<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1996
REGISTRATION NO. 333-04539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
WINTHROP RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1415469
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
------------------------------
1015 OPUS CENTER
9900 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
(612) 936-0226
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
JOHN L. MORGAN
WINTHROP RESOURCES CORPORATION
1015 OPUS CENTER
9900 BREN ROAD EAST
MINNETONKA, MINNESOTA 55343
(612) 936-0226
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------------
COPIES TO:
Thomas R. Marek, Esq. Patrick Delaney, Esq.
Michael J. Kolar, Esq. Robert E. Tunheim, Esq.
Oppenheimer Wolff & Donnelly Lindquist & Vennum P.L.L.P.
45 South Seventh Street, 3400 Plaza VII 80 South Eighth Street, Suite 4200
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
(612) 344-9300 (612) 371-3211
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
WINTHROP RESOURCES CORPORATION
------------------------
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B)
OF REGULATION S-K SHOWING LOCATION IN THE
PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF PART I OF FORM S-2
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ----------------------------------------- ------------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................ Inside Front Cover Page; Outside
Back Cover Page; Available
Information; Documents Incorporated
by Reference
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges............................ Prospectus Summary; Risk Factors;
Capitalization
4. Use of Proceeds..................... Use of Proceeds
5. Determination of Offering Price..... *
6. Dilution............................ *
7. Selling Security Holders............ Principal and Selling Shareholders
8. Plan of Distribution................ Outside Front Cover Page;
Underwriting
9. Description of Securities to be
Registered......................... Outside Front Cover Page; Prospectus
Summary; Dividend Policy;
Capitalization; Description of
Capital Stock; Description of Notes
10. Interests of Named Experts and
Counsel............................ Legal Matters; Experts
11. Information with Respect to the
Registrant......................... Outside Front Cover Page; Inside
Front Cover Page; Prospectus
Summary; Risk Factors; Use of
Proceeds; Price Range of Common
Stock; Dividend Policy; Selected
Financial and Other Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Principal and Selling
Shareholders; Description of
Capital Stock; Description of
Notes; Consolidated Financial
Statements
12. Incorporation of Certain Information
by Documents Incorporated by
Reference.......................... Documents Incorporated by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................ *
</TABLE>
- ------------
*Omitted from Prospectus because item is inapplicable or answer is in the
negative.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 17, 1996
DATED , 1996
WINTHROP RESOURCES CORPORATION
[LOGO]
1,500,000 SHARES OF COMMON STOCK AND
$25,000,000 OF % SENIOR NOTES DUE 2003
The Common Stock and the % Senior Notes due 2003 (the "Notes") of Winthrop
Resources Corporation (the "Company") are offered separately and not as units.
Of the 1,500,000 shares of Common Stock offered hereby, 750,000 shares are being
sold by the Company and 750,000 shares are being sold by certain shareholders of
the Company (the "Selling Shareholders"). See "Principal and Selling
Shareholders." The Company will receive none of the proceeds from the sale of
shares of Common Stock by the Selling Shareholders. The Company's Common Stock
is traded on the Nasdaq National Market under the symbol "WINR." On June 14,
1996, the last sale price of the Common Stock as reported on the Nasdaq National
Market was $21.375 per share. See "Price Range of Common Stock."
Interest on the Notes will be payable monthly on the fifteenth day of each
month, commencing August 15, 1996. The Notes mature on July 1, 2003. The Notes
are redeemable in whole or in part upon not less than 30 nor more than 60 days'
notice at any time on or after July 1, 2001 at the option of the Company at par
plus accrued interest to the date fixed for redemption. The Notes will be issued
only in fully registered form and in denominations of $1,000 and integral
multiples thereof. The Notes will be general unsecured senior obligations of the
Company ranking PARI PASSU with all other existing and future unsecured and
unsubordinated obligations of the Company. The Notes will be effectively
subordinated to any secured indebtedness of the Company, including indebtedness
under the Company's two current lines of credit with availability totaling
$23,000,000, to the extent of the value of the assets securing such
indebtedness. At May 31, 1996, the total amount of secured indebtedness was
$900,000, excluding discounted lease rentals of approximately $189,105,000,
substantially all of which are non-recourse to the Company. See "Business --
Financing" and "Description of Notes."
The Company does not intend to list the Notes on any securities exchange or to
have them included on any quotation system, and no active trading market is
likely to develop. Although the Underwriters have each indicated an intention to
make a market in the Notes, neither Underwriter is obligated to make a market in
the Notes and any market making may be discontinued at any time at the sole
discretion of such Underwriter. See "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE 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.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2)
<S> <C> <C> <C> <C>
Per Share............................... $ $ $ $
Total(3)................................ $ $ $ $
Per Note................................ 100% % % --
Total(4)................................ $25,000,000 $ $ --
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated offering expenses payable by the Company and the
Selling Shareholders of $ and $ , respectively.
(3) The Selling Shareholders have granted the Underwriters a 30-day option to
purchase up to 225,000 additional shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public shown above, less the
Underwriting Discount. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
(4) The Company has granted the Underwriters a 30-day option to purchase up to
$3,750,000 additional principal amount of Notes, solely to cover
over-allotments, if any, at the Price to Public shown above, less the
Underwriting Discount. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------------
The Common Stock and Notes are being offered severally by the Underwriters named
herein, subject to prior sale and when, as and if delivered to and accepted by
the Underwriters. It is expected that delivery of the Notes and certificates
representing the Common Stock will be made at the offices of Piper Jaffray Inc.
in Minneapolis, Minnesota on or about , 1996. The Notes will be issued
initially as book-entry notes in the form of one fully registered global
security deposited with or on behalf of The Depository Trust Company or its
nominees ("DTC"). The Notes will not initially be issuable in definitive
certificated form to any person other than DTC.
PIPER JAFFRAY INC. DAIN BOSWORTH
INCORPORATED
<PAGE>
[A photo appears on this page, depicting typical types of of high technology
and business-essential equipment leased by the Company under the heading
"Four Product Strategy," with each of the Company's four products -- Value
Added Lease, Small Ticket Lease, Enterprise Lease and Wholesale Lease --
identified and above a caption that states "Building a Portfolio of High
Technology and Business Essential Equipment."]
------------------------
Information contained in this Prospectus contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "anticipate," "estimate," or "continue" or the negative
thereof or other variations thereon or comparable terminology. The statements in
"Risk Factors" beginning on page 7 of the Prospectus constitute cautionary
statements identifying important factors, including certain risks and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements.
------------------------
IN CONNECTION WITH THESE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
AND THE NOTES AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING OF THE COMMON STOCK, CERTAIN UNDERWRITERS AND
SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A UNDER
THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS RELATING TO THE SHARES OF COMMON STOCK AND NOTES
OUTSTANDING ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS.
UNLESS THE CONTEXT CLEARLY SUGGESTS OTHERWISE, REFERENCES IN THIS PROSPECTUS TO
THE ASSETS AND OPERATIONS OF THE COMPANY INCLUDE THE ASSETS AND OPERATIONS OF
THE COMPANY'S WHOLLY-OWNED SUBSIDIARY, WINR BUSINESS CREDIT CORPORATION ("WINR
BUSINESS CREDIT"), DURING THE PERIOD TO WHICH THE INFORMATION RELATES.
THE COMPANY
The Company is engaged in the business of providing non-cancelable leases
for high technology and business-essential equipment to both large organizations
and smaller, growing companies. The Company's lease products are marketed
nationally through a 17-member sales force located in Minneapolis, Minnesota;
Dallas, Texas; Philadelphia, Pennsylvania; Knoxville, Tennessee; Santa Barbara
and Oakland, California; and Henderson, Nevada. To differentiate itself from its
competitors in the leasing industry, the Company offers innovative lease
products and concentrates on building long-term, relationship-based associations
with its customers.
Since its founding in 1982, the Company's focus has been primarily on the
Value Added Lease. These lease transactions generally have terms from three to
five years and are with large organizations (generally corporations with
revenues of $50,000,000 or more). Such transactions typically range from
$250,000 to $20,000,000 and cover high technology equipment, including
computers, telecommunications equipment, point-of-sale systems and other
technology-based equipment. The leases are creative and flexible in structure to
accommodate equipment additions and upgrades to meet customers' changing needs.
Value Added Leases are retained in the Company's portfolio.
Responding to the expanding technological needs of increasing numbers of
small, growing businesses, the Company commenced operations of WINR Business
Credit in 1995. WINR Business Credit focuses on the small business market by
providing the Small Ticket Lease which covers business-essential equipment,
including computers, telecommunications equipment and production equipment.
Lease transactions in the small ticket area typically are for less than $250,000
and have lease terms of between two and five years. The Company manages the
risks and costs associated with high volume small ticket leases through
centralized credit evaluation, lease administration and collections and business
alliances with vendors of business-essential equipment. Small Ticket Leases are
primarily generated for the Company's portfolio.
With the commencement of operations of WINR Business Credit the Company has
also developed the Enterprise Lease which is designed to meet the needs of large
corporations with influence over multiple business entities, such as
franchisor-franchisee relationships. The Enterprise Lease integrates the Value
Added Lease and Small Ticket Lease for organizations in need of enterprise-wide
equipment and systems solutions.
The Company added the Wholesale Lease to its product portfolio in January
1996 through the acquisition of the assets of Capital Business Leasing, Inc., an
equipment lease broker that, for a fee, arranges lease financings with other
leasing companies for a variety of unrelated brokers and vendors. The Wholesale
Lease is generally sold to an outside funding source and does not become part of
the Company's lease portfolio.
The Company's strategy is to differentiate itself by continuing to maintain
a focused, long-term, customer-service approach to its business. Key elements of
its strategy include:
- FOCUS ON LEASING. Leasing high technology and business-essential
equipment is the Company's only business.
- FOUR PRODUCT STRATEGY. The Company provides a comprehensive range of
lease products through its Value Added Lease, Small Ticket Lease,
Enterprise Lease and Wholesale Lease.
3
<PAGE>
- ASSET OWNERSHIP. The Company retains ownership of its leases and the
underlying equipment, except Wholesale Leases. This affords the Company
the flexibility to accommodate customers' desire to add to or upgrade
equipment.
- DIVERSIFICATION. The Company leases a wide variety of equipment to
companies in diverse industries in many geographic locations.
The Company is a Minnesota corporation and was founded in 1982 by Kirk A.
MacKenzie, John L. Morgan and Jack A. Norqual. The Company's corporate offices
are located at 1015 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota
55343, and its telephone number is (612) 936-0226.
THE OFFERINGS
<TABLE>
<S> <C>
COMMON STOCK
Common Stock offered by
Company.................. 750,000 shares
Common Stock offered by
Selling Shareholders..... 750,000 shares
Common Stock to be
outstanding after the
offering................. 8,599,800 shares (1)
Nasdaq National Market
symbol................... WINR
NOTES
Notes offered............. $25,000,000 in aggregate principal amount of
% Senior Notes due 2003. See "Description of
Notes."
Denominations............. $1,000 and integral multiples thereof.
Maturity.................. July 1, 2003.
Interest payment dates.... Interest is payable monthly on the fifteenth day
of each month, commencing August 15, 1996. The
first interest payment will include interest
from issuance through August 14, 1996.
Sinking fund.............. None.
Redemption at the
Company's option......... The Notes may not be redeemed prior to July 1,
2001. Thereafter, the Notes may be redeemed in
whole or in part upon not less than 30 nor more
than 60 days' prior written notice at the option
of the Company at par plus accrued interest to
the date fixed for redemption. See "Description
of Notes -- Redemption at Option of the
Company."
</TABLE>
- ------------
(1) Does not include 390,000 shares of Common Stock issuable upon exercise of
outstanding stock options, of which 254,374 shares of Common Stock are
subject to options that are immediately exercisable. See Note 7 of Notes to
Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<S> <C>
Ranking................... The Notes will be general unsecured senior
obligations of the Company ranking PARI PASSU
with all other existing and future unsecured and
unsubordinated obligations of the Company. The
Notes will be effectively subordinated to any
secured indebtedness of the Company, including
indebtedness under the Company's two current
lines of credit with availability totaling
$23,000,000, to the extent of the value of the
assets securing such indebtedness. At May 31,
1996, the total amount of secured indebtedness
was $900,000, excluding discounted lease rentals
of approximately $189,105,000, substantially all
of which are non-recourse to the Company. The
Notes will also be structurally subordinated to
all existing and future liabilities of the
Company's subsidiaries. See "Description of
Notes -- Unsecured Obligations; Ranking."
Covenants................. The Indenture pursuant to which the Notes will
be issued, among other things, restricts the
ability of the Company under certain
circumstances to pay dividends or to make other
capital distributions. The Indenture also
contains covenants limiting the Company's
ability to create or incur Funded Recourse Debt.
See "Description of Notes -- Covenants --
Restrictions on Dividends, Redemption and Other
Payments" and "-- Restrictions on Additional
Indebtedness."
Repayment option upon
death.................... Upon the death of any holder of Notes, the
Company will redeem, at par plus accrued
interest, such holder's Notes upon request up to
$25,000 in principal amount per holder per year,
subject to an aggregate limit for all holders of
$250,000 in principal amount in any twelve-month
period and certain conditions being met,
including the condition that the Company not be
in default on any Funded Recourse Debt as a
result of such redemption. See "Description of
Notes -- Repayment Option Upon Death."
USE OF PROCEEDS The net proceeds to be received by the Company
from the sale of Common Stock and Notes will be
used for repayment of any amounts then
outstanding under the two lines of credit, for
purchases of equipment for lease to customers,
for expansion of operations and for working
capital and general corporate purposes, possibly
including future acquisitions. The Company has
no current acquisition plans and is not
conducting any negotiations with respect to
potential acquisitions. See "Use of Proceeds."
</TABLE>
5
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per share --------------------- -----------------------------------------------------------
data) 1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Earnings before income tax expense and
cumulative effect of accounting change..... $5,313 $5,432 $19,260 $15,602 $12,766 $7,942 $5,295
Net earnings................................ $3,135 $3,259 $11,556 $ 9,361 $ 7,660 $5,054(1) $3,177
Net earnings per common share............... $ .40 $ .41 $ 1.46 $ 1.16 $ .98 $ .74(1) $ .50
Cash dividend declared per common share..... $ .04 $ .03 $ .12 $ .08 $ .06 $ .02 --
Weighted average number of common shares
outstanding(2)............................. 7,871,525 7,953,181 7,911,854 8,047,326 7,807,534 6,821,858 6,300,000
</TABLE>
<TABLE>
<S> <C>
<CAPTION>
MARCH 31, 1996
--------------------
<S> <C>
BALANCE SHEET DATA:
Investment in leasing operations.................................... $263,660
Total assets........................................................ 277,211
Discounted lease rentals(3)......................................... 185,008
Retained earnings................................................... 47,327
Shareholders' equity................................................ 56,872
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
New equipment added during the period.................... $33,960 $35,305 $130,360 $108,768 $94,046 $50,374 $53,388
Monthly lease rentals in effect at period-end............ $11,273 $ 9,001 $ 10,239 $ 7,866 $ 6,389 $ 5,294 $ 5,077
Retained earnings as a percentage of shareholders'
equity.................................................. 83.2% 79.9% 82.6% 78.7% 74.1% 81.2% 99.3%
Return on average assets................................. 4.6% 5.6% 4.7% 4.6% 4.8% 3.6% 2.4%
Return on average shareholders' equity................... 22.5% 28.0% 23.1% 22.6% 24.4% 24.6% 22.4%
Ratio of net earnings before fixed charges and taxes to
fixed charges........................................... 2.5x 2.6x 2.4x 2.6x 2.5x 1.9x 1.5x
</TABLE>
- ---------------
(1) In September 1992, the Company adopted Financial Accounting Standards Board
Statement No. 109, Accounting for Income Taxes, effective as of January 1,
1992. The cumulative effect of this change in accounting for income taxes
was $289,500 or $.04 per share of Common Stock.
(2) Common Stock equivalents are excluded from the weighted average number of
outstanding common shares as the dilutive effect is less than 3%.
(3) Discounted lease rentals includes $184,221,000 of non-recourse and $787,000
of recourse debt.
6
<PAGE>
RISK FACTORS
INVESTMENT IN THE COMMON STOCK OR THE NOTES OFFERED HEREBY INVOLVES CERTAIN
RISKS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING IMPORTANT
FACTORS, IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK OR THE NOTES.
ABILITY TO SUSTAIN AND MANAGE GROWTH. A primary objective of the Company is
to grow in a controlled fashion in order to achieve its desired profit levels.
In order to support its anticipated growth, the Company recently added personnel
and expects to add a significant number of additional employees in the future.
The Company's future operating results will depend on its ability to
successfully hire, train and retain skilled employees and on the ability of its
officers and key employees to continue to improve the efficiency of its
operational and financial control systems, while continuing to attract
significant numbers of new quality customers and maintain existing client
relationships. A key element in achieving the Company's desired profit levels
will be the effective utilization of technology to support this growth,
including support of its small ticket leases. While the Company has historically
met these objectives, there can be no assurance it will be able to do so in the
future at the level necessary to support its anticipated growth. If the Company
is unable to manage growth effectively, there could be a material adverse effect
on the Company's results of operations or financial condition.
ECONOMIC CONDITIONS. The Company's results of operations are affected by
certain economic factors, including the level of economic activity in the
markets in which the Company's customers operate. While the Company historically
has been able to maintain profitability throughout various economic business
cycles, a decline in economic activity may adversely affect the Company. The
Company's growth is dependent upon its ability to place new equipment in
service. In an adverse economic environment, there may be a decline in the
demand for some types of equipment which the Company leases, resulting in a
decline in the amount of new equipment being placed into service. Adverse
economic conditions could also lead to an increase in customer defaults and
credit losses. Although the Company maintains an allowance for losses in lease
receivables in an amount which it believes is sufficient to provide adequate
protection against losses in its portfolio, this allowance could prove to be
inadequate. Adverse economic conditions may also contribute to a decline in the
value of the equipment which the Company could realize upon disposition in case
of customer default. Any of these factors could have a material adverse effect
on the Company's results of operations or financial condition.
CREDIT LOSSES. In addition to general economic and other conditions
affecting the industries and regions of the country in which the Company's
customers operate, major factors affecting the Company's ability to maintain
profitability include risks associated with the creditworthiness and integrity
of the Company's customers. While the Company has not historically maintained a
general loss allowance for its Value Added Leases, from time to time it has
provided a loss allowance for specific leases. The Company maintains a general
allowance for losses on lease finance receivables in its Small Ticket Lease
portfolio in an amount the Company's management believes is sufficient to
provide adequate protection against loss. Because the Small Ticket Lease is a
relatively new product for the Company, the allowance as to these receivables is
determined principally on the basis of leasing industry historical loss
experience and reflects management's judgment of loss potential considering
future economic conditions and the nature and characteristics of the underlying
leases. Although the Company's allowance for losses in lease receivables is
considered adequate by Company management, there can be no assurance that this
allowance will prove to be adequate over time to cover all losses, especially
those in connection with the Small Ticket Lease product. This allowance may
prove to be inadequate due to unanticipated adverse changes in the economy or
discrete events adversely affecting specific customers or industries. In
conjunction with the commencement of operations of WINR Business Credit in 1995,
the Company implemented credit review policies for its small ticket leases which
are different than those utilized for its Value Added Leases. The Company's
results of operations or financial condition could be adversely affected to the
extent that the Company's credit analysis is inadequate or the Company's
allowance for losses is insufficient. See "Business -- Credit and Transaction
Approval."
7
<PAGE>
DEPENDENCE UPON CURRENT MANAGEMENT. The Company's growth and profitability
are dependent upon, among other things, the abilities and experience of the
Company's current management team. There can be no assurance that the Company
will be able to retain its current management team or attract additional
qualified management needed for its business. The loss of the services of one or
more management team members could have an adverse effect on the long-term
growth and profitability of the Company.
