PROSPECTUS SUPPLEMENT DATED MAY 24, 1996 (TO PROSPECTUS DATED AUGUST 31, 1995)
ZIEGLER COLLATERALIZED SECURITIES, INC.
$5,000,000 COLLATERALIZED BONDS SERIES 7, DUE SERIALLY TO NOVEMBER 1, 2000
GUARANTEED BY
THE ZIEGLER COMPANIES, INC.
Interest on the Series 7 Bonds is payable semiannually on the 1st day of each
May and November, commencing November 1, 1996, with respect to interest accrued
through the day immediately preceding each such semiannual payment date. The
Series 7 Bonds mature on the "Stated Maturities" set forth herein, subject to
earlier redemption by Ziegler Collateralized Securities, Inc. (the "Issuer")
under certain circumstances. (See "Description of the Bonds -- Mandatory
Redemption of Bonds" at page 11 and "Description of the Bonds -- Redemption at
Option of Issuer" at page 12 of the Prospectus.)
MATURITY SCHEDULE AND INTEREST RATES
STATED MATURITY AMOUNT RATE STATED MATURITY AMOUNT RATE
--------------- ------- ----- ---------------- -------- -----
May 1, 1997 $910,000 6.00% May 1, 1999 $570,000 6.50%
November 1, 1997 $640,000 6.25% November 1, 1999 $600,000 6.75%
May 1, 1998 $635,000 6.25% May 1, 2000 $600,000 7.00%
November 1, 1998 $570,000 6.50% November 1, 2000 $475,000 7.00%
Payment of the principal and interest and redemption premium (if any) on, the
Series 7 Bonds will be unconditionally guaranteed by The Ziegler Companies, Inc.
(the "Guarantor"). The Series 7 Bonds will be secured by equipment leases,
purchase money security agreements or non-recourse notes pledged with the
Trustee under the Indenture ("Pooled Assets") which are intended to provide
funds sufficient to service the required payments of principal and interest on
the Series 7 Bonds.
The Series 7 Bonds have been assigned a rating of "BBB" by Duff & Phelps,
Inc. ("Duff & Phelps"). The rating of "BBB" is considered an "Investment Grade"
rating, which Duff &Phelps describes as follows: "Below-average protection
factors, but which are still considered sufficient for prudent investment.
Considerable variability in risk during economic cycles."
There is no public market for the Series 7 Bonds, and there can be no
assurance that a secondary market for the Series 7 Bonds will develop or, if it
does develop, that it will provide Bondholders with liquidity of investment or
that it will continue for the life of the Series 7 Bonds. The Underwriter, B.C.
Ziegler and Company, has made no determination as to whether, and there is no
assurance that, it will participate in or develop a secondary market for the
Series 7 Bonds.
SEE "RISK FACTORS" AT PAGE 5 OF THE PROSPECTUS FOR CERTAIN FACTORS TO BE
CONSIDERED BY PURCHASERS OF THE SERIES 7 BONDS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1)<F1> COMMISSION(2)<F2> ISSUER
--------- ------------ ------------
Per Bond 100% 2.50% 97.50%
Total $5,000,000 $125,000 $4,875,000
(1)<F1>Plus accrued interest from May 1, 1996 and a handling charge of $5.00
per transaction.
(2)<F2>Pursuant to the Underwriting Agreement between the Issuer and the
Underwriter with respect to the Series 7 Bonds, and subject to the terms and
conditions contained therein, B.C. Ziegler and Company has agreed to purchase
the Series 7 Bonds from the Issuer at a purchase price equal to 97.50% of the
principal amount thereof. The Issuer has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting" in this Prospectus Supplement.
The Series 7 Bonds are offered by the Underwriter as stated herein, subject
to receipt and acceptance by the Underwriter and subject to the right to reject
any order in whole or in part. It is expected that delivery of the Series 7
Bonds will be made on or about May 31, 1996.
(B.C. ZIEGLER LOGO)
B.C. ZIEGLER AND COMPANY
This Prospectus Supplement does not contain complete information regarding
the offering of the Series 7 Bonds and should be used only in conjunction with
the annexed Prospectus.
No person has been authorized to give any information or to make any
representations concerning this offering not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representations must not be relied upon. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the Series 7 Bonds offered hereby, nor an offer of
the Series 7 Bonds in any state or jurisdiction in which, or to any person to
whom, such offer would be unlawful. The delivery of this Prospectus Supplement
or the Prospectus at any time does not imply that information herein or therein
is correct as of any time subsequent to the date of such information; however,
if any material change occurs while this Prospectus Supplement or the Prospectus
is required by law to be delivered, this Prospectus Supplement or the Prospectus
will be amended or supplemented accordingly.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Reports to Bondholders.......................... 2
Summary of Certain Terms of the Series 7 Bonds.. 3
Description of the Pool......................... 4
Payment and Redemption of the Series 7 Bonds.... 4
Recent Developments............................. 5
Use of Proceeds................................. 7
Underwriting.................................... 7
Appendix A...................................... A-1
PROSPECTUS
PAGE PAGE
---- ----
Available Information......... 2 Description of the Indenture.. 15
Incorporation of Certain Description of the Guaranty... 16
Documents by Reference...... 2 Equipment Leasing and Financing 17
Prospectus Summary............ 3 Description of the Pool....... 19
Risk Factors.................. 5 Certain Bankruptcy Considerations
The Guarantor -- Financial of Pooled Assets............ 23
Information................. 9 Servicer...................... 24
Ziegler Collateralized Management.................... 26
Securities, Inc............. 10 Experts....................... 30
The Ziegler Companies, Inc. Plan of Distribution.......... 31
-- The Guarantor............ 10 Additional Information........ 31
Description of the Bonds...... 11 Legal Matters................. 31
Federal Income Tax
Consequences................ 13
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES OF BONDS
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO BONDHOLDERS
THE ISSUER WILL FILE OR CAUSE TO BE FILED WITH THE COMMISSION SUCH PERIODIC
REPORTS AS ARE REQUIRED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND THE RULES AND REGULATIONS OF THE COMMISSION THEREUNDER. THE ISSUER DOES NOT
INTEND TO SEND FINANCIAL REPORTS TO THE BONDHOLDERS.
THE ISSUER'S PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 215 NORTH MAIN
STREET, WEST BEND, WISCONSIN 53095. ITS TELEPHONE NUMBER IS (414) 334-5521.
SUMMARY OF CERTAIN TERMS OF THE SERIES 7 BONDS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus attached hereto, to the Indenture dated as of December 1, 1991,
as amended, and as supplemented by the Series 7 Supplemental Indenture dated as
of May 1, 1996, between the Issuer and the Trustee, copies of which have been,
or will be, filed with the Securities and Exchange Commission.
Securities Offered $5,000,000 aggregate principal amount of Collateralized
Bonds, Series 7, due serially to November 1, 2000, (the
"Series 7 Bonds"). The Series 7 Bonds will be issued as
book-entry Bonds in initial denominations of $1,000 or
integral multiples thereof. See "Description of the
Bonds -- Book-Entry-Only System" in the Prospectus at
Page 12.
Interest Payments Payable semiannually on the 1st day of each May and
November, commencing November 1, 1996, with respect to
interest accrued through the day immediately preceding
each such semiannual payment date, to holders of record
on the 15th day of the immediately preceding month.
Redemption Dates; Issuer's
Option to Redeem The Series 7 Bonds are subject to redemption at option
of Issuer in whole or in part on any May 1 or November
1 on or after November 1, 1998.
Mandatory Redemption The Series 7 Bonds are subject to mandatory
of Bonds redemption at any time (i) without premium to the
extent of any cash deposit made by the Issuer to the
Trustee in connection with the release of any Defaulted
Pooled Assets constituting part of the collateral pool
for the Series 7 Bonds or (ii) with a premium of 1% of
the principal amount of the Series 7 Bonds redeemed
prior to May 31, 1998 and without premium if redeemed
on such date or thereafter to the extent of proceeds
received by the Issuer from the early termination of
any of the Pooled Assets and the purchase of the
related equipment by the lessee thereunder or its
assignee, in each case such redemption to occur as soon
as practicable following the receipt of such proceeds.
Collateral A.The entire interest of the Issuer in the Pooled
Assets with the aggregate amount of the scheduled
rentals and/or debt payments payable thereunder in
each six-month period ending on a May 1 or November 1
so long as the Series 7 Bonds are outstanding,
together with other funds then held by the Trustee
for payment of principal of and interest on the Bonds
of such Series on such Semiannual Payment Date (after
deducting all Servicer Fees and Trustee's Fees
accruing during such period), equal to or greater
than the aggregate amount of principal and interest
payable on the Series 7 Bonds on such Semiannual
Payment date.
B.The Principal and Interest Payment Account for the
Series 7 Bonds in which the Issuer will deposit on or
before the business day immediately preceding each
May 1 and November 1 an amount equal to the aggregate
amount of principal and interest payable with respect
to the Series 7 Bonds on such Payment Date and in
which the Trustee will also deposit (i) all payments,
including insurance and liquidation proceeds, on the
Pooled Assets securing the Series 7 Bonds remitted to
the Trustee, and (ii) amounts received with respect
to the sale of such Pooled Assets upon termination or
liquidation of the Pool, and (iii) amounts received
in connection with the release of any Defaulted
Pooled Asset securing the Series 7 Bonds by the
Guarantor or Ziegler Leasing Corporation ("ZLC") or
upon early termination of any such Pooled Asset and
the sale of related equipment.
C.All earnings on amounts on deposit in the Principal
and Interest Payment Account for the Series 7 Bonds
preceding a May 1 or November 1.
D.A perfected security interest in the equipment
subject to each Pooled Asset in the Pool securing the
Series 7 Bonds.
E.Proceeds of insurance against the loss or theft of
or damage to the equipment subject to each Pooled
Asset securing the Series 7 Bonds.
The Pool The entire interest of the Issuer in Pooled Assets with
an aggregate amount (initial net investment) of:
$6,107,379.25.
DESCRIPTION OF THE POOL
The Pool securing the Series 7 Bonds shall initially consist of the Pooled
Assets, pledged to the Trustee pursuant to one or more assignments, which are
listed on Appendix A hereto. The Pooled Assets will consist of Leases, Purchase
Money Security Agreements and Non-Recourse Notes. The Issuer's aggregate net
investment in the Pooled Assets securing the Series 7 Bonds (determined in
accordance with generally accepted accounting principles), together with any
cash collateral held by the Trustee (except for an amount equal to any accrued
interest on the Series 7 Bonds) will be not less than 115% of the aggregate
principal amount of the outstanding Series Bonds.
Although the Issuer holds perfected security interests in the equipment
subject to the Pooled Assets pledged with the Trustee under the Indenture,
certain of such security interests may be secondary to other security interests
filed with respect to such equipment. Accordingly, investors should be aware
that there can be no assurance that, in the event of default under a Pooled
Asset, the Trustee will be able to realize on such underlying equipment.
The following States account for 10% or more of the Pooled Assets in the Pool
securing the Series 7 Bonds (based on the Issuer's initial net investment in the
Pooled Assets): Wisconsin (16.5%) and Texas (13.7%). No single entity accounts
for 10% or more of the Pooled Assets in the Pool securing the Series 7 Bonds
(based on the Issuer's initial net investment in the Pooled Assets).
PAYMENT AND REDEMPTION OF THE SERIES 7 BONDS
The Series 7 Bonds will mature serially in the amount and on the dates set
forth below and will bear interest from May 1, 1996 at the respective interest
rates set forth below:
PRINCIPAL AMOUNT STATED MATURITY INTEREST RATE PER ANNUM
---------------- ---------------- ------------------------
$910,000 May 1, 1997 6.00%
640,000 November 1, 1997 6.25%
635,000 May 1, 1998 6.25%
570,000 November 1, 1998 6.50%
570,000 May 1, 1999 6.50%
600,000 November 1, 1999 6.75%
600,000 May 1, 2000 7.00%
475,000 November 1, 2000 7.00%
Interest will be payable semiannually on the 1st day of each May and
November, commencing November 1, 1996, with respect to interest accrued through
the day immediately preceding each such Semiannual Payment date. (See
"Description of the Bonds -- Payments of Interest" in the Prospectus at page
11.)
The Series 7 Bonds will be required to be redeemed (i) without premium to the
extent of any deposit made by the Issuer to the Trustee in connection with the
release of any Defaulted Pooled Assets or (ii) with a premium of 1% of the
principal amount of Series 7 Bonds redeemed prior to May 31, 1998, and without
premium on or after May 31, 1998 to the extent of proceeds received by the
Issuer from the early termination of any of the Pooled Assets and the purchase
of the related equipment by the Lessee thereunder, in each case, as soon as
practicable following the receipt of such proceeds. See "Description of the
Bonds -- Mandatory Redemption of Bonds" on page 11 of the Prospectus.
The Issuer may at its option redeem all or any part of the Series 7 Bonds on
any May 1 or November 1 on or after November 1, 1998. See "Description of the
Bonds -- Redemption at Option of Issuer" in the Prospectus at page 12.
RECENT DEVELOPMENTS
GUARANTOR
The Guarantor has reported the following summary income data for the year
ended December 31, 1995 and the three months ended March 31, 1996.
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
(AUDITED) (UNAUDITED)
------------- --------------
Revenues........................ $55,209,168 $12,451,226
Net Income...................... $ 4,044,321 $181,962
The Guarantor's ratio of earnings to fixed charges was 1.54 for the year
ended December 31, 1995 and 1.07 for the three months ended March 31, 1996
(unaudited). Such fixed charge coverage ratios were calculated in accordance
with Securities and Exchange Commission practice and include the proportionate
share of earnings and fixed charges of a special purpose corporation which is
50% owned by the Guarantor. The earnings of this corporation consist almost
entirely of earnings on mortgage certificates guaranteed by the Government
National Mortgage Association or guaranteed mortgage pass-through certificates
issued by the Federal National Mortgage Association. The interest expense of
this corporation consists of interest on bonds backed by such mortgage
certificates. The ratio of earnings to fixed charges for this corporation is
1.00. The ratio of earnings to fixed charges of the Guarantor excluding the
proportionate share of earnings and fixed charges of this corporation was 1.95
for the year ended December 31, 1995 and 1.13 for the three months ended March
31, 1996.
The Guarantor's capitalization at December 31, 1995 and March 31, 1996 was:
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
(AUDITED) (UNAUDITED)
----------------------- ---------------------
AMOUNT AS ADJUSTED (B)<F4>AMOUNT AS ADJUSTED (B)<F4>
------- --------------- ------- -------------
Long-term Debt (excluding amounts
currently due) (a)<F3> $28,168,359 $41,328,359 $24,899,070 $38,059,070
Common Stock Equity 52,241,998 52,241,998 52,156,898 52,156,898
----------- ---------- ----------- -----------
Total Capitalization $80,410,357 $93,570,357 $77,055,968 $90,215,968
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
(a)<F3>Excluding long-term indebtedness of corporation which is 50% owned by the
Guarantor.
(b)<F4>Adjusted to reflect the issuance of $13,160,000 of additional Bonds, the
principal amount of Bonds which may be issued in the future under the
Issuer's current Registration Statement.
ZLC
The following table reflects the certain summary financial data for ZLC for
the year ended December 31, 1995 and the three months ended March 31, 1996:
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
(AUDITED) (UNAUDITED)
------------- --------------
Revenues $10,483,964 $2,558,225
Expenses 9,417,585 2,345,503
Income Before Taxes 1,006,379 212,722
Net Income 716,379 132,722
Total Assets $54,133,984 $53,201,406
Total Liabilities 42,814,222 42,198,920
Total Surplus (ZLC Net Worth) 11,319,762 11,002,486
The following table sets forth the percentage of ZLC's Lease portfolio by
category of end user at the dates indicated.
DECEMBER 31, 1995 MARCH 31, 1996
----------------- --------------
Hospitals and Medical Centers 43.7% 42.8%
Clinics, Laboratories and Physicians 31.5% 33.3%
Commercial and Industrial Businesses 24.8% 23.9%
------ ------
100.0% 100.0%
The average term of leases in ZLC's portfolio at December 31, 1995, was
approximately 54 months, at March 31, 1996, it was 54 months.
