing plan pursuant to their terms for the 1997
fiscal year and for which payments have not been made prior to the Commencement
Date.
(c) Executive shall be entitled to a minimum of five (5) weeks annual
vacation, in accordance with the Company's current vacation policies, which
vacation shall be
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increased on the second anniversary of the Commencement Date up to a maximum of
six (6) weeks.
6. BUSINESS EXPENSES. Reasonable travel, entertainment and other business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies.
7. TERMINATION. This Agreement, and Executive's employment may be
terminated by either party at any time. In the event of any such termination,
Executive's rights and entitlements shall be determined in accordance with the
following provisions.
(a) FOR CAUSE BY THE COMPANY. The provisions of this Section 7(a)
shall apply in the event that Executive's employment hereunder is terminated by
the Company for "Cause". For purposes of this Agreement, "Cause" shall mean (i)
Executive's willful and continued failure substantially to perform his duties
hereunder (other than as a result of total or partial incapacity due to physical
or mental illness), (ii) the willful commission by Executive of acts that are
dishonest and demonstrably injurious to the Company, or (iii) an act or acts on
Executive's part constituting a felony under the laws of the United States or
any state thereof. If Executive is terminated for Cause, he shall be entitled to
receive his Base Salary through the date of termination, and any accrued but
unpaid amounts earned under any bonus program or profit-sharing plan. All other
benefits due Executive following Executive's termination of employment pursuant
to this Section 7(a) shall be determined in accordance with the plans, policies
and practices of the Company at the time of such termination. Any Notice of
Termination (as defined in subsection (i) of this Section 7), communicating the
termination of Executive's employment pursuant to this Section 7(a) shall
include a copy of a resolution duly
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adopted by the affirmative vote of not less than a majority of the entire
membership of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and reasonable opportunity for
Executive, together with Executive's counsel, to be heard before the Board prior
to such vote), finding that in the good faith opinion of the Board that any
event constituting Cause for termination in accordance with this Section 7(a)
has occurred and specifying the particulars thereof in detail.
(b) DISABILITY. The provisions of this Section 7(b) shall apply in
the event that Executive's employment terminates on account of "Disability". For
purposes of this Agreement, "Disability" shall mean Executive's physical or
mental incapacity, which results in his inability to perform his duties for a
period of six (6) consecutive months. Any question as to the existence of the
Disability of Executive as to which Executive and the Company cannot agree,
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company.
In the event of the Disability of Executive, the Company may terminate the
employment of Executive, by delivery of a Notice of Termination to the Executive
which Notice shall be effective not less than thirty (30) days after the giving
of such Notice. Upon termination of Executive's employment hereunder as a result
of Disability, Executive shall receive his Base Salary for a period of twelve
(12) months following such termination, and any and all accrued but unpaid
amounts earned by Executive under the annual bonus program or profit-sharing
plan as of the date of Disability. Any payments provided for in this Section
7(b) shall be offset (but not below zero) by any payment of disability benefits
in lieu of Base Salary received by Executive under the Company's employee
benefit plans as then in effect. In addition, all options
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or other awards issued under the Option Plans shall become fully vested and
exercisable as of the date of Disability.
(c) DEATH. Upon termination of Executive's employment hereunder as a
result of Executive's death, Executive's estate shall receive his Base Salary at
the rate in effect at the time of Executive's death for a period of twelve (12)
months following his death, and any and all accrued but unpaid amounts earned by
Executive under the Company's annual bonus program or profit-sharing plan as of
the date of death. In addition, all options or awards under the Option Plans
shall become fully vested and exercisable as of the date of death. Thereafter,
the Company shall, except as provided in subsections 5(a) and 7(g), have no
further obligation to compensate Executive under this Agreement.
(d) WITHOUT CAUSE BY THE COMPANY. If Executive's employment is
terminated by the Company (including a termination of this Agreement by the
Company as provided in Section 1) without "Cause" (other than by reason of
Disability or death), Executive shall receive, as promptly as practicable
following such termination, but in any event not later than ten (10) business
days following such termination, a lump sum payment in cash equal to the sum of:
(i) if not theretofore paid, the Executive's Base Salary through the
date of termination at the rate in effect on the date of termination
or, if higher, at the highest rate in effect at any time within the
90-day period preceding the Commencement Date; and
(ii) the product of (x) the annual bonus paid to the Executive for the
last full fiscal year ending during the Employment Term and (y) the
fraction obtained by dividing (a) the number of days between the
Commencement Date and the last day of the last full fiscal year ending
during the Employment Term and (b) 365; and
(iii) in the case of compensation previously deferred by the
Executive, all amounts of such compensation previously deferred and
not yet paid by the Company.
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Executive shall in addition receive an amount equal to three (3) times the
Executive's annual Base Salary at the rate in effect at the time Notice of
Termination was given, or if higher, at the highest rate in effect at any time
within the ninety (90) day period preceding the Commencement Date. Such amount
shall be paid to Executive in two (2) equal payments, on the first and second
anniversaries, respectively, of the Executive's date of termination.
No option or other award granted to Executive under the Option Plans shall
terminate prior to the expiration of the option term or award period without
regard to a termination of employment.
(e) FOR GOOD REASON BY EXECUTIVE. The provisions of this Section 7(e)
shall apply in the event that the Executive terminates his employment with the
Company for "Good Reason". For purposes of this Agreement, "Good Reason" means
(without Executive's express prior written consent):
(i) The assignment to Executive by the Company of duties
inconsistent with Executive's positions, duties, responsibilities,
titles or offices, or any removal of Executive from or any failure to
re-elect Executive to any of such positions, except in connection with
the termination of Executive's employment for Cause, Disability, or as
a result of Executive's death or by Executive other than for Good
Reason;
(ii) A reduction by the Company in Executive's Base Salary as in
effect at the Commencement Date, as the same may be increased
according to the terms of this Agreement;
(iii) A relocation of the Company's principal executive offices
to a location outside of the metropolitan Boston, Massachusetts area
or the Company's requiring Executive to be based anywhere other than
the Company's principal executive offices, except for required travel
on the Company's business to an extent substantially consistent with
Executive's business travel obligations at the
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Commencement Date, or any material reduction or adverse change in the
emoluments or perquisites of office provided to the Executive at the
Commencement Date;
(iv) A failure by the Company to continue in effect fringe
benefits and benefit or compensation plans (including any profit
sharing, bonus, life insurance, health, accidental death or
dismemberment or disability plan) with terms which in the aggregate
are as favorable as those fringe benefits and plans to which Executive
is entitled or in which Executive is participating, as the case may
be, at the Commencement Date (or in the case of fringe benefits or
plans granted or adopted, as the case may be, after the date hereof
and providing a type of benefit not provided by the Company at the
Commencement Date, at the respective dates of grant or adoption of
such fringe benefits or plans); or
(v) The failure by the Company to obtain the specific assumption
of this Agreement by any successor or assign of the Company or any
person acquiring a substantial portion of the assets of the Company,
or, following any such assumption, assignment or acquisition by an
entity other than an affiliate of the Company, the occurrence of any
event Executive believes will impair his duties under this Agreement.
If Executive terminates his employment for "Good Reason", Executive shall be
entitled to the same payments he would have received if his employment had been
terminated by the Company without "Cause".
(f) GROSS-UP PAYMENTS. In the event that Executive receives any
payments under this Agreement, or other payments subject to Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), which are considered
"excess parachute payments" as defined in Section 280G of the Code, the Company
shall make an additional gross-up payment to Executive in an amount which
results in Executive being in the same after-tax position that he would have
been in had no excise tax under Code Section 4999 been imposed.
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(g) WITHOUT GOOD REASON BY EXECUTIVE. If Executive voluntarily
terminates his employment with the Company for any reason other than "Good
Reason", Executive shall be entitled to the same payments he would have received
if his employment had been terminated by the Company for Cause.
(h) CONTINUATION OF BENEFITS. Upon the termination of Executive's
employment other than as a result of death or for Cause, in addition to any
amounts due under Section 5(a) and (b) hereof and Sections (a) through (f) of
this Section 7, the Company shall provide Executive with a continuation of those
benefits denoted by an asterisk on Exhibit A hereto until the earlier of
Executive's death or 65th birthday; provided, however, that in the event that
Executive obtains other substantially comparable employment during such period,
Executive shall notify the Company and the amount of any benefits to which
Executive is entitled under this Section 7(h) shall be reduced (but not below
zero) by any such benefits provided by Executive's new employer.
(i) NOTICE OF TERMINATION. Any purported termination of employment by
the Company or by Executive shall not be effective until communicated by written
Notice of Termination to the other party hereto in accordance with Section 11(i)
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
8. NONCOMPETITION. (a) During the Employment Term, and for a two (2) year
period following termination of Executive's employment hereunder, Executive
shall not, directly or
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indirectly, (i) become under contract to or associated with, employed by, render
services to or own an interest (other than as a shareholder owning not more than
a 5% interest) in any microticket leasing business that is in competition with
the Company in the United States, (ii) solicit any officer or employee of the
Company or any of its affiliates to engage in any conduct prohibited hereby for
Executive or to terminate any existing relationship with the Company or such
affiliate or (iii) assist any other person to engage in any activity in any
manner prohibited hereby to Executive. For purposes of this Section 8(a), in the
event of a termination of employment prior to expiration of the Employment Term,
determination of the duration of the Employment Term, shall be made without
regard to the automatic renewal provisions of Section 1 hereof.
(b) It is expressly understood and agreed that although Executive and
the Company consider the restrictions contained in this Section 8 to be
reasonable, if a final judicial determination is made by a court of competent
jurisdiction that the time or territory or any other restriction contained in
this Agreement is an unenforceable restriction against Executive, the provisions
of this Agreement shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such maximum extent as such
court may judicially determine or indicate to be enforceable. Alternatively, if
any court of competent jurisdiction finds that any restriction contained in this
Agreement is unenforceable, and such restriction cannot be amended so as to make
it enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
9. CONFIDENTIALITY. Executive will not at any time (whether, during or
after his employment with the Company) disclose or use for his own benefit or
purposes or the benefit or
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purposes of any other person, firm, partnership, joint venture, association,
corporation or other business organization, entity or enterprise other than the
Company and any of its subsidiaries or affiliates, any trade secrets,
information, data, or other confidential information relating to customers,
development programs, costs, marketing, trading, investment, sales activities,
promotion, credit and financial data, manufacturing processes, financing
methods, plans, or the business and affairs of the Company generally, or of any
subsidiary or affiliate of the Company, PROVIDED that the foregoing shall not
apply to information which is not unique to the Company or which is generally
known to the industry or the public other than as a result of Executive's breach
of this covenant. Executive agrees that upon termination of his employment with
the Company, for any reason, he will return to the Company immediately all
memoranda, books, papers, plans, information, letters and other data, and all
copies thereof or therefrom, in any way relating to the business of the Company
and its affiliates, except that he may retain personal notes, notebooks and
diaries. Executive further agrees that he will not retain or use for his account
at any time any trade names, trademark or other proprietary business designation
used or owned in connection with the business of the Company or its affiliates.
10. SPECIFIC PERFORMANCE. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Sections 8 or 9 would be inadequate and, in recognition of this
fact, Executive agrees that, in the event of such a breach or threatened breach,
in addition to any remedies at law, the Company, without posting any bond, shall
be entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
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11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
(b) ENTIRE AGREEMENT/AMENDMENTS. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof and,
subject to the exception noted below, supersedes any and all prior
understandings, agreements, contracts and arrangements, whether written or oral,
between the Company and Executive, including but not limited to the Original
Employment Agreement and the Executive Performance Incentive Plan. The parties
hereto agree that as of the Commencement Date, the Original Employment Agreement
shall be null and void and of no further force or effect and any and all current
and future obligations of either party thereunder are fully and forever
discharged. Notwithstanding anything to the contrary contained herein, this
Agreement shall in no way reduce or diminish any benefit to which Executive is
otherwise entitled and which has already accrued, or been granted, to Executive,
pursuant to the terms of a plan, program or arrangement of the Company,
including without limitation, any outstanding award granted to Executive under
the Company's Executive Performance Incentive Plan for which the performance
period has not closed (or, if closed, payment has not been made) prior to the
Commencement Date. The Executive hereby agrees to provide any consent, waiver or
other documentation necessary to give effect to this paragraph (b). This
Agreement may not be altered, modified, or amended except by written instrument
signed by the parties hereto.
(c) NO WAIVER. The failure of a party to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
of such party's rights or
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deprive such party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(d) SEVERABILITY. In the event that any one or more of the provisions
of this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) ASSIGNMENT. This Agreement shall not be assignable by Executive
and shall be assignable by the Company only to a direct or indirect wholly-owned
subsidiary of the Company.
(f) MITIGATION. The Executive shall not be required to mitigate
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Executive as the result of employment by another employer after the termination
of his employment hereunder or otherwise, except to the extent set forth in
Section 7(h) of this Agreement.
(g) ARBITRATION. Except where equitable relief is sought, any
dispute, controversy or claim arising out of or relating to this Agreement, or
the breach hereof, shall be settled by arbitration in accordance with the rules
of the American Arbitration Association by a single arbitrator. The Arbitrator
shall be an individual familiar with the leasing and finance industry. The
arbitrator's award shall be final and binding upon both parties, and judgment
upon the award may be entered in any court of competent jurisdiction in any
state of the United States
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or country or application may be made to such court for a judicial acceptance o
the award and an enforcement as the law of such jurisdiction may require or
allow.
(h) SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets or the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Such assumption and agreement shall be obtained prior to the
effectiveness of any such succession. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. The term "Company" shall also mean any affiliate
of the Company to which Executive may be transferred and the Company shall cause
such successor employer to be considered the "Company" bound by the terms of
this Agreement and this Agreement shall be amended to so provide.
(ii) This Agreement shall inure to the benefit of and be binding
upon personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amount would still be payable to
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<PAGE> 15
Executive hereunder if Executive had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the devisee, legatee or other designee of Executive or, if there is
no such designee, to the estate of Executive.
(i) NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the execution page of this Agreement, PROVIDED
that all notices to the Company shall be directed to the attention of the Board
with a copy to Managing Partner, Edwards & Angell, 101 Federal Street, Boston,
MA 02110, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
(j) LEGAL FEES AND EXPENSES. The Company shall reimburse Executive on
a quarterly basis for all costs and expenses incurred by Executive to enforce or
protect his rights under this Agreement (including fees and expenses incurred in
connection with an arbitration) unless it shall ultimately be determined by a
final judgment of an arbitrator or a court of competent jurisdiction that
Executive was without any justification for commencing or continuing any such
arbitration, action or proceeding, in which case Executive shall repay to the
Company any amounts of reimbursement paid under this Section 11(j) and in the
event of an arbitration, shall also pay one half (1/2) of the fees of the
arbitrator.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
/s/ Peter R. Bleyleben
-----------------------------------
Peter R. Bleyleben
Boyle Leasing Technologies, Inc.
/s/ Richard F. Latour
-----------------------------------
Richard F. Latour
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 12, 1998 by and between Boyle
Leasing Technologies, Inc., a Massachusetts corporation, (the "Company") and
Richard F. Latour, (the "Executive") residing at 29 Cherubs Way, Hampstead, NH
03841.
WHEREAS Executive has served as Executive Vice President,
Chief Operating Officer and Chief Financial Officer of the Company pursuant to
an Employment Agreement dated September 26, 1997 (the "Original Employment
Agreement"); and
WHEREAS the Company desires to continue to employ Executive
and to enter into this Agreement embodying the terms of such continued
employment (the "Agreement"); and
WHEREAS Executive desires to accept such continued employment
and enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. TERM OF EMPLOYMENT. Subject to the provisions of Section 7,
Executive shall be employed by the Company pursuant to the terms and conditions
of this Agreement for a period commencing on June 12, 1998 (the "Commencement
Date") and ending June 12, 2001; PROVIDED that such period shall be
automatically extended for one year on June 12, 2001 and June 12 of any
succeeding year unless a minimum of six months prior notice is given by either
party to the other. The period beginning on the Commencement Date and ending
June 12, 2001, or upon the expiration of any renewal period, in either case in
accordance with the foregoing provision, shall be referred to as the "Employment
Term".
<PAGE> 2
2. POSITION. (a) The Executive shall continue to serve as
Executive Vice President, Chief Operating Officer and Chief Financial Officer of
the Company and in the event of an internal corporate restructuring, shall serve
in a position or positions of comparable authority and responsibility in any
resulting entity. In such positions, Executive shall have such duties and
authority as shall be determined from time to time by the Board of Directors of
the Company (the "Board") or its designee which shall not be less than that
assigned to him on the Commencement Date.
(b) During the term of his employment hereunder,
Executive will devote substantially all of his business time and best efforts to
the performance of his duties hereunder and will not engage in any other
business, profession or occupation for compensation or otherwise which would
conflict with the rendition of such services either directly or indirectly,
without the prior written consent of the Board.
3. BASE SALARY. The Company shall pay Executive an annual base
salary (the "Base Salary") at the initial rate of $200,000 payable in arrears in
substantially equal installments not less frequently than monthly in accordance
with the Company's payroll practices during the Employment Term. The Company
shall increase (but not decrease) the Base Salary on each January 1 which occurs
during the Employment Term after June 12, 1998 by a percentage equal to the
percentage increase in the Consumer Price Index for all Urban Consumers for the
Northeast Region, class B metropolitan area, for the twelve (12) month period
ending on each such January 1. In addition to any automatic increases hereunder,
the Company, at any time, may in its sole discretion increase Executive's Base
Salary.