HIGHLY COMPETITIVE INDUSTRY. The equipment leasing business is
characterized by intense competition. The Company competes with leasing
companies (including those that are captive of equipment manufacturers),
commercial banks and other financial institutions, some of which may provide the
Company with capital to finance its leases. Many of the Company's competitors
are significantly larger and have substantially greater resources than the
Company. Many competitors have sources of funds at rates that are lower than
those available to the Company, thereby enabling them to provide lower lease
rates in the marketplace. The Company believes it competes on the basis of
flexibility in structuring transactions, a high level of customer service, the
knowledge and competence of its employees, pricing and the ability to gain
referrals of potential transactions from various business contacts, including
existing customers. There can be no assurance that the Company will be able to
compete successfully in the future. See "Business -- Competition."
AVAILABILITY OF FINANCING. The Company is and will continue to be dependent
on various banks and other financial institutions for a significant portion of
the financing necessary to fund its leases. Accordingly, the Company's ability
to successfully execute its business strategy and to grow is dependent, in part,
on its ability to obtain recourse and non-recourse debt capital, both short-term
and long-term, and to raise additional debt or equity capital to meet its cash
requirements in the future.
Although to date the Company has been able to obtain the recourse and
non-recourse borrowing, interim financing, and other capital required to finance
its business, no assurance can be given that the necessary amount of such
financing will continue to be available to the Company on favorable terms or at
all. If the Company were unable to continue to obtain any portion of such
required financing on favorable terms, the Company could be required to reduce
or modify its leasing activity, which would have a material adverse effect on
the Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Financial Condition and Liquidity" and "Business -- Financing."
RESIDUAL VALUES OF LEASED EQUIPMENT. At the inception of each lease, the
Company estimates what the residual value of the leased equipment will be at the
end of the initial lease term. The actual realized residual value of leased
equipment may differ from its estimated residual value, resulting in profit or
loss when the leased equipment is re-leased or sold. A variety of factors may
affect realized residual values of equipment, including changes in equipment
resale market conditions, the failure by users of the equipment to properly
maintain and protect such equipment and, with respect to high technology
equipment, rapid technological obsolescence which typifies the industry. There
can be no assurance that realized residual values of leased equipment will be
equal to or greater than original estimated residual values. While the Company's
experience has generally resulted in equipment values in excess of estimated
residual values, an unexpected decrease in the market value of high technology
and other equipment leased by the Company, whether due to rapid technological
obsolescence or market factors, could adversely affect the Company's results of
operations and financial condition. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Lease Accounting Overview --
Residual Values."
LEASE ACCOUNTING; QUARTERLY FLUCTUATIONS. The Company follows Statement of
Financial Accounting Standards No. 13 ("FASB No. 13") with respect to the
accounting for its lease transactions. Under FASB No. 13, leasing revenues are
recognized during each of the accounting periods within the term of a lease, and
the allocation of leasing revenue among the accounting periods will vary
depending upon the applicable lease classification. The Company cannot always
predict which lease classification will be applicable to a pending transaction
until at or near the end of negotiations with its customer. In addition, it is
difficult to predict when a particular leasing transaction will be consummated.
Moreover, a delay in shipment of equipment to be leased by the Company to a
customer may delay the time of installation and customer acceptance of the
equipment from one quarter to the next. These events, in turn, will delay lease
inception
8
<PAGE>
and the resulting recognition of leasing revenues by the Company. The volume and
type of new lease transactions and the resulting revenues and earnings may
fluctuate from quarter to quarter based upon factors not within the control of
the Company. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Lease Accounting Overview."
CONTROL BY CURRENT MANAGEMENT. After this offering, Messrs. MacKenzie,
Morgan and Norqual collectively will own approximately 51.3% of the Company's
outstanding Common Stock (48.8% if the Underwriters' over-allotment option as to
the Common Stock is exercised in full). Because of such share ownership, these
individuals, who are also directors and executive officers, will, in practice,
be able to exercise significant control over the election of members of the
Company's Board of Directors and the outcome of other corporate actions after
the sale of the shares offered hereby. See "Principal and Selling Shareholders."
In addition, the Board of Directors may, without further action by the
shareholders, issue up to 2,000,000 shares of preferred stock in one or more
series, and determine the rights and preferences, privileges and restrictions
with respect to any such preferred stock. If issued with voting rights or given
a feature making it convertible into Common Stock, such preferred stock could
have an adverse impact on the voting rights of holders of Common Stock and could
discourage tender offers or other attempts to acquire a substantial number of
shares of Common Stock to gain control of the Company. See "Description of
Capital Stock -- Preferred Stock."
POSSIBLE VOLATILITY OF SHARE PRICE. The securities of capital equipment
leasing companies have from time to time experienced extreme price and volume
fluctuations, which may be unrelated to the operating performance of the
individual companies. There may be significant volatility in the market price of
the Company's Common Stock due to factors that may or may not relate to the
Company's performance.
SHARES ELIGIBLE FOR FUTURE SALE. The directors of the Company and the
Selling Shareholders have agreed not to sell their shares publicly or privately
for a period of 120 days after the effective date of the Company's Registration
Statement of which this Prospectus is a part without the Underwriters' consent.
Sales of any such shares after the 120-day period could adversely affect the
market price of the Common Stock. Following the expiration of the lock-up
period, the 4,312,600 shares held by the directors and Selling Shareholders will
be available for sale, subject to the volume and timing restrictions set forth
under Rule 144. See "Underwriting."
STRUCTURAL SUBORDINATION OF THE NOTES. The Notes will be effectively
subordinated to any secured indebtedness of the Company to the extent of the
value of the assets securing such indebtedness. In the event of the liquidation,
dissolution, reorganization or any similar proceeding regarding the Company, the
assets of the Company securing any other indebtedness of the Company will be
available to pay obligations on the Notes only after such secured indebtedness
has been paid in full. Accordingly, there may not be sufficient assets remaining
to pay amounts due on the Notes. The Notes will also be structurally
subordinated to indebtedness, other liabilities and preferred stock (if any) of
the Company's subsidiaries. Since the Notes are obligations of the parent
company only, the Company's subsidiaries are not obligated or required to pay
any amounts pursuant to the Notes or to make funds available therefor in the
form of dividends or advances to the Company. See "Description of Notes --
Unsecured Obligations; Ranking."
LIMITED COVENANTS. The covenants in the Indenture are limited and are not
designed to protect holders of the Notes in the event of a material adverse
change in the Company's financial condition or results of operations. The
covenants in the Indenture should not be a significant factor to an investor in
evaluating whether the Company will be able to comply with its obligations under
the Notes. See "Description of Notes -- Covenants."
LIMITED MARKET FOR THE NOTES. The Company does not intend to list the Notes
on any securities exchange or have them included for quotation by Nasdaq or any
other quotation system, and no active trading market is expected to develop.
Although the Underwriters have each indicated an intention to make a market in
the Notes, neither Underwriter is obligated to make a market in the Notes and
any market making may be discontinued at any time at the sole discretion of such
Underwriter. If the Notes are traded after their original issuance, they may
trade at a discount to their principal amount. Without an active market, it may
be difficult for investors to resell the Notes.
9
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes and the 750,000 shares of Common
Stock offered by the Company are estimated to be $ ($ if the
Underwriters' over-allotment options are exercised in full) after deducting the
Underwriters' discount and the Company's share of the estimated expenses of
these offerings. The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders. The Company intends to use the net
proceeds for repayment of any amounts then outstanding under its two lines of
credit, for purchases of equipment for lease to customers, for expansion of
operations and for working capital and general corporate purposes, possibly
including future acquisitions. One of Company's lines of credit bears interest
at no greater than prime and expires on July 31, 1996. The other line of credit
bears interest at prime plus 25 basis points and expires on June 30, 1996. At
May 31, 1996, an aggregate of $900,000 was outstanding under these lines of
credit. The Company has no current acquisition plans and is not conducting any
negotiations with respect to potential acquisitions. Pending the use of the net
proceeds of these offerings, the Company may invest the funds in
interest-bearing U.S. government or agency securities.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol WINR. The following table sets forth, for the periods indicated, the
range of the high and low per share sales prices as reported by the Nasdaq
National Market and the dividends paid in each quarter.
<TABLE>
<CAPTION>
DIVIDEND
HIGH LOW DECLARED
------ --------- --------
<S> <C> <C> <C>
1994
First Quarter................................... $ 13.25 $ 10.00 $.02
Second Quarter.................................. 13.25 11.25 .02
Third Quarter................................... 12.00 10.25 .02
Fourth Quarter.................................. 11.25 10.00 .02
1995
First Quarter................................... $ 12.00 $ 10.25 $.03
Second Quarter.................................. 14.50 11.25 .03
Third Quarter................................... 18.25 13.25 .03
Fourth Quarter.................................. 18.50 16.00 .03
1996
First Quarter................................... $ 18.50 $ 15.47 $.04
Second Quarter (through June 14, 1996).......... 23.00 18.25 .04
</TABLE>
On June 14, 1996, the last sale price of the Common Stock was as set forth
on the cover page of this Prospectus. As of June 14, 1996, the Company's Common
Stock was held by approximately 100 holders of record and approximately 1,900
beneficial holders.
DIVIDEND POLICY
The Company paid a quarterly cash dividend of $.03 per share of Common Stock
on January 2, 1996 to holders of record on December 15, 1995. On April 1, 1996,
the Company paid a quarterly cash dividend of $.04 per share of Common Stock to
holders of record on March 15, 1996. The Company has declared a quarterly cash
dividend of $.04 per share of Common Stock payable on July 1, 1996 to holders of
record on June 14, 1996. Payment of dividends is within the discretion of the
Company's Board of Directors and will be subject to periodic review. Payment of
dividends will depend, among other factors, upon the earnings, capital
requirements, operating results and financial condition of the Company. Under
the Minnesota Business Corporation Act, a dividend may be declared only after
the Board determines that, after payment of the dividend, the Company will be
able to pay its debts in the ordinary course of business. The Indenture that
governs the Notes contains limitations on cash dividends, distributions and
redemptions with respect to the Common Stock. See "Description of Notes --
Covenants -- Restrictions on Dividends, Redemptions and Other Payments."
10
<PAGE>
CAPITALIZATION
The following table sets forth the debt and capitalization of the Company as
of March 31, 1996 and as adjusted to give effect to the sale of the 750,000
shares of Common Stock offered by the Company, the sale of an aggregate
principal amount of $25,000,000 of Notes and the application of the estimated
net proceeds of such sales. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long term debt:
Bank notes payable (1)................................. $ -- $ --
Discounted lease rentals (2)........................... 185,008 185,008
Senior Notes due 2003, offered hereby.................. -- 25,000
-------- -----------
Total long term debt (3)............................. 185,008 210,008
-------- -----------
Shareholders' equity:
Preferred Stock, $.01 par value, 2,000,000 shares
authorized, no shares issued and outstanding (no
shares, as adjusted).................................. -- --
Common Stock, $.01 par value, 15,000,000 shares
authorized, 7,849,800 shares issued and outstanding
(8,599,800 shares, as adjusted) (4)................... 78
Additional paid-in capital............................. 9,467
Retained earnings...................................... 47,327 47,327
-------- -----------
Total shareholders' equity........................... 56,872
-------- -----------
Total capitalization................................. $241,880 $
-------- -----------
-------- -----------
</TABLE>
- ------------
(1) The Company currently has lines of credit with availability totaling
$23,000,000 from two banks to provide interim financing of the Company's
acquisition of equipment for lease. See "Business -- Financing." The Company
intends to use the estimated net proceeds, in part, for repayment of any
amounts then outstanding under the two lines of credit.
(2) Discounted lease rentals includes $184,221,000 of non-recourse and $787,000
of recourse debt.
(3) For information with respect to the Company's debt, see Notes 4 and 5 of
Notes to Consolidated Financial Statements.
(4) Does not include 390,000 shares of Common Stock issuable upon exercise of
outstanding stock options, of which 254,374 shares of Common Stock are
subject to options that are immediately exercisable. See Note 7 of Notes to
Consolidated Financial Statements.
11
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The selected financial data presented below under the captions "Statement of
Earnings Data" and "Balance Sheet Data" for, and as of the end of, each of the
years in the five-year period ended December 31, 1995 are derived from the
Company's Consolidated Financial Statements, which have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The Consolidated
Financial Statements as of December 31, 1995 and 1994 and for each of the years
in the three-year period ended December 31, 1995, and the report thereon, are
included elsewhere in this Prospectus. The selected financial data under the
captions "Statement of Earnings Data" and "Balance Sheet Data" as of March 31,
1996 and 1995 and for the three months ended March 31, 1996 and 1995 are derived
from the Company's unaudited consolidated financial statements and include all
adjustments (consisting of normal recurring accruals) that the Company considers
necessary for a fair presentation of such data. Results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The data set forth in the
following tables should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per share -------------------- -----------------------------------------------------
data) 1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues:
Leasing revenues:
Direct financing and sales-type
leases................................. $ 14,140 $ 15,533 $ 60,986 $ 64,042 $ 56,449 $ 39,561 $ 37,053
Operating leases........................ 1,360 1,361 5,696 3,909 8,721 10,799 12,372
--------- --------- --------- --------- --------- --------- ---------
Total leasing revenues................ 15,500 16,894 66,682 67,951 65,170 50,360 49,425
Sales of equipment........................ 477 870 2,003 1,870 2,194 2,345 6,728
Other revenue............................. 72 48 96 75 536 387 24
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................ 16,049 17,812 68,781 69,896 67,900 53,092 56,177
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Leasing costs:
Direct financing and sales-type
leases................................. 3,653 5,691 24,926 34,456 33,155 21,231 19,458
Operating leases........................ 1,001 1,008 3,914 2,813 6,620 8,858 10,315
--------- --------- --------- --------- --------- --------- ---------
Total leasing costs................... 4,654 6,699 28,840 37,269 39,775 30,089 29,773
Cost of equipment sold.................... 259 791 1,555 1,234 1,994 1,826 6,204
Selling, general and administrative....... 2,126 1,526 5,656 5,863 4,764 4,207 4,668
Interest expense.......................... 3,578 3,364 13,470 9,928 8,601 9,028 9,995
Other..................................... 119 -- -- -- -- -- 242
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses.............. 10,736 12,380 49,521 54,294 55,134 45,150 50,882
--------- --------- --------- --------- --------- --------- ---------
Earnings before income tax expense and
cumulative effect of accounting change..... 5,313 5,432 19,260 15,602 12,766 7,942 5,295
Provision for income tax expense............ 2,178 2,173 7,704 6,241 5,106 3,177 2,118
--------- --------- --------- --------- --------- --------- ---------
Earnings before cumulative effect of
accounting change.......................... 3,135 3,259 11,556 9,361 7,660 4,765 3,177
Cumulative effect of accounting change
(1)........................................ -- -- -- -- -- 289 --
--------- --------- --------- --------- --------- --------- ---------
Net earnings................................ $ 3,135 $ 3,259 $ 11,556 $ 9,361 $ 7,660 $ 5,054 $ 3,177
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net earnings per common share before
cumulative effect of accounting change..... $ .40 $ .41 $ 1.46 $ 1.16 $ .98 $ .70 $ .50
Cumulative effect of accounting change per
common share (1)........................... -- -- -- -- -- .04 --
--------- --------- --------- --------- --------- --------- ---------
Net earnings per common share............... $ .40 $ .41 $ 1.46 $ 1.16 $ .98 $ .74 $ .50
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Cash dividends declared per common share.... $ .04 $ .03 $ .12 $ .08 $ .06 $ .02 --
Weighted average number of common shares
outstanding (2)............................ 7,871,525 7,953,181 7,911,854 8,047,326 7,807,534 6,821,858 6,300,000
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in leasing operations.... $263,660 $233,484 $254,281 $216,737 $171,975 $134,123 $135,494
Total assets........................ 277,211 238,093 267,901 226,711 178,991 139,877 139,108
Discounted lease rentals (3)........ 185,008 161,794 178,457 153,793 119,837 91,262 106,539
Retained earnings................... 47,327 38,241 45,180 35,657 27,736 20,545 15,636
Shareholders' equity................ 56,872 47,847 54,724 45,317 37,423 25,303 15,741
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
New equipment added during the
period............................. $ 33,960 $ 35,305 $130,360 $108,768 $ 94,046 $ 50,374 $ 53,388
Monthly lease rentals in effect at
period-end......................... $ 11,273 $ 9,001 $ 10,239 $ 7,866 $ 6,389 $ 5,294 $ 5,077
Retained earnings as a percentage of
shareholders' equity............... 83.2% 79.9% 82.6% 78.7% 74.1% 81.2% 99.3%
Return on average assets............ 4.6% 5.6% 4.7% 4.6% 4.8% 3.6% 2.4%
Return on average shareholders'
equity............................. 22.5% 28.0% 23.1% 22.6% 24.4% 24.6% 22.4%
Ratio of net earnings before fixed
charges and taxes to fixed
charges............................ 2.5x 2.6x 2.4x 2.6x 2.5x 1.9x 1.5x
</TABLE>
- ---------------
(1) In September 1992, the Company adopted Financial Accounting Standards Board
Statement No. 109, ACCOUNTING FOR INCOME TAXES, effective as of January 1,
1992. The cumulative effect of this change in accounting for income taxes
was $289,500 or $.04 per share of Common Stock.
(2) Common Stock equivalents are excluded from the weighted average number of
common shares outstanding as the dilutive effect is less than 3%.
(3) Discounted lease rentals includes $184,221,000 of non-recourse and $787,000
of recourse debt at March 31, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
LEASE ACCOUNTING OVERVIEW
GENERAL. The Company classifies its lease transactions, as required by FASB
No. 13, as (1) direct financing, (2) sales-type, or (3) operating leases.
Revenues, costs and resulting income are recognized during each of the
accounting periods within the term of the lease. The allocation of income among
the accounting periods within a lease term will vary depending upon the lease
classification.
For financial statement purposes, the Company includes revenue from all
three classifications in leasing revenues, and costs related to these leases in
leasing costs. The Company has in "Selected Financial and Other Data" separated
its leasing revenues into two categories: (1) direct financing and sales-type
leases and (2) operating leases.
DIRECT FINANCING AND SALES-TYPE LEASES. Direct financing and sales-type
leases transfer substantially all benefits and risks of equipment ownership to
the customer. A lease is a direct financing or sales-type lease if the
creditworthiness of the customer and the collectibility of lease payments are
reasonably certain and it meets one of the following criteria: (1) the lease
transfers ownership of the equipment to the customer by the end of the lease
term, (2) the lease contains a bargain purchase option, (3) the lease term at
inception is at least 75% of the estimated economic life of the leased
equipment, or (4) the present value of the minimum lease payments is at least
90% of the fair value of the leased equipment at inception.
Direct financing and sales-type leased assets consist of the present value
of the future minimum lease payments plus the present value of the residual
(collectively referred to as the "net investment"). Sales-type classification
gives rise to dealer profit to the lessor and generally results when the Company
leases used equipment to its customer. This equipment may be obtained in the
secondary marketplace, but most frequently is the result of re-leasing equipment
from the Company's own portfolio to the same customer.
For direct financing leases, leasing revenue consists of interest earned on
the present value of the lease payments and residual. Revenue is recognized
periodically over the lease term as a constant percentage return on the net
investment. There are no costs and expenses recorded for direct financing leases
since leasing revenue is recorded on a net basis. Therefore, the revenues
resulting from the "mix" of lease classifications during an accounting period
will affect the profit margin percentage for such period, with such profit
margin percentage generally increasing as revenues from direct financing leases
increase.