During the period from January 1, 1985 through December 31, 1995, an
aggregate of 79 ZLC Leases were terminated prior to the end of their respective
Lease terms (exclusive of Leases terminated as a result of default by the
Lessee). On an average annual basis, early terminations during this period
represented less than 2% of the average aggregate number of ZLC Leases
outstanding at the end of each year. Of the Leases that were subject to early
termination, the average period during which such Leases were in effect was 27
months; the average original term of such Leases was 56 months. The most common
reason for early Lease termination was the desire of the Lessee to upgrade the
equipment subject to lease. ZLC's current portfolio of Pooled Assets includes
Pooled Assets with Lessees/Debtors located in 41 states and the District of
Columbia. The states in which there is currently the highest level of
lease/financing activity as measured by the percentage of total lease/financing
income during 1995 and total equipment cost as of December 31, 1995 is
represented by Pooled Assets with Lessees/Debtors located in the states are:
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL COST OF
STATE POOLED ASSET INCOME EQUIPMENT UNDER POOLED ASSETS
----- ------------------- ----------------------------
Wisconsin 15.4% 14.4%
New York 13.0% 9.6%
Indiana 11.1% 13.1%
California 8.8% 9.3%
Pennsylvania 8.7% 7.4%
Kansas 4.3% 4.7%
Michigan 3.3% 4.9%
Illinois 5.3% 5.6%
Texas 3.7% 4.7%
Set forth below is certain information concerning the bad debt write-off
experience on Leases held by ZLC:
<TABLE>
<CAPTION>
COST OF INVESTMENT IN RESERVE FOR % OF % OF BAD DEBT % OF % OF
YEAR EQUIPMENT LEASES (NET) BAD DEBTS COST INVESTMENT WRITE-OFFS COST INVESTMENT
- ---- --------- ------------ ----------- ------ ---------- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996*<F5>91,582,470 41,178,292 541,161 0.591% 1.314% 0 0.00% 0.00%
1995 90,470,916 42,272,269 476,126 0.526% 1.126% 296,275 0.3270% 0.701%
*<F5>As of the three months ended March 31, 1996.
</TABLE>
Although ZLC will represent that all Leases that at any time secure the Bonds
will have been underwritten in accordance with ZLC's applicable underwriting
policies, there can be no assurance that the write-off experience on such Leases
will be comparable to that set forth above.
The write-off experience in each year was generally attributable to one or
two Leases. During the last five years (1991-1995) the aggregate write-off was
attributable to Lessees located in the following states:
California 59.2% Florida 4.5%
Ohio 3.9% Minnesota 4.2%
South Carolina 11.2% Nebraska 2.4%
New York 2.0% Georgia .2%
Iowa 10.6% Wisconsin 1.8%
In the opinion of ZLC management, this write-off experience does not provide
a sufficient basis for projecting the future geographic distribution of bad debt
write-offs.
USE OF PROCEEDS
The net proceeds from the sale of the Series 7 Bonds together with the
proceeds of unsecured indebtedness incurred by the Issuer will be used by the
Issuer to pay the expenses of the offering of the Series 7 Bonds and to purchase
the Pooled Assets comprising the Pool for the Series 7 Bonds. Pooled Assets will
be assigned and delivered to the Trustee, as security for the Series 7 Bonds
simultaneously with delivery of the Series 7 Bonds. The Issuer's unsecured
indebtedness will be repaid from contract payments received under the Pooled
Assets which are in excess of the amounts required from time to time to meet the
debt service requirements on the Series 7 Bonds. The net proceeds is determined
by subtracting the Issuer's expenses of issuance from the gross proceeds from
the sale of the Series 7 Bonds, calculated as follows:
Gross Proceeds from the Sale of Series 7 Bonds... $5,000,000
Less Estimated Expenses of Issuance............ $ 125,000
----------
Estimated Net Proceeds........................... $4,875,000
----------
----------
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Terms Agreement respecting the Series 7 Bonds, the Issuer has agreed to
sell to B.C. Ziegler and Company (the "Underwriter"), and the Underwriter has
agreed to purchase, $5,000,000 in principal amount of the Series 7 Bonds.
Under the terms and conditions of the Underwriting Agreement, the Underwriter
is committed to take and pay for all of the Series 7 Bonds, if any are taken.
The Underwriter proposes to offer the Series 7 Bonds in part directly to
retail purchasers at the initial public offering prices set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers at
such prices less a maximum concession of 1.5%. After the Series 7 Bonds are
released for sale to the public, the offering prices and other selling terms may
from time to time be varied by the representatives.
The offering price of the Series 7 Bonds and other selling terms related
thereto may not be varied until after the completion of the distribution of the
Series 7 Bonds.
The Issuer has agreed to indemnify the Underwriter against certain
liabilities including liabilities under the Securities Act of 1933, as amended.
APPENDIX A
DESCRIPTION OF POOLED ASSETS
SECURING
SERIES 7 BONDS
<TABLE>
<CAPTION>
OPTION TO
PURCHASE
AGGREGATE PURCHASE EQUIPMENT
PAYMENTS PRICE OR PREPAY
FROM DATE (ISSUER'S DEBT PRIOR
DESCRIPTION OF PURCHASE INITIAL NET TO END OF
DATE OF OF TYPE OF MONTHLY TO END OF INVESTMENT) CONTRACT
LESSEE CONTRACT EQUIPMENT CONTRACT (3)<F8> PAYMENT CONTRACT OF CONTRACT TERM (1)<F6>
- ------- --------- ---------- ------------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cardiology Associates of 8/1/95 Miscellaneous Medical L $3,865.77 $193,288.50 $162,450.69 None
Lubbock, P.A. and Office
Lubbock, TX Equipment
Cardiology Associates of 1/1/96 Miscellaneous Medical L $5,886.25 $323,743.75 $265,048.30 None
Lubbock, P.A. and Office
Lubbock, TX Equipment
Cardiology Associates of 11/1/95 Miscellaneous Medical L $2,061.06 $109,236.18 $90,866.55 None
Lubbock, P.A. and Office
Lubbock, TX Equipment
Cardiology Consultants, P.A. 5/1/95 2 Sopha DS-7 Gamma L $8,596.66 $507,202.94 $398,941.61 None
d/b/a Cardiac Diagnostic Cameras
Center
Newark, DE
Information Storage 10/1/95 2-142A Memory Test L $2,207.20 $88,288.00 $77,942.78 None
Devices, Inc. Systems
San Jose, CA
Information Storage 1/1/96 3-142A Memory Test L $3,312.52 $142,438.36 $124,524.41 None
Devices, Inc. Systems
San Jose, CA
Information Storage 1/1/96 2-142A Memory Test L $3,625.02 $155,875.86 $136,846.26 None
Devices, Inc. Systems
San Jose, CA
Information Storage 4/1/96 3-142A Memory Test L $3,597.58 $165,488.68 $144,750.80 None
Devices, Inc. Systems
San Jose, CA
St. Francis Medical 12/1/95 Datex AS/3 Monitoring L $3,342.98 $180,520.92 $151,875.17 None
Center West System
Ewa Beach, HI
Bradley County 3/1/96 Miscellaneous Medical L $9,741.33 $555,255.81 $469,898.33 None
Memorial Hospital Equipment
Cleveland, TN
Community Memorial 12/10/95 Hewlett Packard Sonos L $3,688.00 $199,152.00 $158,904.31 None
Hospital of Menomonee Model 2500
Falls, Inc.
Menomonee Falls, WI
Fayetteville Diagnostic 1/10/96 Hewlett Packard Computer L $11,774.29 $647,585.95 $540,337.09 None
Clinic Networking System
Fayetteville, AR
Gage's Fertilizer & Grain, Inc.9/10/95 Fertilizer Applicator L $24,812.27 $74,436.81 $78,896.41 None(2)<F7>
Stanberry, MO (semi-annual)
Kings Medical of Wisconsin, 1/20/96 Philips T5-3 Upgrade L $3,132.13 $150,342.24 $124,070.77 None
Limited Liability Company
Hudson, OH
Universal Standard Medical 9/1/95 Hitachi Model 7 Analyzer NR $2,326.00 $113,974.00 $95,700.89 None
Laboratories, Inc.
Southfield, MI
Universal Standard Medical 3/1/96 Computer Equipment NR $3,007.98 $93,247.38 $84,585.66 None
Laboratories, Inc.
Southfield, MI
Universal Standard Medical 2/20/96 Miscellaneous Equipment NR $2,692.00 $145,368.00 $121,864.74 None
Laboratories, Inc.
Southfield, MI
Universal Standard Medical 9/20/95 Freedom Business NR $2,228.00 $98,032.00 $83,422.64 None
Laboratories, Inc. Machines
Southfield, MI
Universal Standard Medical 11/20/95 Tyler Freezer and NR $2,464.00 $115,808.00 $98,488.16 None
Laboratories, Inc. Cooler
Southfield, MI
Universal Standard Medical 1/20/96 Miscellaneous Equipment NR $2,317.00 $122,801.00 $103,270.82 None
Laboratories, Inc.
Southfield, MI
St. Agnes Hospital of 12/1/94 Hewlett Packard NR $6,033.50 $253,407.00 $223,219.52 None
Fond du Lac Information
Fond du Lac, WI System
St. Agnes Hospital of 9/10/95 Hewlett Packard NR $3,931.89 $200,526.39 $172,132.18 None
Fond du Lac Sonos
Fond du Lac, WI Model 2500
Radiologists, P.C. 12/1/95 Philips Diagnost 76 NR $5,003.24 $270,174.96 $227,480.63 None
Kansas City, MO System
Radiologists, P.C. 10/20/95 ATL HDL 3000 NR $3,016.42 $156,853.84 $132,871.43 None
Kansas City, MO Ultrasound
Pinnacle Imaging Associates 11/1/95 Siements 42SP MRI NR $11,164.30 $591,707.90 $494,481.41 None
d/b/a Pinnacle
Imaging Center
Duluth, GA
Welborn Clinic 9/1/95 ATL Ultramark NR $2,702.00 $137,802.00 $117,088.10 None
Evansville, IN 9 Upgrade
Cardiology Associates of 9/10/95 Vision DST Gamma NR $7,371.11 $375,926.61 $317,797.43 None
Corpus Christi Camera
Corpus Christi, TX
Hertzler Clinic, P.A. 12/20/95 Vision FX40 Gamma NR $5,264.39 $347,449.74 $282,158.87 None
Halstead, KS Camera
Columbia Hospital 5/20/95 Gryroscan T5 System NR $21,996.31 $483,918.82 $452,917.27 None
Milwaukee, WI and 2T5 Upgrade
Medical Associates 3/20/96 2 Philips Horiz NR $3,670.12 $209,196.84 $174,546.02 None
Clinton, IA Diagnost
------------- ------------
$7,209,050.48$6,107,379.25
------------- ------------
------------- ------------
(1)<F6>Except as otherwise indicated in note (2), lessee has option to purchase
leased equipment for $1.00 at end of lease term.
(2)<F7>Lessee required to purchase leased equipment for bargain purchase price
(10% of original equipment cost) at end of lease term.
(3)<F8>L = Lease; NR = Non-Recourse loan
</TABLE>
$40,000,000 PROSPECTUS
ZIEGLER COLLATERALIZED SECURITIES, INC.
COLLATERALIZED BONDS
GUARANTEED BY
THE ZIEGLER COMPANIES, INC.
Collateralized Bonds, in an aggregate principal amount of $40,000,000 (the
"Bonds") will be issued from time to time by Ziegler Collateralized Securities,
Inc., a Wisconsin corporation (the "Issuer") and are offered hereby. Payment of
the principal of and interest and redemption premium (if any) on, the Bonds will
be unconditionally guaranteed by Ziegler Companies, Inc., a Wisconsin
corporation (the "Guarantee"). Each series of Bonds will be at all times secured
by an assignment by the Issuer of its interests in one or more separate security
pools consisting of (A) equipment leases (the "Leases"), (B) purchase money
security agreements ("Purchase Money Security Agreements") and/or (C) non-
recourse notes ("Non-Recourse Notes"), each secured by the equipment subject to
such instruments, originated or acquired by the Ziegler Leasing Corporation
("ZLC") and sold to the Issuer, or with respect to Non-Recourse Notes,
originated by the Issuer, or originated by ZLC and sold to the Issuer, all as
more fully described herein. Leases, Purchase Money Security Agreements and Non-
Recourse Notes purchased by the Issuer are hereinafter referred to collectively
as "Pooled Assets". ZLC, a corporation organized under Wisconsin law (the
"Servicer", or "ZLC"), will service and administer the Pooled Assets) and
provide administrative support to the Issuer. Various series of Bonds may bear
interest at different rates and have different payment and maturity dates.
Certain of the Bonds may be redeemed prior to maturity. The Issuer will
redeem a portion of the Bonds of a series to the extent of any cash deposit made
by the Issuer to the Trustee in connection with the release of any Defaulted
Pooled Asset (as hereinafter defined) or from the proceeds received from the
early termination of any Pooled Asset (and the purchase of the related equipment
by the lessee thereof ("Lessee") or its assignee or the prepayment of principal
on a Purchase Money Security Agreement or Non-Recourse Note by a debtor
thereunder ("Debtor")), constituting a part of the collateral securing such
series of Bonds promptly following the receipt of such proceeds. In addition,
the Issuer may redeem any or all of the Bonds of any series on or after the
second anniversary of the original issuance thereof. (See "DESCRIPTION OF THE
BONDS -- Redemption.") The Bonds are not subject to redemption or repurchase at
the option of the Bondholders.
No sales of Bonds may be consummated without delivery of a Prospectus
Supplement describing the specific terms of such Bonds and the terms of offering
thereof. Offers and sales of the Bonds of each series will be made as described
in the Prospectus Supplement for each series.
Duff & Phelps, Inc. ("Duff & Phelps") has assigned a rating of not less than
"BBB" to the Bonds. The rating of "BBB" is considered an "investment grade"
rating assigned to Bonds which Duff & Phelps describes as follows: "Below-
average protection factors, but which are still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles."
The Bonds of each series will be individually rated by Duff & Phelps. Each such
rating will be "BBB" or higher and will be specified in the Prospectus
Supplement for that series. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or withdrawal at any time
by the assigning rating organization.
There is currently no secondary market for the Bonds and there can be no
assurance that a market will develop. The underwriter, B.C. Ziegler and Company
(the "Underwriter"), has made no determination as to whether, and there is no
assurance that, it will participate in or develop a secondary market for the
Bonds.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 HEREIN FOR INFORMATION AS TO FACTORS
OF IMPORTANCE TO INVESTORS.
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.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED
TO CONSUMMATE SALES OF BONDS UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
(B.C. ZIEGLER LOGO)
B.C. ZIEGLER AND COMPANY
THE DATE OF THIS PROSPECTUS IS AUGUST 31, 1995.
AVAILABLE INFORMATION
The Guarantor is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith the
Guarantor files, and will continue to file reports and other information with
the Securities and Exchange Commission (the Commission). The Issuer, pursuant to
Commission Staff Accounting Bulletin Topic 1-G and a No-Action Letter of the
Commission's Division of Corporation Finance to the Issuer, dated August 11,
1992 is not required to file periodic reports pursuant to Sections 13 and 15(d)
of the Exchange Act. However, the Guarantor's Exchange Act reports contain
summarized financial information regarding the Issuer, pursuant to Rule 1-02(aa)
of Regulation S-X promulgated under the Exchange Act. Information, as of
particular dates, concerning directors and officers, their remuneration, their
security holdings, the principal holders of securities of the Guarantor and any
material interest of such persons in transactions with the Guarantor, is
disclosed in proxy statements distributed to shareholders of the Guarantor and
filed with the Commission. Such reports, proxy statements and other information
can be inspected and copied at the offices of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and Northeast Regional Office, Seven
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Issuer and the Guarantor have filed with the Commission a registration
statement on Form S-3 (herein, together with all amendments and exhibits,
thereto referred to as the Registration Statement) under the Securities Act of
1933, as amended (the "Act"). The Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Guarantor's Annual Report on Form 10-K for the year ended December 31,
1994, as well as the Guarantor's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, and June 30, 1995 are incorporated herein by reference.