4. INCENTIVE COMPENSATION. (a) With respect to each fiscal year
during all of which Executive is employed with the Company, including the fiscal
year beginning January 1, 1998,
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<PAGE> 3
he shall also be eligible to participate in the Company's annual bonus program
as such program may be modified by the Board of Directors.
(b) With respect to each performance period during which
Executive is employed by the Company, including the performance period beginning
January 1, 1998, the Executive shall also be eligible to participate in the
Company's profit-sharing plan as such plan may be modified by the Board of
Directors.
(c) Executive shall be eligible to participate in the
1987 Stock Option Plan, the 1998 Equity Incentive Plan, and any other equity
plan adopted by the Company (collectively "Option Plans"), at a level consistent
with his position and responsibilities.
5. EMPLOYEE BENEFITS. (a) Executive shall continue to be provided
employee benefits (including fringe benefits and other perquisites, profit
sharing plan participation and life, health, accident and disability insurance)
(collectively "Employee Benefits") on terms no less favorable in the aggregate
(except for any changes thereto required to comply with changes in applicable
law) than those benefits which were provided to Executive by the Company
immediately prior to the Commencement Date, except as otherwise required
hereunder.
(b) The Board of Directors shall determine the amount of
the payments, if any, to be awarded to the Executive under the Company's annual
bonus program and/or profit-sharing plan pursuant to their terms for the 1997
fiscal year and for which payments have not been made prior to the Commencement
Date.
(c) Executive shall be entitled to a minimum of five (5)
weeks annual vacation, in accordance with the Company's current vacation
policies, which vacation shall be increased on the second anniversary of the
Commencement Date up to a maximum of six (6) weeks.
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<PAGE> 4
6. BUSINESS EXPENSES. Reasonable travel, entertainment and other
business expenses incurred by Executive in the performance of his duties
hereunder shall be reimbursed by the Company in accordance with Company
policies.
7. TERMINATION. This Agreement, and Executive's employment may be
terminated by either party at any time. In the event of any such termination,
Executive's rights and entitlements shall be determined in accordance with the
following provisions.
(a) FOR CAUSE BY THE COMPANY. The provisions of this
Section 7(a) shall apply in the event that Executive's employment hereunder is
terminated by the Company for "Cause". For purposes of this Agreement, "Cause"
shall mean (i) Executive's willful and continued failure substantially to
perform his duties hereunder (other than as a result of total or partial
incapacity due to physical or mental illness), (ii) the willful commission by
Executive of acts that are dishonest and demonstrably injurious to the Company,
or (iii) an act or acts on Executive's part constituting a felony under the laws
of the United States or any state thereof. If Executive is terminated for Cause,
he shall be entitled to receive his Base Salary through the date of termination,
and any accrued but unpaid amounts earned under any bonus program or
profit-sharing plan. All other benefits due Executive following Executive's
termination of employment pursuant to this Section 7(a) shall be determined in
accordance with the plans, policies and practices of the Company at the time of
such termination. Any Notice of Termination (as defined in subsection (i) of
this Section 7), communicating the termination of Executive's employment
pursuant to this Section 7(a) shall include a copy of a resolution duly adopted
by the affirmative vote of not less than a majority of the entire membership of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and reasonable opportunity for Executive,
together with Executive's counsel, to be heard before
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<PAGE> 5
the Board prior to such vote), finding that in the good faith opinion of the
Board that any event constituting Cause for termination in accordance with this
Section 7(a) has occurred and specifying the particulars thereof in detail.
(b) DISABILITY. The provisions of this Section 7(b) shall
apply in the event that Executive's employment terminates on account of
"Disability". For purposes of this Agreement, "Disability" shall mean
Executive's physical or mental incapacity, which results in his inability to
perform his duties for a period of six (6) consecutive months. Any question as
to the existence of the Disability of Executive as to which Executive and the
Company cannot agree, shall be determined in writing by a qualified independent
physician mutually acceptable to Executive and the Company.
In the event of the Disability of Executive, the Company may terminate
the employment of Executive, by delivery of a Notice of Termination to the
Executive which Notice shall be effective not less than thirty (30) days after
the giving of such Notice. Upon termination of Executive's employment hereunder
as a result of Disability, Executive shall receive his Base Salary for a period
of twelve (12) months following such termination, and any and all accrued but
unpaid amounts earned by Executive under the annual bonus program or
profit-sharing plan as of the date of Disability. Any payments provided for in
this Section 7(b) shall be offset (but not below zero) by any payment of
disability benefits in lieu of Base Salary received by Executive under the
Company's employee benefit plans as then in effect. In addition, all options or
other awards issued under the Option Plans shall become fully vested and
exercisable as of the date of Disability.
(c) DEATH. Upon termination of Executive's employment
hereunder as a result of Executive's death, Executive's estate shall receive his
Base Salary at the rate in effect at the
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<PAGE> 6
time of Executive's death for a period of twelve (12) months following his
death, and any and all accrued but unpaid amounts earned by Executive under the
Company's annual bonus program or profit-sharing plan as of the date of death.
In addition, all options or awards under the Option Plans shall become fully
vested and exercisable as of the date of death. Thereafter, the Company shall,
except as provided in subsections 5(a) and 7(g), have no further obligation to
compensate Executive under this Agreement.
(d) WITHOUT CAUSE BY THE COMPANY. If Executive's
employment is terminated by the Company (including a termination of this
Agreement by the Company as provided in Section 1) without "Cause" (other than
by reason of Disability or death), Executive shall receive, as promptly as
practicable following such termination, but in any event not later than ten (10)
business days following such termination, a lump sum payment in cash equal to
the sum of:
(i) if not theretofore paid, the Executive's Base
Salary through the date of termination at the rate
in effect on the date of termination or, if higher,
at the highest rate in effect at any time within the
90-day period preceding the Commencement Date; and
(ii) the product of (x) the annual bonus paid to the
Executive for the last full fiscal year ending
during the Employment Term and (y) the fraction
obtained by dividing (a) the number of days between
the Commencement Date and the last day of the last
full fiscal year ending during the Employment Term
and (b) 365; and
(iii) in the case of compensation previously
deferred by the Executive, all amounts of such
compensation previously deferred and not yet paid by
the Company.
Executive shall in addition receive an amount equal to three (3) times
the Executive's annual Base Salary at the rate in effect at the time Notice of
Termination was given, or if higher, at the highest rate in effect at any time
within the ninety (90) day period preceding the
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<PAGE> 7
Commencement Date. Such amount shall be paid to Executive in two (2) equal
payments, on the first and second anniversaries, respectively, of the
Executive's date of termination.
No option or other award granted to Executive under the Option Plans
shall terminate prior to the expiration of the option term or award period
without regard to a termination of employment.
(e) FOR GOOD REASON BY EXECUTIVE. The provisions of this
Section 7(e) shall apply in the event that the Executive terminates his
employment with the Company for "Good Reason". For purposes of this Agreement,
"Good Reason" means (without Executive's express prior written consent):
(i) The assignment to Executive by the
Company of duties inconsistent with Executive's
positions, duties, responsibilities, titles or
offices, or any removal of Executive from or any
failure to re-elect Executive to any of such
positions, except in connection with the termination
of Executive's employment for Cause, Disability, or
as a result of Executive's death or by Executive
other than for Good Reason;
(ii) A reduction by the Company in
Executive's Base Salary as in effect at the
Commencement Date, as the same may be increased
according to the terms of this Agreement;
(iii) A relocation of the Company's
principal executive offices to a location outside of
the metropolitan Boston, Massachusetts area or the
Company's requiring Executive to be based anywhere
other than the Company's principal executive
offices, except for required travel on the Company's
business to an extent substantially consistent with
Executive's business travel obligations at the
Commencement Date, or any material reduction or
adverse change in the emoluments or perquisites of
office provided to the Executive at the Commencement
Date;
(iv) A failure by the Company to
continue in effect fringe benefits and benefit or
compensation plans
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<PAGE> 8
(including any profit sharing, bonus, life
insurance, health, accidental death or dismemberment
or disability plan) with terms which in the
aggregate are as favorable as those fringe benefits
and plans to which Executive is entitled or in which
Executive is participating, as the case may be, at
the Commencement Date (or in the case of fringe
benefits or plans granted or adopted, as the case
may be, after the date hereof and providing a type
of benefit not provided by the Company at the
Commencement Date, at the respective dates of grant
or adoption of such fringe benefits or plans); or
(v) The failure by the Company to
obtain the specific assumption of this Agreement by
any successor or assign of the Company or any person
acquiring a substantial portion of the assets of the
Company, or, following any such assumption,
assignment or acquisition by an entity other than an
affiliate of the Company, the occurrence of any
event Executive believes will impair his duties
under this Agreement.
If Executive terminates his employment for "Good Reason", Executive shall be
entitled to the same payments he would have received if his employment had been
terminated by the Company without "Cause".
(f) GROSS-UP PAYMENTS. In the event that Executive
receives any payments under this Agreement, or other payments subject to Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code"), which are
considered "excess parachute payments" as defined in Section 280G of the Code,
the Company shall make an additional gross-up payment to Executive in an amount
which results in Executive being in the same after-tax position that he would
have been in had no excise tax under Code Section 4999 been imposed.
(g) WITHOUT GOOD REASON BY EXECUTIVE. If Executive
voluntarily terminates his employment with the Company for any reason other than
"Good Reason", Executive shall be entitled to the same payments he would have
received if his employment had been terminated by the Company for Cause.
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<PAGE> 9
(h) CONTINUATION OF BENEFITS. Upon the termination of
Executive's employment other than as a result of death or for Cause, in addition
to any amounts due under Section 5(a) and (b) hereof and Sections (a) through
(f) of this Section 7, the Company shall provide Executive with a continuation
of those benefits denoted by an asterisk on Exhibit A hereto until the earlier
of Executive's death or 65th birthday; provided, however, that in the event that
Executive obtains other substantially comparable employment during such period,
Executive shall notify the Company and the amount of any benefits to which
Executive is entitled under this Section 7(h) shall be reduced (but not below
zero) by any such benefits provided by Executive's new employer.
(i) NOTICE OF TERMINATION. Any purported termination of
employment by the Company or by Executive shall not be effective until
communicated by written Notice of Termination to the other party hereto in
accordance with Section 11(i) hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of employment under the provision so indicated.
8. NONCOMPETITION. (a) During the Employment Term, and for a two
(2) year period following termination of Executive's employment hereunder,
Executive shall not, directly or indirectly, (i) become under contract to or
associated with, employed by, render services to or own an interest (other than
as a shareholder owning not more than a 5% interest) in any microticket leasing
business that is in competition with the Company in the United States, (ii)
solicit any officer or employee of the Company or any of its affiliates to
engage in any conduct prohibited hereby for Executive or to terminate any
existing relationship with the Company or
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<PAGE> 10
such affiliate or (iii) assist any other person to engage in any activity in any
manner prohibited hereby to Executive. For purposes of this Section 8(a), in the
event of a termination of employment prior to expiration of the Employment Term,
determination of the duration of the Employment Term, shall be made without
regard to the automatic renewal provisions of Section 1 hereof.
(b) It is expressly understood and agreed that although
Executive and the Company consider the restrictions contained in this Section 8
to be reasonable, if a final judicial determination is made by a court of
competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction against Executive,
the provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that any restriction
contained in this Agreement is unenforceable, and such restriction cannot be
amended so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained herein.
9. CONFIDENTIALITY. Executive will not at any time (whether,
during or after his employment with the Company) disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, or the
business and affairs of the Company generally, or of any subsidiary or affiliate
of the Company,
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<PAGE> 11
PROVIDED that the foregoing shall not apply to information which is not unique
to the Company or which is generally known to the industry or the public other
than as a result of Executive's breach of this covenant. Executive agrees that
upon termination of his employment with the Company, for any reason, he will
return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries. Executive further agrees that
he will not retain or use for his account at any time any trade names, trademark
or other proprietary business designation used or owned in connection with the
business of the Company or its affiliates.
10. SPECIFIC PERFORMANCE. Executive acknowledges and agrees that
the Company's remedies at law for a breach or threatened breach of any of the
provisions of Sections 8 or 9 would be inadequate and, in recognition of this
fact, Executive agrees that, in the event of such a breach or threatened breach,
in addition to any remedies at law, the Company, without posting any bond, shall
be entitled to obtain equitable relief in the form of specific performance,
temporary restraining order, temporary or permanent injunction or any other
equitable remedy which may then be available.
11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts.
(b) ENTIRE AGREEMENT/AMENDMENTS. This Agreement contains
the entire understanding of the parties with respect to the subject matter
hereof and, subject to the exception noted below, supersedes any and all prior
understandings, agreements, contracts and arrangements, whether written or oral,
between the Company and Executive, including but not
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<PAGE> 12
limited to the Original Employment Agreement and the Executive Performance
Incentive Plan. The parties hereto agree that as of the Commencement Date, the
Original Employment Agreement shall be null and void and of no further force or
effect and any and all current and future obligations of either party thereunder
are fully and forever discharged. Notwithstanding anything to the contrary
contained herein, this Agreement shall in no way reduce or diminish any benefit
to which Executive is otherwise entitled and which has already accrued, or been
granted, to Executive, pursuant to the terms of a plan, program or arrangement
of the Company, including without limitation, any outstanding award granted to
Executive under the Company's Executive Performance Incentive Plan for which the
performance period has not closed (or, if closed, payment has not been made)
prior to the Commencement Date. The Executive hereby agrees to provide any
consent, waiver or other documentation necessary to give effect to this
paragraph (b). This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) NO WAIVER. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
(d) SEVERABILITY. In the event that any one or more of
the provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
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<PAGE> 13
(e) ASSIGNMENT. This Agreement shall not be assignable by
Executive and shall be assignable by the Company only to a direct or indirect
wholly-owned subsidiary of the Company.
(f) MITIGATION. The Executive shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any compensation earned by
Executive as the result of employment by another employer after the termination
of his employment hereunder or otherwise, except to the extent set forth in
Section 7(h) of this Agreement.
(g) ARBITRATION. Except where equitable relief is sought,
any dispute, controversy or claim arising out of or relating to this Agreement,
or the breach hereof, shall be settled by arbitration in accordance with the
rules of the American Arbitration Association by a single arbitrator. The
Arbitrator shall be an individual familiar with the leasing and finance
industry. The arbitrator's award shall be final and binding upon both parties,
and judgment upon the award may be entered in any court of competent
jurisdiction in any state of the United States or country or application may be
made to such court for a judicial acceptance o the award and an enforcement as
the law of such jurisdiction may require or allow.
(h) SUCCESSORS; BINDING AGREEMENT.
(i) The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets or the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Such assumption and agreement shall be obtained
prior to
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<PAGE> 14
the effectiveness of any such succession. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise. The term "Company" shall also mean any affiliate
of the Company to which Executive may be transferred and the Company shall cause
such successor employer to be considered the "Company" bound by the terms of
this Agreement and this Agreement shall be amended to so provide.
(ii) This Agreement shall inure to the benefit of
and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the devisee, legatee or other designee of Executive or, if there is no such
designee, to the estate of Executive.
(i) NOTICE. For the purpose of this Agreement, notices
and all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the execution page of this Agreement,
PROVIDED that all notices to the Company shall be directed to the attention of
the Board with a copy to Managing Partner, Edwards & Angell, 101 Federal Street,
Boston, MA
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<PAGE> 15
02110, or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
(j) LEGAL FEES AND EXPENSES. The Company shall reimburse
Executive on a quarterly basis for all costs and expenses incurred by Executive
to enforce or protect his rights under this Agreement (including fees and
expenses incurred in connection with an arbitration) unless it shall ultimately
be determined by a final judgment of an arbitrator or a court of competent
jurisdiction that Executive was without any justification for commencing or
continuing any such arbitration, action or proceeding, in which case Executive
shall repay to the Company any amounts of reimbursement paid under this Section
11(j) and in the event of an arbitration, shall also pay one half (1/2) of the
fees of the arbitrator.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ Richard F. Latour
---------------------------------------
Richard F. Latour
Boyle Leasing Technologies, Inc.
/s/ Peter R. Bleyleben
---------------------------------------
Peter R. Bleyleben, President
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<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 10.16
----------
SECOND AMENDED AND RESTATED
SPECIFIC TERMS & CONDITIONS OF INDENTURE
among
BLT FINANCE CORP. III,
as Issuer,
MICROFINANCIAL INCORPORATED,
as Servicer,
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Indenture Trustee
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Back-up Servicer
----------
Dated as of November 1, 1994 and amended and restated as of October 1, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
SECOND AMENDED AND RESTATED SPECIFIC TERMS AND CONDITIONS OF INDENTURE,
dated as of November 1, 1994 and amended and restated as of October 1, 1998, by
and among BLT Finance Corp. III, a Massachusetts corporation, as Issuer (the
"Issuer"), MicroFinancial Incorporated (formerly known as Boyle Leasing
Technologies, Inc.), a Massachusetts corporation, as Servicer (the "Servicer"),
Norwest Bank Minnesota, National Association, a national banking association, as
Indenture Trustee (in such capacity, the "Indenture Trustee") and Norwest Bank
Minnesota, National Association, a national banking association, as Back-up
Servicer (in such capacity, the "Back-up Servicer").