Sales-type leasing revenue, which is recognized at lease inception, consists
of the present value of the total minimum lease payments. Costs and expenses,
also recognized at lease inception, consist of the equipment's net book value,
less the present value of the residual. The difference between the leasing
revenue and such costs and expenses results in a profit recorded at the
inception of the lease. Interest earned on the present value of the lease
payments and residual is recognized periodically over the lease term as a
constant percentage return on the net investment and is included as part of the
Company's leasing revenues.
OPERATING LEASES. All leases that are not classified as direct financing or
sales-type leases are treated as operating leases. Monthly lease payments from
these leases are recognized as leasing revenues. The Company's cost of the
leased equipment is recorded on the balance sheet in "Investment in leasing
operations" and is depreciated on a straight-line basis over the lease term to
the Company's estimate of residual value. Revenue, depreciation expense and
resultant profit for operating leases are recorded evenly over the life of the
lease. Should the lease be financed, the interest expense declines over the term
of the financing as the principal is reduced, with the resultant net profit
being lower in the early periods of the financing and higher in the later
periods.
RESIDUAL VALUES. Residual values, representing the value of the equipment
at the termination of the lease, are estimated by the Company at the inception
of the lease and recorded on its balance sheet. The residual values for direct
financing and sales-type leases are recorded in "Investment in leasing
operations" on a net present value basis. The residual values for operating
leases are included in the leased equipment's net book value. The estimated
residual values will vary, both in amount and as a percentage of the original
14
<PAGE>
equipment cost, depending upon several factors, including the amount of the
monthly rent and the term of the lease. The Company believes that its estimates
of future residual values generally are below or equal to valuations published
by independent third-party residual forecasters.
The Company evaluates residual values on an ongoing basis and records any
required changes in accordance with FASB No. 13. Residual values are affected by
equipment supply and demand and by new product announcements and price changes
by manufacturers. In accordance with generally accepted accounting principles as
stated in FASB No. 13, residuals can only be adjusted downward during the term
of the lease.
The Company seeks to realize the estimated residual value at lease
termination through renewal or extension of the original lease or sale of the
equipment. The difference between the proceeds of a sale and the remaining
estimated residual value results in either a gain or loss when title transfers.
The proceeds from any subsequent lease are accounted for in accordance with FASB
No. 13.
INITIAL DIRECT COSTS. Initial direct costs related to the origination of
direct financing and operating leases, including sales commissions, are
capitalized and recorded as part of the "Investment in leasing operations" and
are amortized over the lease term.
SALES. In equipment sales transactions, sales revenue is recognized by the
Company at the time title to the equipment passes to the customer. If the sale
is to the customer who is leasing the equipment, the revenue is included in
"Leasing revenues," and if the equipment is sold into the secondary marketplace,
the revenue is included in "Sales of equipment."
CASH FLOWS. Cash flows are not affected by lease classification. However,
cash flows are affected by the Company's decision on how it finances its
investment in a particular lease. After lease inception, the Company generally
discounts the remaining lease payments on a non-recourse or recourse basis with
various financial institutions. The Company assigns the remaining lease payments
to these financial institutions at fixed interest rates. In return for the
future remaining lease payments, the Company receives a cash payment
substantially equal to the present value of such lease payments. Proceeds from
discounting are recorded on the Company's balance sheet as discounted lease
rentals. As customers make payments to financial institutions, lease revenue
(i.e., interest income on direct financing and sales-type leases and rental
revenue on operating leases) and interest expense are recorded by the Company
and the discounted lease rentals on the balance sheet are reduced by the
interest method. See "Business -- Financing."
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net earnings for the three months ended March 31, 1996 were $3,135,000, or
$0.40 per share, as compared to $3,259,000, or $0.41 per share, for the
corresponding period in 1995. At March 31, 1996 the Company's net investment in
leasing operations was $263,660,000, an increase of 3.7% over $254,281,000 at
December 31, 1995.
Total revenues of $16,049,000 for the three months ended March 31, 1996 were
down 9.7% from $17,768,000 for the same three-month period in 1995. Leasing
revenues accounted for 97.0% and 95.1% of total revenues for the three-month
periods ended March 31, 1996 and 1995, respectively. The quarter-to-quarter
fluctuations in leasing revenues result primarily from the allocation between
types of leasing revenues and the manner and timing in which leasing revenues
are recognized over the term of each particular lease. See "-- Lease Accounting
Overview." Total revenues for the three months ended March 31, 1996 also include
$2,128,000 of commissions generated from the financing of lease transactions
which were placed by the Company's wholesale lease broker business acquired on
January 19, 1996. See Note 2 of Notes to Consolidated Financial Statements.
Total leasing costs as a percentage of leasing revenue were 29.9% and 39.6%
for the three-month periods ended March 31, 1996 and 1995, respectively. Total
leasing costs for the three months ended March 31, 1996 include $1,354,000 of
commissions paid to third-party brokers for the origination of lease
15
<PAGE>
transactions for the Company's wholesale lease broker business. The decrease in
leasing costs as a percentage of leasing revenues reflects the influence of the
relative size and lease classification of transactions for the respective
periods, offset by the impact of commissions earned versus commissions paid.
Revenues from outright sales of equipment as a percentage of the total
revenues were 3.0% and 4.9% for the three-month periods ended March 31, 1996 and
1995, respectively. Cost of the equipment sold as a percent of outright sales
was 54.3% and 90.9% for the respective 1996 and 1995 periods. The period-to-
period variations in outright sales of equipment and cost of equipment sold as a
percent of these sales were the result of fluctuations in the value and timing
of the return to the Company of equipment placed on lease in earlier periods.
Selling, general and administrative expenses increased $601,000 (39.4%) in
the three months ended March 31, 1996 over the corresponding 1995 period,
primarily as a result of increased employment costs and general operating
expenses. Employment costs increased primarily as a result of the addition of
personnel since the commencement of operations in July 1995 of WINR Business
Credit and the acquisition of the wholesale lease broker business. At March 31,
1996 the Company had a total of 83 full-time employees compared to 48 full-time
employees at March 31, 1995. General operating expenses have increased due to
the growth of the Company, through the formation of WINR Business Credit and the
wholesale lease broker business acquisition, as well as the expansion of sales
offices.
Interest expense increased $256,624 (7.7%) in the first quarter of 1996 over
the first quarter of 1995. This increase was the result of higher average
borrowings in the form of discounted lease rentals, coupled with higher
effective interest rates on the aggregate debt of the Company during the current
period, as compared with the period ended March 31, 1995.
Income tax expense as a percentage of earnings before income tax was
approximately 41% and 40% for the three-month periods ended March 31, 1996 and
1995, respectively. The actual income tax paid varies depending on many factors,
including the alternative minimum tax rate, various state tax laws, timing
differences due to accelerated tax depreciation rules and a variety of other tax
considerations.
As a result of the foregoing factors, net earnings decreased by $125,000
(3.8%) for the three months ended March 31, 1996 as compared with the
corresponding 1995 period.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1995
Net earnings for the years ended December 31, 1995, 1994 and 1993 were
$11,556,000 ($1.46 per share), $9,361,000 ($1.16 per share) and $7,660,000
($0.98 per share), respectively. At December 31, 1995, the Company's net
investment in leasing operations was $254,281,000 as compared with $216,737,000
at December 31, 1994 and $171,975,000 at December 31, 1993.
Total revenues of $68,709,000 for the year ended December 31, 1995 were down
1.7% from total revenues of $69,878,000 recorded during the year ended December
31, 1994. Total revenues for the year ended December 31, 1994 were up 3.7% over
the $67,401,000 of total revenues recognized during the year ended December 31,
1993. Leasing revenues accounted for 97.1%, 97.3% and 96.7% of total revenues in
the years ended December 31, 1995, 1994 and 1993, respectively. The year-to-year
fluctuations in leasing revenues result primarily from the allocation between
types of leasing revenues and the manner and timing in which leasing revenues
are recognized over the term of each particular lease. The allocation of
revenues is a function of the lease classification as determined in accordance
with FASB No. 13. See "-- Lease Accounting Overview." For this reason, the
Company believes that more meaningful measures of growth are the increases in
leased assets and net earnings.
Total leasing costs as a percentage of leasing revenue were 43.2%, 54.8% and
61.0% for the years ended December 31, 1995, 1994 and 1993, respectively. The
decrease in leasing cost percentage in 1995 from 1994 was the result of a
greater contribution from certain large transactions. In 1994, leasing costs as
a percent of revenue decreased from 1993, again reflecting the contribution from
certain large transactions.
Revenues from outright sales of equipment as a percentage of total revenues
were 2.9%, 2.7% and 3.3% for the years ended December 31, 1995, 1994 and 1993,
respectively. Contributing to the year-to-year
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<PAGE>
variation in outright sales were fluctuations in size and timing of the return
to the Company of equipment placed on lease in earlier periods. Cost of
equipment sold for the years ended December 31, 1995, 1994 and 1993 was 77.6%,
66.0% and 90.9% of sales of equipment, respectively.
Selling, general and administrative expenses decreased $207,000 (3.5%) in
1995 from 1994 and increased $1,099,000 (23.1%) in 1994 over 1993. The decrease
in 1995 from 1994 is the result of increased deferral of initial direct costs
associated with direct finance and operating leases, offset by increased
employment costs and general operating expenses. The increase in the deferral of
initial direct costs is primarily the result of an increase in the proportionate
volume of direct finance leases recorded during 1995 compared to 1994.
Employment costs increased as a result of general growth due to increased
business volume coupled with the addition of personnel resulting from the
commencement of operations of WINR Business Credit. General operating expenses
increased due to increased business volume and physical growth of the Company.
In September 1995, the Company opened an East Coast sales office in
Philadelphia, Pennsylvania and expanded the facilities in the San Francisco Bay
area by combining the Company's office in Mill Valley, California with the sales
operations of WINR Business Credit. The increase in 1994 over 1993 is primarily
due to increased commissions and salaries. Net commission expense varies from
period to period depending upon relative profits generated by individual sales
representatives. The increased salary expense reflects the change in
compensation arrangements for a senior management employee which went into
effect January 1, 1994, whereby the employee's previous commission arrangement
was phased out during 1994 in favor of salary and bonus compensation that more
accurately reflects his duties and responsibilities.
Interest expense increased $3,541,000 (35.7%) in 1995 over 1994 and
increased $1,327,000 (15.4%) in 1994 over 1993. The increase in 1995 is
primarily the result of greater discounted lease rental borrowings and higher
effective interest rates during 1995 as compared with the corresponding 1994
period. The increase in 1994 was primarily the result of greater discounted
lease rental borrowings resulting from more equipment being placed on lease as
compared with the corresponding 1993 period, offset by reduced borrowings from
lines of credit and lower effective interest rates on the aggregate outstanding
debt of the Company during 1994.
Income tax expense as a percentage of earnings before income tax was
approximately 40% in each of the years 1995, 1994 and 1993. The actual income
tax paid varies depending on many factors, including the alternative minimum tax
rate, various state tax laws, timing differences due to accelerated tax
depreciation rules and a variety of other tax considerations.
As a result of the foregoing factors, net earnings and net earnings per
common share increased each year in the three-year period ended December 31,
1995. Net earnings increased $2,195,000 (23.4%) in 1995 over 1994 and $1,701,000
(22.2%) in 1994 over 1993.
FINANCIAL CONDITION AND LIQUIDITY
The funds necessary to support the Company's leasing activities have been
provided primarily from operations and discounted lease financing and, to a
lesser extent and only on an interim basis, from bank borrowings under lines of
credit. During 1995 the daily average borrowings under these lines of credit was
$299,000, compared with $11,000 in 1994. The extent to which the Company employs
these lines is dependent upon its available internal funds and the volume of its
sales and lease transactions. At March 31, 1996, there were no amounts
outstanding under these lines of credit.
Generally upon commencement of a lease, the Company assigns the remaining
lease payment stream to a financial institution, and the discounted lease
proceeds are used to reduce any amounts outstanding under the lines of credit.
The Company generally funds its equity investments in leased equipment with
internally generated funds. See "Business -- Financing."
The Company's entire lease portfolio was originated by the Company and the
majority consists of leases that have been discounted with financial
institutions. The Company does finance selected leases with internally generated
funds. The portion of the Company's current portfolio that was financed
internally at December 31, 1995 was 11.5% of the total portfolio (as measured by
original equipment cost). The leases financed internally are typically leases
too small to be attractive to a financial institution or where the value
17
<PAGE>
of the underlying equipment or the credit status of the customer is not
acceptable to financial institutions for non-recourse financing. In these cases,
the Company believes there are other circumstances that warrant such internal
funding.
At March 31, 1996, the Company had discounted lease rentals outstanding of
$185,008,000 of which 99.6% were non-recourse loans. At the end of 1995, the
Company had discounted lease rentals outstanding of $178,457,000, of which 99.3%
were non-recourse loans. The increase in discounted lease rentals for the three
months ended March 31, 1996 is due primarily to the proceeds from the
discounting of new leases during the quarter exceeding the amortization of
previously discounted lease rentals. At March 31, 1996, approximately
$202,717,000 of the Company's $260,569,000 total minimum lease payments
receivable represented leases that were discounted, $28,973,000 consisted of
leases pending discounting and the remaining $28,879,000 consisted of internally
funded leases. The Company depends on discounted lease financing to provide
funds for its operations at rates that reflect prevailing market interest rates
and the credit standing of its customers. Based on the Company's experience in
the leasing industry, its strong financial history and its long-standing
relationships with certain financial institutions, the Company believes that
discounted lease financing will continue to be available at competitive rates of
interest.
The primary use of cash for the three years ended December 31, 1995 has been
for the purchase of equipment for leasing. At December 31, 1995, the lease
portfolio for all lease classifications included equipment owned by the Company
with an original cost of equipment of approximately $397,996,000.
The Company's current financial resources and estimated cash flow from
operations, together with the proceeds to the Company from these offerings, are
expected to be adequate to fund the Company's operations for at least the next
twelve months. There can be fluctuations in cash flow from period to period due
to the timing of payments by customers and timing of permanent financing.
However, the Company has consistently generated positive cash flow and has
increased its net worth from its initial equity capital of $105,000 in 1982 to
approximately $56,872,000 at March 31, 1996, including equity infusions totaling
$9,581,000 from the Company's public offerings in 1993 and 1992. On January 19,
1996, the Company made a $5,100,000 cash payment pursuant to an asset purchase
agreement (the "Agreement") for the purchase of substantially all the assets of
Capital Business Leasing, Inc. Under the terms of the Agreement, on December 31,
1996 the Company is required to make a final payment of up to $2,000,000, plus
accrued interest thereon at a rate of six percent (6%) per annum.
Inflation has not been a significant factor in the Company's operations.
18
<PAGE>
BUSINESS
GENERAL
The Company is engaged in the business of providing non-cancelable leases
for high technology and business-essential equipment to both large organizations
and smaller, growing companies. The Company's lease products are marketed
nationally through a 17-member sales force located in Minneapolis, Minnesota;
Dallas, Texas; Philadelphia, Pennsylvania; Knoxville, Tennessee; Santa Barbara
and Oakland, California; and Henderson, Nevada. To differentiate itself from its
competitors in the leasing industry, the Company offers innovative lease
products and concentrates on building long-term, relationship-based associations
with its customers.
Since its founding in 1982, the Company's focus has been primarily on the
Value Added Lease. These lease transactions generally have terms from three to
five years and are with large organizations (generally corporations with
revenues of $50,000,000 or more). Such transactions typically range from
$250,000 to $20,000,000 and cover high technology equipment, including
computers, telecommunications equipment, point-of-sale systems and other
technology-based equipment. The leases are creative and flexible in structure to
accommodate equipment additions and upgrades to meet customers' changing needs.
Value Added Leases are retained in the Company's portfolio.
Responding to the expanding technological needs of increasing numbers of
small, growing businesses, the Company commenced operations of WINR Business
Credit in 1995. WINR Business Credit focuses on the small business market by
providing the Small Ticket Lease which covers business-essential equipment,
including computers, telecommunications equipment and production equipment.
Lease transactions in the small ticket area typically are for less than $250,000
and have lease terms of between two and and five years. The Company manages the
risks and costs associated with high volume small ticket leases through
centralized credit evaluation, lease administration and collections and business
alliances with vendors of business-essential equipment. Small Ticket Leases are
primarily generated for the Company's portfolio.
With the commencement of operations of WINR Business Credit the Company has
also developed the Enterprise Lease which is designed to meet the needs of large
corporations with influence over multiple business entities, such as
franchisor-franchisee relationships. The Enterprise Lease integrates the Value
Added Lease and the Small Ticket Lease for organizations in need of
enterprise-wide equipment and systems solutions.
The Company added the Wholesale Lease to its product portfolio in January
1996 through the acquisition of the assets of Capital Business Leasing, Inc., an
equipment lease broker that, for a fee, arranges lease financings with other
leasing companies for a variety of unrelated brokers and vendors. The Wholesale
Lease is generally sold to an outside funding source and does not become part of
the Company's lease portfolio.
INDUSTRY
The equipment leasing industry in the United States has greatly expanded
during the last decade. According to the Equipment Leasing Association ("ELA"),
a leading industry trade association, lease financing plays a significant role
in the United States economy, representing 29% of all business investment in
productive assets during 1994. The ELA also estimates that approximately 80% of
all United States companies lease some or all of their equipment. According to
the United States Department of Commerce, the annual volume of new capital
equipment, measured by original equipment cost, placed on lease in the United
States was approximately $147 billion in 1994 and is estimated to have been $160
billion in 1995, representing an 8.8% increase.
BUSINESS STRATEGY
The Company's strategy is to differentiate itself from its competitors in
the leasing industry by maintaining a focused, long-term, customer-service
approach to its business. Key elements of this strategy include:
- FOCUS ON LEASING. Leasing high technology and business-essential equipment
is the Company's only business. All of the Company's efforts are directed
toward providing the most effective leasing
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<PAGE>
products for its customers. The Company makes no recommendation regarding
hardware, software or other services in the analysis of the most effective
financial arrangements for its customers. As a result, the Company has
developed a network of informal relationships with equipment
manufacturers, consultants, valued-added remarketers, lease brokers and
software providers. These informal alliances provide the Company with
referral sources for a significant number of quality prospects for its
lease products.
- FOUR PRODUCT STRATEGY. The Company's Four Product Strategy provides a
range of comprehensive lease finance products addressing the financing
needs of diverse companies. The VALUE ADDED LEASE features innovative
lease structures and the flexibility to upgrade or change technology-based
equipment during the lease term. These transactions typically range from
$250,000 to $20,000,000. Customers for this product are large,
creditworthy companies with critical technological needs. The SMALL TICKET
LEASE targets smaller, growing companies with a need for equipment that is
critical for the operation of their businesses. This product provides a
relatively fast and straightforward way for these customers to acquire
business-essential equipment. Lease transactions typically are less than
$250,000. The ENTERPRISE LEASE, which is a combination of the Value Added
Lease and the Small Ticket Lease, is marketed to business enterprises
typified by a large corporate entity with influence over a number of
smaller business entities, such as the franchisor/franchisee relationship.
The Enterprise Lease is designed to provide enterprise-wide equipment
financing solutions. Consolidation of financing for the enterprise
provides the customer with an all-inclusive solution that promotes the
installation of equipment throughout the enterprise. The WHOLESALE LEASE
is typically a small ticket lease brought to the Company by a lease broker
and sold to an outside funding source and does not become part of the
Company's lease portfolio.
- ASSET OWNERSHIP. The Company retains ownership of its leases and the
underlying equipment, except Wholesale Leases. This affords the Company
the flexibility to accommodate customers' desire to add to or upgrade
their equipment. This strategy of asset ownership and lease structure
provides a means for the customer to meet its changing needs on an
economically viable basis for both the customer and the Company.