All documents filed by the Guarantor and the Issuer pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document, which
also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Issuer and the Guarantor undertake to provide without charge to each
person to whom a copy of this Prospectus has been delivered, on the written or
oral request of any such person, a copy of any or all of the documents referred
to above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents.
Requests for such copies should be directed to S. Charles O'Meara, Senior
Vice President and General Counsel, The Ziegler Companies, Inc., 215 North Main
Street, West Bend, Wisconsin 53095, telephone number (414) 334-5521.
PROSPECTUS SUMMARY
The following is a summary of certain material contained in this Prospectus.
The summary is intended merely to highlight certain information, and there is
information in this Prospectus that is not included in the summary. Prospective
investors are therefore urged to review the entire Prospectus carefully.
Security Offered $40,000,000 principal amount of Collateralized
Bonds (the "Bonds") of Ziegler Collateralized
Securities, Inc. (the "Issuer"), issuable in
Series (See "Description of the Bonds"). Guaranty
of The Ziegler Companies, Inc. ("Guarantor") (See
"Description of the Guaranty").
Duff & Phelps' Rating A rating of not less than "BBB" has been assigned
to the Bonds. The specific rating assigned to each
series is specified in the Prospectus Supplement
describing the Bonds of of such series. (See
"Description of the Bonds -- Bond Rating").
Issuer The Issuer is a wholly-owned subsidiary of the
Guarantor. B.C. Ziegler and Company (hereinafter
sometimes referred to as the "Underwriter"), which
will act as the underwriter for the Bonds, and
Ziegler Leasing Corporation (hereinafter sometimes
referred to as "ZLC" or "Servicer"), from which
the Issuer will purchase the equipment leases
("Leases"), purchase money security agreements
("Purchase Money Security Agreements") and non-
recourse notes, secured by assignments of Leases
financed thereunder ("Non-Recourse Notes")
(collectively "Pooled Assets") which will secure
the Bonds, are wholly-owned subsidiaries of the
Guarantor. The Issuer does not have, nor is it
expected in the future to have, any significant
assets other than the Pooled Assets assigned as
security for specific series of securities issued
by it.
Guarantor The Ziegler Companies, Inc., West Bend, Wisconsin.
Servicer Ziegler Leasing Corporation, West Bend, Wisconsin.
Trustee M&I First National Bank, West Bend, Wisconsin
(Trustee).
Interest Payments Interest on the Bonds will be payable on such
dates as shall be specified in the Prospectus
Supplement for each series (See "Description of
the Bonds -- Payments of Interest").
Stated Maturity The Bonds of each series shall mature on the dates
set forth on the cover page of the Prospectus
Supplement describing the Bonds of such series.
Semiannual Payment Date The first day of the months specified in the
Prospectus Supplement describing each series of
Bonds.
Payment Date Any Semiannual Payment Date or Redemption Date.
Redemption Date Any date on which the Bonds of any series may be
called for redemption as specified in the
Prospectus Supplement for such series of Bonds.
Mandatory Redemption of Bond The Bonds of each series are subject to mandatory
redemption (i) without premium to the extent of
any cash deposit made by the Issuer to the Trustee
in connection with the release of any Defaulted
Pooled Asset (as hereinafter defined) constituting
part of the collateral pool for such series or
(ii) with a premium of 1% of the principal amount
of Bonds of such Series redeemed prior to the
second anniversary date of the original issuance
thereof and without premium thereafter to the
extent of proceeds received by the Issuer from the
early termination of any of the Pooled Assets and
the purchase of the related equipment by the
lessee thereof ("Lessee") or its assignee, in the
case of a Lease, or the prepayment of principal on
the Purchase Money Security Agreements or Non-
Recourse Notes by a debtor thereunder ("Debtor"),
in each case such redemption to occur as soon as
practicable following the receipt of such
proceeds. (See "Description of the Bonds --
Mandatory Redemption of Bonds.")
Issuer's Option to Redeem The Bonds of any series may be redeemed in whole
or in part by the Issuer, without premium on or
after the second anniversary of the original
issuance thereof. (See "Description of the Bonds -
- Redemption at Option of Issuer.")
Special Considerations The Issuer does not have, nor is it expected in
the future to have, any significant assets other
than the Pooled Assets securing the various series
of Bonds. The Pooled Assets securing each series
of Bonds will serve as collateral for that series
of Bonds. The obligations of the Guarantor under
its guaranty of the Bonds will be unsecured. (See
"Special Considerations.")
The Pool There will be a separate pool (the "Pool") of
Pooled Assets securing each series of Bonds
consisting of:
A. Pooled Assets Assignment to the Trustee of the entire interest
of the Issuer in the Pooled Assets with the
aggregate amount of the scheduled rentals and/or
debt payments payable thereunder in each six-
month period ending on a Semiannual Payment Date
(after deducting all Servicer Fees and Trustee's
Fees accruing during such period) together with
other funds then held by the Trustee for payment
of principal and interest on the Bonds of such
Series on such Semiannual Payment Date, so long as
the Bonds of such Series are outstanding being
equal to or greater than the aggregate amount of
principal and interest payable on the Bonds of
such series on such Semiannual Payment Date. (See
"Description of the Pool -- General.")
B. Principal and Interest
Payment Account The Trustee will maintain a Principal and Interest
Payment Account for each series of Bonds in which
the Issuer will deposit on or before the business
day immediately preceding each Payment Date an
amount equal to the aggregate amount of principal
and interest payable with respect to the Bonds of
such series on such Payment Date. The Trustee will
also deposit in the Principal and Interest Payment
Account (i) all payments of principal, including
insurance and liquidation proceeds, on the Pooled
Assets remitted to the Trustee, and (ii) amounts
received with respect to the sale of the Pooled
Assets upon termination or liquidation of the
Pool, and (iii) amounts received upon the purchase
of any Defaulted Pooled Asset (as hereinafter
defined) by the Guarantor or ZLC or upon early
termination of any Pooled Asset and the sale of
related equipment.
C. Reinvestment Earnings All amounts on deposit in the Principal and
Interest Payment Account prior to the business day
immediately preceding a Payment Date will be
invested and reinvested in certain eligible
investments, in either case maturing not later
than the business day immediately preceding such
Payment Date.
D. Leased or Financed
Equipment The Bonds will also be secured by a perfected
security interest in the equipment subject to each
Pooled Asset in the Pool securing the Bonds of
such series.
E. Insurance Policies The Indenture requires the Issuer to cause to be
maintained insurance against the loss or theft of
or damage to the equipment subject to each Pooled
Asset in an amount which is at least equal to the
full insurable value of the equipment subject to
each Pooled Asset. (See "Description of the Bonds
-- Maintenance of Insurance.")
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Bonds.
LIMITED LIQUIDITY
The Bonds have no established trading market, and there can be no assurance
that a secondary market will develop or, if it does develop, that it will
provide Bondholders with liquidity of investment or will continue for the life
of the Bonds. The Underwriter has made no determination as to whether, and there
is no assurance that, it will participate in or develop a secondary market for
the Bonds. See cover of this Prospectus. The Issuer does not intend to apply for
the listing of Bonds on any exchange or on the Nasdaq National Market. The
market value of the Bonds will fluctuate with changes in prevailing rates of
interest. Consequently, sale of Bonds by a Bondholder in any market which may
develop may be at a discount from their face amount or purchase price.
LIMITED ASSETS OF ISSUER; SECURITY INTERESTS IN UNDERLYING EQUIPMENT
The Issuer does not have, nor is it expected in the future to have, any
significant assets other than the Pooled Assets securing the various series of
Bonds. The Pooled Assets securing a series of Bonds will be held by the Trustee
as security only for the Bonds of such series. Although the Issuer will hold a
perfected security interest in the equipment underlying the Pooled Assets,
certain of such security interests may be secondary to other security interests
filed with respect to such equipment. Accordingly, investors should be aware
that there can be no assurance that in the event of a default under a Pooled
Asset the Trustee will be able to realize on such underlying equipment. See
"Ziegler Collateralized Securities, Inc." and "Description of the Pool --
General" herein.
OBLIGATIONS OF GUARANTOR
The Guarantor is essentially a holding company and has no material assets
other than the stock of and loans to its subsidiaries. The Guarantor sells its
commercial paper and loans the proceeds thereof to its subsidiaries to finance
their operations. The obligations of the Guarantor under its guaranty of the
Bonds (the "Guaranty") will be unsecured, will be on a parity with the claims of
other unsecured creditors of the Guarantor and will be subordinate to the claims
of creditors of the Guarantor's subsidiaries with respect to the assets of such
subsidiaries. The Guarantor has not incurred any secured indebtedness. No
subsidiary of the Guarantor is a party to the Guaranty. See "The Ziegler
Companies, Inc. -- The Guarantee" herein. See "Description of the Guaranty"
herein.
NO GOVERNMENT GUARANTIES
Neither the Bonds nor the Pooled Assets are insured or guaranteed in whole or
in part by the United States, any agency of or corporation chartered by the
United States, any other governmental agency or any other person or entity
except for the guaranty of the Bonds by the Guarantor. See "Description of the
Guaranty" herein.
PAYMENT OF SERVICER'S AND TRUSTEE'S FEES
Pursuant to the Servicing Agreement (see "Servicer" herein), the Servicer
will be entitled to deduct and retain from the monthly rentals on the Leases or
monthly debt payments on the Purchase Money Security Agreements or Non-Recourse
Notes, as the case may be, in each Pool a monthly fee equal to .04167% of the
Issuer's total net investment in Pooled Assets in the Pool (determined in
accordance with generally accepted accounting principles ("GAAP")) as of the
last day of the preceding month prior to paying such rental and/or debt payments
to the Issuer. The Servicer is also entitled pursuant to the Servicing Agreement
to deduct from rental and/or debt payments made to the Issuer the amount of any
insurance premiums advanced by the Servicer with respect to any Pooled Asset.
The Servicer also provides administrative support to the Issuer for which it
will receive a monthly administrative support fee not exceeding .167% of the
Issuer's total net investment in the Pooled Assets determined in accordance with
GAAP as of the last day of the preceding month provided that the aggregate
administrative support fee payable in any calendar year shall not exceed an
amount equal to the net revenues of the Issuer before the payment of such
administrative support fee. See "Management -- Administrative Support Fee"
herein. Under the Indenture, the Trustee is entitled to withdraw from the
Principal and Interest Payment Account, if not otherwise paid, moneys to pay its
fees and disbursements (currently estimated to be approximately $3,000 per
year). The payment of Servicer's and Trustee's Fees will be paid prior to any
payment of principal or interest to the Bondholders. Administrative Support Fees
will be paid semiannually to the extent of available funds.
SALE OF COLLATERAL; INTEREST RATE FLUCTUATIONS
In the event that a Pool is to be liquidated by the Trustee upon an Event of
Default (see "The Indenture -- Events of Default"), there is no assurance that
the rental or debt payments under the Pooled Assets securing a series of Bonds
or investment income on the securities in which the Principal and Interest
Payment Account for such series may be invested will be equal to the market
rates for comparable Pooled Assets or securities at the time of liquidation.
Consequently, the Pooled Assets or such securities could be liquidated at a
discount from the face amount, in which case the proceeds of liquidation of such
Pooled Assets may be less than the outstanding principal balance of the Bonds
plus accrued interest. In such event, the Issuer will be unable to pay in full
the principal and interest on the Bonds out of the proceeds of the Pool and the
Bondholders will have recourse only to any other assets held by the Issuer which
are not securing Bonds of any other series and the Guaranty. In such event, it
is unlikely that there would be any other assets of the Issuer from which
Bondholders could seek payment of their Bonds. The Trustee and, under certain
circumstances, the Bondholders may, however, seek recovery from the Guarantor
under the Guaranty without seeking recovery from the Issuer or liquidating the
Pool. See "Description of the Guaranty" herein.
COMPENSATION OF UNDERWRITER AND ISSUER
B.C. Ziegler and Company (the "Underwriter") and the Issuer are each wholly-
owned subsidiaries of the Guarantor. The Prospectus Supplement will set forth
the proceeds to the Issuer, the price to the public and the underwriting
discount with respect to each offering of a Series of Bonds. The Issuer will be
compensated, in part, by the use of funds received as payments on the Pooled
Assets which make up the Pools, since payments on the Pooled Assets will be
received monthly, but principal of and interest on the Bonds will be paid
semiannually. The Underwriter may also receive compensation from the Issuer in
connection with the investment of such funds and may be compensated by the
Trustee or the Issuer for performing certain clerical services relating to the
Bonds and the Indenture. See "Plan of Distribution" herein and "Underwriting" in
the Prospectus Supplement.
DURATION OF INVESTMENT
The Bonds of each series are subject to mandatory redemption (i) without
premium, to the extent of any cash deposit made by the Issuer to the Trustee in
connection with the release of any Pooled Asset constituting part of the Pool
securing such series of Bonds if the Lessee or Debtor thereunder, as the case
may be, has defaulted in making any rental or debt payment thereunder and such
default excluding any grace period has continued uncured for 40 days (a
"Defaulted Pooled Asset"), or (ii) with a premium of 1% of the principal amount
of Bonds of such Series redeemed prior to the second anniversary date of the
original issuance thereof and without premium thereafter to the extent of
proceeds received by the Issuer from the early termination of any Pooled Asset
and the purchase of the related equipment by the Lessee or Debtor thereunder or
their assignees, in each case such redemption to occur as soon as practicable
following the receipt of such proceeds. See "Description of the Bonds --
Mandatory Redemption of Bonds."
For information respecting ZLC's historic experience with respect to Leases
under which there has been a payment default, see "SERVICER -- Bad Debt Write-
Off Experience" herein, and "Recent Developments" in the Prospectus Supplement
made a part of this Prospectus. ZLC and the Issuer have only limited experience
in originating Purchase Money Security Agreements and Non-Recourse Notes.
However, because of the substantial similarity of the credit risks associated
with and manner of originating Leases, the Issuer has no reason to believe that
the historical figures presented herein with respect to Leases would differ
materially if ZLC and/or the Issuer, as the case may be, were, during the
periods indicated, in the business of originating Purchase Money Security
Agreements and/or Non-Recourse Notes.
During the period from January 1, 1985 through December 31, 1994, an
aggregate of 69 ZLC Leases were terminated prior to the end of their respective
Lease terms (exclusive of Leases terminated as a result of default by the
Lessee). On an average annual basis, early terminations during this period
represented less than 2% of the average aggregate number of ZLC Leases
outstanding at the end of each year. Of the Leases that were subject to early
termination, the average period during which such Leases were in effect was 27
months; the average original term of such Leases was 56 months. The most common
reason for early Lease termination was the desire of the Lessee to upgrade the
equipment subject to lease. For updated information regarding early lease
terminations, see "Recent Developments" in the Prospectus Supplement made a part
of this Prospectus.
The Bonds of each series are also subject to redemption at the option of the
Issuer without premium in whole or in part in multiples of $1,000 on any
Redemption Date (i.e., a date provided in the Supplemental Indenture for a
----
Series of Bonds on which Bonds shall or may, at the option of the Issuer, be
redeemed) on or after the second anniversary date of the original issuance of
the Bonds of such series. The Underwriter, as the sole initial participant in
the book entry system pursuant to which the Bonds will be held and administered,
will choose by lot in $1,000 units the Bonds to be redeemed in whole or in part.