PRELIMINARY STATEMENT
This amended and restated Specific Terms and Conditions of Indenture
(the "Specific Indenture Terms") is intended to incorporate by reference all of
the provisions of the Standard Terms and Conditions of Indenture attached hereto
as Appendix 1 (the "Standard Indenture Terms") and all Supplements as described
in the Standard Indenture Terms, and together the Specific Indenture Terms, the
Standard Indenture Terms and all Supplements are intended to form the Indenture
entered into in connection with the financing described below.
The Issuer has duly authorized the execution and delivery of the
Indenture to provide for the issuance by the Issuer from time to time of its
Lease-Backed Notes, in Series, issuable as provided in the Indenture. All
covenants and agreements made by the Issuer, the Indenture Trustee, the Back-up
Servicer and the Servicer herein are for the benefit and security of the Holders
of the Notes and MBIA. The Issuer, the Servicer and the Back-up Servicer are
entering into the Indenture, and the Indenture Trustee is accepting the trusts
created hereby, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged.
All things necessary to make the Indenture a valid agreement of the
Issuer, the Indenture Trustee, the Back-up Servicer and the Servicer in
accordance with its terms have been done.
GRANTING CLAUSE
The Issuer does hereby transfer, assign, set over, and otherwise convey
to the Indenture Trustee for the ratable benefit of the Noteholders and MBIA,
without recourse, all of the Issuer's rights, title and interest in and to the
following and any and all benefits accruing to the Issuer from: (a) the Lease
Receivables and Lease Contracts and all payments received on or with respect to
the Lease Contracts and Lease Receivables and due after the Cut-Off Date; (b)
the Equipment and any security interest of the Issuer in any of the Equipment
that is not owned by the Issuer; (c) any rights of the Issuer under each
Insurance Policy related to the Lease Contracts and Insurance Proceeds; (d) the
Lease Acquisition Agreement; (e) the Servicing Agreement; (f) all amounts from
time to time on deposit in the Collection Account, the Advance Payment Account,
the Cash Collateral Account, the Redemption Account and the ACH Account
(including any Eligible Investments and other property in such accounts); (g)
the Lease Contract Files; and (h) proceeds of the foregoing (including, but not
by way of limitation, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind, and
other forms of obligations and receivables which at any time constitute all or
part or are included in the proceeds of any of the foregoing), in each case
whether now owned or hereafter
<PAGE> 3
acquired (all of the foregoing being hereinafter referred to as the "Collateral"
or "Trust Estate"). The foregoing transfer, assignment, set over and conveyance
does not constitute and is not intended to result in a creation or an assumption
by the Indenture Trustee, any Noteholder or MBIA of any obligation of the
Issuer, the Company, the Servicer or any other Person in connection with the
Trust Estate or under any agreement or instrument relating thereto.
The Indenture Trustee acknowledges its acceptance on behalf of the
Noteholders and MBIA of all right, title and interest previously held by the
Issuer in and to the Trust Estate, and declares that it shall maintain such
right, title and interest in accordance with the provisions hereof and agrees to
perform the duties herein required to the best of its ability to the end that
the interests of the Noteholders and MBIA may be adequately and effectively
protected.
ARTICLE ONE
SPECIFIC DEFINITIONS AND PROVISIONS
SECTION 1.01 CERTAIN DEFINED TERMS.
Except as otherwise provided herein, each term used in the Indenture
shall have the meaning assigned thereto in the Standard Indenture Terms;
provided, that the definition of each term defined herein will govern over any
conflicting definition contained in the Standard Indenture Terms, will replace
such definition. With respect to the Notes, the following definitions shall
apply:
"ACH Account": None.
"Accrual Period": The period beginning on the sixteenth day of each
month and ending on the fifteenth day of the immediately following month (or, in
the case of the Accrual Period that is applicable to an Initial Payment Date,
beginning on the Accrual Date for such Notes).
"Available Cash Requirement": shall mean that, as of each Calculation
Date and as reflected on each Monthly Servicer's Report, the sum of (i)
unrestricted cash and (ii) amounts available for borrowing by the Reported
Companies under their credit facilities is not less than $14,000,000.
"Back-up Servicer": shall initially mean Norwest Bank Minnesota,
National Association.
"Back-up Servicer Fee Rate": shall mean five one hundredths of one
percent (0.05%) per annum.
"BankBoston Loan Agreement": shall mean that certain 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, as amended by the 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.
"Cash Collateral Account Factor": shall mean 1.0067.
2
<PAGE> 4
"Change in Control": shall mean either (a) both of the Key Employees
shall become deceased, shall become unable to work for a period of six (6)
consecutive months or more, or cease to be employed by the Reported Companies or
(b) either (i) 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 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 of the Servicer on a fully diluted basis (assuming the exercise of
all outstanding stock options) of the Servicer having ordinary voting rights for
the election of directors, (ii) 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 (assuming the
exercise of all outstanding stock options) of the Servicer having ordinary
voting rights for the election of directors; provided, that clause (ii) shall
not apply if and for so long as the Servicer shall be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, or (iii) the
Servicer 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 the Company.
"Collateralization Percentage": shall mean 26%.
"Company": shall mean Leasecomm Corporation.
"Corporate Trust Office": shall mean the trust office listed in Section
1.03 below.
"Cut-Off Date": With respect to any Series of Term Notes, the meaning
specified in the applicable Supplement, and with respect to any Series of
Warehouse Notes, (i) with respect to a Warehouse Funding occurring on or before
the Determination Date that occurs during the same calender month as such
Warehouse Funding, the last day of the calendar month ending prior to the
related Due Period, and (ii) with respect to any Lease Contract funded in a
Warehouse Funding occurring after the Determination Date that occurs during the
same calender month as such Warehouse Funding, the last day of the calender
month prior to the month such Warehouse Funding occurs.
"Defaulted Lease Purchase and Substitution Limit": shall mean 6.5%.
"Delinquent Lease Purchase and Substitution Limit": shall mean 20%.
"Enumerated States": None.
"Fleet Loan Agreement": shall mean that certain Amended and Restated
Loan Agreement between Leasecomm Corporation and NatWest Bank, N.A., dated July
28, 1995, as amended by the First Amendment to Amended and Restated Loan
Agreement between Leasecomm Corporation and NatWest Bank, N.A., dated October
30, 1995, and the 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, and the Third Amendment to Amended and Restated
Loan Agreement between Leasecomm Corporation and Fleet Bank, N.A., dated August
11, 1997.
3
<PAGE> 5
"Floor Percentage": shall mean 5%.
"Holdback Rate": shall mean 24%.
"Indenture Trustee": shall initially mean Norwest Bank Minnesota,
National Association.
"Independent Accountants": shall mean a firm of independent certified
public accountants of recognized national standing.
"Initial ACH Deposit": shall be $0.00.
"Insurance Agreement": Shall mean each Insurance Agreement by and among
MBIA, the Issuer, the Company, the Back-up Servicer, the Note Administrator and
the Indenture Trustee, executed in connection with the Issuance of a Series of
Notes.
"Issuer": shall mean BLT Finance Corp. III.
"Issuer Payment Office": shall mean 950 Winter Street, Waltham,
Massachusetts, 02154
"Issuer State of Incorporation": shall mean the Commonwealth of
Massachusetts.
"Key Employee": shall mean Peter von Bleyleben and Richard Latour.
"Key Shareholders": shall mean Peter von Bleyleben, Brian Boyle and
Torrence Harder.
"Lease Receivables": The term "Lease Receivables" shall include
Servicing Charges.
"Maximum Default Rate": shall mean 7%.
"Maximum Delinquency Rate": shall mean 14.5%.
"Minimum Net Worth Amount" means an amount equal to $24,950,000,
provided however, that if the Servicer becomes subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended, such amount
shall be reset to ninety percent (90%) of the Tangible Net Worth of the Reported
Companies as of the close of the month in which such event occurs.
"Minimum Required Collateralization Amount": shall mean with respect to
the Initial Delivery Date, $5,963,801.10.
"Net Worth Requirement": shall mean that the Reported Companies'
Tangible Net Worth, 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
4
<PAGE> 6
with generally accepted accounting principles as in effect on December 31, 1997.
"Overdue Payment": shall include Servicing Charges.
"Payment Date": For each Series, the sixteenth day of each calendar
month (or if such day is not a Business Day, the next succeeding Business Day)
commencing on the Initial Payment Date for such Series.
"Pro Rata Share": With respect to any distribution of principal or
interest on any Series of Notes on any Payment Date, a percentage determined by
dividing the Target Principal Distribution Amount or amount of interest, as
applicable, scheduled to be paid on such Series of Notes by the aggregate Target
Principal Distribution Amount or amount of interest, as applicable, scheduled to
be paid on all Series of Notes on such Payment Date; PROVIDED, HOWEVER, with
respect to payments of Additional Principal Amounts on any Payment Date, "Pro
Rata Share" for any Series of Notes shall mean a percentage determined by
dividing (a) the decline in the related Series IPB since the Calculation Date
preceding the Trigger Event by (b) the decline in the Aggregate IPB since the
Calculation Date preceding the Trigger Event.
"Reported Companies": shall have the meaning set forth in the Specific
Servicing Terms.
"Scheduled Payment": shall exclude payments made pursuant to a TRAC
payment and payments made pursuant to a PUT payment clause.
"Servicer": shall initially mean Boyle Leasing Technologies, Inc.
"Specific Indenture Terms": The Specific Terms and Conditions of
Indenture, dated as of November 1, 1994 and amended and restated as of October
1, 1998, among the Issuer, the Servicer, the Back-up Servicer and the Indenture
Trustee, as amended from time to time.
"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.
"Transaction Documents Date": except as provided in any Supplement,
shall mean November 1, 1994.
"Transition Cost": The Transition Cost payable to the Back-up Servicer
shall not exceed $50,000.
"Trigger Event": The occurrence of any one of the following events
unless, in the case of subclauses (e) through (k) below, waived by MBIA or, if
an MBIA Default has occurred and is continuing, by the Holders of Notes
representing no less than 66 2/3% in Outstanding Principal Amount of the Notes,
that such occurrence shall constitute a Trigger Event:
(a) for any three consecutive Due Periods, the average of the
Annualized Default Rates for such consecutive Due Periods was
equal to or greater than the Maximum Default Rate;
5
<PAGE> 7
(b) in any Due Period, the Annualized Default Rate was equal to or
greater than three times the Maximum Default Rate;
(c) in any two consecutive Due Periods, the sum of the Annualized
Default Rates for such Due Periods was equal to or greater
than three times the Maximum Default Rate;
(d) for any three consecutive Due Periods, the average of the
Delinquency Rates for such Due Periods was equal to or greater
than the Maximum Delinquency Rate;
(e) the Net Worth Requirement is not met and, after 30 days of the
date on which it is reported, has not been cured or waived by
MBIA or, if an MBIA Default has occurred and is continuing, by
the Holders of Notes representing no less than 66 2/3% in
Outstanding Principal Amount of the Notes;
(f) the occurrence of any Change in Control;
(g) an Event of Default occurs;
(h) the Issuer or the Trust Estate becomes required to register as
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended;
(i) a voluntary bankruptcy filing of the Servicer or an
involuntary bankruptcy filing of the Servicer which is not
discharged within sixty (60) days;
(j) any Reported Company shall be in default under, or in
violation of, any covenant or obligation under either the
Fleet Loan Agreement or the BankBoston Loan Agreement (each, a
"Loan Agreement"), as each such Loan Agreement may be amended
from time to time (provided, that any such amendment will only
amend this subclause (j) to the extent it has been approved
for inclusion herein by MBIA or, if an MBIA Default has
occurred and is continuing, by the Holders of Notes
representing no less than 66 2/3% of the Outstanding Principal
Amount of the Notes), such that the lender under such Loan
Agreement would be authorized, pursuant to the terms of such
agreement and upon the expiration of any cure period or grace
period with respect to such violation or default, to demand
immediate payment by such Reported Company of the debt
outstanding thereunder, and such default or violation shall
not have been cured, remedied or waived in writing by such
lender and MBIA (or, if an MBIA Default has occurred and is
continuing, by the Holders of Notes representing no less than
66 2/3% in Outstanding Principal Amount of the Notes) after
ninety (90) days, counting from the initial date of the
violation or default and not from the expiration of any
applicable cure period or grace period;
(k) the Available Cash Requirement is not met and, after 30 days
of the date on which it is reported, has not been cured or
waived by MBIA or, if an MBIA Default has occurred and is
continuing, by the Holders of Notes representing no less than
66 2/3% in Outstanding Principal Amount of the Notes; or
(l) the occurrence of any additional event set forth in any
Supplement as a "Trigger Event".
"Trustee Fee Rate": shall mean (i) with respect to the Series 1994-A
Notes and the 1994-B Warehouse Note, one tenth of one percent (0.10%) per annum,
and with respect to any other Series, as defined in the related Supplement.
"Warehouse Funding Date": Shall mean, unless otherwise provided in an
applicable Supplement, any Business Day on which the Issuer desires to obtain a
Warehouse Funding in
6
<PAGE> 8
accordance with the terms hereof, provided, however, that (a) there shall be no
more than two Warehouse Funding Dates per week and (b) no Warehouse Fundings
shall occur after the Warehouse Funding Termination Date or the date that the
Issuer or MBIA, as applicable, provides notice to the Indenture Trustee pursuant
to Section 10.02 hereof that such Series of Warehouse Notes are to be redeemed
by the Issuer or MBIA, as applicable.
SECTION 1.02 INTERPRETIVE PROVISIONS
References herein to statutes or regulations are to be construed as
including all statutory or regulatory provisions consolidating, amending or
replacing the statute or regulation referred to; references to agreements and
other contractual instruments shall be deemed to include all subsequent
amendments and other modifications to such instruments; and references to
Persons include their respective permitted successors and assigns and Persons
succeeding to their respective functions and capacities.
SECTION 1.03 NATURE OF TRANSFER
In the event that the transfer of the Trust Estate is deemed to be a
secured financing, the Issuer shall be deemed hereunder to have Granted to the
Indenture Trustee and the Issuer does hereby Grant to the Indenture Trustee, for
the ratable benefit of the Noteholders and MBIA, a security interest in all of
the Issuer's right, title and interest in, to and under the Lease Contracts, the
Lease Receivables, the Equipment and the other assets in the Trust Estate,
whether now owned or hereafter acquired. For purposes of such Grant, the
Indenture shall constitute a security agreement under applicable law.
SECTION 1.04 ADDRESSES FOR NOTICES
All demands, notices and communications referred to in Section 13.03
(a), (c) or (d) of the Standard Indenture Terms shall be addressed as follows:
(a) if to the Issuer, at 950 Winter Street, Waltham, Massachusetts
02451 Attention: President;
(b) if to the Servicer, at 950 Winter Street, Waltham,
Massachusetts 02451 Attention: President;
(c) if to the Back-up Servicer, at Corporate Trust Department, 6th
Street & Marquette Avenue, Minneapolis, Minnesota 55479-0069.
(d) if to the Indenture Trustee, at Corporate Trust Department,
6th Street & Marquette Avenue, Minneapolis, Minnesota 55479-0069.
Any of the above Persons may change the address for notices hereunder
by giving notice of such change to other Persons.
7
<PAGE> 9
SECTION 1.05 COMPENSATION AND REIMBURSEMENT OF INDENTURE TRUSTEE
Reimbursement by the Issuer to the Indenture Trustee and the Back-up
Servicer pursuant to Section 7.07(ii) of the Standard Indenture Terms is limited
to all reasonable out-of-pocket expenses, disbursements and advances with
respect to transportation and food incurred or made by the Indenture Trustee or
the Back-up Servicer in accordance with any provision of the Indenture or
Servicing Agreement (including the reasonable compensation and the expenses and
disbursements of the Indenture Trustee's agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith; provided, however, in the event the Indenture Trustee or the Back-up
Servicer makes a site visit to the Servicer's offices (other than the Back-up
Servicer's annual site visit set forth in Section 7.04(e) of the Standard
Servicing Terms) necessitated, in the Back-up Servicer's reasonable judgment, as
a result of its activities pursuant to Section 7.04 of the Standard Servicing
Terms, the Issuer shall reimburse the Indenture Trustee or the Back-up Servicer
for all reasonable out-of-pocket expenses, disbursements and advances incurred
or made by the Indenture Trustee or the Back-up Servicer, except any such
expense, disbursement or advance as may be attributable to its negligence or bad
faith.
ARTICLE TWO
INDENTURE COMPRISED OF SPECIFIC AND STANDARD TERMS
The Specific Indenture Terms incorporate by reference all of the
provisions of the Standard Indenture Terms attached hereto as Appendix 1, which
together with any Supplement form the Indenture. Notwithstanding the foregoing,
if any provision of these Standard Indenture Terms conflicts with the provisions
of these Specific Indenture Terms, the provisions of the Specific Indenture
Terms shall control and if any provision of a Supplement conflicts with the
provisions of either the Standard Indenture Terms or the Specific Indenture
Terms, the provisions of the Supplement shall control.