- DIVERSIFICATION. The Company believes that it maximizes the stability and
profitability of its portfolio by leasing a wide variety of equipment to
companies in diverse industries in many geographic locations. Equipment in
the Company's portfolio is leased to customers across the country in
industries including retail, wholesale, manufacturing, financial services
and health care. See "Business -- Portfolio."
LEASING AND SALES ACTIVITIES
The Company generally leases high technology and business-essential
equipment for terms ranging from two to five years. The Company's standard
master lease agreements, entered into with each customer, are non-cancelable
"net" leases which contain "hell-or-high-water" provisions under which the
customer, upon acceptance of the equipment, must make all lease payments
regardless of any defects in the equipment, and which require the customer to
maintain and service the equipment, insure the equipment against casualty loss
and pay all property, sales and other taxes related to the equipment. Although
the Company's leases are non-cancelable, leases are frequently modified during
the term of the lease to upgrade a customer's equipment configuration. The
Company retains ownership of the equipment it leases and, in the event of
default by the customer, the Company or the financial institution to whom the
lease has been assigned may declare the customer in default, accelerate all
lease payments due under the lease and pursue other available remedies,
including repossession of the equipment. Upon completion of the initial term of
the lease, the customer may: (i) return the equipment to the Company, (ii) renew
the lease for an additional term, or (iii) purchase the equipment. If the
equipment is returned to the Company, it is sold into the secondary user
marketplace.
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<PAGE>
The Company sometimes leases operating system software and application
software to its customers, but only with a hardware lease. Generally, software
leasing is only a financing of the customer's license agreement with its
software vendor and no title passes to either the customer or the Company. As a
result, the Company generally provides software leasing only to its most
creditworthy customers.
The Company conducts its leasing business in a manner designed to conserve
its working capital and minimize its credit exposure. The Company does not
purchase equipment until it has received a non-cancelable lease from its
customer and has determined that the lease can be discounted with a bank or
financial institution or financed with internal funds.
FINANCING
The Company's ability to arrange financing is important to its business. The
Company uses its lines of credit when needed on an interim basis to finance the
purchase of equipment for lease. Lease rentals are typically discounted with
financial institutions to provide longer term financing of a substantial portion
of the equipment cost.
The Company generally arranges permanent financing of Value Added Leases
through non-recourse discounting of lease rentals with various financial
institutions at fixed interest rates. The proceeds from the assignment of the
lease rentals are equal to the present value of the remaining lease payments due
under the lease, discounted at the interest rate charged by the financial
institution. Interest rates obtained under this type of financing are negotiated
on a transaction-by-transaction basis and reflect the financial condition of the
customer, the term of the lease, and the prevailing interest rates. For leases
discounted on a non-recourse basis, the financial institution has no recourse
against the Company unless the Company is in default of the terms of the
agreement under which the lease and the leased equipment are assigned to the
institution as collateral. The institution may, however, take title to the
collateral in the event the customer fails to make lease payments or certain
other defaults by the customer occur under the terms of the lease.
The Company expects to permanently finance its Small Ticket Leases by
discounting pools of lease receivables with various financial institutions on a
partial recourse basis. The recourse amount may vary from pool to pool, but the
Company's responsibility is generally expected to be limited to 10% of the total
discounted amount. In addition to the recourse responsibility of the Company,
these loans will be secured by the specific leases and equipment assigned to
each pool.
The Company also uses its available cash to fund leases internally rather
than discounting the leases with financial institutions. The Company has funded
leases internally where the lease amounts are too small to be attractive to a
financial institution or where the value of the underlying equipment or the
credit rating of the customer is not acceptable for non-recourse financing. In
these cases, the Company believes there are other circumstances that warrant
such internal funding. The Company also internally funds leases in its portfolio
pending discounting. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition -- Financial Condition and Liquidity."
The Company has line of credit agreements for the purpose of interim
financing of the Company's acquisition of equipment for lease with First Bank
National Association ("First Bank") and Norwest Equipment Finance, Inc.
("Norwest") (collectively the "Banks"). The First Bank line provides credit up
to $15,000,000 at its prime rate or, at the Company's option, at a rate
determined by a specified alternative rate calculation and terminates on July
31, 1996. The Norwest line provides credit up to $8,000,000 at 25 basis points
over its prime rate and expires on June 30, 1996. Both line of credit agreements
are secured by the specific leases and equipment assigned to each of the Banks
and, under the First Bank agreement, all other personal property and fixtures of
the Company. The Company expects that each of these credit lines will be
extended; however, such line of credit financing may not always be available or,
if so, on terms acceptable to the Company.
PORTFOLIO
As of March 31, 1996, the Company had a total investment in leasing
operations of $263,659,839. Of this amount, $242,946,082 represented direct
financing and sales-type leases, $4,842,593 represented operating leases, and
$15,871,164 represented equipment purchased for leases that were not yet
commenced.
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<PAGE>
As measured by original equipment cost, approximately 35% of the portfolio
as of March 31, 1996 was comprised of a variety of equipment manufactured by
IBM. The remainder of the portfolio was comprised of other types of data
processing equipment, point-of-sale systems, telecommunications equipment,
office automation equipment and other business-essential equipment made by a
variety of other manufacturers.
The entire portfolio has been originated by the Company and is owned and
administered by the Company. The Company's portfolio consists of equipment
located in all 50 states with the heaviest concentration in the following states
as measured by the percentage of original equipment cost of the entire portfolio
as of December 31, 1995:
California 14.3% Arizona 6.4%
Texas 12.3% Wisconsin 5.1%
Illinois 7.8% New York 4.3%
Minnesota 7.4% Ohio 4.0%
CUSTOMERS
The Company currently provides leasing services to a variety of corporations
located across the country, some of whom are listed below:
Bank of America Johnson & Johnson
Citibank Mattel, Inc.
PETsMART, Inc. Pacific Telesis
The Dun & Bradstreet Corporation Pier 1 Imports, Inc.
Time Warner, Inc. Berkshire Hathaway, Inc.
Texaco Kinko's
The Company enters into standard master lease agreements with its customers
that may contain many separate lease schedules, each with its own particular
lease term. Most of the Company's customers have a number of lease schedules in
place. Customers' repeat business, through the addition of new lease schedules
and modification of existing leases, is an important source of earnings for the
Company. Each lease schedule constitutes a lease of additional equipment. For
any one customer, its lease schedules can end on many different dates. The
Company's representatives maintain close contact with all of its customers.
During 1995, a single customer accounted for approximately 14% of total
revenues, which resulted from a merger-driven buyout of a lease and the
underlying equipment. No other customer accounted for more than 6% of total
revenues during 1995.
CREDIT AND TRANSACTION APPROVAL
The Company's credit policies, procedures and transaction criteria are
established by its executive officers. The Credit Committee, comprised of
experienced credit professionals, has the responsibility to enforce policy and
ensure the quality of the Company's transactions. Small ticket lease
transactions under $50,000 in equipment cost are reviewed and graded using
credit information supplied by the lessee and by credit agencies with whom the
Company has contracted. These transactions are either approved, rejected or
re-submitted when credit enhancements are established. For transactions that are
greater than $50,000, the Company requires financial statements, additional
credit information and senior management approval. For transactions over
$250,000, additional approval is required by outside funding sources who fund
those transactions on a non-recourse or recourse basis.
OPERATIONS
The Company's Account Management staff provides lease administration
services to the Value Added Lease customer, while WINR Business Credit's
Customer Sales and Service provides these services to the Small Ticket Lease
customer. Account Management delivers a service to the customer by coordinating
and managing the installation of a customer's leased assets. Account Management
approves vendor payments for installed equipment, tracks assets by serial number
and location, and is responsible for the preparation of lease documentation.
WINR Business Credit's Customer Sales and Service tracks Small Ticket Lease and
Wholesale Lease applications and inquiries. This group is responsible for all
customer contact, customer satisfaction and the quality and control of all lease
documents.
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<PAGE>
MARKETING
The Company markets its leasing products by selling directly to end-users
and indirectly through vendors of equipment, software, value-added services and
consulting services. Marketing to customers and prospects directly by the
Company's sales representatives is also done by telephone canvassing.
The Company's sales representatives spend a significant amount of their
efforts building networks of equipment manufacturers, value-added remarketers,
software suppliers, lease brokers and consultants. The objective is to build
informal strategic alliances in order to provide customers with the most
effective method for their acquisition of each supplier's products. Most of
these referral sources do not provide lease products and look to the Company and
other leasing companies to provide these products.
Personal visits to customers and prospects by Company sales representatives
allow the sales representative to build strong relationships with customers in
order to provide the most attractive financial products. Repeat business is an
important source of earnings for the Company. During the year ended December 31,
1995, a substantial majority of the Company's lease transactions was with
existing customers.
As of May 15, 1996, the Company had a total of 17 sales representatives. The
Company generally seeks to hire sales representatives who have experience in
equipment sales. The Company expects to hire additional sales personnel in 1996.
In addition to its headquarters in Minneapolis, the Company also has sales
offices located in Santa Barbara and Oakland, California; Henderson, Nevada;
Philadelphia, Pennsylvania; Knoxville, Tennessee; and Dallas, Texas.
COMPETITION
The Company competes in the equipment leasing marketplace with a variety of
companies, some of which have more capital and resources. These firms include
equipment manufacturers (as well as captive leasing companies), brokers, leasing
companies and financial institutions. The Company frequently encounters
competition from IBM Credit Corporation, Comdisco Incorporated, GE Capital
Corporation, AT&T Capital, Advanta Corporation, Dana Commercial Credit
Corporation and Amplicon Inc.
The Company competes on the basis of flexibility in structuring
transactions, providing a high level of customer service, the knowledge and
competence of its employees, pricing and the ability to gain referrals of
potential transactions from various business contacts including existing
customers.
EMPLOYEES
As of May 15, 1996, the Company had 85 employees, including 17 sales
representatives. The other employees are managerial, administrative, MIS and
clerical personnel. The Company considers its employee relations to be
excellent.
PROPERTIES
The Company's corporate offices are located at 1015 Opus Center, 9900 Bren
Road East, Minnetonka, Minnesota, 55343. The Company leases approximately 18,000
square feet pursuant to a lease expiring in June 1999. Over the term of the
lease, the rent expense is approximately $29,000 per month. The Company also
pays monthly parking expenses and a pro rata share of operating expenses and
real estate taxes if such expenses and taxes exceed certain thresholds. The
Company also leases sales and customer services offices in California, Nevada,
Tennessee, Pennsylvania and Texas.
LEGAL PROCEEDINGS
The Company is not currently involved in any legal proceedings that are
material to the Company's business or financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- -------------------- --- -----------------------------------------------------
<S> <C> <C>
John L. Morgan 55 President and Director
Kirk A. MacKenzie 57 Executive Vice President, Treasurer and Director
Jack A. Norqual 50 Senior Vice President and Director
Paul C. Reyelts 49 Director
Gerald W. Simonson 65 Director
Mark L. Wilson 47 Director and Secretary
Deborah L. Mogensen 44 Vice President
Robert P. Murphy 45 Vice President of Sales and Marketing
Janice R. Englund 50 Vice President
Coleman P. Griffing 39 Vice President of Sales
Gary W. Anderson 43 Vice President, Controller and Assistant Secretary
Richard J. Pieper 46 Vice President
Paul L. Gendler 30 Vice President and General Counsel
Jeffrey A. Mattson 40 Vice President and General Manager of WINR Business
Credit
</TABLE>
JOHN L. MORGAN is a founder of the Company and has served as President since
January 1985. He has been a director and executive officer of the Company since
1982.
KIRK A. MACKENZIE is a founder of the Company and has served as Executive
Vice President since July 1992. From January 1985 to July 1992, Mr. MacKenzie
was a Vice President of the Company. He has been Treasurer, a director and
executive officer of the Company since 1982.
JACK A. NORQUAL is a founder of the Company and has served as Senior Vice
President since July 1992. From January 1985 to July 1992, Mr. Norqual served as
Vice President and Secretary of the Company. He has been a director and
executive officer of the Company since 1982.
PAUL C. REYELTS became a director of the Company in May 1994. He has been
Vice President, Finance and Chief Financial Officer of the Valspar Corporation
since 1982. Valspar Corporation is a manufacturer of consumer paints and
industrial coatings and related products.
GERALD W. SIMONSON became a director of the Company in July 1992. Mr.
Simonson has been a venture capital investor for more than 24 years. He has been
the Chief Executive Officer of Omnetics Connector Corporation, a manufacturer of
microminiature connectors, since March 1991. He is also a director of Fairview
Hospital and Healthcare Services, Medtronic, Inc. and Northwest Teleproductions,
Inc.
MARK L. WILSON was named Secretary and Director of the Company in February
1995. He has been a practicing attorney since 1974. From 1986 to February 1995,
he was a shareholder and officer of the Minneapolis law firm Ross Rosenblatt &
Wilson, Ltd. Since February 1995, he has been a shareholder and officer of the
Minneapolis law firm Ravich Meyer Wilson Kirkman McGrath & Nauman, P.A.
DEBORAH L. MOGENSEN joined the Company in 1982 and has been a Vice President
of the Company since 1986. She is currently responsible for re-marketing
previously leased equipment.
ROBERT P. MURPHY joined the Company in 1986 as a Vice President. He is
currently responsible for the Company's sales and marketing efforts.
JANICE R. ENGLUND joined the Company in 1986 and has been a Vice President
since 1990. She is responsible for the Company's customer account management
functions.
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<PAGE>
COLEMAN P. GRIFFING joined the Company in 1987 as a sales representative. In
January 1994 he became a Vice President.
GARY W. ANDERSON, a certified public accountant, joined the Company in 1988
as Controller and has served as Assistant Secretary since October 1992. In
January 1993, he became Vice President/Controller.
RICHARD J. PIEPER joined the Company in 1991 as a Vice President. He is
currently responsible for the Company's bank financing functions.
PAUL L. GENDLER, an attorney and certified public accountant, has been
Counsel of the Company since August 1994. In October 1995, he became Vice
President. From 1993 to 1994 he was an attorney in the General Counsel's Office
of the Federal Reserve Bank of Minneapolis. Prior to that he was the law clerk
to Chief United States Bankruptcy Judge Robert J. Kressel from 1992 to 1993.
JEFFREY A. MATTSON joined the Company in June 1996 as a Vice President and
General Manager of WINR Business Credit. From 1988 until June 1996, he was
employed by Norstan Financial Services, a wholly-owned subsidiary of Norstan,
Inc., a telecommunications equipment company, most recently as an officer and
general manager.
AUDIT AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Audit and Compensation Committees are composed of the Company's three
outside directors, Paul C. Reyelts, Gerald W. Simonson and Mark L. Wilson. The
Audit Committee has responsibility for selecting and recommending to the Board
of Directors the Company's independent auditors, subject to shareholder
approval, reviewing the audit plan of the independent auditors, reviewing annual
financial statements and overseeing the monitoring of the Company's system of
internal control. The Compensation Committee has responsibility for reviewing
and recommending to the Board of Directors any major change in the personnel
policies or employee benefits of the Company, plans to provide management
continuity, and employee and executive compensation policies, approving
compensation changes for executives, and administering the Company's stock-based
compensation plans.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of May 1, 1996 certain information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
shareholder known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) each Selling Shareholder, (iii) each director
of the Company, (iv) each of the named executive officers listed under
"Management" and (v) all directors and executive officers as a group. The table
also sets forth the number of shares of Common Stock being offered by each of
the Selling Shareholders and the number and percentage of the outstanding shares
to be owned after the offering by each person or group identified in the table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE BENEFICIALLY
PRIOR TO OFFERING (1) OWNED AFTER OFFERING (1)
NAME OF ------------------------------ SHARES ------------------------------
BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- -------------------------------------------- --------------- ------------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Jack A. Norqual (2)(3) 1,762,000 22.3% 250,000 1,512,000 17.5%
John L. Morgan (2)(4) 1,715,000 21.7 250,000 1,465,000 17.0
Kirk A. MacKenzie (2)(5) 1,702,400 21.6 250,000 1,452,400 16.8
C.C. Dunnavan & Co., Inc. (6) 397,070 5.1 -- 397,070 4.6
Paul C. Reyelts (7) 6,866 * -- 6,866 *
Gerald W. Simonson (8) 10,000 * -- 10,000 *
Mark L. Wilson (9) 6,333 * -- 6,333 *
Deborah L. Mogensen (8) 10,100 * -- 10,100 *
Robert P. Murphy (10) 87,000 1.1 -- 87,000 1.0
Janice R. Englund (8) 10,100 * -- 10,100 *
Gary W. Anderson (8) 12,000 * -- 12,000 *
Richard J. Pieper (11) 51,850 * -- 51,850 *
Coleman P. Griffing (12) 31,000 * -- 31,000 *
Paul L. Gendler (13) 1,250 * -- 1,250 *
Jeffrey A. Mattson 100 * -- 100 *
All directors and executive officers as a
group (14 persons)(14) 5,405,999 66.3 750,000 4,655,999 52.3
</TABLE>
- ------------
* Less than 1%.
(1)Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares shown. Shares not outstanding
but deemed beneficially owned by virtue of the right of a person or member
of a group to acquire them within 60 days are treated as outstanding only
when determining the amount and percent owned by such person or group.
(2)Located at 1015 Opus Center, 9900 Bren Road East, Minnetonka, Minnesota
55343.
(3)Includes 50,000 shares owned by Mr. Norqual's spouse, 29,000 shares owned by
Mr. Norqual's son and 3,000 shares owned by a not-for-profit organization of
which Mr. Norqual is a board member, as to all of which Mr. Norqual
disclaims beneficial ownership. Includes 40,000 shares that Mr. Norqual has
the right to acquire pursuant to outstanding options.
(4)Includes 50,000 shares owned by Mr. Morgan's spouse as to which Mr. Morgan
disclaims beneficial ownership. Includes 40,000 shares that Mr. Morgan has
the right to acquire pursuant to outstanding options.
(5)Includes 18,400 shares owned by Mr. MacKenzie's spouse as to which Mr.
MacKenzie disclaims beneficial ownership. Includes 40,000 shares that Mr.
MacKenzie has the right to acquire pursuant to outstanding options.
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<PAGE>
(6)As reported in Schedule 13G dated May 28, 1996 filed with the Securities and
Exchange Commission. C.C. Dunnavan & Co., Inc., located at 4540 Norwest
Center, 90 South Seventh Street, Minneapolis, Minnesota 55402, has sole
voting and investment power with respect to 17,200 shares and shared
investment power with respect to 379,870 shares.
(7)Includes 6,666 shares that Mr. Reyelts has the right to acquire pursuant to
outstanding options.
(8) Includes 10,000 shares that the individual has the right to acquire
pursuant to outstanding options.
(9) Includes 3,333 shares that Mr. Wilson has the right to acquire pursuant to
outstanding options.
(10) Includes 80,000 shares that Mr. Murphy has the right to acquire pursuant to
outstanding options.
(11) Includes 2,300 shares owned by Mr. Pieper's spouse and 1,550 shares owned
by Mr. Pieper's sons, as to all of which Mr. Pieper disclaims beneficial
ownership. Includes 27,500 shares that Mr. Pieper has the right to acquire
pursuant to outstanding options.
(12) Includes 20,000 shares that Mr. Griffing has the right to acquire pursuant
to outstanding options.
(13) Includes 1,250 shares that Mr. Gendler has the right to acquire pursuant to
outstanding options.
(14) Includes 120,700 shares owned by spouses of executive officers, 30,550
shares owned by sons of executive officers and 3,000 shares owned by a
not-for-profit organization of which an executive officer is a board member,
as to all of which such executive officers disclaim beneficial ownership.