See "Description of the Bonds -- Redemption at Option of Issuer". No
representation can be made as to the manner in which other securities brokers
and dealers participating in this offering will choose Bonds for redemption. In
electing to make such a redemption the Issuer may take into account, among other
factors, the extent to which Lessees of equipment under the Leases in the Pool
securing such series have exercised their options, if any, to purchase such
equipment or the extent to which Debtors under the Purchased Money Security
Agreements or Non-Recourse Notes have exercised their options to prepay the
principal thereon, the extent to which rentals or debt payments under such
Pooled Assets may be higher than prevailing market rates, whether the Issuer
could sell the Pooled Assets at a premium and the extent to which the interest
on the Bonds of such series is higher than prevailing interest rates. Neither
the Issuer nor ZLC has had any historic experience relative to the redemption of
Bonds under the foregoing circumstances, but such circumstances are merely
indicative of circumstances under which the Issuer might have an interest in
exercising its right to redeem Bonds. ZLC has in general sold Leases only to
diversify its portfolio and reduce concentration of Leases with respect to
particular Lessees and types of equipment. The Issuer makes no representation
and there can be no assurance as to whether the Bonds of a series will be
redeemed under the above described circumstances. There are certain risks
associated with equipment leasing and financing. See "Equipment Leasing and
Financing -- Risk Associated With Equipment Leasing and Financing."
BANKRUPTCY CONSIDERATIONS
Certain statutory provisions, including the United States Bankruptcy Code and
similar state bankruptcy and insolvency laws, may limit the ability of the
Servicer or the Trustee to liquidate a Defaulted Pooled Asset, repossess and
resell the equipment subject to a Pooled Asset or obtain a deficiency judgment
against the Lessee or Debtor, as the case may be, under a Pooled Asset. In the
event of the bankruptcy or reorganization of any such Lessee or Debtor, the
Servicer or the Issuer, various provisions of such federal and state bankruptcy
and insolvency laws may interfere with, delay or eliminate the ability of the
Trustee to enforce its rights under the Pooled Assets.
The federal Bankruptcy Code also grants to the bankruptcy trustee or the
debtor-in-possession a right to elect to assume or reject any unexpired Pooled
Asset. Any rejection of such a Pooled Asset constitutes a breach of such Pooled
Asset, entitling the non-breaching party to a claim for damages for breach of
contract. Upon the bankruptcy of a Lessee or Debtor, as the case may be, if the
bankruptcy trustee or debtor-in-possession elected to reject a Pooled Asset, the
flow of payments to the Issuer from the Pooled Asset and the Bondholders would
cease. See "Certain Bankruptcy Considerations of Equipment Leases and Debt
Instruments."
RISK FACTORS ASSOCIATED WITH EQUIPMENT LEASING AND FINANCING
There are certain risks associated with equipment leasing and financing. See
"Equipment Leasing and Financing -- Risks Associated with Equipment Leasing and
Financing."
THE GUARANTOR*<F9>
FINANCIAL INFORMATION
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
----- ----- -----
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenues........................... $48,306,068 $50,861,456 $48,473,925
Net Income......................... $5,086,534 $4,531,024 $2,005,056
RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED) (A)<F10>(B)<F11>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1991 1992 1993 1994
----- ----- ----- -----
1.39 1.55 1.53 1.26
CONSOLIDATED CAPITALIZATION AT DECEMBER 31, 1994 (UNAUDITED):
AMOUNT AS ADJUSTED(C)<F12>
---------- --------------
Long-term Debt (excluding amounts
currently due) (d)<F13>.......... $38,331,881 $58,691,881
Common Stock Equity..................... $50,380,022 $50,380,022
Total Capitalization.................... $88,711,903 $109,071,903
*<F9>For updated financial information regarding the Guarantor, see "Recent
Developments" in the Prospectus Supplement made a part of this Prospectus.
(a)<F10>Fixed-charge coverage ratios are calculated in accordance with
Securities and Exchange Commission practice.
(b)<F11>Includes proportionate share of earnings and fixed charges of special
purpose corporations which are 50% owned by the Guarantor. The earnings of
these corporations consist almost entirely of earnings on mortgage
certificates guaranteed by the Government National Mortgage Association or
guaranteed mortgage pass-through certificates issued by the Federal National
Mortgage Association. The interest expenses of these corporations consist of
interest on bonds backed by such mortgage certificates. The ratio of earnings
to fixed charges for these corporations is 1.00. The ratios of earnings to
fixed charges of the Guarantor excluding the proportionate share of earnings
and fixed charges of these corporations were 1991: 2.31; 1992: 2.55; 1993:
2.41 and 1994: 1.51.
(c)<F12>Adjusted to reflect the issuance of $20,360,000 of additional Bonds.
(d)<F13>Excluding long-term indebtedness of corporations which are 50% owned by
the Guarantor. See footnote (b) above.
ZIEGLER COLLATERALIZED SECURITIES, INC.
GENERAL
The Issuer was incorporated in the state of Wisconsin on August 27, 1991 and
is a wholly-owned subsidiary of the Guarantor. The Issuer is organized to
facilitate the financing of Leases and purchases of equipment pursuant to
Purchase Money Security Agreements and Non-Recourse Notes. The Issuer's
principal office is located at 215 North Main Street, West Bend, Wisconsin
53095. Its telephone number is (414) 334-5521.
The Issuer does not intend to engage in any business or investment activities
other than those described in its Articles of Incorporation. Article 2 of its
Articles of Incorporation provides that the purposes for which the Issuer is
formed are (i) to issue bonds secured by equipment Leases and the equipment
leased thereunder and/or debt instruments and the equipment financed thereunder;
(ii) to purchase or otherwise acquire, own, hold, transfer, convey, assign,
pledge, grant security interests in, finance, refinance and otherwise deal with
such collateral; (iii) to invest and reinvest the payments received with respect
to the collateral and from any disposition or liquidation of the collateral; and
(iv) to engage in any activities incidental and necessary for such purposes.
Except as described in this Prospectus, the Issuer does not intend to engage in
any transactions with its directors, officers or principal shareholders, to
issue senior securities, to borrow money except for the issuance of Bonds and
additional securities for the purpose of acquiring Leases, Purchase Money
Security Agreements or Non-Recourse Notes to collateralize Bonds or for the
purpose of refinancing Bonds, to make loans (other than as evidenced by Non-
Recourse Notes to ZLC for inclusion in the various Pools as described herein),
to invest in the securities of other issuers for the purpose of exercising
control, to underwrite securities of other issuers, to engage in the purchase
and sale of investments, to offer securities in exchange for property, to
repurchase its own securities or to make annual reports or other reports to
Bondholders.
NONCONSOLIDATION IN BANKRUPTCY
The Issuer has taken steps in structuring the transaction contemplated hereby
that are intended to ensure that the voluntary or involuntary application for
relief by the Servicer or the Guarantor under the United States Bankruptcy Code
or any similar applicable state law will not result in consolidation of the
assets and liabilities of the Issuer with those of the Servicer or the
Guarantor. These steps include the creation of the Issuer as a separate,
limited-purpose subsidiary pursuant to the Articles of Incorporation containing
certain limitations (including restrictions on the nature of the Issuer's
business). The Issuer has agreed not to file, and the Guarantor and Servicer
have agreed not to cause the filing of, a voluntary application for relief under
any such bankruptcy or insolvency law with respect to the Issuer until at least
one year plus one day after the payment in full of the Bonds.
The Issuer has received the advice of its counsel, Foley & Lardner,
Milwaukee, Wisconsin to the effect that (i) a court in balancing the relevant
factors should conclude that the assets and liabilities of the Issuer should not
be consolidated with the assets and liabilities of the Servicer or the Guarantor
in the event bankruptcy proceedings were commenced under the federal Bankruptcy
Code with respect to the Servicer or the Guarantor, and (ii) in a bankruptcy
proceeding involving the Servicer, the trustee in bankruptcy (or the Servicer as
debtor-in-possession) should not prevail in an action to compel turnover of the
Pooled Assets to the bankruptcy estate on a theory that the Purchase Agreement
constitutes a secured financing rather than a true sale of the Pooled Assets. If
a filing were made under any state or federal bankruptcy or insolvency law by or
against the Issuer, or if an attempt were made to litigate any of the foregoing
issues, then delays in distributions on the Bonds (and possible reductions in
the amount of such distributions) could occur.
THE ZIEGLER COMPANIES, INC. -- THE GUARANTOR
The Guarantor is a holding company which owns eight subsidiary companies.
Seven of the companies are engaged in financially oriented businesses, and the
other company is engaged in recycling and reclaiming chemical wastes. The
Guarantor's principal executive offices are at 215 North Main Street, West Bend,
Wisconsin 53095 and its telephone number is (414) 334-5521.
The Guarantor's subsidiaries, in addition to the Issuer, include: the
Underwriter, an investment banking firm which, with its operating division,
Ziegler Securities, engages in underwriting and distributing debt securities of
hospitals and health care institutions, long-term care facilities, municipal
entities, churches and other corporations; ZLC, which concentrates on leasing
and other forms of equipment financing to health care providers and other
commercial enterprises; Ziegler Financing Corporation, which limits construction
and interim loan activity primarily to health care providers and churches;
Ziegler Thrift Trading, Inc., a discount brokerage firm; Ziegler Asset
Management, Inc., which provides investment advisory services; First Church
Financing Corporation, which was organized to issue mortgage-backed bonds
collateralized by first mortgages on church buildings and properties; and WRR
Environmental Services Co., Inc. (formerly Waste Research and Reclamation Co.,
Inc.), which provides pollution abatement services, and recycles and reclaims
chemical wastes.
DESCRIPTION OF THE BONDS
GENERAL
The Bonds offered hereby (the "Bonds") will be issued in an aggregate
principal amount of up to $40,000,000 and will be issued pursuant to an
Indenture dated as of October 1, 1991 (the "Indenture"), between the Issuer and
M&I First National Bank, West Bend, Wisconsin (the "Trustee"), as supplemented
by one or more supplemental indentures. Copies of the Indenture and each
supplemental indenture thereto have been, or will be, filed as exhibits to the
registration statement of which this Prospectus forms a part, or as exhibits to
the Guarantor's filings under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The following summaries describe certain provisions common
to each series of Bonds. The summaries do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, the provisions
of the Indenture and the supplemental indentures thereto for each particular
series and the Prospectus Supplement to be prepared with respect to each such
series.
The Bonds are issuable in series and are unlimited in aggregate principal
amounts. Various series may bear interest at different rates and have different
interest payment and maturity dates. The Bonds will be issued as book-entry
Bonds in initial denominations of $1,000 or integral multiples thereof.
(Indenture Sections 3.02 and 3.10.) See "Book-Entry-Only System." The Bonds of
each series will be secured by a Pool of Pooled Assets, which, during the period
they secure such series of Bonds, will not serve as security for any other
series of Bonds. (See "DESCRIPTION OF THE POOL").
Payment of interest on, and redemptions of any Series Bonds which are not
book-entry Bonds may be made at the corporate trust office of the Trustee.
However, the Issuer intends to make payments of interest and redemptions of the
Bonds by checks mailed to Bondholders. (Indenture Sections 3.07, 11.02, 12.01
and 12.02.)
BOND RATING
Duff & Phelps has assigned a rating of not less than "BBB" to the Bonds. The
"BBB" rating is considered "investment grade." The Bonds of each series will be
individually rated by Duff &Phelps. Each such rating will be "BBB" or higher and
will be specified in the Prospectus Supplement for that series.
A Duff & Phelps rating is not a recommendation to buy, sell or hold the Bonds
and is subject to revision or withdrawal at any time by the rating organization.
An investor may obtain further details with respect to the rating of any series
of Bonds from Duff & Phelps.
PAYMENTS OF INTEREST
The Bonds of each series will bear interest payable semiannually, on the
dates and at the rates specified in the Prospectus Supplement for that series.
Interest on the Bonds accrued through the day immediately preceding each
Semiannual Payment Date will be payable to the persons in whose names the Bonds
are registered in the Bond Register at the close of business on the Record Date
(the 15th day of the immediately preceding month) for such Semiannual Payment.
See "Book-Entry-Only System" herein.
MANDATORY REDEMPTION OF BONDS
The Bonds of each series will be required to be redeemed (i) without premium
to the extent of any cash deposit made by the Issuer to the Trustee in
connection with the release of Defaulted Pooled Assets or (ii) with a premium of
1% of the principal amount of Bonds of such Series redeemed prior to the second
anniversary date of the original issuance thereof and without premium thereafter
to the extent of proceeds received by the Issuer from the early termination of
any Pooled Asset and the purchase of the related equipment by the Lessee
thereunder or the prepayment of principal on any Purchase Money Security
Agreement or Non-Recourse Note by a Debtor, in each case, as soon as practicable
following the receipt of such proceeds. The Trustee is authorized under the
Indenture to release from the Pool for any Series of Bonds any Defaulted Pooled
Asset provided that the Issuer deposit with the Trustee cash or its equivalent
in an amount equal to the amount, if any, by which 100% of the aggregate
principal amount of then Outstanding Bonds of the Series secured by such pool
(or such greater percentage of collateralization as is specified in the
supplemental indenture pursuant to which such series of Bonds is issued) exceeds
the Issuer's then net investment in the remaining Pooled Assets in such
collateral pool. A "Defaulted Pooled Asset" is a Pooled Asset with respect to
which there has occurred and has remained uncured for a period of 30 days any
default (exclusive of grace periods) in payments under such Pooled Asset,
whether in the form of debt payments or rentals.
REDEMPTION AT OPTION OF ISSUER
In addition to the redemption described above, the Issuer may redeem all or
any part of the Bonds of any series, without premium, on any Redemption Date on
or after the second anniversary of the original issuance thereof.
REDEMPTION PRICE FOR BONDS
The redemption price for a Bond is 100% of the unpaid principal amount
thereof. In addition, interest accrued through the day immediately preceding the
applicable Redemption Date will be paid on the redeemed Bonds.
NO LISTING OF BONDS
The Issuer does not intend to apply for the listing of the Bonds on any
exchange or on the Nasdaq National Market.
BOOK-ENTRY-ONLY SYSTEM
The Depository Trust Company ("DTC"), New York, New York, will act as
securities depository for the Bonds. The ownership of one fully-registered Bond
for each maturity of the Bonds of each series as set forth on the cover page of
each Prospectus Supplement, each in the aggregate principal amount of such
maturity, will be registered in the name of Cede & Co., as nominee for DTC. DTC
is a limited-purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act, as
amended. DTC was created to hold securities of its participants (the "DTC
Participants") and to facilitate the clearance and settlement of securities
transactions among DTC Participants in such securities through electronic book-
entry changes in accounts of the DTC Participants, thereby eliminating the need
of physical movement of securities certificates. DTC Participants include the
Underwriter, other securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations, some of whom (and/or
their representatives) own DTC. Access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a DTC Participant, either directly or
indirectly (the "Indirect Participants").
The DTC Participants shall receive a credit balance in the records of DTC.
The ownership interest of each actual purchaser of each Bond (the "Beneficial
Owner") will be recorded through the records of the DTC Participant. Beneficial
Owners are expected to receive a written confirmation of their purchase
providing details of the Bond acquired. Transfer of ownership interests in the
Bonds will be accomplished by book entries made by DTC and, in turn, by the DTC
Participants who act on behalf of the Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interest in the Bonds,
except as specifically provided in the Indenture.
DTC may determine to discontinue providing its service with respect to the
Bonds at any time by giving notice to the Issuer and discharging its
responsibilities with respect thereto under applicable law. Under such
circumstances, Bond certificates are required to be delivered as described in
the Indenture. The Beneficial Owner, upon registration of certificates held in
the Beneficial Owner's name, will become the registered owner of the Bonds.
The Issuer may determine that continuation of the system of book-entry
transfers through DTC (or a successor securities depository) is not in the best
interests of the Beneficial Owners. In such event, Bond certificates will be
delivered as described in the Indenture.
Conveyance of notices and other communications by DTC to DTC Participants, by
DTC Participants to Indirect Participants, and by DTC Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory and regulatory requirements as may be in effect from
time to time.
Principal and interest payments on the Bonds will be made to DTC or its
nominee, Cede & Co., as registered owner of the Bonds. Upon receipt of moneys,
DTC's current practice is to immediately credit the accounts of the DTC
Participants in accordance with their respective holdings shown on the records
of DTC. Payments by DTC Participants and Indirect Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
now the case with municipal securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
such DTC Participant or Indirect Participant and not of DTC or the Issuer,
subject to any statutory and regulatory requirements as may be in effect from
time to time.