ARTICLE THREE
MODIFICATION OF CERTAIN PROVISIONS OF INDENTURE
(a) The first sentence of Section 2.03 of the Standard Indenture
Terms shall be amended and restated as follows:
"The Notes shall be executed on behalf of the Issuer by its President,
its Vice President and Treasurer or its Vice President and Clerk. No
corporate seal shall be required."
(b) The provisions of Section 3.03(a)(ii) of the Standard
Indenture Terms shall be amended and restated as follows:
"(ii) the delivery by the Issuer to the Indenture Trustee on or before
the second Business Day immediately prior to the requested Warehouse
Funding Date of the original executed counterpart of the Lease
Contracts relating to such Warehouse Funding and the other items
comprising the related Lease Contract Files."
(c) The provisions of Section 4.04(e)(iii) of the Standard
Indenture Terms shall not be
8
<PAGE> 10
applicable.
(d) Section 5.01(b) shall be amended to include the following
sentence at the end thereof:
"Any costs or fees incurred in connection with the delivery of the
Opinion of Counsel referred to in this Section 5.01(b) shall be borne
by MBIA."
(e) Existing Section 6.15 shall be renumbered as Section 6.15(a)
and the following new subsection shall be added thereafter:
"(b) Any Event of Default by the Issuer pursuant to Section 6.01(3)
hereof that is cured and for which no notice of default is delivered
shall be deemed waived without the necessity of written waiver or
consent."
(f) Section 12.02(d)(xi) shall be amended and restated as follows:
(xi) on and after the Payment Date following a Trigger Event, apply
any remaining funds to the payment of Note principal on each Series of
Outstanding Notes, in proportion to the Pro Rata Share for such Series.
ARTICLE FOUR
COUNTERPARTS
This Indenture may be executed in one or more counterparts all of which
together shall constitute one original document.
ARTICLE FIVE
OTHER TRANSACTIONS
Nothing contained in this Indenture or the other Transaction Documents
shall preclude the Servicer or the Company from entering into other credit
arrangements or securitization transactions with respect to collateral similar
to the Collateral.
ARTICLE SIX
ACKNOWLEDGMENT
In connection with the amendment and restatement of these Specific
Indenture Terms, the parties hereby authorize modifications to the form of the
Monthly Servicer Report as necessary to reflect such amendments.
9
<PAGE> 11
IN WITNESS WHEREOF, the Issuer, the Servicer, the Back-up Servicer and
the Indenture Trustee have caused the Indenture to be duly executed by their
respective officers thereunto duly authorized as of the date and year first
above written.
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Indenture Trustee
By: /s/ Eileen R. O'Connor
----------------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Back-up Servicer
By: /s/ Eileen R. O'Connor
----------------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
BLT FINANCE CORP. III.,
Issuer
By: /s/ J.G. Hines
----------------------------------------
Name: J.G. Hines
Title: Vice President
MICROFINANCIAL INCORPORATED,
Servicer
By: /s/ J.G. Hines
----------------------------------------
Name: J.G. Hines
Title: Vice President
10
<PAGE> 12
Consented and Agreed to as of the date first above written:
MBIA INSURANCE CORPORATION
By: /s/ Nicholas Sourbis
----------------------------------------
Name: Nicholas Sourbis
Title: Managing Director
MARNIX ASSET FUNDING CORPORATION
By: /s/ Kathleen Daese
----------------------------------------
Name: Kathleen Daese
Title: Assistant Vice President
PRINCIPAL LIFE INSURANCE COMPANY
By: /s/ Jon C. Heiny
----------------------------------------
Name: Jon C. Heiny
Title: Counsel
By: /s/ James G. Fifield
----------------------------------------
Name: James G. Fifield
Title: Counsel
11
<PAGE> 1
EXHIBIT 10.19
SUPPLEMENT TO INDENTURE, TERM NOTES, SERIES 1998-A
This INDENTURE SUPPLEMENT, dated as of October 1, 1998, is entered into
by and among BLT Finance Corp. III, a Massachusetts corporation (the "Issuer"),
MicroFinancial Incorporated (formerly known as Boyle Leasing Technologies,
Inc.), a Massachusetts corporation, (the "Servicer"), Norwest Bank Minnesota,
National Association, a national banking association, (the "Back-up Servicer")
and Norwest Bank Minnesota, National Association, a national banking
association, as trustee (the "Indenture Trustee"). Capitalized terms used herein
and not otherwise defined are, unless the context otherwise requires, used as
defined in the Standard Indenture Terms or the Specific Indenture Terms.
This Indenture Supplement incorporates by reference all of the
provisions of the Standard Terms and Conditions of Indenture, dated as of
November 1, 1994 (the "Standard Indenture Terms") and the Second Amended and
Restated Specific Terms and Conditions of Indenture, dated as of November 1,
1994 and amended and restated as of October 1, 1998, among the Issuer, the
Servicer, the Indenture Trustee and the Back-up Servicer (the "Specific
Indenture Terms") and one or more Supplements, which together are intended to
form the Indenture (the "Indenture") entered into in connection with the
financing described below.
The Issuer has duly authorized the execution and delivery of this
Indenture Supplement to provide for the issuance of the Issuer's 6.03% Lease
Backed Term Notes, Series 1998-A (the "1998-A Term Notes") in an aggregate
principal amount of $40,768,556.80, issuable as provided in the Indenture. Lease
Contracts are being acquired from Leasecomm Corporation pursuant to the Specific
Terms and Conditions of Lease Acquisition dated as of November 1, 1994 and as
amended and restated as of October 1, 1998, which incorporate by reference the
Standard Terms and Conditions of Lease Acquisition, dated as of November 1,
1994, and an Assignment and Assumption Agreement dated as of October 1, 1998.
The Series Lease Schedule for the Series 1998-A Term Notes is attached hereto as
Schedule A and the Targeted Balance Schedule with respect to the 1998-A Term
Notes is attached hereto as Schedule B. Pursuant to Section 2.02 of the Standard
Indenture Terms, this Indenture Supplement sets forth the following additional
terms applicable to the 1998-A Term Notes, which series is hereby designated as
Term Notes:
SECTION 1. DEFINITIONS.
"Accrual Date": shall mean November 4, 1998.
"Cut-off Date": shall mean with respect to the definitions of "Initial
Series IPB" and "Term Note Funding Amount," September 30, 1998.
"Delivery Date": shall mean November 4, 1998.
"Initial Cash Deposit": $313,736.63.
"Initial Payment Date": shall mean November 16, 1998.
"Insurance Agreement": shall mean the Insurance Agreement dated as of
May 1, 1996 by and among MBIA Insurance Corporation (the "Insurer"), Leasecomm
Corporation (the "Company"), the
<PAGE> 2
Servicer, the Issuer, Rothschild Inc. (the "Note Administrator") and the
Indenture Trustee in its capacity as Indenture Trustee and Back-up Servicer as
supplemented and amended pursuant to Supplement and Amendment to Insurance
Agreement, dated as of August 1, 1997 and as further supplemented and amended
pursuant to Second Supplement and Amendment to Insurance Agreement dated as of
October 1, 1998, by and among the Insurer, the Company, the Servicer, the
Issuer, the Note Administrator and the Indenture Trustee in its capacity as
Indenture Trustee and Back-up Servicer.
"MBIA Premium": shall have the meaning specified in the Insurance
Agreement.
"MBIA Premium Rate": shall have the meaning specified in the Insurance
Agreement.
"Note Interest Rate": shall mean 6.03%.
"Note Insurance Policy": shall mean MBIA Policy Number 27849.
"Private Placement Memorandum" or "Final Private Placement Memorandum":
shall refer to the Private Placement Memorandum dated November 4, 1998.
"Stated Maturity": shall mean May 17, 2004.
"Term Note Funding Amount": shall not exceed $40,768,556.80.
"Transaction Documents Date": shall mean October 1, 1998 with respect
to the 1998-A Term Note Supplement, the Indenture and the Insurance Agreement;
with respect to the Note Insurance Policy with respect to the 1998-A Term Notes,
"Transaction Documents Date" shall mean November 4, 1998; for all other purposes
"Transaction Documents Date" shall mean November 1, 1994.
"Trustee Fee Rate": shall mean with respect to the 1998-A Term Notes,
0.03% per annum.
SECTION 2. ADDITIONAL AND MODIFIED TERMS.
(a) During the period that the 1998-A Term Notes remain
outstanding, the Issuer agrees to provide any Holder of the 1998-A Term Notes or
any prospective purchaser of the 1998-A Term Notes such information as may be
required pursuant to Rule 144A(d)(4) of the Rules and Regulations under the Act
to render the 1998-A Term Notes eligible for resale pursuant to Rule 144A.
(b) Notice is hereby given that effective as of July 30, 1998,
Boyle Leasing Technologies, Inc. changed its name to MicroFinancial
Incorporated.
(c) The address of the Issuer and the Servicer referred to in
Section 13.03(a),(c) and (d) of the Standard Indenture Terms shall be as
follows:
(i) if to the Issuer, at 950 Winter Street, Suite 4200A, Waltham,
Massachusetts 02451 Attention: President;
(ii) if to the Servicer, 950 Winter Street, Suite 4100, Waltham,
Massachusetts 02451 Attention: President
-2-
<PAGE> 3
SECTION 3. CASH COLLATERAL ACCOUNT RELEASE.
Notwithstanding any other provision of the Indenture, the Trustee is
hereby directed to release $5,216,658.69 from the Cash Collateral Account to the
Issuer on the Delivery Date in consideration for the pledge of an equivalent
amount (by Aggregate IPB) of additional Lease Assets on such date.
SECTION 4. PAYMENT OF PRINCIPAL AND INTEREST.
Notwithstanding any other provision of the Indenture, the principal and
interest on the 1998-A Term Notes shall be payable by wire transfer in
immediately available funds to the account specified in writing to the Indenture
Trustee by such Registered Holder at least five Business Days prior to the
Record Date for the Payment Date on which wire transfers will commence, in such
coin or currency of the United States of America as at the time of payment is
legal tender for the payment of public and private debts.
SECTION 5. COUNTERPARTS.
This Indenture Supplement may be executed in one or more counterparts
all of which together shall constitute one original document.
IN WITNESS WHEREOF, the Issuer, the Servicer, the Back-up Servicer and
the Indenture Trustee have caused this Indenture Supplement to be duly executed
by their respective officers thereunto duly authorized as of the date and year
first above written.
BLT FINANCE CORP. III,
as Issuer
By: /s/ Richard F. Latour
----------------------------------------
Name: Richard F. Latour
Title: Vice President
MICROFINANCIAL INCORPORATED,
as Servicer
By: /s/ Richard F. Latour
----------------------------------------
Name: Richard F. Latour
Title: Executive Vice President
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Back-up Servicer
By: /s/ Eileen R. O'Connor
----------------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
-3-
<PAGE> 4
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
as Indenture Trustee
By: /s/ Eileen R. O'Connor
----------------------------------------
Name: Eileen R. O'Connor
Title: Corporate Trust Officer
-4-
<PAGE> 5
SCHEDULE A
SERIES 1998-A LEASE SCHEDULE
In the possession of the Trustee
<PAGE> 6
SCHEDULE B
TARGETED BALANCE SCHEDULE
SERIES 1998-A
<PAGE> 7
SCHEDULE B
BLT FINANCE CORP. III
$40,768,446.80 6.03% LEASE-BACKED TERM NOTES, SERIES 1998-A
TARGETED AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
Beginning Principal Ending
Month Number Payment Date Note Balance Payment Note Balance
- ------------ ------------ ------------ ------- ------------
<S> <C> <C> <C> <C>
1 16-Nov-98 40,768,556.80 1,029,329.98 39,739,226.81
2 16-Dec-98 39,739,226.81 1,036,529.55 38,702,697.27
3 16-Jan-99 38,702,697.27 1,044,366.10 37,658,331.16
4 16-Feb-99 37,658,331.16 1,138,100.84 36,520,230.32
5 16-Mar-99 36,520,230.32 1,237,650.12 35,282,580.20
6 16-Apr-99 35,282,580.20 1,048,660.60 34,233,919.60
7 16-May-99 34,233,919.60 1,035,951.94 33,197,967.65
8 16-Jun-99 33,197,967.65 1,039,246.41 32,158,721.25
9 16-Jul-99 32,158,721.25 1,042,341.06 31,116,380.19
10 16-Aug-99 31,116,380.19 1,047,219.11 30,069,161.08
11 16-Sep-99 30,069,161.08 1,058,013.36 29,011,147.71
12 16-Oct-99 29,011,147.71 967,355.42 28,043,792.30
13 16-Nov-99 28,043,792.30 1,176,276.78 26,867,515.51
14 16-Dec-99 26,867,515.51 1,082,423.16 25,785,092.35
15 16-Jan-2000 25,785,092.35 1,087,030.27 24,698,062.08
16 16-Feb-2000 24,698,062.08 752,782.34 23,945,279.74
17 16-Mar-2000 23,945,279.74 726,277.76 23,219,001.98
18 16-Apr-2000 23,219,001.98 784,582.48 22,434,419.51
19 16-May-2000 22,434,419.51 833,515.94 21,600,903.57
20 16-Jun-2000 21,600,903.57 877,572.93 20,723,330.64
21 16-Jul-2000 20,723,330.64 899,538.80 19,823,791.83
22 16-Aug-2000 19,823,791.83 937,897.59 18,885,894.24
23 16-Sep-2000 18,885,894.24 992,740.13 17,893,154.11
24 16-Oct-2000 17,893,154.11 2,141,434.37 15,751,719.74
25 16-Nov-2000 15,751,719.74 983,783.81 14,767,935.92
26 16-Dec-2000 14,767,935.92 1,490,808.91 13,277,127.01
27 16-Jan-2001 13,277,127.01 1,406,080.24 11,871,046.77
28 16-Feb-2001 11,871,046.77 1,317,184.19 10,553,862.58
29 16-Mar-2001 10,553,862.58 1,215,204.63 9,338,657.96
30 16-Apr-2001 9,338,657.96 1,304,443.48 8,034,214.48
31 16-May-2001 8,034,214.48 1,338,585.45 6,695,629.03
32 16-June-2001 6,695,629.03 1,209,614.24 5,486,014.78
33 16-Jul-2001 5,486,014.78 1,091,385.90 4,394,628.88
34 16-Aug-2001 4,394,628.88 972,555.19 3,422,073.69
35 16-Sep-2001 3,422,073.69 931,721.06 2,490,352.63
36 16-Oct-2001 2,490,352.63 888,681.17 1,601,671.46
37 16-Nov-2001 1,601,671.46 810,598.47 791,072.99
38 16-Dec-2001 791,072.99 733,786.12 57,286.87
39 16-Jan-2002 57,286.87 57,286.87 0.00
</TABLE>
<PAGE> 1
EXHIBIT 10.22
TERM NOTE
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT IN
COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. THE
TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS AND CONDITIONS SET
FORTH IN THE INDENTURE UNDER WHICH THIS NOTE IS ISSUED (A COPY OF WHICH IS
AVAILABLE FROM THE INDENTURE TRUSTEE UPON REQUEST).
DUE TO THE PROVISIONS FOR THE PAYMENT OF PRINCIPAL CONTAINED HEREIN, THE
OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE AMOUNT SHOWN ON
THE FACE HEREOF. ANYONE PURCHASING THIS NOTE MAY ASCERTAIN THE OUTSTANDING
PRINCIPAL AMOUNT HEREOF BY INQUIRY OF THE INDENTURE TRUSTEE.
No. __ $ __________
CUSIP NO. ________________
BLT FINANCE CORP. III
6.03% LEASE-BACKED NOTE, SERIES 1998-A
DELIVERY DATE: ___________ STATED MATURITY: May 17, 2004
BLT Finance Corp. III, a corporation duly organized and existing under
the laws of the Commonwealth of Massachusetts (the "Issuer," which term includes
any successor entity under the Indenture referred to below), for value received,
hereby promises to pay to _____________, or its registered assigns, the
principal sum of __________ DOLLARS ($_______) in monthly installments beginning
on November 16, 1998, and to pay interest monthly in arrears on the unpaid
portion of said principal sum (and, to the extent that the payment of such
interest shall be legally enforceable, on any overdue installment of interest on
this Note) on the sixteenth day of each calendar month or, if such sixteenth day
is not a Business Day, the Business Day immediately following (each, a "Payment
Date"), for the period from and including the Delivery Date set forth above
through November 16, 1998, and thereafter, monthly from and including the most
recent Payment Date through the day immediately preceding the applicable Payment
Date, until the last day preceding the Final Payment Date, at the rate of 6.03%
per annum (calculated on the basis of a 360-day year consisting of 12 months of
30 days each). Each monthly installment of principal payable on this Note shall
be an amount equal to the Pro Rata Share of
<PAGE> 2
the Principal Distribution Amount plus any Additional Principal Amount, as such
term is defined in the Indenture described herein. Any remaining unpaid portion
of the principal amount of this Note shall be due and payable no later than the
Stated Maturity referred to above. The interest and principal so payable on any
Payment Date will, as provided in the Indenture, be paid to the Person in whose
name this Note is registered on the Record Date for such Payment Date, which
shall be the close of business on the last day of the month prior to such
Payment Date (whether or not a Business Day).