Includes 298,749 shares that executive officers and directors have the right
to acquire pursuant to outstanding options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, par value $.01 per share, and 2,000,000 shares of Preferred Stock,
par value $.01 per share.
COMMON STOCK
As of May 1, 1996, there were 7,849,800 shares of Common Stock issued and
outstanding. All outstanding shares of Common Stock are, and the shares offered
hereby will be, fully paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon by
shareholders and may not use cumulative voting for the election of directors.
Thus, the owners of a majority of the shares of Common Stock outstanding may
elect all of the directors, if they choose to do so, and the owners of the
balance of such shares would not be able to elect any directors. Since the
Selling Shareholders will continue to collectively own more than fifty percent
of the outstanding shares of Common Stock after these offerings, acting together
they effectively have the power to elect all directors of the Company. Subject
to the rights of the holders of any future series of shares of Preferred Stock,
each share of outstanding Common Stock is entitled to participate equally in any
distribution of net assets made to the shareholders in liquidation, dissolution
or winding up of the Company and is entitled to participate equally in dividends
and other distributions if, as and when declared by the Board of Directors.
There are no redemption, sinking fund, conversion or preemptive rights with
respect to the shares of Common Stock. All shares of Common Stock have equal
rights and preferences.
The transfer agent and registrar for the shares of Common Stock is Norwest
Bank Minnesota, National Association.
PREFERRED STOCK
None of the Company's 2,000,000 authorized shares of Preferred Stock has
been issued or authorized by the Board of Directors for issuance. Furthermore,
the Company currently has no plans or arrangements to issue shares of Preferred
Stock. Under the Minnesota Business Corporation Act and the Company's Restated
Articles of Incorporation, no action by the Company's shareholders is necessary,
and only action of the Board of Directors is required, to establish and
designate one or more series of Preferred Stock and to authorize the issuance of
shares of any such series. The Board of Directors is empowered to set the terms
of each such series (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights and
preferences). Accordingly, the Board of Directors, without shareholder approval,
may issue shares of Preferred Stock in one or more series with terms that could
adversely effect the voting power and other rights of holders of the Common
Stock.
The authorization or issuance of one or more series of the Company's
Preferred Stock may have the effect of discouraging an attempt, through
acquisition of a substantial number of shares of Common Stock, to acquire
control of the Company with a view to effecting a merger, sale or exchange of
assets or a similar transaction. The anti-takeover effects of any such series of
Preferred Stock may deny shareholders the receipt of a premium on their Common
Stock and may also have a depressive effect on the market price of the Common
Stock.
CERTAIN LIMITED LIABILITY, INDEMNIFICATION AND ANTI-TAKEOVER PROVISIONS
The Company's Restated Articles of Incorporation limit the liability of its
directors to the fullest extent permitted by the Minnesota Business Corporation
Act. Specifically, directors of the Company will not be personally liable for
monetary damages for a breach of fiduciary duty as directors, except for
liability for: (1) any breach of the duty of loyalty to the Company or its
shareholders, (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (3) dividends or other
distributions of corporate assets that are in contravention of certain statutory
or contractual restrictions, (4) violations of certain Minnesota securities
laws, or (5) any transaction from which the director derives an improper
personal benefit. Liability under federal securities law is not limited by the
Restated Articles.
The Minnesota Business Corporation Act requires the Company to indemnify any
director, officer or employee made or threatened to be made a party to a
proceeding, by reason of the former or present official capacity of the person,
against judgments, penalties, fines, settlements and reasonable expenses
incurred by
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<PAGE>
the person in connection with the proceeding if certain statutory standards are
met. "Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including a derivative
action in the name of the Company. Reference is made to the detailed terms of
the Minnesota indemnification statute (Minn. Stat. Section302A.521) for a
complete statement of such indemnification rights. The Company's Restated Bylaws
require the Company to provide indemnification to the fullest extent of the
Minnesota indemnification statute.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company is aware that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Company is subject to the provisions of Sections 302A.671, .673 and .675
of the Minnesota Business Corporation Act. These Sections could operate to deny
shareholders the receipt of a premium on their Common Stock and may also have a
depressive effect on the market price of the Company's Common Stock.
Section 302A.671 provides that the shares of a corporation acquired in a
"control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an acquisition
of beneficial ownership of shares that would, when added to all other shares
beneficially owned by the acquiring person, entitle the acquiring person to have
voting power of stated percentages (20%, 33 1/3% or 50%) or more in the election
of directors.
Section 302A.673 prohibits a public corporation from engaging in a "business
combination" with an "interested shareholder" for a period of four years after
the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions. An
"interested shareholder" is a person who is the beneficial owner of 10% or more
of the corporation's voting stock. This provision would not apply to any
"business combination" with or involving all or any of the founders of the
Company.
In the event of certain tender offers for stock of the Company, Section
302A.675 of the Minnesota Business Corporation Act precludes the tender offeror
from acquiring additional shares of stock (including acquisitions pursuant to
mergers, consolidations or statutory share exchanges) within two years following
the completion of such an offer unless the tendering shareholders are given the
opportunity to sell the shares on terms that are substantially equivalent to
those contained in the earlier tender offer. The Section does not apply if a
committee of the Board consisting of all of its disinterested directors
(excluding present and former officers of the corporation) approves the
subsequent acquisition before shares are acquired pursuant to the earlier tender
offer.
29
<PAGE>
DESCRIPTION OF NOTES
The Notes are to be issued under the Indenture, dated as of ,
1996, between the Company and Norwest Bank Minneapolis, National Association, as
trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Indenture (including the
definition of certain terms in the Indenture), the form of which has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
Wherever particular provisions and definitions of the Indenture are referred to,
such provisions and definitions are incorporated by reference as part of the
statements made, and the statements are qualified in their entirety by such
reference. Article and Section references are to Articles and Sections of the
Indenture.
GENERAL
The Notes offered by this Prospectus will be limited to $25,000,000
aggregate principal amount, plus up to an additional $3,750,000 aggregate
principal amount if the Underwriters' over-allotment option is exercised in
full. The Notes will be issued only in fully registered form and in
denominations of $1,000 and any integral multiple thereof. The Notes will be
issued initially as book-entry notes in the form of one fully registered global
security deposited with or on behalf of The Depository Trust Company or its
nominees ("DTC"). The Notes will not initially be issuable in definitive
certificated form to any person other than DTC. Interest on the Notes will
accrue from the date of original issuance and will be payable on the fifteenth
day of each month, commencing August 15, 1996, at the rate per annum stated on
the cover page of this Prospectus. Interest will be payable to the person in
whose name the Note is registered at the close of business on the tenth day of
the month of such Interest Payment Date. (Sections 201, 202, 301, 307, 308 and
311) The Notes will mature on July 1, 2003, unless redeemed earlier at the
option of the Company or repaid earlier upon the death of a Holder as set forth
below. See "-- Redemption at Option of the Company" and "-- Repayment Option
Upon Death."
Principal and interest will be payable at an office or agency to be
maintained by the Company in Minneapolis, Minnesota, except that, at the option
of the Company, principal and interest may be paid by check mailed to the person
entitled thereto. (Sections 301, 307 and 1002) The Notes may be presented for
registration of transfer or exchange at an office or agency to be maintained by
the Company in Minneapolis, Minnesota. (Section 305) The Notes will be
exchangeable without service charge, but the Company may require payment to
cover taxes or other government charges. (Section 305)
So long as the Company is a reporting company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company will furnish to
Holders of the Notes such reports of the Company as are furnished to the holders
of Common Stock. If the Company ceases to be a reporting company under the
Exchange Act, the Company will furnish to Holders of the Notes annual audited
consolidated financial statements and quarterly unaudited consolidated summary
financial statements. (Section 704)
UNSECURED OBLIGATIONS; RANKING
The Notes will be senior unsecured obligations of the Company. The Notes
will not be secured by the assets of the Company or any of its Subsidiaries or
Affiliates or otherwise. As such, the Notes will be effectively subordinated to
any secured debt of the Company to the extent of the value of the assets
securing such obligations. The Notes will also be structurally subordinated to
all existing and future liabilities of the Company's Subsidiaries to the extent
of the assets of such Subsidiaries, since the rights of the Company to
participate in any distribution of assets of any Subsidiary, including WINR
Business Credit, upon its liquidation or reorganization or otherwise (and thus
the ability of the Holders of the Notes to benefit indirectly from such
distribution) are subject to the prior claims of creditors of the Subsidiary.
Although historically the Company has not incurred debt at the subsidiary level,
it may do so in the future.
REDEMPTION AT OPTION OF THE COMPANY
The Notes may not be redeemed prior to July 1, 2001. The Notes are subject
to redemption at par plus accrued interest to the dated fixed for redemption, at
the option of the Company in whole at any time or in part from time to time,
commencing on July 1, 2001, upon not less than 30 nor more than 60 days' notice
30
<PAGE>
mailed to the registered Holders thereof. If the Company elects to redeem less
than all of the Notes, the Trustee will select which Notes to redeem using such
method as it shall deem fair and appropriate, including the selection for
redemption of a portion of the principal amount of any Note but not less than
$1,000. On and after the redemption date, interest will cease to accrue on the
Notes or portions thereof called for redemption. (Article Eleven)
REPAYMENT OPTION UPON DEATH
Upon the death of any Holder of Notes, the Company will purchase such
Holder's Notes on request, if (a) the Notes have been registered in the Holder's
name since their date of issuance or for a period of six months prior to the
date of such Holder's death, whichever is less, (b) the redemption payments with
respect to such Holder's Notes will not exceed $25,000 in aggregate principal
amount in any calendar year, (c) the Company will not, after giving effect to
such payment, have made redemption payments on Notes of deceased Holders in an
aggregate principal amount exceeding $250,000 in any calendar year (if such
aggregate principal amount exceeds $250,000, the Trustee will repay such Notes
up to $250,000 in aggregate principal amount in the order in which such requests
for repayment were received), (d) either the Company or the Trustee has been
notified in writing of the request for redemption within one year after the
Holder's death, and if less than all of such Holder's Notes are redeemed
pursuant to such initial request, either the Company or the Trustee has been
notified in writing of subsequent requests for redemption of additional Notes of
such Holder within one year after any such preceding notice, (e) the Company is
not, after giving effect to such payment, in default under any Funded Recourse
Debt, and (f) the Company is not subject to any law, regulation, agreement or
administrative directive preventing such repayment. Notes for which such
repayment is requested shall, subject to the limitations described above, be
repaid at 100% of the principal amount thereof, together with interest accrued
to the repayment date, within 30 days following receipt by the Company of the
following: (i) a written request for payment signed by a duly authorized
representative of the deceased Holder, which shall indicate the name of the
deceased Holder, the date of death of the deceased Holder and the principal
amount of Notes to be repaid, (ii) the certificates, if any, representing the
Notes to be repaid and (iii) evidence satisfactory to the Company and the
Trustee of the death of the Holder and evidence of authority of the
representative to the extent required by the Trustee. Authorized representatives
of a deceased Holder shall include executors, administrators or other legal
representatives of an estate, trustees of a trust, joint owners of Notes owned
in joint tenancy or tenancy by the entirety, custodians, conservators,
guardians, attorneys-in-fact and other persons generally recognized as having
legal authority to act on behalf of others. (Section 1201)
The death of a person owning a Note in joint tenancy or tenancy by the
entirety with another or others shall be deemed the death of the Holder of the
Note, and the entire principal amount of the Note so held shall be subject to
repayment, together with interest accrued thereon to the repayment date. The
death of a person owning a Note by tenancy in common shall be deemed the death
of a Holder of a Note only with respect to the deceased Holder's interest in the
Note so held by tenancy in common; except that in the event a Note is held by
husband and wife as tenants in common, the death of either shall be deemed the
death of the Holder of the Note, and the entire principal amount of the Note so
held shall be subject to repayment. The death of a person who, during his or her
lifetime, was entitled to substantially all of the beneficial interests of
ownership of a Note, will be deemed the death of the Holder thereof for purposes
of this provision, regardless of the registered Holder, if such beneficial
interest can be established to the satisfaction of the Trustee. Such beneficial
interest will be deemed to exist in typical cases of nominee ownership,
ownership under the Uniform Transfers (or Gifts) to Minors Act, community
property or other joint ownership arrangements between a husband and wife and
trust arrangements where one person has substantially all of the beneficial
ownership interests in the Note during his or her lifetime. (Section 1201)
COVENANTS
The Indenture will contain a number of covenants relating to the Company and
its operations, including the following:
RESTRICTIONS ON ADDITIONAL INDEBTEDNESS. The Indenture limits the amount of
Funded Recourse Debt of the Company on a consolidated basis. The Company may not
create, incur, assume, guarantee or otherwise
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<PAGE>
be liable for any Funded Recourse Debt if, immediately after giving effect
thereto, the aggregate amount of the Funded Recourse Debt outstanding would
exceed 300% of the Company's Consolidated Net Worth. "Funded Recourse Debt" is
defined in the Indenture as any of the following obligations of the Company or
any Subsidiary which by its terms matures at or is extendable or renewable at
the sole option of the obligor without requiring the consent of the obligee to a
date more than 360 days after the date of the creation or incurrence of such
obligation: (1) any obligations, contingent or otherwise, for borrowed money or
for the deferred purchase price of property or services (including, without
limitation, any interest accruing subsequent to an event of default); (2) all
obligations (including the Notes) evidenced by bonds, notes, debentures or other
similar instruments; (3) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired, except any such obligation that constitutes a trade payable and an
accrued liability arising in the ordinary course of business, if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
balance sheet prepared in accordance with generally accepted accounting
principles; (4) all Capitalized Lease Obligations; and (5) any guarantee or
endorsement (other than for collection or deposit in the ordinary course of
business) or discount with recourse of, or other agreement, contingent or
otherwise, to purchase, repurchase, or otherwise acquire, to supply or advance
funds or become liable with respect to, any indebtedness or any obligation of
the type referred to in any of the foregoing clauses (1) through (4), regardless
of whether such obligation would appear on a balance sheet; provided, however,
that Funded Recourse Debt shall not include any obligations included in the
foregoing clauses (1) through (5) under which the rights and remedies of the
lender in the event of default are limited to repossession or sale of property
securing such obligation, with no recourse to the Company or any Subsidiary.
"Consolidated Net Worth" is defined as the excess, as determined in accordance
with generally accepted accounting principles, after appropriate deduction for
minority interests in the net worth of Consolidated Subsidiaries, of the
Company's assets over its liabilities. (Sections 101 and 1007) At March 31,
1996, the Company's Consolidated Net Worth was approximately $56,872,000. As of
such date, under the foregoing restriction, and after giving effect to the sale
of $25,000,000 principal amount of the Notes hereby, the Company could incur
approximately $145,000,000 of additional Funded Recourse Debt. (Sections 101 and
1007)
RESTRICTIONS ON DIVIDENDS, REDEMPTIONS AND OTHER PAYMENTS. The Indenture
provides that the Company cannot (i) declare or pay any dividend, either in cash
or property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company) or (ii)
purchase, redeem or retire any shares of its capital stock or any warrants,
rights or options to purchase or acquire any shares of its capital stock or
(iii) make any other payment or distribution, either directly or indirectly
through any Subsidiary, in respect of its capital stock (such dividends,
purchases, redemptions, retirements, payments and distributions being herein
collectively called "Restricted Payments") if, after giving effect thereto,
(1) an Event of Default would have occurred; or
(2) the sum of such Restricted Payments plus the aggregate amount of all
Restricted Payments made during the period after December 31, 1995
would exceed the sum of $5,000,000 plus 50% of the Company's
Consolidated Net Income for each fiscal year commencing subsequent to
December 31, 1995 (with 100% reduction for a loss in any fiscal year)
plus the cumulative net proceeds received by the Company from the
issuance or sale after June 30, 1996 of capital stock of the Company
(excluding the proceeds of this offering) or of any warrants, rights
or other options to purchase or acquire its capital stock.
Notwithstanding the foregoing, the Company may make a previously-declared
Restricted Payment if the declaration of such Restricted Payment was permitted
when made. The amount of any Restricted Payment payable in property shall be
deemed to be the fair market value of such property as determined by the Board
of Directors of the Company. (Section 1006)
CONSOLIDATION, MERGER OR TRANSFER. The Company may not consolidate with,
merge with, or transfer all or substantially all of its assets to another entity
where the Company is not the surviving corporation unless (i) such other entity
assumes the Company's obligations under the Indenture, and (ii) after giving
effect thereto, no event shall have occurred and be continuing which, after
notice or lapse of time, or both, would become an Event of Default. (Section
801)
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<PAGE>
LIMITATION ON RANKING OF FUTURE INDEBTEDNESS. The Indenture provides that
the Company will not, directly or indirectly, incur, create, assume or guarantee
any Funded Recourse Debt that is senior in right of payment to the Notes.
(Section 1013)
LIMITATIONS ON RESTRICTING SUBSIDIARY DIVIDENDS. The Indenture provides
that neither the Company nor its Subsidiaries may create or otherwise cause to
become effective any consensual encumbrance or restriction of any kind on the
ability of any Subsidiary to (i) pay dividends or make any other distribution on
its capital stock, (ii) pay any indebtedness owed to the Company or any other
Subsidiary or (iii) make loans, advances or capital contributions to the Company
or any other Subsidiary except in certain specified circumstances. (Section
1014)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither the Company nor any
Subsidiary may enter into any transactions with any Affiliate on terms and
conditions less favorable to the Company or such Subsidiary, as the case may be,
than would be available at such time in a comparable transaction in arm's length
dealings with an unrelated Person as determined by the Company's Board of
Directors. These provisions do not apply to Restricted Payments otherwise
permitted under the Indenture, fees and compensation paid to, and indemnity
provided on behalf of, officers, directors, employees or consultants of the
Company or any Subsidiary, as determined by the Company's Board of Directors or
its senior management in the exercise of their reasonable business judgment, or
payments for goods and services purchased in the ordinary course of business on
an arm's length basis. (Section 1015)
EVENTS OF DEFAULT
An Event of Default includes: (a) failure to pay the principal on the Notes
when due at Maturity, upon redemption or upon repayment, as provided in the
Indenture; (b) failure to pay any interest on the Notes for 10 days; (c) failure
to perform any other covenants set forth in the Indenture for 30 days after
receipt of written notice from the Trustee or Holders of at least 25% in
principal amount of the outstanding Notes specifying the default and requiring
the Company to remedy such default; (d) default in the payment at stated
maturity of indebtedness of the Company for money borrowed having an outstanding
principal amount due at stated maturity greater than $1,000,000 and such default
having continued for a period of 30 days beyond any applicable grace period; (e)
an event of default as defined in any mortgage, indenture or instrument of the
Company shall have happened and resulted in acceleration of indebtedness which,
together with the principal amount of any other indebtedness so accelerated,
exceeds $1,000,000 or more at any time, and such default shall not be cured or
waived and such acceleration shall not have been rescinded or annulled; (f)
certain events of insolvency, receivership or reorganization of the Company or
any Subsidiary; and (g) entry of a final judgment, decree or order against the
Company for the payment of money in excess of $5,000,000, which judgment, decree
or order continues unsatisfied for 30 days without a stay of execution. (Section
501)
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a "default" (meaning, for this purpose, the events specified above
without grace periods), give the Holders of the Notes notice of all defaults
known to it which have occurred and remained uncured; provided that, except in
the case of a default in the payment of principal or interest on any of the
Notes, the Trustee shall be protected in withholding such notice if and so long
as it in good faith determines that the withholding of such notice is in the
interest of the Holders. (Section 602)
If an Event of Default shall occur and be continuing, the Trustee, in its
discretion may, and, at the written request of Holders of a majority in
aggregate principal amount of the outstanding Notes shall, proceed to protect
and enforce its rights and the rights of the Holders. If an Event of Default
shall occur and be continuing, either the Trustee or the Holders of at least 25%
in aggregate principal amount of outstanding Notes may accelerate the maturity
of all such outstanding Notes; provided that such acceleration shall occur
automatically and without any action on the part of the Trustee or any Holders
upon (i) the commencement by the Company or any Subsidiary of a voluntary
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or of a voluntary proceeding seeking to be adjudicated insolvent;
(ii) the consent by the Company or any Subsidiary to the entry of a decree or
order for relief in an involuntary proceeding under any applicable bankruptcy,
insolvency, reorganization or other similar law or to the
33
<PAGE>
commencement of any insolvency proceeding against it; (iii) the filing by the
Company or any Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable law; (iv) the consent by the
Company or any Subsidiary to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee
or similar official of the Company or any Subsidiary of any substantial part of
the property of the Company or any Subsidiary or the making by the Company or
any Subsidiary of an assignment for the benefit of creditors; or (v) the taking
of corporate action by the Company or any Subsidiary in furtherance of any such
action. The Holders of a majority in aggregate principal amount of outstanding
Notes may waive a default, except a default in the payment of principal of or
interest on any Note. If any Event of Default has occurred and a declaration of
acceleration made before a judgment or decree for payment of money due is
obtained, Holders of a majority of the outstanding Notes may rescind the
acceleration of the Notes if all Events of Default have been remedied and all
payments due, other than those due as a result of acceleration, have been made.