MAINTENANCE OF INSURANCE
Each Pooled Asset will require the Lessee or debtor with respect thereto to
procure, maintain and pay for (i) insurance against the loss or theft of or
damage to the leased or financed equipment, for an amount specified in the
Pooled Asset, naming ZLC or the Issuer, as the case may be, and their respective
assigns, as a loss payees, and (ii) public liability and property damage
insurance with minimum coverage, naming ZLC or the Issuer, as the case may be,
and their respective assigns as additional insureds. All such insurance shall be
in the form and amount and with companies satisfactory to ZLC or the Issuer, as
the case may be. Each insurer shall agree by endorsement upon the policy or
policies issued by it or by independent instrument furnished to ZLC or the
Issuer, as the case may be, that it will give ZLC or the Issuer, as the case may
be, thirty (30) days' written notice before the policy in question shall be
materially altered or canceled. The proceeds of such insurance, at the option of
ZLC or the Issuer, as the case may be, shall be applied (i) toward the
replacement, restoration or repair of the equipment, or (ii) toward payment of
the obligations of the Lessee or Debtor hereunder.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material anticipated Federal
income tax consequences of the purchase, ownership and disposition of the Bonds,
and is based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change. This discussion is based on current law including
certain temporary and proposed Treasury regulations, all of which is subject to
changes that prospectively or retrospectively could modify or effect adversely
the tax consequences summarized below. Prospective purchasers of Bonds should
consult their own tax advisors in determining the Federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
Bonds. The discussion does not address all of the tax consequences relevant to a
particular Bondholder in light of that Bondholder's circumstances, and some
Bondholders may be subject to special rules and limitations not discussed below.
THE ISSUER
The Issuer has been advised by its counsel Foley & Lardner, Milwaukee,
Wisconsin, that, although there are no regulations, published rulings or
judicial decisions involving the characterization for Federal income tax
purposes of securities with provisions substantially the same as the Bonds, in
its opinion the Bonds will be treated for Federal income tax purposes as
indebtedness of the Issuer and not as an ownership interest in the Pooled
Assets, or any equity interest in the Issuer or in a separate association
taxable as a corporation.
TAXATION OF BONDHOLDERS
GENERAL
The purchase of a Bond for cash will not be a taxable event to the purchaser
or the Issuer. The purchaser will take a basis in that Bond initially equal to
the amount paid therefor. In general, interest paid or accrued and market
discount on a Bond will be treated as ordinary income to the Bondholder and
principal payments on a Bond will be treated as a return of capital to the
extent of the Bondholder's basis in the Bond allocable thereto. All such
interest will be considered portfolio income for purposes of the passive
activity provisions in Section 469 of the Code.
ORIGINAL ISSUE DISCOUNT
The Bonds will not be issued with "original issue discount" within the
meaning of Section 1273(a) of the Code.
MARKET DISCOUNT
If a Bond is purchased other than at original issuance, a purchaser of the
Bond may be subject to the market discount rules of Sections 1276 through 1278
of the Code with respect to such Bond. Under these provisions "market discount"
is the amount by which the stated redemption price at maturity of a Bond exceeds
the basis of such bond immediately after its acquisition by the taxpayer unless
the amount of market discount is treated as zero under a de minimis rule. Gain
on the disposition of a Bond with market discount will be treated as ordinary
income to the extent it does not exceed the accrued market discount on such
Bond. The Code provides that any principal payment (whether a scheduled payment
or a prepayment) with respect to a market discount bond acquired by a taxpayer,
will be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. As an alternative to the
inclusion of market discount in income on the foregoing basis, the holder may
elect to include such market discount in income currently as it accrues on all
market discount instruments acquired by such holder in that taxable year or
thereafter.
Any purchaser of a Bond other than at original issue will need to determine
whether the Bond is a market discount bond, and if so, how to treat the market
discount for federal income tax purposes. The foregoing discussion of the market
discount rules is only a summary of these rules, and any purchaser of a Bond at
other than original issue should consult with his own tax advisors regarding the
specific application of the market discount rules to the Bond.
INTEREST EXPENSE
A purchaser of a Bond who incurs indebtedness properly allocable thereto may
be restricted as to the deductibility of interest paid or accrued on such
indebtedness if he holds that Bond for investment purposes. Under Section 163(d)
of the Code, a noncorporate taxpayer may deduct interest on indebtedness
properly allocable to investment property only to the extent of net income from
his investment property. Any excess of such interest is carried forward to
subsequent years as investment interest paid or accrued by the taxpayer, and
such interest may be deducted to the extent of net investment income from such
investment property. In addition, any purchaser of a Bond may be required to
defer recognition of a portion of interest expense attributable to any
indebtedness incurred or continued to purchase or carry a Bond acquired with
market discount. The amount of this deferred interest expense in any taxable
year generally would not exceed the accrued market discount for the year, and
any such deferred expense generally is allowed as a deduction not later than the
year in which the related market discount is recognized. If such purchaser
elects to include market discount in his income currently (see "Market
Discount"), no deferral of deductibility of interest under the market discount
rules will be required.
PREMIUM
A Bond purchased at a cost greater than its currently outstanding principal
amount is considered to be purchased at a premium. If the purchaser holds such
Bond as a "capital asset" within the meaning of Section 1221 of the Code, the
Bondholder may elect under Section 171 of the Code to amortize such premium
under the constant interest method. The Code provides that amortizable bond
premium will be treated as an offset to interest income rather than a deductible
interest expense, and requires a reduction in basis for a Bond for which
amortizable bond premium is applied to reduce interest payments.
SALE OR EXCHANGE OF BONDS
If a Bondholder sells or exchanges a Bond, the Bondholder will recognize gain
or loss equal to the difference, if any, between the amount received and his
adjusted basis in the Bond. The adjusted basis of a Bond generally will equal
the cost of the Bond to the seller, increased by any market discount previously
included in the seller's gross income with respect to the Bond, and reduced by
any payments in reduction of the stated redemption price of the Bond that has
previously been received by the seller and by any amortized premium.
Except as described above with respect to market discount, any gain or loss
on the sale or exchange of a Bond realized by an investor who holds the Bond as
a "capital asset" within the meaning of Section 1221 of the Code, will be
capital gain or loss and will be long-term or short-term depending on whether
the Bond has been held for the long-term capital holding period (under current
rules, more than one year).
BACKUP WITHHOLDING
Payments made on the Bonds and proceeds from the sale of the Bonds to or
through certain brokers may be subject to a "backup" withholding tax of 31% of
"reportable payments" (including interest payments and under certain
circumstances, principal payments) unless, in general, the holder of the Bond
complies with certain reporting and/or certification procedures or is an exempt
recipient under applicable provisions of the Code. Any amounts so withheld from
distributions on the Bonds would be refunded by the Internal Revenue Service or
allowed as a credit against the holder's federal income tax.
DESCRIPTION OF THE INDENTURE
The following summaries describe certain provisions of the Indenture not
described elsewhere in this Prospectus. The summaries do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the Indenture. Where particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries.
EVENTS OF DEFAULT
An Event of Default with respect to the Bonds is defined in the Indenture as:
default of 30 days in the payment of interest on any Bond after such interest
becomes due and payable; default in the payment of principal of any Bond; and
default in the performance of any other covenant in the Indenture and the
continuation of such default for a period of 60 days after notice to the Issuer
by the Trustee or to the Issuer and the Trustee by the holders of at least 25%
of the Bonds then outstanding. In case an Event of Default with respect to the
Bonds should occur and be continuing, the Trustee or the holders of at least 25%
in principal amount of the Bonds then outstanding may declare the principal of
the Bonds to be due and payable. Such declaration may under certain
circumstances be rescinded by the holders of a majority in principal amount of
the Bonds then outstanding. (Indenture Sections 6.01 and 6.02.)
Without the consent of the holders of at least 80% of the outstanding
principal amount of the Bonds, the Trustee is prohibited from liquidating the
Pool unless the proceeds on liquidation would be sufficient to pay the principal
amount of and accrued interest on the outstanding Bonds. In addition, if,
following an Event of Default, the Bonds have been declared to be due and
payable, the Trustee may, in its discretion, refrain from liquidating the Pool
if such Pool is continuing to provide sufficient funds for the payment of
principal of and interest on the Bonds as such principal and such principal and
interest would have come due if there had not been such a declaration.
(Indenture Sections 6.04 and 6.05.)
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
shall be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Bondholders, unless such
Bondholders shall have offered to the Trustee reasonable security or indemnity.
(Indenture Section 7.03.) Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the outstanding Bonds shall have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee; and the
holders of a majority in principal amount of the outstanding Bonds may, in
certain cases, waive any default except a default in payment of principal of, or
interest on, the Bonds. (Indenture Sections 6.14 and 6.15.)
STATEMENT AS TO COMPLIANCE
The Issuer will be required to file annually with the Trustee a written
statement of fulfillment of its obligations under the Indenture. (Indenture
Section 11.09.) Failure to file such a statement, or filing of a false and/or
misleading statement would constitute an Event of Default if not corrected
during a period of 60 days after notice to the Issuer by the Trustee or notice
to the Issuer and the Trustee by the holders of at least 25% in principal amount
of outstanding Bonds.
MODIFICATION OF INDENTURE
With the consent of the holders of not less than a majority in principal
amount of all series outstanding under the Indenture or of the outstanding
Bonds, the Trustee and the Issuer may execute a supplemental indenture to add
provisions to, or change in any manner or eliminate any provisions of, the
Indenture with respect to all of the outstanding series of Bonds or modify in
any manner the rights of the holders of all of the outstanding series of Bonds,
provided that, without the consent of the holder of each outstanding Bond
affected, no such supplemental indenture shall (i) change the maturity of the
principal of, or interest on, any Bond, or reduce the principal amount thereof
or the rate of interest thereon; (ii) adversely affect the rights of Bondholders
with respect to prepayments of principal or redemption of Bonds; (iii) reduce
the percentage of Bondholders whose consent is required for the authorization of
any supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or certain defaults thereunder or their
consequences; or (iv) modify any of the provisions of the Indenture with respect
to supplemental indentures with the consent of Bondholders, except to increase
the percentage of Bondholders whose consent is required for any such action or
to provide that other provisions of the Indenture cannot be modified or waived
without the consent of the holders of each outstanding bond affected thereby.
(Indenture Section 10.02).
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will be discharged upon the cancellation of all of the
outstanding Bonds or, with certain limitations, upon deposit with the Trustee of
funds sufficient for the payment or redemption thereof. (Indenture Section
5.01.).
DESCRIPTION OF THE GUARANTY
The Guaranty will be entered into by the Guarantor with the Trustee for the
benefit of the holders of the Bonds, all of whom shall be entitled to enforce
performance and observance of the Guaranty to the same extent provided for the
enforcement of the remedies under the Indenture. Under the Guaranty, the
Guarantor unconditionally guarantees to the Trustee for the benefit of the
holders from time to time of the Bonds (i) the full and prompt payment of the
principal of and redemption premium, if any, on any Bonds when and as the same
shall become due, whether at the stated maturity thereof, by acceleration, call
for redemption or otherwise; and (ii) the full and prompt payment of any
interest on any Bonds when and as the same shall become due.
The obligations of the Guarantor under the Guaranty will be absolute and
unconditional and will remain in full force and effect until the entire
principal of and interest on the Bonds, as well as all other obligations,
covenants or agreements of the Issuer or the Guarantor under or arising out of
the Indenture or the Guaranty, have been paid or provided for, and such
obligations will not be affected, modified or impaired, except by a specific
instrument modifying the Guaranty, upon the happening of any event, other than
such payment and whether or not the Issuer has notice thereof or consents
thereto.
No set-off, counterclaim, reduction or diminution of an obligation, or any
defense of any kind or nature which the Guarantor has or may have against the
Issuer will be available to the Guarantor against the Trustee.
The Guarantor will agree that during the term of the Guaranty it will
maintain its existence as a corporation and will not dispose of all or
substantially all its assets and will not consolidate with or merge into another
entity or permit another entity to consolidate with or merge into it unless the
surviving, resulting or transferee entity expressly assumes all the obligations
of the Guarantor under the Guaranty, and has a net worth after the merger or
consolidation at least equal to that of the consolidated net worth of Guarantor
and its subsidiaries prior thereto.
Neither the Bonds nor the Pooled Assets are insured or guaranteed in whole or
in part by the United States, any agency of or corporation chartered by the
United States, any other governmental agency or any other person or entity
except for the Guaranty of the Bonds by the Guarantor.
EQUIPMENT LEASING AND FINANCING
GENERAL
The leasing and financing of non-expendable moveable equipment to health care
providers, commercial and industrial companies is highly competitive.
Participants in the equipment leasing and financing industry include (i) finance
divisions of equipment suppliers, (ii) banks or their affiliates or
subsidiaries, (iii) leasing and finance companies such as ZLC, and (iv)
independently formed partnerships of individuals or corporations operated for
the specific purpose of leasing equipment. ZLC is engaged in leasing and
financing a wide variety of equipment primarily to health care providers,
including hospitals, medical centers, imaging centers, clinics and doctor group
practices under non-cancelable, full-pay out Leases, and various debt
instruments such as the Pooled Assets. Equipment leased or financed by ZLC
includes x-ray units, MRI and CF scanners, nuclear cameras, catheterization
labs, linear accelerators, ultrasound units, monitoring systems, autoanalyzers
and computers, along with other mechanical and electromechanical equipment used
for diagnostic, therapeutic and service purposes. ZLC also Leases a wide range
of general production, service and hi-technology electronic equipment to
commercial and industrial companies.
EQUIPMENT LEASING
The Leases (including substantially all of the Leases currently in the ZLC
portfolio) are typically non-cancelable full-payout Leases under which the
aggregate of rentals due in the initial term equals the purchase price of the
equipment, the interest cost incurred by the Lessor ("Lessor") to fund part or
all of the purchase price and a gross profit attributable to funds invested from
the Lessor's working capital. Lessors may receive additional revenues through
the sale or re-lease of the equipment at the expiration of the initial Lease
term under Leases in which the Lease term is less than the useful life of the
leased equipment. At the end of the initial term of such leases, the Lessee may
return the equipment or is allowed to renew for an additional term at a then
fair rental value or to purchase the equipment at a predetermined price or its
then fair market value. It is not contemplated that Leases of this type will
form the major portion of the Pool securing the Bonds. Although some Leases may
include an option to purchase at a bargain purchase price (i.e., substantially
----
less than the fair market value of the equipment at the time of purchase) or may
be true Leases with a fair market value purchase option (if any), it is
anticipated that most of the Leases will constitute financing Leases with a
Lease term approximating the useful life of the leased equipment with the Lessee
having the option to purchase the leased equipment at the expiration of the term
of the Lease for a nominal consideration. Leases may provide for an option to
terminate the Lease prior to the expiration of the term thereof upon purchase of
the leased equipment at a purchase price approximating the then unamortized
purchase price of the leased equipment, but generally the Leases will not
provide for an option to purchase prior to the expiration of the term of the
Lease. Appendix A to the Prospectus Supplement for each Series of Bonds will
indicate the existence and nature of purchase options.
PURCHASE MONEY SECURITY AGREEMENTS
The Purchase Money Security Agreements which may be assigned by ZLC for
inclusion in a Pool are debt instruments entered into between ZLC and a third-
party commercial enterprise to finance the purchase of equipment by such
enterprise on a monthly installment basis over terms ranging generally from
twenty-four (24) to eighty-four (84) months. In all cases, upon purchase of the
equipment, the purchasing enterprise will hold title to such equipment and ZLC
will at all times during the term of the Purchase Money Security Agreement
maintain a perfected security interest in such equipment. The purchaser may
prepay the principal on the Purchase Money Security Agreement during the term
thereof only with the consent of ZLC and pursuant to the payment of such penalty
as ZLC may, in its discretion, assess.