The principal and interest on this Note are payable by wire transfer in
immediately available funds to the account specified in writing to the Indenture
Trustee by the Person whose name appears as the Registered Holder of this Note
on the Note Register received at least five Business Days prior to the Record
Date for the Payment Date on which wire transfers will commence, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. Funds represented by checks
returned undelivered will be held for payment to the Person entitled thereto,
subject to the terms of the Indenture, at the office or agency in the United
States of America designated as such by the Issuer for such purpose pursuant to
the Indenture.
This Note is one of a duly authorized issue of Notes of the Issuer
designated as its 6.03% Lease-Backed Notes, Series 1998-A Due May 17, 2004
(herein called the "Notes") issued and to be issued under the Second Amended and
Restated Specific Terms and Conditions of Indenture dated as of November 1, 1994
and amended and restated as of October 1, 1998, and the Standard Terms and
Conditions of Indenture dated November 1, 1994, appended thereto and
incorporated therein (herein called the "Indenture"), among the Issuer,
MicroFinancial Incorporated (formerly known as Boyle Leasing Technologies,
Inc.), as Servicer, and Norwest Bank Minnesota, National Association, as
Indenture Trustee (the "Indenture Trustee," which term includes any successor
Indenture Trustee under the Indenture), to which the Indenture, and all
indentures supplemental thereto, reference is hereby made for a statement of the
respective rights thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes, and the terms upon which the Notes are, and are to be,
authenticated and delivered. All terms used in this Note which are defined in
the Indenture shall have the meanings assigned to them in the Indenture.
The Notes are secured by certain Lease Receivables and by certain other
Collateral described in the Indenture and the Note Insurance Policy issued by
MBIA. The Trust Estate secures the Notes equally and ratably without prejudice,
priority or distinction between any Note and any other Note by reason of time of
issue or otherwise, and also secures the payment of certain other amounts and
certain other obligations as described in the Indenture.
Unless earlier declared due and payable by reason of an Event of
Default, Notes are payable only at the time and in the manner provided in the
Indenture and are not redeemable or prepayable at the option of the Issuer
before such time, except that the Notes shall be redeemable at the option of the
Issuer, and in the absence of the exercise thereof, by MBIA in whole but not in
part, at any time after the Outstanding Principal Amount of Notes declines to
10% or less of
2
<PAGE> 3
the original principal amount of the Notes at a redemption price equal to the
Outstanding Principal Amount thereof plus accrued interest thereon to the date
of redemption. If an Event of Default as defined in the Indenture shall occur
and be continuing, the principal of all the Notes may become or be declared due
and payable in the manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Note may be registered on the Note Register of
the Issuer upon surrender of this Note for registration of transfer at the
office or agency of the Issuer in the United States of America maintained for
such purpose, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Indenture Trustee and duly
executed by the holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes of the same Stated Maturity of authorized
denominations and for the same initial aggregate principal amount will be issued
to the designated transferees.
Prior to due presentment for registration of transfer of this Note, the
Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment as herein provided and for all other
purposes whether or not this Note be overdue, and neither the Issuer, the
Indenture Trustee, nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer, the Indenture Trustee, the Back-up Servicer, the Servicer
and MBIA with the consent of the Holders of 66-2/3% in aggregate principal
amount of Notes at the time Outstanding. The Indenture also contains provisions
permitting MBIA or the Holders of specified percentages in aggregate principal
amount of the Notes at the time Outstanding with the prior written consent of
MBIA, on behalf of the Holders of all Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note shall be conclusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
The Notes are issuable only in registered form without coupons in such
authorized denominations as provided in the Indenture and subject to certain
limitations therein set forth.
This Note and the Indenture shall be governed by and construed in
accordance with the internal laws of the State of New York, without regard to
conflicts of laws principles.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the
3
<PAGE> 4
principal of and interest on this Note, but solely from the Collateral pledged
to the Indenture Trustee under the Indenture and the Policy at the times, place
and rate, and in the coin or currency, herein prescribed. Notwithstanding
anything else to the contrary contained in this Note or the Indenture, the
obligation of the Issuer to pay the principal of and interest on this Note is
not a general obligation of the Issuer, nor its officers or directors, but is
limited solely to the Collateral pledged under the Indenture.
STATEMENT OF INSURANCE
OBLIGATIONS: $___________ POLICY NUMBER:_______
BLT Finance Corp. III
Lease-Backed Notes, Series 1998-A
MBIA Insurance Corporation (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of the Note Guaranty Insurance
Policy (the "Policy"), thereby unconditionally and irrevocably guarantees to any
Owner that an amount equal to each full and complete Insured Payment will be
received by Norwest Bank Minnesota, National Association, or its successor, as
indenture trustee for the Owners (the "Indenture Trustee"), on behalf of the
Owners, from the Insurer for distribution by the Indenture Trustee to each Owner
of each Owner's proportionate share, as determined in accordance with the
Agreement (as defined below), of the Insured Payment. The Insurer's obligations
under the Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the Indenture Trustee, whether or not such funds are properly
applied by the Indenture Trustee. Insured Payments shall be made only at the
time set forth in the Policy, and no accelerated Insured Payments shall be made
regardless of any acceleration of the 1998-A Term Notes, unless such
acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust Estate or the
Indenture Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability). Furthermore, the Policy covers with
respect to the principal amount of the 1998-A Term Notes only such amount as is
outstanding at the Stated Maturity applicable to such 1998-A Term Notes.
The Insurer will pay any Insured Payment that is a Preference Amount on
the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of
such Preference Amount, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Insurer, irrevocably assigning to the
Insurer all rights and claims of the Owner relating to or arising under the
1998-A Term Notes against the debtor which made such preference payment or
otherwise with respect to such preference payment and (iv) appropriate
instruments to effect the appointment of the Insurer as agent for such Owner in
any legal proceeding related to such preference payment, such
4
<PAGE> 5
instruments being in a form satisfactory to the Insurer, provided that if such
documents are received after 12:00 noon, New York City time on such Business
Day, they will be deemed to be received on the following Business Day. Such
payments shall be disbursed to the receiver or trustee in bankruptcy named in
the final order of the court exercising jurisdiction on behalf of the Owner and
not to any Owner directly unless such Owner has returned principal or interest
paid on the 1998-A Term Notes to such receiver or trustee in bankruptcy, in
which case such payment shall be disbursed to such Owner.
The Insurer will pay any other amount payable under the Policy no later
than 12:00 noon, New York City time on the later of the Payment Date on which
the related Deficiency Amount is due or the Business Day following receipt in
New York, New York on a Business Day by State Street Bank and Trust Company,
N.A., as Fiscal Agent for the Insurer or any successor fiscal agent appointed by
the Insurer (the "Fiscal Agent") of a Notice (as described below); provided that
if such Notice is received after 12:00 noon New York City time on such Business
Day, it will be deemed to be received on the following Business Day. If any such
Notice received by the Fiscal Agent is not in proper form or is otherwise
insufficient for the purpose of making claim under the Policy it shall be deemed
not to have been received by the Fiscal Agent for purposes of this paragraph,
and the Insurer or the Fiscal Agent, as the case may be, shall promptly so
advise the Indenture Trustee and the Indenture Trustee may submit an amended
Notice.
Insured Payments due under the Policy unless otherwise stated therein
will be disbursed by the Fiscal Agent to the Indenture Trustee on behalf of the
Owners by wire transfer of immediately available funds in the amount of the
Insured Payment less, in respect of Insured Payments related to Preference
Amounts, any amount held by the Indenture Trustee for payment of such Insured
Payment and legally available therefor.
The Fiscal Agent is the agent of the Insurer only and the Fiscal Agent
shall in no event be liable to Owners for any acts of the Fiscal Agent or any
failure of the Insurer to deposit or cause to be deposited sufficient funds to
make payments due under the Policy.
Subject to the terms of the Agreement, the Insurer shall be subrogated
to the rights of each Owner to receive payments under the 1998-A Term Notes to
the extent of any payment by the Insurer under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Standard Terms and Conditions of Indenture, dated
as of November 1, 1994 and the Second Amended and Restated Specific Terms and
Conditions of Indenture, dated as of November 1, 1994, and as amended and
restated as of October 1, 1998, among BLT Finance Corp. III, as Issuer, Norwest
Bank Minnesota, National Association, as Back-up Servicer and Indenture Trustee,
and MicroFinancial Incorporated (formerly known as Boyle Leasing Technologies,
Inc.), as Servicer, without regard to any amendment or supplement thereto (other
than the Supplement to the Indenture for the 1996-A Term Notes, dated as of May
5
<PAGE> 6
1, 1996, the Supplement to the Indenture for the 1997-A Term Notes, dated as of
August 1, 1997 and the Supplement to the Indenture for the 1998-A Term Notes,
dated as of October 1, 1998), unless such amendment or supplement is approved by
the Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City or in the city in which the
principal place of business of the Issuer or the Servicer or the Corporate Trust
Office of the Indenture Trustee under the Agreement is located are authorized or
obligated by law or executive order to close.
"Deficiency Amount" means (a) for any Payment Date, any shortfall in
amounts available in the Collection Account to pay the interest due on the
1998-A Term Notes under Section 12.02(d)(vi) of the Agreement after giving
effect to the transfers from the Cash Collateral Account pursuant to Sections
12.03(d)(i) and (iii) of the Agreement and after payment of all amounts payable
pursuant to Sections 12.02(d)(i) through (iv) of the Agreement, plus (b) on the
Stated Maturity applicable to the 1998-A Term Notes, any shortfall in amounts
available in the Collection Account to pay the Principal Distribution Amount for
the 1998-A Term Notes pursuant to Section 12.02(d)(vii) of the Agreement after
giving effect to the transfers from the Cash Collateral Account pursuant to
Sections 12.03(d)(i) and (iii) of the Agreement and after the payment of all
amounts payable pursuant to Sections 12.02(d)(i) through (vi) of the Agreement.
"Insured Payment" means (i) as of any Payment Date, any Deficiency
Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed
in writing by telecopy substantially in the form of Exhibit A attached to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Indenture Trustee specifying the related Insured
Payment which shall be due and owing on the applicable Payment Date.
"Owner" means each Noteholder (as defined in the Agreement) who, on the
applicable Payment Date, is entitled under the terms of the applicable 1998-A
Term Notes to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner
on the 1998-A Term Notes that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Policy and not otherwise defined in the
policy shall have the respective meanings set forth in the Agreement as of the
date of execution of the Policy, without giving effect to any subsequent
amendment or modification to the Agreement unless such amendment or modification
has been approved in writing by the Insurer.
6
<PAGE> 7
Any notice under the Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Insurer shall specify in writing to the Indenture Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006 Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Indenture Trustee in
writing.
The Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect to the
conflict of laws principles thereof.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy is not cancelable for any reason. The premiums on the Policy
are not refundable for any reason including payment, or provision being made for
payment, prior to maturity of the 1998-A Term Notes.
MBIA Insurance Corporation
********
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee by manual signature, this Note shall not be entitled to
any benefit under the Indenture or be valid or obligatory for any purpose.
********
7
<PAGE> 8
IN WITNESS WHEREOF, BLT Finance Corp. III has caused this instrument to
be signed, manually, by its President or a Vice President.
By:
-------------------------
Vice President
<PAGE> 9
CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-mentioned Indenture.
Dated:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By:
-----------------------------------------
Authorized Signatory
<PAGE> 1
EXHIBIT 10.25
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
COMMERCIAL LEASE - 598331 - DJC - F
In consideration of the covenants herein contained, Cummings Properties
Management, Inc., hereinafter call LESSOR, does hereby lease to MicroFinancial
Incorporated (a MA corp.), 950 Winter Street, Waltham, MA 02154 hereinafter
called LESSEE, the following described premises, hereinafter called the leased
premises: approximately 44,984 square feet at 10-M Commerce Way, Woburn, MA
01801 TO HAVE AND HOLD the leased premises for a term of five (5) years
commencing at noon on December 15, 1998 and ending at noon on December 14, 2003
unless sooner terminated as herein provided. LESSOR and LESSEE now covenant and
agree that the following terms and conditions shall govern this lease during the
term hereof and for such further time as LESSEE shall hold the leased premises.
1. RENT. LESSEE shall pay to LESSOR base rent at the rate of six hundred eighty
seven thousand seven hundred nineteen (687,719.00) U.S. dollars per year, drawn
on a U.S. bank, payable in advance in monthly installments of $57,309.91 on the
first day in each calendar month in advance, the first monthly payment to be
made upon LESSEE's execution of this lease, including payment in advance of
appropriate fractions of a monthly payment for any portion of a month at the
commencement or end of said lease term. All payments shall be made to LESSOR or
agent at 200 West Cummings Park, Woburn, Massachusetts 01801, or at such other
place as LESSOR shall from time to time in writing designate. If the "Cost of
Living" has increased or decreased as shown by the Consumer Price Index (Boston,
Massachusetts, all items, all urban consumers), U.S. Bureau of Labor Statistics,
the amount of base rent due during each calendar year of this lease and any
extensions thereof shall be annually adjusted in proportion to any increase or
decrease in the Index. All such adjustments shall take place with the rent due
on January 1 of each year during the lease term except that the first such
adjustment will take place with the rent due January 1, 2001. The base month
from which to determine the amount of each increase or decrease in the Index
shall be January 1999, which figure shall be compared with the figure for
November 1999, and each November thereafter to determine the percentage increase
or decrease (if any) in the base rent to be paid during the following calendar
year. In the event that the Consumer Price Index as presently computed is
discontinued as a measure of "Cost of Living" changes, any adjustment shall then
be made on the basis of a comparable index then in general use.
2. SECURITY DEPOSIT. LESSEE shall pay to LESSOR a security deposit in the amount
of sixty thousand (60,000) U.S. dollars upon the execution of this lease by
LESSEE, which shall be held as security for LESSEE's performance as herein
provided and refunded to LESSEE with interest at the simple interest rate of 4%
per annum at the end of this lease, subject to LESSEE's satisfactory compliance
with the conditions hereof. LESSEE may not apply the security deposit to payment
of the last month's rent. In the event of any default or breach of this lease by
LESSEE, LESSOR may immediately apply the security deposit to offset any
outstanding invoice or other payment due to LESSOR, with the balance applied to
outstanding rent. If all or any portion of the security deposit is applied to
cure a default which has not been cured within 7 days
<PAGE> 2
notice from LESSOR, or breach during the term of the lease, LESSEE shall be
responsible for restoring said deposit forthwith, and failure to do so shall be
considered a substantial default under the lease. LESSEE's failure to remit the
full security deposit or any portion thereof when due shall also constitute a
substantial lease default. Until such time as LESSEE pays the security deposit
and first month's rent, LESSOR may declare this lease null and void for failure
of consideration.
3. USE OF PREMISES. LESSEE shall use the leased premises only for the purpose of
executive and administrative offices and equipment storage.
4. ADDITIONAL RENT. LESSEE shall pay to LESSOR as additional rent a
proportionate share of 36.74% (based on square footage leased by LESSEE as
compared with the total leaseable square footage of the building of which the
leased premises are a part) of any increase in the real estate taxes levied
against the land and building of which the leased premises are a part
(hereinafter called the building ), whether such increase is caused by an
increase in tax rate, or the assessment on the property, or a change in the
method of determining real estate taxes. LESSEE shall make payment within thirty
(30) days of written notice from LESSOR that such increased taxes are payable,
and any additional rent shall be prorated should the lease terminate before the
end of any tax year. The base from which to determine the amount of any increase
in taxes shall be the rate and the assessment in effect as of July 1, 1998. See
Paragraph K of the Rider to Lease.
5. UTILITIES. LESSOR shall provide equipment per LESSOR's building standard
specifications to heat and cool the leased premises 12 months a year. LESSEE
shall pay all charges for utilities used on the leased premises, including
electricity, gas, oil, water and sewer. LESSEE shall pay the utility provider or
LESSOR, as applicable, for all such utility charges as determined by separate
meters serving the leased premises and/or as a proportionate share of the
utility charges for the building if not separately metered. No plumbing,
construction or electrical work of any type shall be done without LESSOR's prior
written approval and LESSEE obtaining the appropriate municipal permit.
6. COMPLIANCE WITH LAWS. LESSEE and LESSOR acknowledge that no trade,
occupation, activity or work shall be conducted in the leased premises or use
made thereof which may be unlawful, improper, noisy, offensive, or contrary to
any applicable statute, regulation, ordinance or bylaw. LESSEE shall keep all
employees working in the leased premises covered by Worker's Compensation
Insurance and shall obtain any licenses and permits necessary for full
compliance with any applicable statute, regulation, ordinance or bylaw.
7. FIRE, CASUALTY, EMINENT DOMAIN. Should a substantial portion of the leased
premises, or of the property of which they are a part, be substantially damaged
by fire or other casualty, or be taken by eminent domain, LESSOR may elect to
terminate this lease with 90 days written notice to LESSEE, and LESSEE has 90
days to vacate. When such fire, casualty, or taking renders the leased premises
substantially unsuitable for their intended use, a just and proportionate
abatement of rent shall be made, and LESSEE may elect to terminate this lease
if: (a) LESSOR fails to give written notice within thirty (30) days of intention
to restore the leased
-2-
<PAGE> 3
premises, or (b) LESSOR fails to restore the leased premises to a condition
substantially suitable for their intended use within ninety (90) days of said
fire, casualty or taking. LESSOR reserves all rights for damages or injury to
the leased premises for any taking by eminent domain, except for damage to
LESSEE's property or equipment.