(Sections 502, 503, 512 and 513)
The Company must furnish quarterly to the Trustee an Officers' Certificate
stating whether to the best knowledge of the signers, the Company is in default
under any of the provisions of the Indenture, and specifying all such defaults
and the nature thereof, of which they have knowledge. (Section 1011)
A Holder will not have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless (a) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default;
(b) the Holders of at least 25% in aggregate principal amount of the outstanding
Notes shall have made a written request, and offered reasonable indemnity, to
the Trustee to institute such proceeding as Trustee; (c) the Trustee shall have
failed to institute such proceeding within 60 days; and (d) the Trustee shall
not have received from the Holders of a majority in aggregate principal amount
of the outstanding Notes a direction inconsistent with such request. (Section
507) However, the Holder of any Note will have an absolute right to receive
payment of the principal of and interest on such Note on or after the respective
due dates and to institute suit for the enforcement of such right. (Section 508)
MODIFICATION AND WAIVER
With certain limited exceptions which permit modifications of the Indenture
by the Company and the Trustee only, the Indenture may be modified by the
Company with the consent of Holders of not less than a majority in aggregate
principal amount of outstanding Notes; provided, however, that no such changes
shall without the consent of the Holder of each Note affected thereby (a) change
the maturity date of the principal of, or the due date of any installment of
interest on, any Note; (b) reduce the principal of, or the rate of interest on,
any Note; (c) change the currency in which any portion of the principal of, or
interest on, any Note is payable; (d) impair the right to institute suit for the
enforcement of any payment of principal of, or interest on, any Note; (e) reduce
the above-stated percentage of Holders of outstanding Notes necessary to modify
the Indenture; (f) modify the foregoing requirements or reduce the percentage of
outstanding Notes necessary to waive any past default; or (g) impair the
optional right to repayment upon death provided to the Holders. (Sections 513
and 902)
The Holders of a majority in aggregate principal amount of outstanding Notes
may waive compliance by the Company with certain restrictive provisions of the
Indenture. (Section 1012)
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Indenture provides that the Company may terminate its obligations under
the Indenture with respect to all the Notes by delivering to the Trustee, in
trust for such purpose, money, Government Obligations or both, which, through
the payment of interest and principal in respect thereof in accordance with
their terms, will provide on the due dates of any payment of principal and
interest, or a combination thereof, money in an amount sufficient to discharge
the entire indebtedness of the Notes. (Sections 401 and 402)
CONCERNING THE TRUSTEE
Norwest Bank Minnesota, National Association is Trustee under the Indenture
and is also the Note Registrar.
34
<PAGE>
UNDERWRITING
SALE OF COMMON STOCK
The Underwriters named below have severally agreed, subject to the terms and
conditions pertaining to the Common Stock set forth in the Purchase Agreement,
to purchase from the Company and the Selling Shareholders the number of shares
of Common Stock indicated below opposite their respective names at the Price to
Public less Underwriting Discount set forth on the cover page of this
Prospectus. The Purchase Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares if they purchase any
shares. The Common Stock and the Notes are offered separately and not as units.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- -------------------------------------------------------------------- ---------
<S> <C>
Piper Jaffray Inc...................................................
Dain Bosworth Incorporated..........................................
---------
Total........................................................... 1,500,000
---------
---------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Stock to the public on the terms set forth on the cover page of
this Prospectus. The Underwriters may allow to selected dealers a concession of
not more than $ per share; and the Underwriters may allow, and such dealers
may reallow, a concession of not more than $ per share to certain other
dealers. After the initial distribution of the Common Stock has been completed,
the price and other selling terms may change. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
The Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 225,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise this
option, the Underwriters will purchase such additional shares in approximately
the same proportion as set forth in the above table. The Underwriters may
purchase such shares only to cover over-allotments, if any, made in connection
with this offering.
The Company, its directors and the Selling Shareholders have agreed not to
offer, sell or otherwise dispose of any equity securities of the Company for a
period of 120 days from the date of this Prospectus without the prior written
consent of the Underwriters. Following the expiration of the lock-up period, the
4,312,600 shares held by the directors and Selling Stockholders will be
available for sale, subject to the volume and timing restrictions set forth
under Rule 144.
In connection with this offering, the Underwriters and certain selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange Act
during the two-business-day period before commencement of offers or sales of the
Common Stock offered hereby. Any passive market making transactions must comply
with applicable volume and price limits and be identified as such. In general, a
passive market maker may display its bids at a price not in excess of the
highest independent bid for the security; if all independent bids are below the
passive market maker's bid, however, such bid must be lowered when certain
purchase limits are exceeded. Passive market making may stabilize the market
price of the Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
SALE OF NOTES
The Underwriters named below have severally agreed, subject to the terms and
conditions pertaining to the Notes set forth in the Purchase Agreement, to
purchase from the Company the respective principal amount of the Notes indicated
below opposite their names at the Price to Public less Underwriting Discount set
forth on the cover page of this Prospectus. The Purchase Agreement provides that
the obligations of the
35
<PAGE>
Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the Notes if they purchase any
Notes. The Notes and the Common Stock are offered separately and not as units.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ------------------------------------------------------------ -----------------
<S> <C>
Piper Jaffray Inc........................................... $
Dain Bosworth Incorporated..................................
-----------------
Total................................................... $ 25,000,000
-----------------
-----------------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the Price to Public and to selected dealers at
such price less a concession of not more than % of the principal amount of the
Notes. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of % of the principal amount of Notes to certain other dealers.
After the initial distribution of the Notes has been completed, the price and
other selling terms may change.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of $3,750,000 in aggregate principal amount of the Notes, solely to cover
over-allotments, if any, incurred in the sale of the Notes offered hereby. Any
such purchase will occur at the same price as the initial Notes to be purchased
by the Underwriters. To the extent that the Underwriters exercise this option,
the Underwriters will purchase a principal amount of the Notes in approximately
the same proportion as set forth in the above table, and the Company will be
obligated, pursuant to the option, to sell such Notes to the Underwriters.
The Company does not intend to list the Notes on any securities exchange or
have them included for quotation by Nasdaq or any other quotation system, and no
active trading market is expected to develop. Although the Underwriters have
each indicated an intention to make a market in the Notes, no Underwriter is
obligated to make a market in the Notes and any market making may be
discontinued at any time at the sole discretion of such Underwriter. If the
Notes are traded after their original issuance, they may trade at a discount to
their principal amount.
GENERAL
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the Act,
or to contribute to payments which the Underwriters may be required to make in
respect thereto.
LEGAL MATTERS
The validity of the shares of Common Stock and the Notes being offered
hereby is being passed upon for the Company by Oppenheimer Wolff & Donnelly,
Minneapolis, Minnesota. Lindquist & Vennum P.L.L.P., Minneapolis, Minnesota, has
acted as counsel for the Underwriters in connection with the offering.
EXPERTS
The Consolidated Financial Statements of Winthrop Resources Corporation as
of December 31, 1995 and 1994, and for each of the years in the three-year
period ended December 31, 1995, have been included and incorporated herein and
in the Registration Statement by reference in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, included and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the Public Reference Section of the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C.
36
<PAGE>
20549, and at the following Regional Offices of the Commission: New York
Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
This Prospectus does not contain all the information set forth in the
Registration Statement on Form S-2 (the "Registration Statement") of which this
Prospectus is a part, including exhibits relating thereto, which has been filed
with the Commission in Washington, D.C. Copies of the Registration Statement and
exhibits thereto may be obtained, upon payment of the fee prescribed by the
Commission, or may be examined without charge, at the office of the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995, its Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1996 and its Proxy Statement dated March 29, 1996 are incorporated herein by
reference. All other reports filed by the Company pursuant to Sections 13 or
15(d) of the Exchange Act since the end of the fiscal year covered by the above
referenced Annual Report and prior to the date of this Prospectus are
incorporated by reference in this Prospectus. Any statement contained in a
document 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 modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus. The Company will provide without charge
to each person to whom this Prospectus is delivered upon the written or oral
request of such person, a copy of any or all of the documents incorporated by
reference in this Prospectus (except for certain exhibits to such documents).
Written requests for such copies should be directed to Gary W. Anderson, Vice
President and Controller of the Company, 1015 Opus Center, 9900 Bren Road East,
Minnetonka, Minnesota 55343; telephone number (612) 936-0226.
37
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Interim Consolidated Financial Statements and Notes to Interim
Consolidated Financial Statements
Consolidated Balance Sheet as of March 31, 1996 and 1995................ F-2
Consolidated Statements of Earnings for the three-month periods ended
March 31, 1996 and 1995................................................ F-3
Consolidated Statement of Common Shareholders' Equity for the
three-month period ended March 31, 1996................................ F-4
Consolidated Statements of Cash Flows for the three-month periods ended
March 31, 1996 and 1995................................................ F-5
Condensed Notes to Unaudited Interim Consolidated Financial
Statements............................................................. F-6
Audited Consolidated Financial Statements and Notes to Consolidated
Financial Statements
Independent Auditors' Report............................................ F-8
Consolidated Balance Sheets as of December 31, 1996 and 1995............ F-9
Consolidated Statements of Earnings for each of the years in the
three-year period ended December 31, 1995.............................. F-10
Consolidated Statements of Common Shareholders' Equity for each of the
years in the three-year period ended December 31, 1995................. F-11
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1995.............................. F-12
Notes to Consolidated Financial Statements.............................. F-13
</TABLE>
F-1
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents......................... $ 2,671,587 $ 2,472,352
Receivables:
Trade accounts.................................. 2,729,982 1,537,116
Other receivables............................... 208,707 39,454
------------ ------------
Total receivables............................. 2,938,689 1,576,570
Investment in leasing operations:
Direct financing and sales-type leases.......... 242,946,082 211,166,725
Operating leases, less accumulated
depreciation................................... 4,842,593 7,642,071
Equipment installed on leases not yet
commenced...................................... 15,871,164 14,675,050
------------ ------------
Total investment in leasing operations........ 263,659,839 233,483,846
Furniture and equipment, less accumulated
depreciation and amortization of $582,139 and
$456,025......................................... 702,774 322,831
Goodwill and other intangible assets, less
accumulated amortization of $119,560............. 6,789,137 --
Other assets...................................... 448,868 237,047
------------ ------------
$277,210,894 $238,092,646
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable............................ $ 5,754,109 $ 4,409,318
Accrued liabilities............................... 6,416,237 4,749,985
Income taxes payable.............................. 1,899,553 1,696,195
Customer deposits................................. 2,574,550 1,695,549
Rents received in advance......................... 2,384,453 1,618,985
Deferred income taxes............................. 16,301,734 14,281,456
Discounted lease rentals.......................... 185,007,934 161,793,846
------------ ------------
Total liabilities........................... 220,338,570 190,245,334
Preferred stock, $.01 par value. Authorized
2,000,000 shares; no shares issued and
outstanding...................................... -- --
Common shareholders' equity:
Common stock, $.01 par value. Authorized
15,000,000 shares; issued and outstanding
7,849,800 shares and 7,934,400 shares.......... 78,498 79,344
Additional paid-in capital...................... 9,467,104 9,527,043
Retained earnings............................... 47,326,722 38,240,925
------------ ------------
Total common shareholders' equity............. 56,872,324 47,847,312
------------ ------------
$277,210,894 $238,092,646
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
F-2
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Leasing........................................... $15,499,784 $16,894,607
Sales............................................. 477,525 869,814
Other............................................. 71,937 47,782
----------- -----------
Total revenues.................................. 16,049,246 17,812,203
----------- -----------
Costs and expenses:
Leasing........................................... 4,654,327 6,699,168
Sales............................................. 259,337 790,790
Selling, general and administrative............... 2,126,295 1,525,727
Interest.......................................... 3,577,662 3,364,601
Other............................................. 118,727 --
----------- -----------
Total costs and expenses........................ 10,736,348 12,380,286
----------- -----------
Earnings before income tax expense.................. 5,312,898 5,431,917
Provision for income tax expense.................... 2,178,300 2,172,800
----------- -----------
Net earnings........................................ $ 3,134,598 $ 3,259,117
----------- -----------
----------- -----------
Net earnings per common share....................... $ 0.40 $ 0.41
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
F-3
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......................... 7,882,900 $ 78,829 $9,465,205 $45,179,662 $54,723,696
Repurchase and retirement of common shares.......... (43,100) (431) (51,751) (673,746) (725,928)
Common shares issued upon exercise of stock
options............................................ 10,000 100 53,650 -- 53,750
Dividends declared.................................. -- -- -- (313,792) (313,792)
Net earnings for the period......................... -- -- -- 3,134,598 3,134,598
--------- --------- ---------- ----------- -----------
Balance, March 31, 1996............................. 7,849,800 $ 78,498 $9,467,104 $47,326,722 $56,872,324
--------- --------- ---------- ----------- -----------
--------- --------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
F-4
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings...................................................................... $ 3,134,598 $ 3,259,117
Adjustments to reconcile net earnings to net cash used in operating activities:
Leasing costs, primarily depreciation and interest expense on discounted lease
rentals........................................................................ 8,294,455 10,746,757
Leasing revenue, primarily amortization of unearned income on sales-type and
direct finance leases.......................................................... (1,723,425) (7,190,918)
Deferred initial direct costs................................................... (10,528) (245,137)
Deferred income taxes........................................................... 871,320 869,120
Amortization of goodwill and other intangible assets............................ 118,727 --
Depreciation and amortization on furniture and equipment........................ 53,154 20,446
Changes in operating assets and liabilities:
Trade accounts and other receivables.......................................... (593,033) 847,480
Other assets.................................................................. (81,792) 140,698
Accounts payable and accrued liabilities...................................... 400,057 (437,748)
Income taxes payable.......................................................... 254,671 1,258,349
Customer deposits and rents received in advance............................... (992,825) (916,366)
-------------- --------------
Net cash provided by operating activities................................... 9,725,379 8,351,798
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment for leasing............................................... (33,960,483) (35,304,921)
Purchase of furniture and equipment............................................. (148,850) (32,114)
Acquisition, net of cash and equipment acquired................................. (6,842,031) --
-------------- --------------
Net cash used in investing activities....................................... (40,951,364) (35,337,035)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from discounted lease rentals.......................................... 25,064,660 24,089,096
Early retirement of discounted lease rentals.................................... (492,582) (840,895)
Borrowings under lines of credit................................................ 800,000 9,300,000
Repayment of borrowings under lines of credit................................... (800,000) (9,300,000)
Proceeds from exercise of stock options......................................... 53,750 --
Repurchase of common stock...................................................... (725,928) (490,309)
Dividends paid.................................................................. (236,487) (161,050)
-------------- --------------
Net cash provided by financing activities................................... 23,663,413 22,596,842
-------------- --------------
Net decrease in cash and cash equivalents......................................... (7,562,572) (4,388,395)
Cash and cash equivalents, beginning of period.................................... 10,234,159 6,860,747
-------------- --------------
Cash and cash equivalents, end of period.......................................... $ 2,671,587 $ 2,472,352
-------------- --------------
-------------- --------------
Cash paid during the period for:
Interest........................................................................ $ 22,819 $ 41,246
-------------- --------------
-------------- --------------
Income taxes.................................................................... $ 1,052,308 $ 45,331
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
F-5
<PAGE>
WINTHROP RESOURCES CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The financial statements included in this Prospectus have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in consolidated financial statements prepared in accordance
with generally accepted accounting principles have been condensed, or omitted,
pursuant to such rules and regulations, although management believes the
disclosures are adequate to make the information presented not misleading. These
statements should be read in conjunction with the Consolidated Financial
Statements and related notes included elsewhere in this Prospectus.
The financial statements presented herein as of March 31, 1996 and 1995 and
for the three months then ended reflect, in the opinion of management, all
material adjustments consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods. Certain 1995 balances have been reclassified
to conform to the 1996 method of presentation.
(2) ACQUISITION
On January 19, 1996, the Company acquired substantially all of the assets of
Capital Business Leasing, Inc. ("Capital"), a Nevada corporation with its
headquarters in Henderson, Nevada and a sales office in Knoxville, Tennessee.
Capital was a small-ticket lease broker that served as a focal point or
consolidator for a variety of unrelated brokers and vendors, and arranged for
the financing of these lease transactions with other leasing companies. The
Company plans to operate this wholesale lease broker business as it was
previously conducted. Capital's assets, which included cash, furniture and
equipment and other intangibles including goodwill, were acquired pursuant to an
asset purchase agreement for $7,100,000. The Company paid $5,100,000 on January
19, 1996 from existing cash reserves, and will pay up to $2,000,000 on December
31, 1996, plus accrued interest thereon at a rate of six percent (6%) per annum.
The acquisition has been accounted for as a purchase and the results of
operations of Capital since the date of acquisition have been included in the
Company's consolidated financial statements. The Company allocated $1,000,000 of
the purchase price to other intangible assets and is amortizing such amount on a
straight-line basis over five years. The excess of the aggregate purchase price
over the fair market value of net assets acquired of approximately $5,842,000
was recognized as goodwill and is being amortized on a straight-line basis over
15 years.
(3) INVESTMENT IN LEASING OPERATIONS
The components of the net investment in direct financing and sales-type
leases as of March 31, 1996 were as follows:
<TABLE>
<S> <C>
Minimum lease payments receivable........................... $260,568,947
Estimated residual values................................... 23,135,261
Initial direct costs........................................ 4,138,711
Less unearned revenue on lease payments receivable.......... (40,986,792)
Less unearned revenue on residuals.......................... (3,910,045)
------------
Net investment in direct financing and sales-type leases.... $242,946,082
------------
------------
</TABLE>
Unearned revenue is recorded as leasing revenue over the lease terms.
F-6
<PAGE>
WINTHROP RESOURCES CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(3) INVESTMENT IN LEASING OPERATIONS (CONTINUED)
Investment in operating lease assets included the following as of March 31,
1996:
<TABLE>
<S> <C>
Operating lease assets...................................... $ 9,915,680
Less accumulated depreciation and amortization.............. (5,073,087)
------------
Net operating lease assets.................................. $ 4,842,593
------------
------------
</TABLE>
(4) DISCOUNTED LEASE RENTALS
Discounted lease rentals as of March 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Non-recourse borrowings..................................... $184,220,729
Recourse borrowings......................................... 787,205
------------
Total discounted lease rentals.............................. $185,007,934
------------
------------
</TABLE>
(5) NOTES PAYABLE TO BANKS
At March 31, 1996, the Company had lines of credit totaling $23,000,000
available from two banks. The interest rates are charged at one bank's prime
rate, or, at the Company's option, at a rate determined by a specified
alternative-rate calculation, and at 25 basis points over the other bank's prime
rate. These agreements expire in July 1996 and June 1996, respectively. All
borrowings under these agreements are secured by specific leases and the
underlying equipment and, in the case of one credit line, all other personal
property and fixtures of the Company. At March 31, 1996, no amounts were
outstanding under these lines of credit.