NON-RECOURSE NOTES
Non-Recourse Notes represent obligations to repay principal and interest on
funds advanced by the Issuer to ZLC or by ZLC to certain third-party leasing
enterprises, in either case, to finance the purchase of equipment which is then
leased to various health care providers and other commercial enterprises. The
aggregate outstanding principal amount of Non-Recourse Notes may not at any time
exceed the present value of the aggregate lease payments owed to ZLC with
respect to such leased equipment. Repayment of principal and interest on the
Non-Recourse Notes is made generally over terms ranging from twenty-four (24) to
eighty-four (84) months in the form of an assignment by the Lessor (ZLC or the
third-party Lessor) to ZLC or the Issuer, as the case may be, of all rights,
including rights to receive all rental payments due, under such Lease. The
scheduled Lease payments will be in amounts sufficient to pay the principal and
interest on the Non-Recourse Notes. The Issuer or ZLC, as the case may be, will
maintain a perfected security interest in the equipment until the Non-Recourse
Note is paid in full. Non-Recourse Notes may be prepaid only to the extent and
on such terms as the underlying Leases may be terminated by the purchase of
equipment thereunder prior to the expiration of the term of such Lease.
ZLC PORTFOLIO
The following table sets forth the percentage of ZLC's Lease portfolio by
category of end user at the dates indicated:
YEAR ENDED DECEMBER 31,
----------------------------
1992 1993 1994
----- ----- -----
Hospitals and Medical Centers 55.8% 53.8% 48.9%
Clinics, Laboratories and Physicians 23.1% 24.5% 28.4%
Commercial and Industrial Businesses 21.1% 21.7% 22.7%
------- ------- ------
100.0% 100.0% 100.0%
------- ------- -------
------- ------- -------
For updated information regarding ZLC's Lease portfolio, see "Recent
Developments" in the Prospectus Supplement made a part of this Prospectus.
ZLC does not place orders nor purchase equipment in advance of the Lessee
entering into a Lease with ZLC for that equipment. In addition, ZLC or the
Issuer, as the case may be, will not advance funds under Non-Recourse Notes
until an equipment Lease has been entered into between a third-party Lessor or
ZLC, as the case may be, and a commercial Lessee (with the rental payments on
such Lease, in amounts sufficient to pay the principal and interest on the Non-
Recourse Notes), and assigned to ZLC or the Issuer, as the case may be.
Substantially all terms of Leases, Purchase Money Security Agreements and
Non-Recourse Notes will range from 24 to 84 months. The average term of Leases
in ZLC's portfolio at December 31, 1994 was approximately 54 months.
POOLED ASSETS
Pooled Assets in the Pools securing the various Series of Bonds will each be
for terms of a stated number of years and will provide for fixed periodic
rental/debt payments during such terms. The scheduled rental/debt payments in
each Pool are intended to be sufficient to meet the debt service requirements on
the Series of Bonds secured by such Pool, and the meeting of such debt service
payments is not intended to be dependent upon the sale or releasing of any
leased or financed equipment.
RISKS ASSOCIATED WITH EQUIPMENT LEASING AND FINANCING
Equipment leasing and financing involve credit risks essentially comparable
to those experienced by other businesses involving the advancing of credit and
will be impacted by numerous factors which may affect the ability of individual
Lessees or Debtors, as the case may be, to generate sufficient revenues to pay
capital and operating expenses. These factors include general economic
conditions which may vary from time to time and from one geographic area to
another and may have a varying impact on different economic sectors and
industries. It is anticipated that a substantial portion of the Leases, Purchase
Money Security Agreements and Leases financed with Non-Recourse Notes will be
entered into with health care providers. The health care industry has
historically been subject to a high level of government regulation and revenues
of health care providers are heavily dependent upon government programs such as
Medicare and Medicaid.
The possible occurrence, in the future, of the following factors, which do
not constitute an all inclusive list may adversely affect the health care
industry and, therefore, the revenue base of health care provider or Debtors
under the Leases, Purchase Money Security Agreements and/or Leases financed
under Non-Recourse Notes, to an extent that cannot be determined at this time:
A.The reduced demand for services provided by, or capable of being provided by,
members of the health care industry, as a result of future scientific
advances, changes in demographics or a decline in the economic condition of
the service area of the members of the industry leasing from or financing
equipment with ZLC.
B.Efforts by insurers, private employers and government agencies to limit the
cost of health care services by reducing the utilization of services by such
means as preventive medicine, improved occupational health and safety, and
negotiated discounted rates.
C.Cost increases resulting from, among other factors, increases in the
salaries, wages and fringe benefits of employees; increases in costs
associated with advances in medical technology or with inflation; and
competition, future legislation or other factors limiting the ability of
industry members to increase revenues to offset such increased costs.
D.Future contract negotiations between public and private insurers and health
care providers, and other similar efforts to limit health care costs and
coverage.
E.Increased costs and expenses of insuring or otherwise protecting itself
against malpractice claims.
F.Future legislation and regulations affecting the industry's tax-exempt
status, governmental and commercial medical insurance, and the health care
industry generally.
G.The inability of potential Lessees or debtors to obtain governmental
approvals to undertake future projects necessary to remain competitive as to
rates, charges, quality and scope of care.
DESCRIPTION OF THE POOL
GENERAL
Each series of Bonds will be secured by an assignment to the Trustee of the
entire interest of the Issuer in the Pooled Assets with the aggregate amount of
the scheduled rentals or principal and interest payments payable thereunder, as
the case may be, during each six-month period ending on a Semiannual Payment
Date (after deduction of Servicing Fees and Trustee's Fees accruing during such
period) together with other funds then held by the Trustee for payment of
principal and interest on the Bonds of such Series on such Semiannual Payment
Date, so long as any Bonds of such series outstanding are equal to or greater
than the aggregate amount of principal and interest payments on the Bonds of
such series on such Semiannual Payment Date. The Pooled Assets will consist of
Leases, Purchase Money Security Agreements and Non-Recourse Notes entered into
by health care providers and commercial enterprises which may be originated by
the Issuer in connection with the advancement of funds to ZLC for the purchase
of equipment which is then leased to third parties or originated by ZLC or
acquired by ZLC from third parties (lease brokers and other leasing or financing
companies). In the case of Pooled Assets acquired by ZLC from third parties, ZLC
will in each case perform its own independent credit evaluation.
The Pool will include (i) the Pooled Assets, (ii) all amounts deposited in
the Principal and Interest Payment Account, (iii) reinvestment earnings on
amounts in the Principal and Interest Payment Account (iv) payments received by
the Trustee from the purchase by the Guarantor or ZLC of Defaulted Pooled
Assets, and (v) a perfected security interest in equipment subject to the Pooled
Assets. ZLC's current portfolio of Pooled Assets includes Pooled Assets with
Lessees/Debtors located in 41 states and the District of Columbia. The states in
which there is currently the highest level of lease/financing activity as
measured by the percentage of total lease/financing income during 1994 and total
equipment cost as of December 31, 1994 is represented by Pooled Assets with
Lessees/Debtors located in the states are:
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL COST OF
STATE POOLED ASSET INCOME EQUIPMENT UNDER POOLED ASSETS
----- ------------------- -----------------------------
Wisconsin 15.5% 15.4%
New York 15.0% 11.6%
Indiana 10.2% 11.1%
California 8.8% 9.6%
Pennsylvania 7.8% 7.4%
Kansas 5.3% 4.5%
Michigan 4.8% 5.2%
For an update of the above percentages, see "Recent Developments" in the
Prospectus Supplement made a part of this Prospectus.
No other state accounts for 5% or more of such Pooled Assets determined on
either basis. The geographic distribution of the Pooled Assets in the Pools will
vary from Pool to Pool and may or may not correspond to the geographic
distribution of ZLC's existing Pooled Assets. The Prospectus Supplement for each
series of Bonds will identify those states and Lessees/Debtors, if any, which
account for 10% or more of the Pooled Assets in the Pools securing such series
of Bonds; provided that in the case of Non-Recourse Notes the ultimate Lessee
whose payment obligations have been assigned to ZLC or the Issuer, as the case
may be, and the states in which such Lessees are located will be identified
while the identity and location of the Lessor obligated under such Non-Recourse
Note will be identified by a footnote thereto.
Although the Issuer holds perfected security interests in the equipment
underlying the Pooled Assets pledged with the Trustee under the Indenture,
certain of such security interests may be secondary to other security interests
filed with respect to such equipment. Accordingly, investors should be aware
that there can be no assurance that, in the event of a default under a Pooled
Asset, the Trustee will be able to realize on such underlying equipment.
ACQUISITION STANDARDS RELATING TO POOLED ASSETS
Pooled Assets purchased by the Issuer to secure any series of Bonds are or
will be for equipment leased or purchased by health care providers or other
commercial enterprises. The Pooled Assets will generally be purchased from ZLC.
Such Pooled Assets will be originated by the Issuer (in the case of Non-Recourse
Notes from ZLC) or ZLC or acquired by ZLC from third parties and will be
serviced by ZLC. It is possible, however, that the Issuer may purchase Pooled
Assets directly from other sources and utilize the services of other servicers
in connection with such Pooled Assets. The Issuer's standards for determining
which Pooled Assets will be purchased will be based on underwriting criteria
historically utilized by ZLC.
ZLC has been primarily involved in the business of medical equipment leasing
and financing since 1971.
Prior to entering into a Lease, Purchase Money Security Agreement or Non-
Recourse Note with a Lessor or Debtor, as the case may be, ZLC requires that all
pertinent information needed to evaluate the Lessee or Debtor be provided to
ZLC. ZLC will compile that information into a standardized report for review and
evaluation by management of ZLC. Upon favorable review by ZLC Management the
report is forwarded to the Finance Committee, a committee which reviews all
unrated securities offerings underwritten by the Underwriter, all ZLC Leases and
financing arrangements and all interim financing provided by Ziegler Financing
Corporation.
The Finance Committee is comprised of various senior management of the
Guarantor and the Underwriter. Although certain members of the Finance Committee
are officers and directors of ZLC, no member of the Finance Committee is
actively engaged in the day-to-day operations of ZLC or is subordinate to any
such person. See "Summary of Transactions Between Issuer and Related Entities."
The Finance Committee's principal role with respect to the Pooled Assets is
to review all prospective Pooled Assets with respect to credit quality,
appropriate equipment residual values and to determine the appropriateness of
the Lease or debt repayment rates.
The credit analysis of prospective Lessees/Debtors is conducted by ZLC
Management with particular attention to key financial ratios and relationships
of the prospective Lessee/Debtor:
(i) Relationship of long term debt to equity as it compares with industry
averages.
(ii) Trends and composition of revenues, operating income and extraordinary
income and charges.
(iii) Historical and prospective debt service coverage.
(iv) Contingent liabilities and legal claims and provisions therefore.
(v) Working capital and composition of current assets and liabilities.
(vi) Evaluation of any significant customers.
In addition, when the Finance Committee considers prospective new Leases,
Purchase Money Security Interests or Non-Recourse Notes (and the Leases
originated thereunder) for existing customers of ZLC, it reviews information
related to the total amount of business ZLC has written to date with such
Lessee/Debtor and the remaining exposure of such Lessee/Debtor to both ZLC and
its other obligors, and the payment history of such Lessee/Debtor on Leases or
debt originated by ZLC. The Finance Committee uses this information in the
approval process to ascertain that Lessees/Debtors are current with payments on
previous transactions, to monitor ZLC's exposure levels, and to price new
transactions based on previous financing history.
Because of the wide variety of Lessees/Debtors and industry variances with
respect to financial performance, the Finance Committee rates each prospective
Lessee/Debtor according to its individual financial statements, the structure of
the Lease or debt transaction, the industry in which such Lessee/Debtor
operates, prior financings and the overall risk ZLC underwrites with each such
Lessee/Debtor.
All Leases or other financing arrangements approved or rejected by the
Finance Committee are so noted in writing and provided to the ZLC sales person
involved.
Furthermore, it is ZLC's policy to monitor Lessees/Debtors for early
identification of potential financial difficulty. ZLC's leasing and financing
activity is primarily based on repeat business. As a result, monitoring the
accounts of cur- rent Lessees/Debtors is an important part of the approval
process.
POOLED ASSETS
The Pooled Assets will be selected to comply with the representations and
warranties of the Issuer in the Indenture and ZLC with respect to the Pooled
Assets. (See "Representations and Warranties.") Compliance with the
representations and warranties in the Indenture is intended to insure timely
receipt of rental and/or debt payments on the Pooled Assets.
SUBSTITUTION OF POOLED ASSETS
The Indenture provides that, subject to certain limitations, within three
months from the Closing Date of any series of Bonds, the Issuer may (but is not
obligated to) substitute Pooled Assets in place of defaulted or defective Pooled
Assets initially included in the Pool relating to such series of Bonds, provided
that (i) no more than 15% in principal amount of the Pooled Assets originally
included in the Pool ("Original Pooled Assets") may be substituted for; (ii)
only Original Pooled Assets may be substituted for; and (iii) after giving
effect to any substitution, the aggregate of all payments to be received with
respect to the Pooled Assets equals or exceeds the aggregate principal and
interest to be payable with respect to the Bonds. Any substitute Pooled Assets
will also be selected to comply with the representations and warranties of the
Issuer with respect to the Pooled Assets in the Indenture.
REPRESENTATIONS AND WARRANTIES
In the Indenture and each supplemental indenture thereto, the Issuer will
represent and warrant to the Trustee with respect to the Pooled Assets securing
each series of Bonds, among other things, that to the best of its knowledge:
(i) The information set forth in the schedule of Pooled Assets attached as
an exhibit to such supplemental indenture is true and correct in all
material respects at the date or dates respecting which such information is
furnished.
(ii) As of the date of execution and delivery of each supplemental
indenture each Pooled Asset identified in the schedule of Pooled Assets
attached to such supplemental indenture is in full force and effect, and
the Issuer has granted to the Trustee as security for the Bonds a security
interest in the Issuer's right, title and interest in and to each Pooled
Asset and the equipment subject to each Pooled Asset in the Pool securing
the Bonds which security interest has been perfected by filing under the
Uniform Commercial Code as in effect in the State of Wisconsin and with
respect to each item of equipment in the jurisdiction where the principal
place of business of the Lessee/Debtor under such Pooled Asset is located
and in the jurisdiction in which the equipment subject to such Pooled Asset
is located, provided that in general no fixture filings will be made with
respect to equipment.
(iii) The Issuer will own the Pooled Assets in good faith, without notice of
any adverse claim.
(iv) As of the date of execution and delivery of each supplemental
indenture, the Issuer will be the sole legal owner of each Pooled Asset
free and clear of all liens, security interests and other encumbrances, and
immediately upon the transfer and assignment contemplated pursuant to such
supplemental indenture (and assuming that the Trustee complies with its
obligations under such supplemental indenture and has not in its individual
capacity taken any action to grant any interest in any Pooled Asset to any
other person), the Trustee will have a perfected first security interest in
each Pooled Asset in the Pool created by such supplemental indenture.
(v) As of the date of execution and delivery of each supplemental
indenture, the terms of each Pooled Asset will not have been waived,
altered or modified in any material respect, except by written instruments
included in the documents delivered to the Trustee on the Closing Date.
(vi) As of the date of execution and delivery of each supplemental
indenture, insurance against the loss or theft of or damage to the
equipment subject to each Pooled Asset in the Pool will be in effect and
will provide coverage in an amount at least equal to the full insurable
value of the equipment subject to each Pooled Asset in the Pool created by
such supplemental indenture.
REPRESENTATIONS AND WARRANTIES OF ZLC
ZLC, as Seller of the Pooled Assets, will represent to the Issuer and the
Trustee in the Purchase Agreement respecting the Pooled Assets collateralizing
each series of Bonds, described in an addendum to the Purchase Agreement, that:
(i) The information pertaining to each Pooled Asset set forth in Schedule
A to an addendum to the Purchase Agreement (Annex A to the Prospectus
Supplement respecting such series of Bonds) is true and correct in all
material respects at the date or dates respecting which such information is
furnished.