8. FIRE INSURANCE. LESSEE shall not permit any use of the leased premises which
will adversely affect or make voidable any insurance on the property of which
the leased premises are a part, or on the contents of said property, or which
shall be contrary to any law or regulation from time to time established by the
Insurance Services Office (or successor), local Fire Department, LESSOR's
insurer, or any similar body. LESSEE shall on demand reimburse LESSOR, and all
other tenants, all extra insurance premiums caused by LESSEE's use of the leased
premises. LESSEE shall not vacate the leased premises or permit same to be
unoccupied other than during LESSEE's customary non-business days or hours,
unless LESSEE continues to pay rent and otherwise comply with its obligations of
the lease.
9. MAINTENANCE OF PREMISES. LESSOR will be responsible for all structural
maintenance of the leased premises and for the normal daytime maintenance of all
space heating and cooling equipment, sprinklers, doors, locks, plumbing, and
electrical wiring, but specifically excluding damage caused by the careless,
malicious, willful, or negligent acts of LESSEE or others, chemical, water or
corrosion damage from any source except Lessor's negligence, and maintenance of
any non "building standard" leasehold improvements. LESSEE agrees to maintain at
its expense all other aspects of the leased premises in the same condition as
they are at the commencement of the term or as they may be put in during the
term of this lease, normal wear and tear and damage by fire or other casualty
only excepted, and whenever necessary, to replace light bulbs, plate glass and
other glass therein, acknowledging that the leased premises are now in good
order and the light bulbs and glass whole. LESSEE will properly control or vent
all solvents, degreasers, smoke, odors, etc. and shall not cause the area
surrounding the leased premises to be in anything other than a neat and clean
condition, depositing all waste in appropriate receptacles. LESSEE shall be
solely responsible for any damage to plumbing equipment, sanitary lines, or any
other portion of the building which results from the discharge or use of any
acid or corrosive substance by LESSEE. LESSEE shall not permit the leased
premises to be overloaded, damaged, stripped or defaced, nor suffer any waste,
and will not keep animals within the leased premises. If the leased premises
include any wooden mezzanine type space, the floor capacity of such space is
suitable only for office use, light storage or assembly work. Unless heat is
provided at LESSOR's expense, LESSEE shall maintain sufficient heat to prevent
freezing of pipes or other damage. Any increase in air conditioning equipment or
electrical capacity or any installation or maintenance of equipment which is
necessitated by some specific aspect of LESSEE's use of the leased premises
shall be LESSEE's sole responsibility, at LESSEE's expense and subject to
LESSOR's prior written consent. All maintenance provided by LESSOR shall be
during LESSOR's normal business hours, within a reasonable time after notice by
LESSEE.
10. ALTERATIONS. LESSEE shall not make structural alterations or additions of
any kind to the leased premises, but may make nonstructural alterations provided
LESSOR consents thereto in writing. All such allowed alterations shall be at
LESSEE's expense and shall conform
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with LESSOR's construction specifications. If LESSOR or LESSOR's agent provides
any services or maintenance for LESSEE in connection with such alterations or
otherwise under this lease, any just invoice will be promptly paid. LESSEE shall
not permit any mechanics' liens, or similar liens, to remain upon the leased
premises in connection with work of any character performed or claimed to have
been performed at the direction of LESSEE and shall cause any such lien to be
released or removed forthwith without cost to LESSOR. Any alterations or
additions shall become part of the leased premises and the property of LESSOR.
Any alterations completed by LESSOR or LESSEE shall be LESSOR's "building
standard" unless noted otherwise. LESSOR shall have the right at any time to
change the arrangement of parking areas, stairs, walkways or other common areas
of the building, provided such changes do not materially interfere with LESSEE's
use of the leased premises.
11. ASSIGNMENT OR SUBLEASING. LESSEE shall not assign this lease or sublet or
allow any other firm or individual to occupy the whole or any part of the leased
premises without LESSOR's prior written consent. Notwithstanding such assignment
or subleasing, LESSEE and GUARANTOR shall remain liable to LESSOR for the
payment of all rent and for the full performance of the covenants and conditions
of this lease. LESSEE shall pay LESSOR promptly for reasonable legal and
administrative expenses incurred by LESSOR in connection with any consent
requested hereunder by LESSEE.
12. SUBORDINATION. This lease shall be subject and subordinate to any and all
mortgages and other instruments in the nature of a mortgage, now or at any time
hereafter, and LESSEE shall, when requested, promptly execute and deliver such
written instruments as shall be necessary to show the subordination of this
lease to said mortgages or other such instruments in the nature of a mortgage.
13. LESSOR'S ACCESS. LESSOR or agents of LESSOR may at any reasonable time upon
reasonable notice except in the case of an emergency enter to view the leased
premises, to make repairs and alterations as LESSOR should elect to do for the
leased premises, the common areas or any other portions of the building, to make
repairs which LESSEE is required but has failed to do, and to show the leased
premises to others. LESSOR may only show the leased premises to prospective
lessees within the last 12 months of the lease term.
14. SNOW REMOVAL. The plowing of snow from all roadways and unobstructed parking
areas shall be at the sole expense of LESSOR. The control of snow and ice on all
walkways, steps and loading areas serving the leased premises and all other
areas not readily accessible to plows shall be the sole responsibility of
LESSOR. Notwithstanding the foregoing, however, LESSEE shall hold LESSOR and
OWNER harmless from any and all claims by LESSEE's agents, representatives,
employees, callers or invitees for damage or personal injury resulting in any
way from snow or ice on any area serving the leased premises, except for claims
arising out of LESSOR's negligence.
15. ACCESS AND PARKING. LESSEE shall have the right without additional charge to
use parking facilities provided for the leased premises in common with others
entitled to the use thereof. Said parking areas plus any stairs, corridors,
walkways, elevators or other common
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areas (hereinafter collectively called the common areas) shall in all cases be
considered a part of the leased premises when they are used by LESSEE or
LESSEE's employees, agents, callers or invitees. LESSEE will not obstruct in any
manner any portion of the building or the walkways or approaches to the
building, and will conform to all rules and regulations now or hereafter made by
LESSOR for parking, and for the care, use, or alteration of the building, its
facilities and approaches. LESSEE further warrants that LESSEE will not permit
any employee or visitor to violate this or any other covenant or obligation of
LESSEE. No unattended parking will be permitted between 7:00 PM and 7:00 AM
without LESSOR's prior written approval, and from December 1 through March 31
annually, such parking shall be permitted only in those areas specifically
designated for assigned overnight parking. Unregistered or disabled vehicles, or
storage trailers of any type, may not be parked at any time. LESSOR may tow, at
LESSEE's sole risk and expense, any misparked vehicle belonging to LESSEE or
LESSEE's agents, employees, invitees or callers, at any time. LESSOR shall not
be responsible for providing any security services for the leased premises.
16. LIABILITY. LESSEE shall be solely responsible as between LESSOR and LESSEE
for deaths or personal injuries to all persons whomsoever occurring in or on the
leased premises (including any common areas that are considered part of the
leased premises hereunder) from whatever cause arising, and damage to property
to whomsoever belonging arising out of the use, control, condition or occupation
of the leased premises by LESSEE; and LESSEE agrees to indemnify and save
harmless LESSOR and OWNER from any and all liability, including but not limited
to costs, expenses, damages, causes of action, claims, judgments and attorney's
fees caused by or in any way growing out of any matters aforesaid, except for
death, personal injuries or property damage directly resulting from the sole
negligence of LESSOR, except for personal injuries to LESSOR's employees that
are covered by LESSOR's worker's compensation insurance and that do not arise
out of LESSEE's negligence in any way.
17. INSURANCE. LESSEE will secure and carry at its own expense a commercial
general liability policy insuring LESSEE, LESSOR and OWNER against any claims
based on bodily injury (including death) or property damage arising out of the
condition of the leased premises (including any common areas that are considered
part of the leased premises hereunder) or their use by LESSEE, such policy to
insure LESSEE, LESSOR and OWNER against any claim up to One Million (1,000,000)
Dollars in the case of any one accident involving bodily injury (including
death), and up to One Million (1,000,000) Dollars against any claim for damage
to property. LESSOR and OWNER shall be included in each such policy as
additional insureds using ISO Form CG 20 26 11 85 or some other form approved by
LESSOR. LESSEE will file with LESSOR prior to occupancy certificates and any
applicable riders or endorsements showing that such insurance is in force, and
thereafter will file renewal certificates prior to the expiration of any such
policies. All such insurance certificates shall provide that such policies shall
not be cancelled without at least ten (10) days prior written notice to each
insured. In the event LESSEE shall fail to provide or maintain such insurance at
any time during the term of this lease, then LESSOR may elect to contract for
such insurance at LESSEE's expense.
18. SIGNS. LESSOR authorizes, and LESSEE at LESSEE's expense agrees to erect
promptly upon commencement of this lease, signage for the leased premises in
accordance with
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LESSOR's building standards for style, size, location, etc. LESSEE shall obtain
the prior written consent of LESSOR before erecting any sign on the leased
premises, which consent shall include approval as to size, wording, design and
location. LESSOR may remove and dispose of any sign not approved, erected or
displayed in conformance with this lease.
19. BROKERAGE. LESSEE warrants and represents to LESSOR that LESSEE has dealt
with no broker or third person with respect to this lease except for Brian Hines
of Fallon, Hines & O'Connor, Inc., and LESSEE agrees to indemnify LESSOR against
any brokerage claims arising by virtue of this lease. LESSOR warrants and
represents to LESSEE that LESSOR has employed no exclusive broker or agent in
connection with the letting of the leased premises.
20. DEFAULT AND ACCELERATION OF RENT. In the event that: (a) any assignment for
the benefit of creditors, trust mortgage, receivership or other insolvency
proceeding shall be made or instituted with respect to LESSEE or LESSEE's
property; (b) LESSEE shall default in the observance or performance of any of
LESSEE's covenants, agreements, or obligations hereunder, other than substantial
monetary payments as provided below, and such default shall not be corrected
within ten (10) days after written notice thereof; or (c) LESSEE vacates the
leased premises without continuing to pay rent, then LESSOR shall have the right
thereafter, while such default continues and without demand or further notice,
to re-enter and take possession of the leased premises, to declare the term of
this lease ended, and to remove LESSEE's effects, without being guilty of any
manner of trespass, and without prejudice to any remedies which might be
otherwise used for arrears of rent or other default or breach of the lease. If
LESSEE shall default in the payment of the security deposit, rent, taxes,
substantial invoice from LESSOR or LESSOR's agent for goods and/or services or
other sum herein specified, and such default shall continue for ten (10) days
after written notice thereof, and, because both parties agree that nonpayment of
said sums when due is a substantial breach of the lease, and, because the
payment of rent in monthly installments is for the sole benefit and convenience
of LESSEE, then in addition to the foregoing remedies the entire balance of rent
which is due hereunder shall become immediately due and payable as liquidated
damages. LESSOR, without being under any obligation to do so and without thereby
waiving any default, may remedy same for the account and at the expense of
LESSEE. If LESSOR pays or incurs any obligations for the payment of money in
connection therewith, such sums paid or obligations incurred plus interest and
costs, shall be paid to LESSOR by LESSEE as additional rent. Any sums received
by LESSOR from or on behalf of LESSEE at any time shall be applied first to any
unamortized improvements completed for LESSEE's occupancy, then to offset any
outstanding invoice or other payment due to LESSOR, with the balance applied to
outstanding rent. LESSEE agrees to pay reasonable attorney's fees and/or
administrative costs incurred by LESSOR in enforcing any or all obligations of
LESSEE under this lease at any time. LESSEE shall pay LESSOR interest at the
rate of eighteen (18) percent per annum on any payment from LESSEE to LESSOR
which is past due.
21. NOTICE. Any notice from LESSOR to LESSEE relating to the leased premises or
to the occupancy thereof shall be deemed duly served when left at the leased
premises addressed to LESSEE, or served by constable, and sent to the leased
premises by certified mail, return receipt requested, postage prepaid, addressed
to LESSEE, Attention: Chief Executive Officer. Any
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notice from LESSEE to LESSOR relating to the leased premises or to the occupancy
thereof shall be deemed duly served when served by constable, or delivered to
LESSOR by certified mail, return receipt requested, postage prepaid, addressed
to LESSOR at 200 West Cummings Park, Woburn, MA 01801 or at LESSOR's last
designated address. No oral notice or representation shall have any force or
effect. Time is of the essence in the service of any notice.
22. OCCUPANCY. In the event that LESSEE takes possession of said leased premises
prior to the start of the lease term, LESSEE will perform and observe all of
LESSEE's covenants from the date upon which LESSEE takes possession except the
obligation for the payment of extra rent for any period of less than one month.
LESSEE shall not remove LESSEE's goods or property from the leased premises
other than in the ordinary and usual course of business without continuing to
pay rent or, without having first paid and satisfied LESSOR for all rent which
may become due during the entire term of this lease. In the event that LESSEE
continues to occupy or control all or any part of the leased premises after the
agreed termination of this lease without the written permission of LESSOR, then
LESSEE shall be liable to LESSOR for any and all loss, damages or expenses
incurred by LESSOR, and all other terms of this lease shall continue to apply
except that rent shall be due in full monthly installments at a rate of one
hundred fifty (150) percent of that which would otherwise be due under this
lease, it being understood between the parties that such extended occupancy is
as a tenant at sufferance and is solely for the benefit and convenience of
LESSEE and as such has greater rental value. LESSEE's control or occupancy of
all or any part of the leased premises beyond noon on the last day of any
monthly rental period shall constitute LESSEE's occupancy for an entire
additional month, and increased rent as provided in this section shall be due
and payable immediately in advance. LESSOR's acceptance of any payments from
LESSEE during such extended occupancy shall not alter LESSEE's status as a
tenant at sufferance.
23. FIRE PREVENTION. LESSEE agrees to use every reasonable precaution against
fire and agrees to provide and maintain approved, labeled fire extinguishers,
and complete any other modifications within the leased premises as required or
recommended by the Insurance Services Office (or successor organization), OSHA,
the local Fire Department, or any similar body.
24. OUTSIDE AREA. Any goods, equipment, or things of any type or description
held or stored in any common area without LESSOR's prior written consent shall
be deemed abandoned and may be removed by LESSOR at LESSEE's expense without
notice. LESSEE shall maintain a building standard size dumpster in a location
approved by LESSOR, which dumpster shall be provided and serviced at LESSEE's
expense by whichever disposal firm may from time to time be designated by
LESSOR. Alternatively, if a shared dumpster or compactor is provided by LESSOR,
LESSEE shall pay its proportionate share of any costs associated therewith.
25. ENVIRONMENT. LESSEE will so conduct and operate the leased premises as not
to interfere in any way with the use and enjoyment of other portions of the same
or neighboring buildings by others by reason of odors, smoke, exhaust, smells,
noise, pets, accumulation of garbage or trash, vermin or other pests, or
otherwise, and will as its expense employ a professional pest control service if
necessary. LESSEE agrees to maintain efficient and effective devices for
preventing damage to heating equipment from solvents, degreasers, cutting oils,
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propellants, etc. which may be present at the leased premises. No hazardous
materials or wastes shall be stored, disposed of, or allowed to remain at the
leased premises at any time, and LESSEE shall be solely responsible for any and
all corrosion or other damage associated with the use, storage and/or disposal
of same by LESSEE.
26. RESPONSIBILITY. Subject to Section 16 and 17 above neither LESSOR nor OWNER
shall be held liable to anyone for loss or damage caused in any way by the use,
leakage, seepage or escape of water from any source, or for the cessation of any
service rendered customarily to said premises or buildings, or agreed to by the
terms of this lease, due to any accident, the making of repairs, alterations or
improvements, labor difficulties, weather conditions, mechanical breakdowns,
trouble or scarcity in obtaining fuel, electricity, service or supplies form the
sources from which they are usually obtained for said building, or any cause
beyond LESSOR's immediate control.
27. SURRENDER. LESSEE shall at the termination of this lease remove all of
LESSEE's goods and effects from the leased premises. LESSEE shall deliver to
LESSOR the leased premises and all keys and locks thereto, all fixtures and
equipment connected therewith, and all alterations, additions and improvements
made to or upon the leased premises, whether completed by LESSEE, LESSOR or
others, including but not limited to any offices, partitions, window blinds,
floor coverings (including computer floors), plumbing and plumbing fixtures, air
conditioning equipment and ductwork of any type, exhaust fans or heaters,
burglar alarms, telephone wiring, air or gas distribution piping, compressors,
overhead cranes, hoists, trolleys or conveyors, counters, shelving or signs
attached to walls or floors, all electrical work, including but not limited to
lighting fixtures of any type, wiring, conduit, EMT, transformers, distribution
panels, bus ducts, raceways, outlets and disconnects, and furnishings or
equipment except raised computer floor, uninterrupted power supply and related
equipment which have been bolted, welded, nailed, screwed, glued or otherwise
attached to any wall, floor, ceiling, roof, pavement or ground, or which have
been directly wired to any portion of the electrical system or which have been
plumbed to the water supply, drainage or venting systems serving the leased
premises. LESSEE shall deliver the leased premises sanitized from any chemicals
or other contaminants, and broom clean and in the same condition as they were at
the commencement of this lease or any prior lease between the parties for the
leased premises, or as they were modified during said term with LESSOR's written
consent, reasonable wear and tear and damage by fire or other casualty only
excepted. In the event of LESSEE's failure to remove any of LESSEE's property
from the leased premises upon termination of the lease, LESSOR is hereby
authorized, without liability to LESSEE for loss or damage thereto, and at the
sole risk of LESSEE, to remove and store any such property at LESSEE's expense,
or to retain same under LESSOR's control, or to sell at public or private sale
(without notice), any or all of the property not so removed and to apply the net
proceeds of such sale to the payment of any sum due hereunder, or to destroy
such abandoned property. In no case shall the leased premises be deemed
surrendered to LESSOR until the termination date provided herein or such other
date as may be specified in a written agreement between the parties,
notwithstanding the delivery of any keys to LESSOR.