(6) INCOME TAXES
The Company accounts for income taxes under FASB No. 109. Income tax expense
for the three months ended March 31, 1996 consisted of current and deferred tax
expense of $1,306,980 and $871,320, respectively.
(7) EARNINGS PER SHARE
Earnings per share are computed on the weighted average number of common
shares outstanding of 7,871,525 and 7,953,181 for the three months ended March
31, 1996 and 1995, respectively. Common equivalent shares are excluded from the
weighted average number of common shares as the dilutive effect is less than 3%.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Winthrop Resources Corporation:
We have audited the consolidated balance sheets of Winthrop Resources
Corporation and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, common shareholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Winthrop
Resources Corporation and Subsidiary as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1996
F-8
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Cash and cash equivalents........................................................ $ 10,234,159 $ 6,860,747
Receivables:
Trade accounts................................................................. 2,215,747 2,372,863
Other receivables.............................................................. 129,909 51,187
-------------- --------------
Total receivables............................................................ 2,345,656 2,424,050
Investment in leasing operations:
Direct financing and sales-type leases......................................... 238,651,547 194,379,184
Operating leases, less accumulated depreciation................................ 5,542,906 8,527,321
Equipment installed on leases not yet commenced................................ 10,086,568 13,830,784
-------------- --------------
Total investment in leasing operations....................................... 254,281,021 216,737,289
Furniture and equipment, less accumulated depreciation and amortization of
$528,985 and $435,579........................................................... 607,078 311,163
Other assets..................................................................... 432,909 377,745
-------------- --------------
$ 267,900,823 $ 226,710,994
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable........................................................... $ 8,001,592 $ 5,453,696
Accrued liabilities.............................................................. 3,691,392 4,066,373
Income taxes payable............................................................. 1,644,882 437,846
Customer deposits................................................................ 2,017,070 1,595,957
Rents received in advance........................................................ 3,934,758 2,634,943
Deferred income taxes............................................................ 15,430,414 13,412,336
Discounted lease rentals......................................................... 178,457,019 153,793,307
-------------- --------------
Total liabilities............................................................ 213,177,127 181,394,458
Preferred stock, $.01 par value. Authorized 2,000,000 shares; no shares issued
and outstanding................................................................. -- --
Common shareholders' equity:
Common stock, $.01 par value. Authorized 15,000,000 shares; issued and
outstanding 7,882,900 and 7,978,500 shares.................................... 78,829 79,785
Additional paid-in capital..................................................... 9,465,205 9,579,995
Retained earnings.............................................................. 45,179,662 35,656,756
-------------- --------------
Total common shareholders' equity............................................ 54,723,696 45,316,536
-------------- --------------
$ 267,900,823 $ 226,710,994
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Leasing........................................................... $ 66,705,791 $ 68,007,754 $ 65,206,846
Sales............................................................. 2,003,054 1,870,024 2,194,413
------------- ------------- -------------
Total revenues.................................................. 68,708,845 69,877,778 67,401,259
------------- ------------- -------------
Costs and expenses:
Leasing........................................................... 28,840,374 37,269,426 39,775,398
Sales............................................................. 1,555,212 1,233,988 1,993,963
Selling, general and administrative............................... 5,655,555 5,862,466 4,763,810
Interest expense.................................................. 13,469,746 9,928,313 8,600,891
------------- ------------- -------------
Total costs and expenses........................................ 49,520,887 54,294,193 55,134,062
------------- ------------- -------------
Investment income................................................... 72,019 17,913 498,866
------------- ------------- -------------
Earnings before income tax expense.................................. 19,259,977 15,601,498 12,766,063
Provision for income tax expense.................................... 7,704,000 6,240,600 5,106,500
------------- ------------- -------------
Net earnings........................................................ $ 11,555,977 $ 9,360,898 $ 7,659,563
------------- ------------- -------------
------------- ------------- -------------
Net earnings per common share....................................... $ 1.46 $ 1.16 $ 0.98
------------- ------------- -------------
------------- ------------- -------------
Weighted average number of common shares outstanding................ 7,911,854 8,047,326 7,807,534
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------------ --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992.................. $ 7,300,000 $ 73,000 $ 4,684,735 $ 20,544,898 $ 25,302,633
Issuance of common shares in connection
with public stock offering net of
$508,750 issuance cost................... 750,000 7,500 4,921,250 -- 4,928,750
Dividends declared........................ -- -- -- (468,000) (468,000)
Net earnings for year..................... -- -- -- 7,659,563 7,659,563
------------ --------- ------------ ------------- -------------
Balance, December 31, 1993.................. 8,050,000 80,500 9,605,985 27,736,461 37,422,946
Repurchase and retirement of common
shares................................... (85,666) (857) (102,824) (796,553) (900,234)
Common shares issued upon exercise of
stock options............................ 14,166 142 76,834 -- 76,976
Dividends declared........................ -- -- -- (644,050) (644,050)
Net earnings for year..................... -- -- -- 9,360,898 9,360,898
------------ --------- ------------ ------------- -------------
Balance, December 31, 1994.................. 7,978,500 79,785 9,579,995 35,656,756 45,316,536
Repurchase and retirement of common
shares................................... (95,600) (956) (114,790) (1,084,498) (1,200,244)
Dividends declared........................ -- -- -- (948,573) (948,573)
Net earnings for year..................... -- -- -- 11,555,977 11,555,977
------------ --------- ------------ ------------- -------------
Balance, December 31, 1995.................. $ 7,882,900 $ 78,829 $ 9,465,205 $ 45,179,662 $ 54,723,696
------------ --------- ------------ ------------- -------------
------------ --------- ------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
WINTHROP RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................... $ 11,555,977 $ 9,360,898 $ 7,659,563
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Leasing costs, primarily depreciation and interest expense on
discounted lease rentals.................................... 41,945,076 46,789,031 48,375,551
Leasing revenues, primarily amortization of unearned income
on sales-type and direct finance leases..................... (16,407,715) (36,279,512) (40,962,075)
Deferred initial direct costs................................ (1,317,625) (360,496) (446,410)
Deferred income taxes........................................ 2,018,078 3,398,444 3,080,163
Net (gain) loss on sales of investments...................... 2,846 -- (498,866)
Depreciation and amortization on furniture and equipment..... 93,406 76,408 67,039
Changes in operating assets and liabilities:
Trade accounts and other receivables......................... 78,394 (1,256,374) 133,215
Other assets................................................. (331,829) 49,048 (55,210)
Accounts payable and accrued liabilities..................... 2,097,478 1,211,301 (5,046,710)
Income taxes payable......................................... 1,207,036 (191,015) (146,088)
Customer deposits and rents received in advance.............. 1,720,928 1,450,619 371,006
--------------- --------------- --------------
Net cash provided by operating activities.................. 42,662,050 24,248,352 12,531,178
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment for leasing............................ (130,359,631) (108,767,816) (94,046,260)
Purchase of furniture and equipment.......................... (389,321) (140,741) (122,461)
Purchase of investments...................................... (40,300) (241,393) (61,028)
Proceeds from sales of investments........................... 314,119 -- 1,222,132
--------------- --------------- --------------
Net cash used in investing activities...................... (130,475,133) (109,149,950) (93,007,617)
--------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from discounted lease rentals....................... 105,065,806 95,686,303 82,140,671
Early retirement of discounted lease rentals................. (11,805,932) (7,873,312) (4,338,932)
Borrowings under lines of credit............................. 17,900,000 1,900,000 45,889,000
Repayment of borrowings under lines of credit................ (17,900,000) (1,900,000) (45,889,000)
Proceeds from issuance of common stock....................... -- -- 4,928,750
Proceeds from exercise of stock options...................... -- 76,976 --
Repurchase of common stock................................... (1,200,243) (900,234) --
Dividends paid............................................... (873,136) (644,000) (307,000)
--------------- --------------- --------------
Net cash provided by financing activities................ 91,186,495 86,345,733 82,423,489
--------------- --------------- --------------
Net increase in cash and cash equivalents...................... 3,373,412 1,444,135 1,947,050
Cash and cash equivalents, beginning of year................... 6,860,747 5,416,612 3,469,562
--------------- --------------- --------------
Cash and cash equivalents, end of year......................... $ 10,234,159 $ 6,860,747 $ 5,416,612
--------------- --------------- --------------
--------------- --------------- --------------
Cash paid during the year for:
Interest..................................................... $ 144,140 $ 91,750 $ 343,042
--------------- --------------- --------------
--------------- --------------- --------------
Income taxes................................................. $ 4,478,886 $ 3,033,071 $ 2,158,874
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Winthrop Resources Corporation (the "Company") is engaged in the business of
leasing computer systems and other equipment throughout the United States. The
Company extends credit to its customers, substantially all of whom are end users
of the leased equipment, in a wide variety of industries. During 1995, a single
customer accounted for approximately 14% of total revenues. A different customer
during 1994 and 1993 accounted for approximately 20% and 18% of total revenues,
respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, WINR Business Credit Corporation ("WINR
Business Credit"). Intercompany accounts have been eliminated. There were no
intercompany transactions. WINR Business Credit was organized in July 1995 to
provide lease financing to small and emerging-growth companies.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LEASE ACCOUNTING
LEASE ACCOUNTING POLICIES -- Statement of Financial Accounting Standards No.
13, ACCOUNTING FOR LEASES ("FASB No. 13"), requires that a lessor account for
each lease by either the direct financing, sales-type or operating method
(hereinafter referred to as "accounting methods"). Lease classification is not
affected by the discounting of lease rentals that occurs after lease inception.
ACCOUNTING METHODS AND PROFIT RECOGNITION -- Revenue, cost and resulting
profit are recognized during each of the accounting periods within the lease
term. For all types of leases, the determination of profit recognizes as an
asset the estimated fair market value of the equipment at lease termination,
commonly referred to as "residual" value.
The allocation of profit among the accounting periods within a lease term
will vary depending upon the accounting method applied. The accounting methods
are described below.
DIRECT FINANCING AND SALES-TYPE LEASES -- These leases transfer
substantially all the benefits and risks of equipment ownership to the lessee as
defined in FASB No. 13. Profit recognition under these two accounting methods is
similar, except that the sales-type classification gives rise to dealer profit.
This generally results when the Company provides used equipment to its customer.
This equipment may be obtained in the secondary marketplace, but most frequently
is the result of re-leasing the Company's own portfolio. Under the sales-type
method, dealer profit is recognized at lease inception by recording lease
revenue and lease cost. Revenue consists of the present value of the future
minimum lease payments discounted at the rate implicit in the lease. Cost
consists of the equipment's book value, less the present value of its residual.
For direct financing and sales-type leases, the present value of both the future
minimum lease payments and the residual are recorded as assets. In each period,
interest income, which is included in leasing revenue, is recognized as a
constant percentage return on asset carrying values.
OPERATING LEASES -- Operating lease revenue consists of monthly rentals. The
cost of equipment is recorded as "Investment in leasing operations -- Operating
leases" on the balance sheet and is depreciated
F-13
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on a straight-line basis over the lease term to the Company's estimate of
residual value. Revenue, depreciation expense and the resultant gross profit
margin are recorded evenly over the life of the lease. Should the lease be
financed, the interest expense declines over the term of the financing as the
principal is reduced, with the resultant net margin being lower in the early
periods of the financing and higher in the later periods.
INITIAL DIRECT COSTS -- Initial direct costs, including sales commissions,
related to direct financing and operating leases are capitalized and recorded as
part of the net investment in leases and are amortized over the lease terms.
RESIDUALS -- Residual values, representing the estimated value of the
equipment at the termination of the lease, are recorded in the financial
statements at the inception of each sales-type or direct financing lease as
amounts estimated by management based upon its experience and judgment. The
residual values for operating leases are included in the leased equipment's net
book value.
The Company evaluates residual values on an ongoing basis and records any
required changes. In accordance with generally accepted accounting principles,
no upward revision of residual values is made subsequent to the period of the
inception of the lease. Residual values for sales-type and direct financing
leases are recorded at their net present value and the unearned interest is
amortized over the lease term so as to produce a constant percentage return on
the net present value.
SALES
Sales revenue includes only proceeds from outright equipment sales and
excludes sales-type lease revenue, which is included in leasing revenue.
EQUIPMENT INSTALLED ON LEASES NOT YET COMMENCED
Equipment installed on leases not yet commenced consists primarily of
equipment installed on lease contracts that are yet to commence and as such is
valued at cost.
DEPRECIATION
The cost of equipment under operating leases and furniture and equipment is
depreciated using an accelerated method for income tax purposes and
straight-line method for financial reporting purposes. The estimated useful
lives of these assets range from three to seven years.
INCOME TAXES
Deferred income taxes are determined on the asset and liability method in
accordance with Statement of Financial Accounting Standards No. 109.
CASH EQUIVALENTS
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
EARNINGS PER SHARE
The net earnings per common share is computed by dividing net earnings by
the weighted average number of common shares outstanding. In 1995, 1994 and
1993, common stock equivalents are excluded from the weighted average number of
outstanding common shares as the dilutive effect is less than 3%.
F-14
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(2) INVESTMENT IN LEASING OPERATIONS
The components of the net investment in direct financing and sales-type
leases as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Minimum lease payments receivable:
To be received by the Company........................................ $ 61,018,757 $ 39,715,117
To be received by financial institutions............................. 197,251,654 170,577,470
Estimated residual values.............................................. 22,255,982 17,285,979
Initial direct costs................................................... 4,119,388 2,869,912
Less unearned revenue on lease payments receivable..................... (42,106,109) (32,875,403)
Less unearned revenue on residuals..................................... (3,888,125) (3,193,891)
-------------- --------------
Net investment in direct financing and sales-type leases............... $ 238,651,547 $ 194,379,184
-------------- --------------
-------------- --------------
</TABLE>
Unearned revenue is recognized as leasing revenue over the lease term.
Investment in operating lease assets includes the following as of December
31:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Operating lease assets................................................... $ 10,152,159 $ 11,935,424
Less accumulated depreciation and amortization........................... (4,609,253) (3,408,103)
------------- -------------
Net...................................................................... $ 5,542,906 $ 8,527,321
------------- -------------
------------- -------------
</TABLE>
(3) FUTURE MINIMUM LEASE PAYMENTS RECEIVABLE ON NONDISCOUNTED LEASES
Future minimum lease payments to be received by the Company on nondiscounted
leases, as of December 31, 1995, are as follows:
<TABLE>
<CAPTION>
DIRECT FINANCING AND OPERATING
YEARS ENDING DECEMBER 31 SALES-TYPE LEASES LEASES TOTAL
- ---------------------------------------- -------------------- --------- -----------
<S> <C> <C> <C>
1996.................................... $23,200,074 $300 $23,200,374
1997.................................... 17,600,398 -- 17,600,398
1998.................................... 11,929,115 -- 11,929,115
1999.................................... 6,467,289 -- 6,467,289
2000.................................... 1,821,881 -- 1,821,881
-------------------- --------- -----------
$61,018,757 $300 $61,019,057
-------------------- --------- -----------
-------------------- --------- -----------
</TABLE>
(4) DISCOUNTED LEASE RENTALS
The Company utilizes its lease rentals and underlying equipment as
collateral to borrow from financial institutions at fixed rates on a
non-recourse or recourse basis. In the event of a default by a customer in non-
recourse financing, the financial institution has a first lien on the underlying
leased equipment, with no further recourse against the Company. For recourse
financing, besides having a first lien on the equipment, the financial
institution can seek recourse from the Company. Proceeds from discounting are
recorded on the balance sheet as "Discounted lease rentals." As customers make
payments to financial institutions, lease revenue (i.e., interest income on
direct financing and sales-type leases and rental revenue on operating leases)
and interest expense are recorded. Discounted lease rentals are amortized using
the interest method.
F-15
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(4) DISCOUNTED LEASE RENTALS (CONTINUED)
Discounted lease rentals as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Non-recourse borrowings................................................ $ 177,158,813 $ 145,779,462
Recourse borrowings.................................................... 1,298,206 8,013,845
-------------- --------------
Total.............................................................. $ 178,457,019 $ 153,793,307
-------------- --------------
-------------- --------------
</TABLE>
Future minimum lease rentals and interest expense on leases that have been
discounted as of December 31, 1995 are as follows:
RENTALS TO BE RECEIVED BY
FINANCIAL INSTITUTIONS
<TABLE>
<CAPTION>
DIRECT FINANCING
AND OPERATING DISCOUNTED INTEREST
YEARS ENDING DECEMBER 31 SALES-TYPE LEASES LEASES LEASE RENTALS EXPENSE
- ------------------------------------ ------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
1996................................ $ 80,777,323 $ 2,797,668 $ 71,536,313 $ 12,038,678
1997................................ 62,058,466 1,468,892 56,602,021 6,925,337
1998................................ 33,300,608 36,336 30,352,454 2,984,490
1999................................ 16,859,955 33,308 15,830,940 1,062,323
2000................................ 4,255,302 -- 4,135,291 120,011
------------------- ------------ -------------- -------------
$ 197,251,654 $ 4,336,204 $ 178,457,019 $ 23,130,839
------------------- ------------ -------------- -------------
------------------- ------------ -------------- -------------
</TABLE>
Interest expense was $13,469,746, $9,928,313 and $8,600,891 in 1995, 1994
and 1993, respectively.
(5) NOTES PAYABLE TO BANKS
At December 31, 1995, the Company had lines of credit totaling $23,000,000
available from two banks. The interest rates are charged at one bank's prime
rate, or, at the Company's option, at a rate determined by a specified
alternative-rate calculation, and at 25 basis points over the other bank's prime
rate. These agreements expire in July 1996 and June 1996, respectively. All
borrowings under these agreements are secured by specific leases and the
underlying equipment. At December 31, 1995 and 1994, no amounts were outstanding
under these lines of credit.
(6) INCOME TAXES
Provisions for income taxes for the years ended December 31, 1995, 1994 and
1993 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal....................................................... $ 4,549,100 $ 2,459,200 $ 1,717,000
State......................................................... 1,136,800 383,000 309,300
------------ ------------ ------------
5,685,900 2,842,200 2,026,300
------------ ------------ ------------
Deferred:
Federal....................................................... 1,763,400 2,649,400 2,424,700
State......................................................... 254,700 749,000 655,500
------------ ------------ ------------
2,018,100 3,398,400 3,080,200
------------ ------------ ------------
$ 7,704,000 $ 6,240,600 $ 5,106,500
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-16
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(6) INCOME TAXES (CONTINUED)
Reconciliation of the statutory federal income tax rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory rate............................................................. 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit.................................... 5.0% 5.0% 5.0%
Other, net................................................................. 1.0% 1.0% 1.0%
Effective rate............................................................. 40.0% 40.0% 40.0%
</TABLE>
The components of deferred income tax expense for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Deferred tax expense (exclusive of the effects of other
components listed below)................................... $ 553,100 $ 4,637,800 $ 4,420,500
Deferred tax credits reinstated for utilization of tax net
operating loss carryforwards............................... -- -- 5,200
Alternative minimum tax credit carryforwards used/
(generated)................................................ 1,465,000 (1,239,400) (1,345,500)
------------ ------------- -------------
$ 2,018,100 $ 3,398,400 $ 3,080,200
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities (assets) at December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Investment in leasing operations, principally due to differences in tax
and book accounting methods............................................. $ 20,393,200 $ 19,976,600
Other.................................................................... 53,014 31,636
------------- -------------
Gross deferred tax liability........................................... 20,446,214 20,008,236
------------- -------------
Alternative minimum tax credit carryforwards............................. (4,946,000) (6,411,000)
Other.................................................................... (69,800) (184,900)
------------- -------------
Gross deferred tax asset............................................... (5,015,800) (6,595,900)
------------- -------------
Net deferred tax liability............................................... $ 15,430,414 $ 13,412,336
------------- -------------
------------- -------------
</TABLE>
No valuation allowance for deferred tax assets was considered necessary as
of December 31, 1995 or 1994. The character of the deferred tax assets is such
that they cannot be realized through carryback to prior tax periods, but rather,
by offsetting the tax effects of the reversal of existing taxable temporary
differences.