(ii) Each Pooled Asset permits the assignment thereof by ZLC and of all of
its rights and interests thereunder without the consent of the
Lessee/Debtor thereunder.
(iii) ZLC is the sole owner of each Pooled Asset free and clear of any
security interests or any ownership or participation interests in favor of
any other person.
(iv) No Pooled Asset (after giving effect to any grace period therein) is
more than 20 days delinquent or within the past 12 months has been more
than 20 days delinquent, and within the three-year period ending on the
closing date for the purchase of such Pooled Asset there have not been more
than two late payments (after giving effect to any grace period) on such
Pooled Asset.
(v) There are no offsets, defenses or counterclaims affecting the
obligation of the Lessee/Debtor to pay the unpaid rental or debt payments
under such Pooled Asset.
(vi) To the best of Seller's knowledge, the equipment subject to each
Pooled Asset is free of damage and in good repair.
(vii) Each Pooled Asset complies with applicable federal and state laws,
rules, regulations and other requirements pertaining to usury.
(viii) An insurance policy is in full force and effect with respect to the
Equipment subject to each Pooled Asset providing coverage against the loss
or theft of or damage to such equipment in an amount at least equal to the
full insurable value of such equipment and requires at least 10 days prior
notice to the Servicer of termination or cancellation; and no such notice
of cancellation has been received.
(ix) The terms of each Pooled Asset have not been waived, altered or
modified in any material respect, except by written instruments delivered
to the Issuer; no instrument which has not been delivered to the Issuer or
Trustee has been executed which would effect any such waiver, alteration or
modification; and no agreement has been entered into for the purpose of
releasing the Lessee/Debtor under any such Pooled Asset in whole or in
part, from its obligations under such Pooled Asset.
(x) Each Lease provides to the Lessee thereunder an option to purchase the
equipment leased thereunder only at the end of the term thereof if all
rental payments required by the Leases have been paid in full unless
otherwise indicated in Schedule A to the addendum to the Purchase Agreement
relating to such Pooled Asset (Annex A to the Prospectus Supplement for
such Series of Bonds).
(xi) No Pooled Asset provides for a grace period of more than 15 days with
respect to the period which must elapse after the due date for a payment
before the Lessor may exercise remedies.
(xii) To the best of ZLC's knowledge, no material circumstance or condition
exists with respect to any Pooled Asset, equipment subject to such Pooled
Asset that can reasonably be expected to cause such Pooled Asset to become
delinquent.
In the event, with respect to a Pooled Asset, any of the representations and
warranties prove to be materially incorrect or misleading, or any Pooled Asset
is defective, and the misrepresentation, defect or omission materially and
adversely affects the interest of the Bondholders, then after the expiration of
certain cure periods and assuming the Issuer is unable or chooses not to
substitute for such Pooled Asset (see "Substitution of Pooled Assets"), the
Trustee may demand that ZLC, and ZLC will be obligated to repurchase, the
defective Pooled Asset at a price equal to the outstanding principal balance of
the sales price for the equipment subject to such Pooled Asset plus due and
unpaid rental or debt payments.
The foregoing representations and warranties survive throughout the term of
the supplemental indenture for each series of Bonds.
CERTAIN BANKRUPTCY CONSIDERATIONS OF POOLED ASSETS
Certain statutory provisions, including the United States Bankruptcy Code and
similar state bankruptcy and insolvency laws, may limit the ability of the
Servicer or the Trustee to liquidate a Defaulted Pooled Asset, repossess and
resell the equipment related to a Pooled Asset or obtain a deficiency judgment
against the obligor under a Pooled Asset or the lessee under a Lease assigned to
Issuer in connection with the Non-Recourse Notes (an "Assigned Lease"). In the
event of the bankruptcy or reorganization of any such obligor, any Lessee under
an Assigned Lease, the Servicer or the Issuer, various provisions of such
federal and state bankruptcy and insolvency laws may interfere with, delay or
eliminate the ability of the Trustee to enforce its rights under the Pooled
Assets.
For example, although the bankruptcy of a Lessee would constitute an event of
default under a Lease or an Assigned Lease, the federal Bankruptcy Code provides
generally that rights and obligations under an unexpired Lease may not be
terminated or modified solely because of a provision in the Lease that is
conditioned upon the commencement of a case in bankruptcy. In addition, in a
bankruptcy of a Lessee under a Lease or an Assigned Lease a bankruptcy court may
prevent the Trustee from repossessing the equipment subject to the Lease or the
Assigned Lease, and, as part of the rehabilitation plan for the Lessee, provide
for deferred payments to the Trustee under the Lease or the Assigned Lease in an
aggregate amount equal to the market value of the equipment at the time of
bankruptcy, leaving the Trustee as a general unsecured creditor for the
remainder of the amount due under the Lease or the Assigned Lease. A bankruptcy
court may also condition the continuation of a Lease or an Assigned Lease on a
reduction of the monthly payments due thereunder or a change in the time of
payment.
Similarly, in a bankruptcy of an obligor under a Purchase Money Security
Agreement or a Non-Recourse Note a bankruptcy court may prevent the Trustee from
repossessing the equipment related to the Purchase Money Security Agreement or
Non-Recourse Note and may, as part of the rehabilitation plan for the obligor,
reduce the total amount payable under the Purchase Money Security Agreement or
Non-Recourse Note or reduce the monthly payments due thereunder or change the
time of payment. If a Defaulted Pooled Asset creates a deficiency in the funds
available to the Trustee to make a required payment on the Bonds, the Trustee
will have recourse to the Guaranty, and it will not ordinarily be necessary for
the Trustee to enforce the rights of the Issuer against the obligor under a
Pooled Asset. Nevertheless, if the Guarantor is unable to perform its
obligations under the Guaranty and as a result of the bankruptcy of an obligor
under a Pooled Asset the Trustee or the Servicer is prevented from collecting
scheduled and/or debt payments under such Pooled Asset, the Bondholders could
suffer a loss with respect to the Bonds.
The federal Bankruptcy Code also grants to the bankruptcy trustee or the
debtor-in-possession a right to elect to assume or reject any unexpired Lease or
Assigned Lease. Any rejection of such a Lease or Assigned Lease constitutes a
breach of such Lease or Assigned Lease, entitling the non-breaching party to a
claim for damages for breach of contract. The net proceeds from any judgment
against or settlement by, a defaulting Lessee and from the disposition of the
related equipment, would be deposited by the Servicer or the Trustee into the
Principal and Interest Payment Account for the benefit of the Bondholders. Upon
the bankruptcy of a Lessee, if the bankruptcy trustee or debtor-in-possession
elected to reject a Lease or Assigned Lease, the flow of payments thereunder to
the Issuer and the Bondholders would cease. As noted above, however, in such
event the Trustee would have recourse to the Guaranty. Similarly, upon the
bankruptcy of the Issuer, if the bankruptcy trustee or debtor-in-possession
elected to reject a Lease or Assigned Lease, the flow of Pooled Asset payments
to the Issuer and the Bondholders would cease. The Issuer, however, has been
structured so that the filing of a bankruptcy petition with respect to it is
unlikely. See "Ziegler Collateralized Securities, Inc. -- Nonconsolidation in
Bankruptcy."
State bankruptcy and insolvency laws may have similar effects on the
Trustee's ability to enforce its rights under a Pooled Asset. Such laws may vary
as to procedural requirements, protections afforded to the debtor and remedies
available to creditors, but they do not generally pose materially different
risks to the Bondholders than those created by the provisions of the federal
Bankruptcy Code described above. ZLC's current portfolio of Leases is spread
across 41 states and the District of Columbia. Only 3 states, Wisconsin, New
York and Indiana, represent 10% or more of total Lease income to the portfolio.
See "Description of the Pool -- General."
SERVICER
GENERAL
ZLC is a Wisconsin corporation with its principal office in West Bend,
Wisconsin. At December 31, 1994, ZLC had a net worth of $10,903,383. The address
of ZLC's principal office is 215 North Main Street, West Bend, Wisconsin 53095,
and its telephone number is (414) 334-5521.
ZLC's business consists primarily of leasing equipment to and financing
equipment for purchase by health care providers and other commercial
enterprises. ZLC has been in business since June 1971.
SERVICING STANDARDS
The Issuer and ZLC will enter into a Servicing Agreement whereby ZLC will
service the Pooled Assets. Under such arrangements, the Issuer will require ZLC
to service and administer the Pooled Assets on behalf of the Trustee and in the
best interests of the Bondholders (determined by the Servicer within the
exercise of its reasonable judgment) in accordance with the terms of the
Servicing Agreement and the Indenture and supplemental indentures. To the extent
consistent with the preceding sentence, ZLC will be required to and intends to
service and administer the Pooled Assets giving due consideration to generally
accepted Lease or debt servicing and administering practice of prudent financing
institutions but without regard to any other relationship which ZLC or any
affiliate of ZLC may have with a Lease or debt instrument or any compensation
ZLC may expect to receive in connection with any particular transaction
(Servicing Agreement Section 3). In the event the Issuer determines that ZLC is
not acting in accordance with the foregoing standard, the Issuer may take such
action as is necessary to terminate the Servicing Agreement and replace ZLC with
a new servicer.
With respect to any Pooled Asset which comes into and continues in default
and as to which no satisfactory arrangements can be made for collection of
delinquent payment, ZLC will be required to furnish notice of such default to
the Issuer and the Trustee.
Regardless of the foregoing, ZLC will not be permitted to modify the terms of
a Pooled Asset in any way or take any of the following actions without the
Issuer's consent (or the Trustee's consent, if ZLC has received notice of an
Event of Default of the Issuer under the Indenture): change the amount of rental
or debt payments under the Pooled Asset; forgive any rental or debt payment;
extend the due date for rental or debt payments in excess of six months;
accelerate final payment of any Pooled Asset; waive any other term of a Pooled
Asset that would result in one of the modifications mentioned in this sentence
(Servicing Agreement Section 4).
UNDERWRITING STANDARDS
The Underwriting Standards for ZLC's Lease portfolio are substantially the
same as described under "DESCRIPTION OF THE POOL -- Acquisition Standards
Relating to Pooled Assets."
BAD DEBT WRITE-OFF EXPERIENCE
Set forth below is certain information concerning the bad debt write-off
experience on Leases held by ZLC for the years indicated.
<TABLE>
<CAPTION>
COST OF INVESTMENT IN RESERVE FOR % OF % OF BAD DEBT % OF % OF
YEAR EQUIPMENT LEASES (NET) BAD DEBTS COST INVESTMENT WRITE-OFFS COST INVESTMENT
- ---- --------- ------------ --------- ---- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 92,014,382 45,553,062 587,132 0.638% 1.289% 119,159 0.1290% 0.262%
1993 88,688,689 46,714,974 586,291 0.661% 1.255% 227,600 0.2570% 0.487%
1992 96,114,653 51,004,587 650,000 0.676% 1.274% 407,089 0.4235% 0.798%
1991 94,961,120 51,965,733 620,718 0.654% 1.194% 41,085 0.0432% 0.079%
1990 94,607,825 48,429,138 484,976 0.513% 1.001% 1,373 0.0015% 0.003%
1989 87,141,844 43,134,875 347,948 0.399% 0.807% 44,143 0.0507% 0.102%
1988 77,403,143 35,113,397 332,131 0.429% 0.946% 27,289 0.0353% 0.078%
1987 83,818,570 31,495,109 299,420 0.357% 0.951% 0 0.0000% 0.000%
1986 77,243,772 19,489,850 178,566 0.231% 0.916% 0 0.0000% 0.000%
1985 71,504,946 16,299,595 154,566 0.216% 0.948% 16,792 0.0235% 0.103%
1984 63,500,973 15,791,334 147,358 0.232% 0.933% 14,905 0.0235% 0.094%
1983 58,411,082 15,523,095 138,263 0.237% 0.891% 2,815 0.0048% 0.018%
1982 49,356,857 14,127,110 141,078 0.286% 0.999% 0 0.0000% 0.000%
1981 36,661,186 14,545,840 141,078 0.385% 0.970% 6,213 0.0169% 0.043%
</TABLE>
Although ZLC will represent that all Leases that at any time secure the Bonds
will have been underwritten in accordance with ZLC's applicable underwriting
policies, there can be no assurance that the write-off experience on such Leases
will be comparable to that set forth above.
The write-off experience in each year was generally attributable to one or
two Leases. During the last five years (1990-1994) the aggregate write-off was
attributable to Lessees located in the following states: California (79.3%),
South Carolina (15%), Ohio (5.3%), and New York (.4%). In the opinion of ZLC
management, this write-off experience does not provide a sufficient basis for
projecting the future geographic distribution of bad debt write-offs.
For updated information concerning the bad debt write-off experience of ZLC,
see "Recent Developments" in the Prospectus Supplement made a part of this
Prospectus.
FINANCIAL INFORMATION
The following table includes information derived from ZLC's audited financial
statements for each year in the three-year period ended December 31, 1994 and
its balances as of December 31, 1994, 1993 and 1992. The financial information
in the following table has been prepared in conformity with generally accepted
accounting principles.
ZIEGLER LEASING CORPORATION
FOR THE YEAR 1994 1993 1992
---- ---- ----
Revenues $10,792,134 $10,850,434 $12,053,524
Expenses $9,586,455 $9,099,875 $9,776,996
Income Before Taxes $1,205,679 $1,750,559 $2,276,528
Net Income $763,679 $1,075,559 $1,419,528
AT YEAR-END
Total Assets $52,959,557 $56,104,187 $57,830,538
Total Liabilities $42,056,174 $44,814,483 $46,781,393
Total Surplus $10,903,383 $11,289,704 $11,049,145
For updated financial information regarding ZLC, see "Recent Developments" in
the Prospectus Supplement made a part of this Prospectus.
ZLC is a wholly-owned subsidiary of the Guarantor which also owns all of the
outstanding Common Stock of the Issuer. The Issuer does not have or expect to
engage in any business transactions with ZLC or any of its affiliates except
with respect to (i) the origination, acquisition and servicing of Pooled Assets
with respect to the Bonds offered hereby, (ii) the management of the Issuer,
(iii) the public offering of the Bonds offered hereby, and (iv) the issuance of
commercial paper and other short-term debt instruments.
OTHER CONSIDERATIONS
American courts have traditionally applied "equitable" principles to actions
to enforce remedies in financing transactions which generally are designed to
relieve borrowers from the harsh or unfair effects of defaults under financing
documents. A court, in applying such principles, may have the authority to alter
the specific terms of a Pooled Asset to the extent it feels is necessary to
prevent or remedy an injustice, undue oppression or overreaching. The exercise
by a court of its equity powers will depend on the individual circumstances of
each case presented to it.
In addition, lenders have historically been subject to a variety of
restrictions which differ from state to state on the maximum permissible rate of
interest, financing and closing fees and prepayment charges that may be
contracted for and/or collected. Consequently, it is difficult to determine
definitely whether a particular Pooled Asset has been made in compliance with
all such applicable laws.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Issuer are as follows:
NAME AGE POSITIONS AND OFFICES HELD
---- --- --------------------------
L. R. Van Horn 42 Director and President
P.D. Ziegler 45 Director and Vice President
M. E. Sedlmeier 38 Director and Treasurer
J. R. Schmidt 35 Secretary
Mr. Van Horn has been Director and President of the Issuer since its
incorporation in 1991 and has also been Senior Vice President - Finance of the
Guarantor and the Underwriter since March 1990. He joined the Underwriter as
Director of Finance in May 1984 and was elected Vice President -- Finance in
March 1985.
Mr. Ziegler has been Vice President of ZLC since 1991. Mr. Ziegler has been
Chief Executive Officer of the Guarantor and the Underwriter since January 1990,
having been President of both companies from April 1986 to January 1990,
Executive Vice President of both companies from January, 1985 to April 1986 and
Chief Operating Officer from June 1984 to January 1990.