28. GENERAL. (a) The invalidity or unenforceability of any provision of this
lease shall not affect or render invalid or unenforceable any other provision
hereof. (b) The obligations of
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this lease shall run with the land, and this lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that LESSOR and OWNER shall be liable only for obligations
occurring while lessor, owner, or master lessee of the premises. (c) Any action
or proceeding arising out of the subject matter of this lease shall be brought
by LESSEE within one year after the cause of action has occurred and only in a
court of the Commonwealth of Massachusetts. (d) If LESSOR is acting under or as
agent for any trust or corporation, the obligations of LESSOR shall be binding
upon the trust or corporation, but not upon any trustee, officer, director,
shareholder, or beneficiary of the trust or corporation individually. (e) If
LESSOR is not the owner (OWNER) of the leased premises, LESSOR represents that
said OWNER has agreed to be bound by the terms of this lease unless LESSEE is in
default hereof. (f) This lease is made and delivered in the Commonwealth of
Massachusetts, and shall be interpreted, construed, and enforced in accordance
with the laws thereof. (g) This lease was the result of negotiations between
parties of equal bargaining strength, and when executed by both parties shall
constitute the entire agreement between the parties, superseding all prior oral
and written agreements, representations, statements and negotiations relating in
any way to the subject matter herein. This lease may not be extended or amended
except by written agreement signed by both parties or as otherwise provided
herein, and no other subsequent oral or written representation shall have any
effect hereon. (h) Notwithstanding any other statements herein, LESSOR makes no
warranty, express or implied, concerning the suitability of the leased premises
for LESSEE's intended use. (i) LESSEE agrees that if LESSOR does not deliver
possession of the leased premises as herein provided for any reason, LESSOR
shall not be liable for any damages to LESSEE for such failure, but LESSOR
agrees to use reasonable efforts to deliver possession to LESSEE at the earliest
possible date. A proportionate abatement of rent, excluding the cost of any
amortized improvements to the leased premises, for such time as LESSEE may be
deprived of possession of the leased premises, except where a delay in delivery
is caused in any way by LESSEE, shall be LESSEE's sole remedy. (j) Neither the
submission of this lease form, nor the prospective acceptance of the security
deposit and/or rent shall constitute a reservation of or option for the leased
premises, or an offer to lease, it being expressly understood and agreed that
this lease shall not bind either party in any manner whatsoever until it has
been executed by both parties. (k) LESSEE shall not be entitled to exercise any
option contained herein if LESSEE is at that time in default of any terms or
conditions hereof. (l) Except as otherwise provided herein, LESSOR, OWNER and
LESSEE shall not be liable for any special, incidental, indirect or
consequential damages, including but not limited to lost profits or loss of
business, arising out of or in any manner connected with performance or
nonperformance under this lease, even if any party has knowledge of the
possibility of such damages. (m) The headings in this lease are for convenience
only and shall not be considered part of the terms hereof. (n) No endorsement by
LESSEE on any check shall bind LESSOR in any way. (o) LESSOR and LESSEE hereby
waive any and all rights to a jury trial in any proceeding in any way arising
out of this lease.
29. Removed.
30. WAIVERS, ETC. No consent or waiver, express or implied, by LESSOR, to or of
any breach of any covenant, condition or duty of LESSEE shall be construed as a
consent or waiver to or of any other breach of the same or any other covenant,
condition or duty. If LESSEE is
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several persons, several corporations or a partnership, LESSEE's obligations are
joint or partnership and also several. Unless repugnant to the context, "LESSOR"
and "LESSEE" mean the person or persons, natural or corporate, named above as
LESSOR and as LESSEE respectively, and their respective heirs, executors,
administrators, successors and assigns.
31. Removed.
32. ADDITIONAL PROVISIONS. (Continued on attached rider(s) if necessary.)
- See Attached Rider -
IN WITNESS WHEREOF, LESSOR and LESSEE have hereunto set their hands and
common seals and intend to be legally bound hereby this 3rd day of November,
1998.
LESSOR: CUMMINGS PROPERTIES LESSEE: MICROFINANCIAL INCORPORATED
MANAGEMENT, INC.
By: /s/ Douglas Stephens By: /s/ Richard F. Latour
------------------------------- ------------------------
Douglas Stephens, Richard F. Latour,
Executive Vice President Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
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[Floor Plan of Leased Premises]
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<PAGE> 12
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
RIDER TO LEASE
The following additional provisions are incorporated into and made a part of the
attached lease:
A. Upon full execution of the lease, LESSOR shall credit LESSEE's
previously forfeited deposit of $13,408.69 toward the security deposit.
B. LESSOR, at LESSOR's cost, shall modify the leased premises according to
a mutually agreed upon plan and specifications attached hereto within
45 days after full execution of the lease, plan and specifications, and
full payment of the security deposit and December 1998 rent. Said
modifications shall include installation of 2 x 4 Armstrong "second
look" ceiling tiles, parabolic lighting, LESSOR's upgraded level loop
carpet, "Aladdin Marquis" and vinyl composition tile where specified.
If for any reason other than delay requested or caused by LESSEE (which
shall include without limitation any additions and/or changes requested
by LESSEE to the scope of LESSOR's work and any interference by LESSEE
or LESSEE's contractor with LESSOR's work) LESSOR does not
substantially complete, except for punch list items, the leased
premises within said 45-day period, LESSEE shall then be entitled to a
proportionate abatement of rent (if said 45-day period ends on or after
December 1, 1998) on a per diem basis for any unfinished area (only)
until LESSOR substantially completes its work in that area.
C. *The leased premises consists of approximately 44,369 square feet of
ground level space and approximately 615 square feet of mezzanine level
light storage space.
D. *Provided LESSEE is not then in default of this lease or in arrears of
any rent or invoice payment, LESSEE shall have the right to extend this
lease, including all terms, conditions, escalations, etc., for one
additional period of five (5) years ("the extended lease term") by
serving LESSOR with written notice of its desire to so extend the
lease. The time for serving such written notice shall be not more than
12 months or less than 6 months prior to the expiration of the initial
lease term. Time is of the essence.
E. Notwithstanding the provisions of Section 1, annual base rent during
the extended lease term shall be recalculated at 95% of LESSOR's
published annual rent rate as of the commencement of the extended lease
term for similar space. The base month from which to determine the
amount of each "Cost of Living" adjustment during the extended lease
term shall be changed to January 2003, the "comparison" month shall be
changed to November 2003 and the first adjustment during the extended
lease term shall take place with the rent due on January 1, 2004.
Section 1 shall continue to apply in all other respects during the
extended lease term.
F. The base from which to determine the amount of any increase in taxes
during the extended lease term shall be the rate and assessment in effect
as of July 1, 2003.
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G. *The parties acknowledge and agree that, as of the execution of this
lease, the leased premises have not been demised. Accordingly, upon
completion of the modifications provided for herein, LESSOR shall
carefully measure the entire leased premises, and if the size including
common area does not equal the total number of square feet set forth in
the initial paragraph of this lease, LESSOR shall notify LESSEE in
writing of the actual revised square footage and the corresponding
increase or decrease in rent, based on the same rate per square foot
used in this lease.
H. *Whenever LESSOR's or LESSEE's consent, agreement or approval is
required under this lease, said consent, agreement or approval shall
not be unreasonably withheld or delayed.
I. LESSEE acknowledges that a Notice of Activity and Use Limitation
concerning this property limiting residential uses, outdoor play areas and
underground excavation is on record at the Middlesex South Registry of
Deeds, Book 26901, Page 293.
J. *During the initial term of this lease, LESSEE shall have the one-time
right of first lease of approximately 18,462 square feet of additional
space at 10-I Commerce Way, Woburn, Massachusetts, at LESSOR's then
current published rental rate for said space as it becomes available
for lease directly from LESSOR, subject to the right of the current
lessee (if any) to extend or otherwise renegotiate its lease. LESSEE
shall have five (5) days from receipt of notice from LESSOR of said
availability to execute LESSOR's then current standard form lease or
amendment to lease for said additional space. If LESSOR fails to
notify LESSEE of the availability of said space and leases said space
to others, and if LESSEE notifies LESSOR of its desire to lease said
space and immediately executes LESSOR's then current standard form
lease for said space, LESSOR shall then have 60 days to relocate the
other party. If LESSOR fails to relocate the other party within 60
days and execute the new lease or amendment to lease with LESSEE, then
LESSEE may elect, by serving LESSOR written notice within 30 days after
expiration of the relocation period, either (1) to cancel this lease
without penalty or (2) to occupy a similar amount of additional space
on a no-charge basis until such time as LESSOR delivers possession of
10-I Commerce Way. This election of remedies shall be LESSEE's
exclusive remedy for any failure by LESSOR to deliver possession of
10-I Commerce Way or any breach by LESSOR of the provisions of this
paragraph. Time is of the essence.
K. If the real estate taxes on the land, the building or the property are
abated at any time for any year with respect to which LESSEE has paid a
share of such real estate taxes, LESSOR upon receipt of the abatement
shall refund to LESSEE, LESSEE's proportionate share of the net
proceeds of such abatement (the amount of such abatement less all costs
incurred by LESSOR to obtain the same), but in no event more than the
amount paid by LESSEE for such real estate taxes for the year for which
such abatement was granted. Notwithstanding anything to the contrary
in Section 4 of the lease, LESSOR shall pay and shall itself bear all
real estate taxes attributable to any
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<PAGE> 14
improvements made to the land, building or the property after the date
hereof, and such real estate taxes attributable to any improvements shall
not be included in real estate taxes for the purposes of calculations
under said Section 4.
L. LESSEE may use up to a total of 175 unassigned parking spaces in common
with others at any one time in the parking lot serving the building for
LESSEE's employees, agents, contractors, visitors and other business
invitees. LESSEE agrees that its employees, agents and contractors,
other than mobility impaired individuals, shall use only the parking
area located on the north side of the building. The parking area
located on the south side of the building may be used only by LESSEE's
visitors, other business invitees and all mobility impaired individuals.
M. Notwithstanding language to the contrary in Section 9 above, LESSOR, at
LESSOR's expense, shall repair or replace any building components damaged
by any roof leak not caused directly or indirectly by LESSEE or its
agents.
N. *LESSEE's agreement to subordinate this lease to any and all mortgages
and/or other instruments in the nature of a mortgage, now or at any time
in the future, is conditional upon the mortgagee's agreement that LESSEE's
possession will not be disturbed so long as LESSEE is not in default in
the payment of rent or other covenants or obligations hereof.
O. *LESSEE may install and maintain at LESSEE's sole expense an illuminated
exterior sign on the south face of the building in a location to be
designated by LESSOR and in compliance with any and all ordinances,
bylaws, and state and local building codes. In addition, prior to
commencement of installation, LESSEE shall obtain all necessary permits
and LESSOR's written consent as to size, graphics, construction, etc.
P. LESSOR authorizes LESSEE, at LESSEE's sole expense, to use one
double-faced panel of the lighted cluster sign in the landscaped area
on Commerce Way as shown as Panel A on the attached plan. LESSEE shall
supply and install the sign panels at LESSEE's sole expense, with
LESSOR's prior written approval as to content, materials, colors and
graphics. LESSEE shall also be responsible for a proportionate share
of the charge for any repairs to said sign and for obtaining any
necessary permits, licenses and government approvals in connection with
the sign (other than the initial building permit). LESSEE shall also
pay for LESSEE's ongoing use of said sign and for LESSEE's share of
cleaning charges for said sign. LESSOR may elect to terminate LESSEE's
use of said sign for any reason or no reason at all by serving LESSEE
with 15 days prior written notice to that effect at any time during the
term of this lease. LESSOR shall have the right to relocate LESSEE's
sign panels within the same cluster sign at any time during the term of
this lease.
Q. *With respect to any condition existing prior to the commencement of
LESSEE's occupancy under this lease, LESSOR shall hold LESSEE harmless
from any and all suits, judgments, or liabilities, for any "release,"
as defined in Section 101(22) of the
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<PAGE> 15
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), of any "hazardous substance" as defined in
Section 101(14) of CERCLA, or any petroleum (including crude oil or any
fraction thereof) as a result of any activity on the property of which the
leased premises are a part occurring prior to LESSEE's occupancy and not
caused by LESSEE.
R. LESSOR hereby authorizes LESSEE, at LESSEE's sole cost and expense, to
install one backup generator in a location to be designated by LESSOR.
S. The HVAC equipment used within the leased premises consists of four (4)
25-ton Carrier units model #SOEQ028610DC and eight (8) 300,000 BTU Reznor
in line duct furnaces with sealed combustion.
LESSOR: CUMMINGS PROPERTIES LESSEE: MICROFINANCIAL, INC.
MANAGEMENT, INC.
By: /s/ Douglas Stephens By: /s/ Richard F. Latour
------------------------------- ------------------------
Douglas Stephens, Richard F. Latour,
Executive Vice President Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
Date: November 3, 1998
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<PAGE> 1
EXHIBIT 10.26
CUMMINGS PROPERTIES MANAGEMENT, INC.
STANDARD FORM
AMENDMENT TO LEASE #1
In connection with a lease currently in effect between the parties at 10-M
Commerce Way, Woburn, Massachusetts, commencing on December 15, 1998 and
terminating December 14, 2003, and in consideration of the mutual benefits to be
derived herefrom, Cummings Properties Management, Inc., LESSOR, and
MicroFinancial, Inc., LESSEE, hereby agree to amend said lease as follows:
1. Paragraph G of the Rider to Lease is hereby deleted.
2. LESSOR and LESSEE agree that, as a result of LESSEE's remeasuring the
leased premises, the size of the leased premises is hereby reduced by 325
square feet to a new total of 44,659 square feet. This change affects the
size of the ground level (only), and not the mezzanine level space, as set
forth in Paragraph C of the Rider to Lease.
All other terms, conditions and covenants of the present lease shall
continue to apply except that adjusted base rent shall be decreased by $2,526.50
annually, from a total of $687,719.00 to a new annual total of $685,192.50 or
$57,099.37 per month. Annual base rent for purposes of computing any future
escalations thereon shall be $685,192.50. This amendment shall be effective
December 15, 1998 and shall continue through the balance of the lease and any
extensions thereof unless further modified by written amendment(s).
In Witness Whereof, LESSOR and LESSEE have hereunto set their hands and
common seals this 3rd day of November, 1998.
LESSOR: CUMMINGS PROPERTIES LESSEE: MICROFINANCIAL, INC.
MANAGEMENT, INC.
By: /s/ Douglas Stephens By: /s/ Richard F. Latour
------------------------------ ------------------------
Douglas Stephens, Richard F. Latour,
Executive Vice President Executive Vice President, Chief
Operating Officer and Chief
Financial Officer
<PAGE> 1
Exhibit 10.27
EMPLOYMENT AGREEMENT
AGREEMENT by and between Boyle Leasing Technologies, Inc., a
Massachusetts corporation, and its subsidiaries (the "Company"), and Gregory
Hines (the "Executive"), dated as of the 26th day of September, 1997 (this
"Agreement").
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY, AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection with or
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of such date.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities") or;
<PAGE> 2
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(c) 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, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending (subject to the terms
hereof) on the day following the first anniversary of such date (the "Employment
Period"); provided, however, that the Employment Period shall be automatically
extended upon its expiration for successive periods of one (1) month each, in
full accordance with the terms and provisions of this Agreement.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office which is the headquarters of the Company and is less than 35
miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder,
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<PAGE> 3
to use the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall not be
a violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive may be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash as determined in the
discretion of the Company's President and Chief Executive Officer consistent
with the practices and procedures of the Company. Any such Annual Bonus shall be
paid no later than the end of the fourth month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) Special Bonus. In addition to Annual Base
Salary and Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company and its affiliated companies to the first
anniversary of the Effective Date, the Company shall pay to the Executive a
special bonus (the "Special Bonus") in recognition of the Executive's services
during the crucial one-year transition period following the Change of Control in
cash in the amount of $575,000. The Special Bonus shall be paid no later than 30
days following the first anniversary of the Effective Date.