The Company had federal and state alternative minimum tax credit
carryforwards, for tax purposes, of $4,946,000 at December 31, 1995. These
credits may be used to offset future tax liability if the regular tax exceeds
alternative minimum tax and may be carried forward for an indefinite period.
(7) SHAREHOLDERS' EQUITY
COMMON STOCK
STOCK INCENTIVE PLAN -- On April 21, 1992, the Board of Directors and
shareholders of the Company adopted the Company's Stock Incentive Plan (the
"Plan"). The Plan, effective May 1, 1992, provides for the granting of options
to purchase up to an aggregate of 500,000 shares of Common Stock to certain key
employees, officers, directors and consultants of the Company.
F-17
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(7) SHAREHOLDERS' EQUITY (CONTINUED)
Stock options and common shares reserved for grant under the Plan are as
follows:
<TABLE>
<CAPTION>
OPTION
RESERVED SHARES
FOR GRANT OUTSTANDING PRICE PER SHARE
----------- ----------- --------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992.................................. 230,000 270,000 $ 5 3/8 $ 5 1/2
Granted................................................... (50,000) 50,000 8 1/8 9 3/4
----------- -----------
Balance, December 31, 1993.................................. 180,000 320,000 5 3/8 9 3/4
Granted................................................... (37,500) 37,500 10 11/16 12 5/8
Exercised................................................. -- (14,166) 5 3/8 5 1/2
Forfeited................................................. 13,334 (13,334) 5 3/8 5 1/2
----------- -----------
Balance, December 31, 1994.................................. 155,834 330,000 5 3/8 12 5/8
Granted................................................... (50,000) 50,000 12 17 3/4
----------- -----------
Balance, December 31, 1995.................................. 105,834 380,000 5 3/8 17 3/4
----------- -----------
----------- -----------
</TABLE>
Options granted have ten year terms and vest in equal installments over
periods of three or four years beginning one year after date of grant. At
December 31, 1995, options for 252,708 shares were exercisable.
PUBLIC STOCK OFFERING -- On April 29, 1993, the Company completed a
secondary public stock offering of 1,725,000 shares of Common Stock at $7 1/4
per share, with 750,000 shares being sold by the Company and 975,000 shares by
certain selling shareholders. The net proceeds to the Company of that offering
were $4,928,750.
REPURCHASE OF COMMON STOCK -- On October 26, 1994, the Company's Board of
Directors authorized and the Company implemented a Common Stock repurchase
program in which it would purchase, from time to time in the market and/or in
private transactions, up to an aggregate 250,000 shares of its own Common Stock.
The program is intended to enable the Company to purchase shares in advance of
possible option exercises by persons who have received options pursuant to the
Company's 1992 Stock Incentive Plan. During the years ended December 31, 1995
and 1994, the Company has purchased and retired 95,600 and 85,666 shares of its
Common Stock, respectively, at prices ranging from $10 3/8 to $17 1/8 per share.
RETAINED EARNINGS
Common Stock cash dividends declared were $0.12 per share in 1995 and $0.08
per share in 1994. On October 25, 1995, upon declaration by the Board of
Directors, the Company accrued a quarterly cash dividend of $0.03 per share
payable January 2, 1996, to shareholders of record on December 15, 1995.
(8) PROFIT SHARING 401(K) PLAN
The Company has a 401(k) profit sharing plan (the "Plan"). The Plan is a
salary reduction cash or deferred profit sharing plan intended to meet the
requirements of Section 401(k) and 401(a) of the Internal Revenue Code. All
employees who have completed at least one year of service and have attained the
age of 21 are eligible to participate in the Plan. The Plan allows eligible
employees to contribute a certain percentage of their base compensation into the
Plan each year. The Company may make discretionary contributions to the Plan on
behalf of eligible participants in an amount determined by the Board of
Directors.
The Company's contributions to the Plan were $119,961, $88,766 and $73,779
for 1995, 1994 and 1993, respectively.
F-18
<PAGE>
WINTHROP RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1994 AND 1993
(9) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1995
and 1994, is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995:
Revenues.......................................... $ 17,768.5 $ 22,981.0 $ 12,170.4 $ 15,788.9
Net earnings...................................... 3,259.1 2,766.6 2,688.6 2,841.7
Per common share................................ $ 0.41 $ 0.35 $ 0.34 $ 0.36
1994:
Revenues.......................................... $ 14,443.1 $ 13,424.2 $ 10,633.4 $ 31,377.1
Net earnings...................................... 2,214.7 2,025.3 1,523.1 3,597.8
Per common share................................ $ 0.28 $ 0.25 $ 0.19 $ 0.45
</TABLE>
(10) SUBSEQUENT EVENT
On January 19, 1996, the Company acquired substantially all the assets of
Capital Business Leasing, Inc., a Nevada corporation ("Capital"), headquartered
in Henderson, Nevada with a sales office in Knoxville, Tennessee. Capital was a
small ticket lease re-broker company that served as a focal point or
consolidator of a variety of unrelated brokers. Capital's assets, which included
cash, furniture and equipment and other intangibles including goodwill, were
acquired pursuant to an asset purchase agreement for $7,100,000, of which the
Company paid $5,100,000 on January 19, 1996, and $2,000,000 which will be paid
on December 31, 1996 plus accrued interest thereon at a rate of six percent (6%)
per annum. The Company plans to have its wholly-owned subsidiary, WINR Business
Credit Corporation, operate the business as it was previously conducted. In
1995, over $50 million in equipment was placed in service through transactions
processed by Capital.
F-19
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company, any Selling Shareholder
or the Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person or in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sales made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 3
RISK FACTORS................................................ 7
USE OF PROCEEDS............................................. 10
PRICE RANGE OF COMMON STOCK................................. 10
DIVIDEND POLICY............................................. 10
CAPITALIZATION.............................................. 11
SELECTED FINANCIAL AND OTHER DATA........................... 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION......................... 14
BUSINESS.................................................... 19
MANAGEMENT.................................................. 24
PRINCIPAL AND SELLING SHAREHOLDERS.......................... 26
DESCRIPTION OF CAPITAL STOCK................................ 28
DESCRIPTION OF NOTES........................................ 30
UNDERWRITING................................................ 35
LEGAL MATTERS............................................... 36
EXPERTS..................................................... 36
AVAILABLE INFORMATION....................................... 36
DOCUMENTS INCORPORATED BY REFERENCE......................... 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
</TABLE>
WINTHROP
RESOURCES CORPORATION
[LOGO]
1,500,000 Shares
of Common Stock
and
$25,000,000 of
% Senior Notes
due 2003
--------------------
P R O S P E C T U S
--------------------
PIPER JAFFRAY INC.
DAIN BOSWORTH
INCORPORATED
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the Common Stock and the Notes being registered, other
than the underwriting discounts and commissions. All amounts shown are estimates
except the Securities and Exchange Commission registration fee, the NASD filing
fee, the Nasdaq fee and the accountable expense allowance.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 23,159
NASD filing fee................................................... 7,213
Nasdaq fees....................................................... 15,000
Printing expenses................................................. 50,000
Fees and expenses of Company counsel.............................. 75,000
Fees and expenses of Company accountants.......................... 35,000
Rating Agency Fee................................................. 53,750
Transfer Agent and Registrar fees................................. 3,000
Trustee and Note Registrar........................................ 6,500
Blue Sky fees and expenses........................................ 3,500
Miscellaneous..................................................... 12,878
---------
Total......................................................... $ 285,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Articles of Incorporation limit the liability of its
directors to the fullest extent permitted by the Minnesota Business Corporation
Act. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except for liability
for (i) any breach of the duty of loyalty to the Company or its shareholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) dividends or other distributions of
corporate assets that are in contravention of certain statutory or contractual
restrictions, (iv) violations of certain Minnesota securities laws, or (v) any
transaction from which the director derives an improper personal benefit.
Liability under federal securities law is not limited by the Restated Articles.
The Minnesota Business Corporation Act requires that the Company shall
indemnify any director, officer or employee made or threatened to be made a
party to a proceeding, by reason of the former or present official capacity of
the person, against judgments, penalties, fines, settlements and reasonable
expenses incurred by the person in connection with the proceeding if certain
statutory standards are met. "Proceeding" means a threatened, pending or
completed civil, criminal, administrative, arbitration or investigative
proceeding, including a derivative action in the name of the Company. Reference
is made to the detailed terms of the Minnesota indemnification statute (Minn.
Stat. Section 302A.521) for a complete statement of such indemnification rights.
The Company's Restated Bylaws require the Company to provide indemnification to
the fullest extent of the Minnesota indemnification statute.
The Company maintains a directors and officers insurance policy with a
$3,000,000 coverage limit per occurrence and in the aggregate per year.
Pursuant to Section 6 of the Purchase Agreement as set forth in Exhibit 1.1,
the directors and officers of the Company are indemnified against certain civil
liabilities that they may incur under the Securities Act of 1933 in connection
with this Registration Statement and the related Prospectus.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Purchase Agreement (previously filed).
4.1 Specimen Form of the Company's Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1 filed April 24, 1992,
(File No. 33-47435)(the "1992 Registration Statement")).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.2 Restated Articles of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the 1992 Registration Statement).
4.3 Restated Bylaws of the Company as amended on April 21, 1992 (incorporated by
reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 filed
March 19, 1993 (File No. 33-59808)(the "1993 Registration Statement")).
4.4 Restated Bylaws of the Company as amended on May 4, 1994 (incorporated by reference
to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed June 8, 1994
(File No. 33-80056)).
4.5 Form of Indenture relating to the Notes, including Form of Note (previously filed).
5.1 Opinion and Consent of Oppenheimer Wolff & Donnelly (previously filed).
10.1 Winthrop Resources Corporation 1992 Stock Incentive Plan (incorporated by reference
to Exhibit 10.1 to the 1992 Registration Statement).
10.2 Office Lease Agreement dated January 15, 1987 between the Company and Alscor
Investors Joint Venture, as amended in Amendment No. 1 dated August 11, 1988;
Amendment No. 2 dated February 28, 1990; Amendment No. 3 dated June 1, 1991; and
Amendment No. 4 dated October 16, 1991 (incorporated by reference to Exhibit 10.2 to
the 1992 Registration Statement).
10.3 Amendment No. 5 dated January 26, 1993 to the Office Lease Agreement between the
Company and Alscor Investors Joint Venture dated January 15, 1987, as amended
(incorporated by reference to Exhibit 10.3 to the 1993 Registration Statement).
10.4 Form of Lease Agreement (incorporated by reference to Exhibit 10.9 to Amendment No. 1
to the 1992 Registration Statement filed June 4, 1992).
10.5 Amendment No. 6 dated May 25, 1994 to the Office Lease Agreement between the Company
and Alscor Investors Joint Venture dated January 15, 1987, as amended (incorporated
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the period ended
June 30, 1994 (File No. 0-20123)).
10.6 Discretionary Credit Facility Letter of Agreement between the Company and First Bank
National Association dated August 2, 1994 (incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the period ended September 30,
1994 (File No. 0-20123)).
10.7 Employment and Non-Competition Agreement dated as of October 26, 1994, between the
Company and Kirk A. MacKenzie (incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
0-20123)).
10.8 Employment and Non-Competition Agreement dated as of October 26, 1994, between the
Company and John L. Morgan (incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
0-20123)).
10.9 Employment and Non-Competition Agreement dated as of October 26, 1994, between the
Company and Robert P. Murphy (incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
0-20123)).
10.10 Employment and Non-Competition Agreement dated as of October 26, 1994, between the
Company and Jack A. Norqual (incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 (File No.
0-20123)).
10.11 Addendum to Non-Statutory Stock Option Agreements dated June 17, 1992, October 27,
1993 and October 26, 1994 between Robert P. Murphy and Winthrop Resources Corporation
(incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994 (File No. 0-20123)).
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.12 Discretionary Revolving Credit Note dated June 12, 1995 between the Company and First
Bank National Association (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1995 filed August 14,
1995 (File No. 0-20123)).
10.13 Letter of Agreement dated June 19, 1995 between the Company and Norwest Equipment
Finance, Inc. (incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended June 30, 1995 (File No. 0-20123)).
10.14 Asset Purchase Agreement, dated as of January 19, 1996 by and between Winthrop
Resources Corporation and Capital Business Leasing, Inc. (incorporated by reference
to Exhibit 2.1 to the Company's Current Report on Form 8-K dated January 19, 1996
filed February 5, 1996 (File No. 0-20123)).
11.1 Statement Regarding Computation of Earnings Per Share incorporated by reference to
Exhibit 11 to the Company's Annual Report on Form 10-K for the year ended December
31, 1995 (File No. 0-20123) and to Exhibit 11 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996 (File No. 0-20123).
12.1 Statements Regarding Computation of Ratios (previously filed).
23.1 Consent of KPMG Peat Marwick LLP (filed herewith electronically).
23.2 Consent of Oppenheimer Wolff & Donnelly (included in Exhibit 5.1).
24.1 Power of Attorney (previously filed).
25.1 Statement of Eligibility of Norwest Bank Minnesota, National Association, as Trustee
(previously filed).
</TABLE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, except as to
certain insurance policies, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis and State of Minnesota, on June 14, 1996.
WINTHROP RESOURCES CORPORATION
By /s/ JOHN L. MORGAN
------------------------------------
John L. Morgan
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on its behalf by the
following persons on June 14, 1996 in the capacities indicated.
SIGNATURE TITLE
- ----------------------------------- -------------------------
/S/ JOHN L. MORGAN President and Director
--------------------------- (Principal Executive
John L. Morgan Officer)
Executive Vice President,
/S/ KIRK A. MACKENZIE Treasurer and Director
--------------------------- (Principal Financial and
Kirk A. MacKenzie Accounting Officer)
*By /S/
JOHN L.
* MORGAN
--------------------------- Senior Vice President and ------------
Jack A. Norqual Director John L. Morgan
Pro se and
attorney-in-fact
*By /S/
KIRK A.
MACKENZIE
* ------------
--------------------------- Director Kirk A.
Paul C. Reyelts MacKenzie
Pro se and
attorney-in-fact
*
--------------------------- Director
Gerald W. Simonson
*
--------------------------- Director and Secretary
Mark L. Wilson
II-4
<PAGE>
WINTHROP RESOURCES CORPORATION
INDEX TO EXHIBITS TO AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON FORM S-2
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- --------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
1.1 Form of Purchase Agreement......................... Previously filed.
4.1 Specimen Form of the Company's Common Stock
Certificate....................................... Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 filed
April 24, 1992, (File No. 33-47435) (the "1992
Registration Statement").
4.2 Restated Articles of Incorporation of the
Company........................................... Incorporated by reference to Exhibit 3.1 to the
1992 Registration Statement.
4.3 Restated Bylaws of the Company as amended on April
21, 1992.......................................... Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1 filed
March 19, 1993 (File No. 33-59808) (the "1993
Registration Statement").
4.4 Restated Bylaws of the Company as amended on May 4,
1994.............................................. Incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8 filed
June 8, 1994 (File No. 33-80056).
4.5 Form of Indenture relating to the Notes, including
Form of Note...................................... Previously filed.
5.1 Opinion and Consent of Oppenheimer Wolff &
Donnelly.......................................... Previously filed.
10.1 Winthrop Resources Corporation 1992 Stock Incentive
Plan.............................................. Incorporated by reference to Exhibit 10.1 to the
1992 Registration Statement.
10.2 Office Lease Agreement dated January 15, 1987
between the Company and Alscor Investors Joint
Venture, as amended in Amendment No. 1 dated
August 11, 1988; Amendment No. 2 dated February
28, 1990; Amendment No. 3 dated June 1, 1991; and
Amendment No. 4 dated October 16, 1991 Incorporated by reference to Exhibit 10.2 to the
1992 Registration Statement.
10.3 Amendment No. 5 dated January 26, 1993 to the
Office Lease Agreement between the Company and
Alscor Investors Joint Venture dated January 15,
1987, as amended.................................. Incorporated by reference to Exhibit 10.3 to the
1993 Registration Statement.
10.4 Form of Lease Agreement............................ Incorporated by reference to Exhibit 10.9 to
Amendment No. 1 to the 1992 Registration Statement
filed June 4, 1992.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- --------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.5 Amendment No. 6 dated May 25, 1994 to the Office
Lease Agreement between the Company and Alscor
Investors Joint Venture dated January 15, 1987, as
amended........................................... Incorporated reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the period ended
June 30, 1994 (File No. 0-20123).
10.6 Discretionary Credit Facility Letter of Agreement
between the Company and First Bank National
Association dated August 2, 1994.................. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1994 (File No.
0-20123).
10.7 Employment and Non-Competition Agreement dated as
of October 26, 1994, between the Company and Kirk
A. MacKenzie Incorporated by reference to Exhibit 10.19 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20123).
10.8 Employment and Non-Competition Agreement dated as
of October 26, 1994, between the Company and John
L. Morgan......................................... Incorporated by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20123).
10.9 Employment and Non-Competition Agreement dated as
of October 26, 1994, between the Company and
Robert P. Murphy.................................. Incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20123).
10.10 Employment and Non-Competition Agreement dated as
of October 26, 1994, between the Company and Jack
A. Norqual........................................ Incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20123).
10.11 Addendum to Non-Statutory Stock Option Agreements
dated June 17, 1992, October 27, 1993 and October
26, 1994 between Robert P. Murphy and Winthrop
Resources Corporation............................. Incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20123).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- --------- --------------------------------------------------- ---------------------------------------------------
<C> <S> <C>
10.12 Discretionary Revolving Credit Note dated June 12,
1995 between the Company and First Bank National
Association....................................... Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1995 filed August 14, 1995
(File No. 0-20123).
10.13 Letter of Agreement dated June 19, 1995 between the
Company and Norwest Equipment Finance, Inc........ Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1995 (File No. 0-20123).
10.14 Asset Purchase Agreement, dated as of January 19,
1996 by and between Winthrop Resources Corporation
and Capital Business Leasing, Inc................. Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated January
19, 1996 filed February 5, 1996 (File No.
0-20123).
11.1 Statement Regarding Computation of Earnings Per
Share............................................. Incorporated by reference to Exhibit 11 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20123) and to
Exhibit 11 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996
(File No. 0-20123).
12.1 Statements Regarding Computation of Ratios......... Previously filed.
23.1 Consent of KPMG Peat Marwick LLP................... Filed herewith electronically.
23.2 Consent of Oppenheimer Wolff & Donnelly............ Included in Exhibit 5.1.
24.1 Power of Attorney.................................. Previously filed.
25.1 Statement of Eligibility of Norwest Bank Minnesota,
National Association, as Trustee.................. Previously filed.
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Winthrop Resources Corporation:
We consent to the use of our report included and incorporated by reference
herein and to the references to our firm under the headings "Selected Financial
and Other Data" and "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 14, 1996