Mr. Sedlmeier has been Director and Treasurer of the Issuer since its
incorporation in 1991 and has also been Chief Executive Officer since April 1995
and President of ZLC since January 1994. Prior thereto, Mr. Sedlmeier served as
Chief Operating Officer since June 1991 and Executive Vice President since
February 1987 of ZLC, having previously served as Assistant Vice President-
Controller and in other executive capacities with ZLC since 1982.
Ms. Schmidt has been Secretary of the Issuer since November 1992 and has also
been Secretary of the Guarantor, the Underwriter and certain other affiliated
corporations since November 1992. Prior to November 1992 and since 1986, Ms.
Schmidt served as Executive Secretary to the General Counsel of the Guarantor.
Since 1980, Ms. Schmidt has served in a variety of capacities for the
Underwriter.
The Issuer has no salaried employees. All of the above-named individuals are
currently employees of the Underwriter. It is anticipated that the officers and
directors of the Issuer will devote less than 5% of their total time worked per
month to the affairs of the Issuer.
The directors and executive officers of the Issuer are required to devote
only so much of their time to the Issuer's affairs as is necessary or required
for the effective conduct and operation of the Issuer's business. Since the
Administrative Support Agreement provides that ZLC, will assume principal
responsibility for administering the day-to-day operations of the Issuer and
performing or supervising the performance of such other administrative functions
necessary in managing the Issuer as may be agreed upon by ZLC and the Board of
Directors of the Issuer, the officers named above, in their capacities as such,
will devote only a small portion of their time to the affairs of the Issuer.
However, since the above officers are officers of ZLC, they will devote such
portion of their time to the affairs of ZLC as is required for the performance
of the duties of ZLC under the Servicing Agreement.
EXECUTIVE OFFICERS OF ZLC
The following persons are the principal executive officers of ZLC:
NAME AGE POSITIONS AND OFFICES HELD
----- --- ---------------------------
M. E. Sedlmeier 38 President and Chief Executive
Officer
S. C. O'Meara 45 Senior Vice President and General
Counsel
P. D. Ziegler 46 Vice President
L. E. Johnson 45 Vice President-Sales and Marketing
R.F. Jones 49 Vice President-Sales
T. A. Norman 50 Vice President-Asset Management
K.A. Kalnins 28 Controller
D. M. Pieper 50 Assistant Vice President-Operations
L. R. Van Horn 42 Treasurer
J. C. Vredenbregt 41 Assistant Treasurer
J. R. Schmidt 35 Secretary
V. C. Van Vooren 64 Assistant Secretary
Biographical information for Messrs. Van Horn, Ziegler, Sedlmeier and Ms.
Schmidt is set forth above.
Mr. O'Meara has been Senior Vice President and General Counsel of ZLC, the
Guarantor and the Underwriter since January 1993. Prior thereto and since 1982,
Mr. O'Meara was a partner in the law firm of O'Meara, Eckert, Pouros & Gonring,
West Bend, Wisconsin.
Mr. Johnson has been Vice President-Sales and Marketing since July 1995.
Prior thereto, Mr. Johnson served as Vice President-Marketing since November
1993, Vice President-Sales since November 1992 and Sales Manager since October
1991. Prior thereto, Mr. Johnson served as First Vice President-Leasing for
Valley Bank Corp., Madison, Wisconsin.
Mr. Jones has been Vice President-Sales since December 1993. Prior thereto,
Mr. Jones was Specialty Markets representative since February 1993. Prior to
December 1992 and since May 1991, Mr. Jones served as Vice President-Sales for
Norwest Financial. Mr. Jones served as Sales Manager of ZLC from January 1989
to May 1991. From 1970 to 1980, Mr. Jones held positions in sales, marketing
and management with Westinghouse Credit and from 1980 to 1986 with BorgWarner
Acceptance.
Mr. Norman has been Vice President-Asset Management of ZLC since November
1992. Prior thereto and since 1986, Mr. Norman served as Asset Manager of ZLC.
Mr. Kalnins has been Controller of ZLC since May 1995. Prior thereto, and
since July 1993 Mr. Kalnins was Tax Manager of the Guarantor. Prior to July
1992 and since December 1989, Mr. Kalnins was a staff accountant with Virchow,
Krause and Company.
Ms. Pieper has been Assistant Vice President of ZLC since November 1992.
Prior thereto and since October 1991, Ms. Pieper served as Operations Manager of
ZLC and prior thereto, since March 1981, Data Controller with ZLC.
Mr. Vredenbregt has been Assistant Treasurer of ZLC and certain other
affiliated corporations since May 1987. Between May 1987 and May 1995, Mr.
Vredenbregt was also Controller of ZLC. Prior to May 1987 Mr. Vredenbregt served
as Senior International Accountant for Bolens Corporation, Port Washington,
Wisconsin.
Mr. Van Vooren has been Assistant Secretary of ZLC since 1991 and Treasurer
and Senior Vice President of the Guarantor since January 1980. He has been
Senior Vice President - Corporate Finance and Treasurer of the Underwriter since
1980. He currently heads the commercial paper department of the Underwriter.
All of the above-named individuals are currently employees of the
Underwriter.
SUMMARY OF TRANSACTIONS BETWEEN ISSUER AND RELATED ENTITIES
In carrying out its proposed business plan and the transactions described
herein, the Issuer will enter into a number of contracts with related entities -
- - i.e., (i) with ZLC, Non-Recourse Notes representing obligations of ZLC to
repay principal and interest on funds advanced by the Issuer to finance the
purchase of equipment for leasing to third parties, the Purchase Agreement and
the addenda thereto pursuant to which the Issuer will acquire the Pooled Assets
(See "Description of the Pool" herein), the Servicing Agreement pursuant to
which ZLC will service the Pooled Assets (see "Servicer" herein) and the
Administrative Support Agreement pursuant to which ZLC will administer the day-
to-day operations of the Issuer (See "Administrative Support Agreement" herein)
and (ii) with the Underwriter, the Underwriting Agreement (See "Plan of
Distribution" herein and "Underwriting" in the Prospectus Supplement). The
officers and directors of the Issuer are also officers of ZLC and the
Underwriter and are employees of the Underwriter and for this reason may be
viewed as having conflicting interests with respect to the above-enumerated
contracts and the consummation of the transactions contemplated thereby, but in
the opinion of the Issuer's management any such conflicting interest would not
materially affect the interests of the Bondholders for the following reasons:
1. The Bonds are being unconditionally guaranteed by the Guarantor which is
the sole shareholder of the Issuer, ZLC and the Underwriter. Any advantage
accruing to any one of its subsidiaries in connection with these contracts and
transactions will ultimately benefit the Guarantor and any allocation of
benefits under these contracts or changes there-in will not materially affect
the credit of the Guarantor or its ability to satisfy its obligations under the
Guaranty.
2. All of the Pooled Assets will be reviewed by the Finance Committee
consisting of senior management of the Guarantor and the Underwriter, and the
same standards will be applied in approving the Pooled Assets which will secure
the various Series of Bonds as are applied generally in approving Leases or
other financing arrangements entered into by ZLC. No person directly involved in
the day-to-day operations of ZLC is a member of the Finance Committee and no
member of the Finance Committee is subordinate to persons actively engaged in
ZLC's operations. The final decision to purchase particular Pooled Assets and
include such Pooled Assets in a Pool securing a particular Series of Bonds will
be made by officers of the Issuer a majority of whom are part of the senior
management of the Guarantor and the Underwriter and are not actively engaged in
the day-to-day operations of ZLC. It is contemplated that substantially all of
the Leases, with options to purchase at termination of such Leases for a nominal
purchase price which are obtained by ZLC, as well as the Purchase Money Security
Agreements and Non-Recourse Notes, all of which satisfy the representations
described under "Description of the Pool -- Representations and Warranties of
ZLC", will be sold to the Issuer and used to collateralize the Bonds. The
inclusion of Pooled Assets in particular Pools will depend primarily on
questions of timing, diversification (geographic, type of equipment and
Lessee/Debtor) and pool sizing, and not on the relative strength of the credit
underlying individual Leases or debt instruments.
3. As described under "Servicer -- Servicing Standards" herein, the powers of
ZLC as Servicer are expressly limited by the Servicing Agreement. Upon an Event
of Default under the Indenture with respect to any Series of Bonds, the Trustee
will immediately succeed to the rights and responsibilities of the Issuer under
the Servicing Agreement with respect to the Pooled Assets securing such Series
of Bonds. The activities of ZLC under the Administrative Support Agreement are
subject to the supervision of the Board of Directors of the Issuer, a majority
of whom are part of the senior management of the Guarantor and the Underwriter
and are not actively engaged in the day-to-day operations of ZLC.
4. The relative advantages or disadvantages to the Issuer of the terms of the
Underwriting Agreement and the Administrative Support Agreement will also not
have a material impact on the Bondholders since, as noted under "Special
Considerations -- Limited Assets of Issuer", the Issuer is not expected to have
any significant assets other than the Pools securing various Series of Bonds. It
is anticipated that the Issuer will essentially operate on a break-even basis.
Accordingly, the payment of interest and principal of any Series of Bonds will
be dependent solely on the Pooled Assets securing such Series of Bonds and the
general credit of the Guarantor.
5. The Finance Committee is comprised of various senior management of the
Guarantor and the Underwriter. Although P.D. Ziegler, S.C. O'Meara, L.R. Van
Horn and J.C. Vredenbregt who are members of the Finance Committee are also
officers and directors of ZLC, no member of the Finance Committee is actively
engaged in the day-to-day operations of ZLC or is subordinate to any person
actively engaged in the day-to-day operations of ZLC. Although persons actively
engaged in the business of ZLC may be consulted by the Finance Committee in
connection with its review of Pooled Assets and the decision of the Finance
Committee may be influenced by the oral or written presentations of such
persons, no person actively engaged in the day-to-day operations of ZLC is in a
position to control the decision of any member of the Finance Committee.
THE ADMINISTRATIVE SUPPORT AGREEMENT
The Issuer and ZLC are parties to an Administrative Support Agreement, for
administrative services with respect to the operations of the Issuer. The
Administrative Support Agreement provides that ZLC will perform administrative
support services for the Issuer for the term of one year. Thereafter, the
Administrative Support Agreement will be automatically extended for successive
one-year periods unless any party shall deliver a written notice of termination
to the other party at least 60 days prior to the end of the renewal period. The
Administrative Support Agreement is nonassignable except by consent of the
Issuer and ZLC. The Administrative Support Agreement, or any extension thereof,
may be terminated by the Issuer, immediately, by a majority of the directors of
the Issuer or by vote of the holders of a majority of the outstanding shares of
common stock of the Issuer. No notice of termination has been delivered by
either party.
ZLC will at all times be subject to the supervision of the Board of Directors
of the Issuer and will have only such functions and authority as the Issuer may
delegate to it as the Issuer's agent. It is anticipated that ZLC will be
responsible for the accountings required under the Indenture; will direct the
Trustee as to the investment in certain eligible investments of amounts at any
time held by the Trustee; will be responsible for the day-to-day operations of
the Issuer; will serve as the Issuer's consultant in connection with policy
decisions to be made by the Board of Directors; and will perform such other
activities relating to the assets of the Issuer as may be appropriate. ZLC will
provide the executive and administrative personnel, office space and services
required in rendering such services to the Issuer. The Administrative Support
Agreement provides that directors, officers, employees, agents or affiliates of
ZLC may serve as directors, officers, employees, agents, nominees and
signatories for the Issuer.
ADMINISTRATIVE SUPPORT FEE
The Administrative Support Agreement provides that ZLC is entitled to receive
a monthly management fee (the "Administrative Support Fee") equal to .167% of
the total net investment in Pooled Assets of the Issuer (determined in
accordance with GAAP) as of the last day of the preceding month, provided that
the aggregate management fee payable in any calendar year shall not exceed an
amount equal to the net revenues of the Issuer before the payment of such
management fee. The Administrative Support Fee is payable only to the extent
funds are available therefor.
EXPENSES
Pursuant to the Administrative Support Agreement, ZLC pays employment
expenses of its personnel; rent and other office expenses (except those relating
to a separate office, if any, maintained by the Issuer); and travel and
miscellaneous administrative expenses of ZLC incurred in connection with the
Issuer's business. The Issuer will be required to pay all of its expenses,
namely: (a) the cost of borrowed money; (b) all taxes applicable to the Issuer;
(c) legal, audit, accounting, underwriting, brokerage, listing, registration and
other fees, printing, engraving and other expenses and taxes incurred in
connection with the issuance, distribution, transfer and registration of the
Issuer's securities (except as otherwise agreed with respect to legal and
registration expenses relating to an or any other form made or caused to be made
by the Board of Directors to holders of securities of the Issuer; (i) expenses
relating to communications to holders of securities of the Issuer and of
complying with the reporting and other requirements of governmental bodies or
agencies, including the cost of printing and mailing certificates for securities
and notices and reports to holders of the Issuer's securities; (j) transfer
agent's and registrar's fees and charges; (k) expenses paid to directors and
officers of the Issuer and the cost of officer and director liability insurance;
(l) legal, accounting and auditing fees and expenses; and (m) expenses relating
to any office or office facilities maintained by the Issuer separate from the
office of ZLC.
LIMITS OF ZLC'S RESPONSIBILITY
Pursuant to the Administrative Support Agreement, ZLC will not assume
responsibility other than to render the services called for thereunder in good
faith and will not be responsible for any action of the Issuer in following or
declining to follow any advice or recommendations of ZLC, but ZLC shall
nevertheless remain responsible for its own actions as stated above. ZLC, its
directors, officers, shareholders and employees will not be liable to the
Issuer, the Issuer's shareholders or others, except by reason of misfeasance,
bad faith or negligence. The Issuer has agreed to indemnify ZLC and its
affiliates with respect to all expenses, losses, damages, liabilities, demand,
charges and claims of any nature in respect of acts or omissions performed or
omitted by ZLC in good faith and in accordance with the standard set forth in
the Administrative Support Agreement.
The foregoing description of the Administrative Support Agreement does not
purport to be complete but contains a summary of the material provisions
thereof. Reference is made to a copy of the Administrative Support Agreement
filed as an exhibit to the Registration Statement and the foregoing summary is
qualified in its entirety by such reference.
EXPERTS
The consolidated financial statements and schedules of the Guarantor and
subsidiaries as of December 31, 1994 and 1993, and for each of the years in the
three-year period ended December 31, 1994, (incorporated herein by reference) in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports, with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
PLAN OF DISTRIBUTION
The Issuer will sell the Bonds offered hereby through B.C. Ziegler and
Company (the "Underwriter"). The Underwriter is a wholly-owned subsidiary of the
Guarantor which owns all of the issued and outstanding common stock of the
Issuer. (See "Ziegler Collateralized Securities, Inc. -- General.")
The Prospectus Supplement with respect to each series of Bonds will set forth
the terms of the offering of such series of Bonds including the proceeds to, and
their intended use by, the Issuer, and either the initial public offering price,
the discount to the Underwriter and any discounts or concessions allowed or
reallowed to certain dealers, or the method by which the price at which the
Underwriter will sell the Bonds will be determined.
Except as otherwise described in the Prospectus Supplement with respect to a
series of Bonds, the Underwriter will be obligated to purchase all of the Bonds
of the series described in the Prospectus Supplement with respect to such series
if any of such Bonds are purchased. The Bonds may be acquired by the Underwriter
for its own account and may be resold from time to time in one or more
transactions, including negotiated transactions at a final public offering price
or at varying prices determined at the time of sale.
The place and time of delivery for each series of bonds in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
ADDITIONAL INFORMATION
Copies of the Registration Statement of which this Prospectus forms a part and
the exhibits thereto are on file at the offices of the Securities and Exchange
Commission in Washington, D.C., may be obtained at rates prescribed by the
Commission upon request to the Commission and may be inspected, without charge,
at the offices of the Commission.
LEGAL MATTERS
The validity of the Bonds offered hereby will be passed upon for the Issuer
and for the Underwriter by Foley & Lardner, Milwaukee, Wisconsin. The material
federal income tax consequences of the Bonds will be passed upon for the Issuer
by Foley & Lardner.