(iv) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans,
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<PAGE> 4
practices, policies and programs applicable generally to other peer executives
of the Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(vi) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(viii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
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<PAGE> 5
(ix) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in bad faith
or without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after receipt
of written notice from the Company specifying such breach or (ii) the conviction
of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
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<PAGE> 6
(ii) any failure by the Company to comply with the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section 4(a)(i)(B)
of this Agreement;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement, provided that such successor has
received at least ten days prior written notice from the Company or the
Executive of the requirements of Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligation of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability or the Executive shall
terminate employment for Good Reason:
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<PAGE> 7
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts: the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the Special Bonus, due to
the Executive pursuant to Section 4(b)(iii) of this Agreement, to the extent not
theretofore paid and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) of this Section 6(a)(i) shall be
hereinafter referred to as the "Severance Amount"); and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b)(v) of this
Agreement if the Executive's employment had not been terminated in accordance
with the most favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally thereafter with respect to other peer
executives of the Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of the
Severance Amount (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits (excluding, in each case, Death Benefits (as defined below)) and
(ii) payment to the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination of an amount equal to the
present value (determined as provided in Section 280G(d)(4) of the Internal
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<PAGE> 8
Revenue Code of 1986, as amended (the "Code") of any cash amount to be received
by the Executive or the Executive's family as a death benefit pursuant to the
terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of life insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (ii) shall be hereinafter referred to as the "Death
Benefits").
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligation to the Executive, other
than for (i) payment of Severance Amount (which shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination) and the timely
payment or provision of the Welfare Benefit Continuation and Other Benefits
(excluding, in each case, Disability Benefits (as defined below)) and (ii)
payment to the Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the present value (determined as provided in
Section 280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not including any
proceeds of disability insurance covering the Executive to the extent paid for
directly or on a contributory basis by the Executive (which shall be paid in any
event as an Other Benefit) (the benefits included in this clause (ii) shall be
hereinafter referred to as the "Disability Benefits").
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for (i) the Severance Amount and the timely payment or
provision of Other Benefits if the Executive fulfills the criteria set forth in
Section 4(b)(iii); and (ii) the Executive's Annual Base Salary through the Date
of Termination and any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay (in each case to be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination).
7. Non-Exclusivity of Rights. Except as provided in Sections
6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
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<PAGE> 9
8. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
6(a) of this Agreement as though such termination were by the Company without
Cause or by the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such court not
to be entitled.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
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(b) Subject to the provisions of Section 9(c) of this
Agreement, all determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Coopers & Lybrand L.L.P. (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) of this Agreement and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
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(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c) of this Agreement, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
Section 9(c) of this Agreement) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c) of this Agreement, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Non-Compete. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not,
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without the prior written consent of the Company or as may otherwise be required
by law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement. For a period of twelve months from and after the
Date of Termination, the Executive shall not, directly or indirectly, be or
become employed or associated with any microticket leasing business in the
United States which is in competition with the Company.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Gregory Hines
c/o Boyle Leasing Technologies, Inc.
950 Winter Street
Waltham, MA 02154
If to the Company:
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<PAGE> 13
Boyle Leasing Technologies, Inc.
950 Winter Street
Waltham, MA 02154
Attention: Richard F. Latour, Executive
Vice President, Chief Financial Officer,
Chief Operating Officer
With a copy to:
Gerald P. Hendrick, Esq.
Edwards & Angell
101 Federal Street
Boston, MA 02110
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, prior to the Effective Date, may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective Date,
the Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Gregory Hines
-----------------------------------
Gregory Hines
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Boyle Leasing Technologies, Inc.
By: /s/ Peter Bleyleben
--------------------------------
Its: President
----------------------------
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<PAGE> 1
Exhibit 10.28
EMPLOYMENT AGREEMENT
AGREEMENT by and between Boyle Leasing Technologies, Inc., a
Massachusetts corporation, and its subsidiaries (the "Company"), and John
Plumlee (the "Executive"), dated as of the 26th day of September, 1997 (this
"Agreement").
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY, AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection with or
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of such date.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities") or;
<PAGE> 2
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(c) 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, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending (subject to the terms
hereof) on the day following the first anniversary of such date (the "Employment
Period"); provided, however, that the Employment Period shall be automatically
extended upon its expiration for successive periods of one (1) month each, in
full accordance with the terms and provisions of this Agreement.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office which is the headquarters of the Company and is less than 35
miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder,
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<PAGE> 3
to use the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall not be
a violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive may be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash as determined in the
discretion of the Company's President and Chief Executive Officer consistent
with the practices and procedures of the Company. Any such Annual Bonus shall be
paid no later than the end of the fourth month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) Special Bonus. In addition to Annual Base
Salary and Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company and its affiliated companies to the first
anniversary of the Effective Date, the Company shall pay to the Executive a
special bonus (the "Special Bonus") in recognition of the Executive's services
during the crucial one-year transition period following the Change of Control in
cash in the amount of $600,000. The Special Bonus shall be paid no later than 30
days following the first anniversary of the Effective Date.
(iv) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans,
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<PAGE> 4
practices, policies and programs applicable generally to other peer executives
of the Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(vi) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(viii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
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<PAGE> 5
(ix) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in bad faith
or without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after receipt
of written notice from the Company specifying such breach or (ii) the conviction
of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
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<PAGE> 6
(ii) any failure by the Company to comply with the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section 4(a)(i)(B)
of this Agreement;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement, provided that such successor has
received at least ten days prior written notice from the Company or the
Executive of the requirements of Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligation of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability or the Executive shall
terminate employment for Good Reason:
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<PAGE> 7
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts: the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the Special Bonus, due to
the Executive pursuant to Section 4(b)(iii) of this Agreement, to the extent not
theretofore paid and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) of this Section 6(a)(i) shall be
hereinafter referred to as the "Severance Amount"); and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b)(v) of this
Agreement if the Executive's employment had not been terminated in accordance
with the most favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally thereafter with respect to other peer
executives of the Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of the
Severance Amount (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits (excluding, in each case, Death Benefits (as defined below)) and
(ii) payment to the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination of an amount equal to the
present value (determined as provided in Section 280G(d)(4) of the Internal
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<PAGE> 8
Revenue Code of 1986, as amended (the "Code") of any cash amount to be received
by the Executive or the Executive's family as a death benefit pursuant to the
terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of life insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (ii) shall be hereinafter referred to as the "Death
Benefits").
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligation to the Executive, other
than for (i) payment of Severance Amount (which shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination) and the timely
payment or provision of the Welfare Benefit Continuation and Other Benefits
(excluding, in each case, Disability Benefits (as defined below)) and (ii)
payment to the Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the present value (determined as provided in
Section 280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not including any
proceeds of disability insurance covering the Executive to the extent paid for
directly or on a contributory basis by the Executive (which shall be paid in any
event as an Other Benefit) (the benefits included in this clause (ii) shall be
hereinafter referred to as the "Disability Benefits").
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for (i) the Severance Amount and the timely payment or
provision of Other Benefits if the Executive fulfills the criteria set forth in
Section 4(b)(iii); and (ii) the Executive's Annual Base Salary through the Date
of Termination and any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay (in each case to be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination).
7. Non-Exclusivity of Rights. Except as provided in Sections
6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
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<PAGE> 9
8. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
6(a) of this Agreement as though such termination were by the Company without
Cause or by the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such court not
to be entitled.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
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(b) Subject to the provisions of Section 9(c) of this
Agreement, all determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Coopers & Lybrand L.L.P. (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) of this Agreement and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
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<PAGE> 11
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c) of this Agreement, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
Section 9(c) of this Agreement) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c) of this Agreement, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Non-Compete. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not,
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<PAGE> 12
without the prior written consent of the Company or as may otherwise be required
by law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement. For a period of twelve months from and after the
Date of Termination, the Executive shall not, directly or indirectly, be or
become employed or associated with any microticket leasing business in the
United States which is in competition with the Company.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows: If to the Executive:
John Plumlee
c/o Boyle Leasing Technologies, Inc.
950 Winter Street
Waltham, MA 02154
If to the Company:
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<PAGE> 13
Boyle Leasing Technologies, Inc.
950 Winter Street
Waltham, MA 02154
Attention: Richard F. Latour, Executive
Vice President, Chief Financial Officer,
Chief Operating Officer
With a copy to:
Gerald P. Hendrick, Esq.
Edwards & Angell
101 Federal Street
Boston, MA 02110
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, prior to the Effective Date, may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective Date,
the Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ John Plumlee
-----------------------------------
John Plumlee
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Boyle Leasing Technologies, Inc.
By: /s/ Peter Bleyleben
--------------------------------
Its: President
----------------------------
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<PAGE> 1
Exhibit 10.29
EMPLOYMENT AGREEMENT
AGREEMENT by and between Boyle Leasing Technologies, Inc., a
Massachusetts corporation, and its subsidiaries (the "Company"), and Carol Salvo
(the "Executive"), dated as of the 26th day of September, 1997 (this
"Agreement").
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined in Section 2) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY, AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection with or
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of such date.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities") or;
<PAGE> 2
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(c) 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, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or consolidation, of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the Company.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending (subject to the terms
hereof) on the day following the first anniversary of such date (the "Employment
Period"); provided, however, that the Employment Period shall be automatically
extended upon its expiration for successive periods of one (1) month each, in
full accordance with the terms and provisions of this Agreement.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office which is the headquarters of the Company and is less than 35
miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal business
hours to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder,
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<PAGE> 3
to use the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it shall not be
a violation of this Agreement for the Executive to (A) serve on corporate, civic
or charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid in equal installments on a monthly basis, at least equal to twelve
times the highest monthly base salary paid or payable to the Executive by the
Company and its affiliated companies in respect of the twelve-month period
immediately preceding the month in which the Effective Date occurs. During the
Employment Period, the Annual Base Salary shall be reviewed at least annually
and shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally awarded in the
ordinary course of business to other peer executives of the Company and its
affiliated companies. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary,
the Executive may be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash as determined in the
discretion of the Company's President and Chief Executive Officer consistent
with the practices and procedures of the Company. Any such Annual Bonus shall be
paid no later than the end of the fourth month of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) Special Bonus. In addition to Annual Base
Salary and Annual Bonus payable as hereinabove provided, if the Executive
remains employed with the Company and its affiliated companies to the first
anniversary of the Effective Date, the Company shall pay to the Executive a
special bonus (the "Special Bonus") in recognition of the Executive's services
during the crucial one-year transition period following the Change of Control in
cash in the amount of $585,000. The Special Bonus shall be paid no later than 30
days following the first anniversary of the Effective Date.
(iv) Incentive, Savings and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans,
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<PAGE> 4
practices, policies and programs applicable generally to other peer executives
of the Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 90-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated companies,
but in no event shall such plans, practices, policies and programs provide the
Executive with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(vi) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its affiliated
companies in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(viii) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive personal
secretarial and other assistance, at least equal to the most favorable of the
foregoing provided to the Executive by the Company and its affiliated companies
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as provided generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
-4-
<PAGE> 5
(ix) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean (i) a material breach by the Executive of the
Executive's obligations under Section 4(a) of this Agreement (other than as a
result of incapacity due to physical or mental illness) which is demonstrably
willful and deliberate on the Executive's part, which is committed in bad faith
or without reasonable belief that such breach is in the best interests of the
Company and which is not remedied in a reasonable period of time after receipt
of written notice from the Company specifying such breach or (ii) the conviction
of the Executive of a felony involving moral turpitude.
(c) Good Reason. The Executive's employment may be terminated
during the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities or any other action by which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
-5-
<PAGE> 6
(ii) any failure by the Company to comply with the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section 4(a)(i)(B)
of this Agreement;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement, provided that such successor has
received at least ten days prior written notice from the Company or the
Executive of the requirements of Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company hereunder or preclude the Executive or the Company
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligation of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability.
If, during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause, death or Disability or the Executive shall
terminate employment for Good Reason:
-6-
<PAGE> 7
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts: the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the Special Bonus, due to
the Executive pursuant to Section 4(b)(iii) of this Agreement, to the extent not
theretofore paid and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2) and (3) of this Section 6(a)(i) shall be
hereinafter referred to as the "Severance Amount"); and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the Company
shall continue benefits to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 4(b)(v) of this
Agreement if the Executive's employment had not been terminated in accordance
with the most favorable plans, practices, programs or policies of the Company
and its affiliated companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided plan, the
medical and other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the applicable period herein set forth
shall be hereinafter referred to as "Welfare Benefit Continuation"). For
purposes of determining eligibility of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment Period and
to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided the
Company shall timely pay or provide to the Executive and/or the Executive's
family any other amounts or benefits required to be paid or provided or which
the Executive and/or the Executive's family is eligible to receive pursuant to
this Agreement and under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally thereafter with respect to other peer
executives of the Company and its affiliated companies and their families (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of the
Severance Amount (which shall be paid to the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days of the Date of Termination)
and the timely payment or provision of the Welfare Benefit Continuation and
Other Benefits (excluding, in each case, Death Benefits (as defined below)) and
(ii) payment to the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination of an amount equal to the
present value (determined as provided in Section 280G(d)(4) of the Internal
-7-
<PAGE> 8
Revenue Code of 1986, as amended (the "Code") of any cash amount to be received
by the Executive or the Executive's family as a death benefit pursuant to the
terms of any plan, policy or arrangement of the Company and its affiliated
companies, but not including any proceeds of life insurance covering the
Executive to the extent paid for directly or on a contributory basis by the
Executive (which shall be paid in any event as an Other Benefit) (the benefits
included in this clause (ii) shall be hereinafter referred to as the "Death
Benefits").
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligation to the Executive, other
than for (i) payment of Severance Amount (which shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination) and the timely
payment or provision of the Welfare Benefit Continuation and Other Benefits
(excluding, in each case, Disability Benefits (as defined below)) and (ii)
payment to the Executive in a lump sum in cash within 30 days of the Date of
Termination of an amount equal to the present value (determined as provided in
Section 280G(d)(4) of the Code) of any cash amount to be received by the
Executive as a disability benefit pursuant to the terms of any plan, policy or
arrangement of the Company and its affiliated companies, but not including any
proceeds of disability insurance covering the Executive to the extent paid for
directly or on a contributory basis by the Executive (which shall be paid in any
event as an Other Benefit) (the benefits included in this clause (ii) shall be
hereinafter referred to as the "Disability Benefits").
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Executive, other than for (i) the Severance Amount and the timely payment or
provision of Other Benefits if the Executive fulfills the criteria set forth in
Section 4(b)(iii); and (ii) the Executive's Annual Base Salary through the Date
of Termination and any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay (in each case to be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination).
7. Non-Exclusivity of Rights. Except as provided in Sections
6(a)(ii), 6(b) and 6(c) of this Agreement, nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
-8-
<PAGE> 9
8. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others. In
no event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
6(a)(ii) of this Agreement, such amounts shall not be reduced whether or not the
Executive obtains other employment. The Company agrees to pay promptly as
incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or provide pursuant to Section
6(a) of this Agreement as though such termination were by the Company without
Cause or by the Executive with Good Reason; provided, however, that the Company
shall not be required to pay any disputed amounts pursuant to this paragraph
except upon receipt of an undertaking by or on behalf of the Executive to repay
all such amounts to which the Executive is ultimately adjudged by such court not
to be entitled.
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
-9-
<PAGE> 10
(b) Subject to the provisions of Section 9(c) of this
Agreement, all determinations required to be made under this Section 9,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Coopers & Lybrand L.L.P. (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) of this Agreement and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
-10-
<PAGE> 11
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c) of this Agreement, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
Section 9(c) of this Agreement) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c) of this Agreement, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Non-Compete. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not,
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<PAGE> 12
without the prior written consent of the Company or as may otherwise be required
by law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement. For a period of twelve months from and after the
Date of Termination, the Executive shall not, directly or indirectly, be or
become employed or associated with any microticket leasing business in the
United States which is in competition with the Company.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows: If to the Executive:
Carol Salvo
c/o Boyle Leasing Technologies, Inc.
950 Winter Street
Waltham, MA 02154
If to the Company:
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<PAGE> 13
Boyle Leasing Technologies, Inc.
950 Winter Street
Waltham, MA 02154
Attention: Richard F. Latour, Executive
Vice President, Chief Financial Officer,
Chief Operating Officer
With a copy to:
Gerald P. Hendrick, Esq.
Edwards & Angell
101 Federal Street
Boston, MA 02110
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, prior to the Effective Date, may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective Date,
the Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Carol Salvo
-----------------------------------
Carol Salvo
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<PAGE> 14
Boyle Leasing Technologies, Inc.
By: /s/ Peter Bleyleben
--------------------------------
Its: President
----------------------------
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<PAGE> 1
EXHIBIT 11.1
Statement Regarding Computation of Per Share Earnings
<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 (in thousands).................. $ 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.............................. 419,598 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>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 2 to the Registration
Statement on Form S-1 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
January 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 13,457
<SECURITIES> 0
<RECEIVABLES> 202,484<F1>
<ALLOWANCES> 24,423
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 13,636
<DEPRECIATION> 6,296
<TOTAL-ASSETS> 208,767
<CURRENT-LIABILITIES> 0
<BONDS> 157,392
0
0
<COMMON> 99
<OTHER-SE> 27,542
<TOTAL-LIABILITY-AND-EQUITY> 208,767
<SALES> 0
<TOTAL-REVENUES> 55,832
<CGS> 0
<TOTAL-COSTS> 18,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,568
<INTEREST-EXPENSE> 9,198
<INCOME-PRETAX> 15,915
<INCOME-TAX> 6,455
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,460
<EPS-PRIMARY> .96
<EPS-DILUTED> .94
<FN>
<F1>NET INVESTMENT IN FINANCING LEASES AND LOANS, EXCLUDING ALLOWANCE FOR CREDIT
LOSSES.
</FN>
</TABLE>
